DIVIDED/JOINT INFRINGEMENT – WILL A LOOPHOLE BE CLOSED? Presented to AIPPI, Italy February 10, 2012 By Joseph A. Calvaruso Orrick, Herrington & Sutcliffe LLP 1

How Divided/Joint Infringement Issues Arise A Person Invents A New And Useful Process That Requires Steps A-C To Be Completed By One Person And Step D To Be Completed By Another Person. While The Claims May Satisfy Every Aspect Required For Patentability, The Patent Holder May Be Left Without Any Means To Enforce His Or Her Patent Rights. —Why? Because, generally, under the current law there can be no infringement of a patent claim if different entities perform separate steps of the claimed process. 2 © AIPLA 2012

Indirect Infringement Does Not Remedy The Problem Contributory Infringement – 35 USC § 271(c) –Infringement occurs when an actor “offers to sell or sells within the United States or imports into the United States a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in infringement of such patent, and not a staple article or commodity of commerce suitable for substantial non-infringing use.” Induced Infringement – 35 USC § 271(b) –Infringement occurs when an actor “actively induces infringement of a patent.” No Indirect Infringement Without A Finding Of Direct Infringement 3 © AIPLA 2012

Federal Circuit Will Address Divided Infringement En Banc Two Federal Circuit Cases Had En Banc Hearings On November 18, 2011 To Address The Issue Of Divided Infringement With Respect To Method Claims. –Akamai Techs., Inc. v. Limelight Networks, Inc., 629 F.3d 1311 (Fed. Cir. 2011) –McKesson Techs., Inc. v. Epic Systems Corp., 2011 WL (Fed. Cir. 2011) 4 © AIPLA 2012

BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007) Background BMC’S Patent Discloses A Method For Payment of Bills Requiring The Combined Action Of Several Participants: —Payee’s agent —Remote Payment Network (ATM Network) —Card-issuing financial institutions 5 © AIPLA 2012

BMC Resources, Inc. v. Paymentech, L.P.,498 F.3d 1373 (Fed. Cir. 2007) (cont’d) District Court Granted Summary Judgment Of No Infringement Because Defendant: —Did not perform all of the steps of the asserted method claims. —Did not direct or control the activity of unrelated entities who performed the claimed steps not performed by defendant. 6 © AIPLA 2012

BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007) (cont’d) Federal Circuit Affirmed —Direct infringement requires a showing that a defendant has practiced each and every element of the claimed invention. —Courts faced with a divided infringement theory have generally refused to find liability where one party did not control or direct each step of the patented process. 7 © AIPLA 2012

BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007) (cont’d) Federal Circuit (cont’d) —“A party cannot avoid infringement, however, simply by contracting out steps of a patented process to another entity. In those cases, the party in control would be liable for direct infringement.” —The concerns over a party avoiding infringement by arms-length cooperation can usually be offset by proper claim drafting.” 8 © AIPLA 2012

BMC Resources, Inc. v. Paymentech, L.P.,498 F.3d 1373 (Fed. Cir. 2007) (cont’d) Federal Circuit (cont’d) —“Without this direction or control of both the debit networks and the financial institutions, Paymentech did not perform or cause to be performed each and every element of the claims.” 9 © AIPLA 2012

Muniauction, Inc. v. Thomson Corp. et al., 532 F.3d 1318 (Fed. Cir ) Background Patent Directed To Municipal Bond Auctions Over The Internet No Dispute That No Single Party Performs Every Step Of Asserted Claims —“Inputting” step performed by bidder —Remaining steps performed by auctioneer’s system 10 © AIPLA 2012

Muniauction, Inc. v. Thomson Corp. et al., 532 F.3d 1318 (Fed. Cir. 2008) (cont’d) District Court Combined Action By Auctioneer And Bidders Was Infringement By Auctioneer Willful Infringement Enhanced Damages Of $76.9 Million Prejudgment Interest of $7.7 Million Permanent Injunction 11 © AIPLA 2012

Muniauction, Inc. v. Thomson Corp. et al., 532 F.3d 1318 (Fed. Cir. 2008) (cont’d) Federal Circuit Reversed Judgment Of Infringement —“[W]here the actions of multiple parties combine to perform every step of a claimed method, the method is directly infringed only if one party exercises ‘control or direction’ over the entire process such that every step is attributable to the controlling party, i.e. The ‘Mastermind’.” —“Mere arms-length cooperation will not give rise to direct infringement by any party.” —“That Thomson controls access to its system and instructs bidders on its use is not sufficient to incur liability for direct infringement” 12 © AIPLA 2012

The Aftermath 13 © AIPLA 2012

Global Patent Holdings, LLC v. Panthers BRHC LLC, 586 F.Supp. 2d 1331(S.D. Fla. 2008) (cont.d) Background Patent Directed To A Method For Downloading Material From A Remote Server In Response To A Query. Defendant Provided Users With Instructions And Materials That Allowed Access To Its Server. 14 © AIPLA 2012

Global Patent Holdings, LLC v. Panthers BRHC LLC, 586 F.Supp. 2d 1331(S.D. Fla. 2008) (cont’d) Holding No Infringement. “It Appears That The Level Of ‘Direction or Control’ The Federal Circuit Intended Was Not Mere Guidance Or Instruction... Instead,... The Third Party Must Perform... By Virtue Of A Contractual Obligation Or Other Relationship That Gives Rise To Vicarious Liability.” 15 © AIPLA 2012

Emtel, Inc. v. Lipidlabs, Inc.,583 F. Supp. 2d 811(S.D. Tex. 2008) Background Patent Directed To A Method For Allowing Physicians To Provide Emergency Diagnostic Or Treatment Services Remotely Via Teleconference. Holding No Infringement. Although The Physicians Were Under Contract With the Videoconference System Operator, They Were Not Directed Or Controlled By the Operator Because The Physicians Retained Their Professional Judgment In Performing The Medical Work Required By The Claims. 16 © AIPLA 2012

Akamai Techs., Inc. v. Limelight Networks, Inc. Background June 2006, Akamai Sued Limelight Asserting Infringement Of The ‘645, ‘703, And ‘413 Patents. February 2008, Boston Jury Found Infringement And Awarded $40.1 Million In Lost Profits And $1.4 Million In Reasonable Royalty Damages. April 2009, District Court For The District Of Massachusetts Overturned Boston Jury Finding And Ruled Non-infringement. Appeal To The United States Court Of Appeals For The Federal Circuit (CAFC). 17 © AIPLA 2012

Akamai Techs., Inc. v. Limelight Networks, Inc. (cont’d) Claim At Issue In Akamai A content delivery service, comprising: —replicating a set of page objects across a wide area network of content servers managed by a domain other than a content provider domain; —for a given page normally served from the content provider domain, tagging the embedded objects of the page so that requests for the page objects resolve to the domain instead of the content provider domain; —responsive to a request for the given page received at the content provider domain, serving the given page from the content provider domain; and —serving at least one embedded object of the given page from a given content server in the domain instead of from the content provider domain. 18 © AIPLA 2012

Akamai Techs., Inc. v. Limelight Networks, Inc. (cont’d) Limelight’s Accused System –Limelight operated a Content Delivery Network (CDN) - a system of webservers that maintain copies of embedded webpage objects such as images. –Limelight provided its customers with instructions on how to “tag” but the customers ultimately determined which content should be tagged. 19 © AIPLA 2012

Akamai Techs., Inc. v. Limelight Networks, Inc. (cont’d) Original Federal Circuit Panel Affirmed No Infringement –“While control or direction is a consideration, as is the extent to which instructions, if any, may be provided, what is essential is not merely the exercise of control or the providing of instructions, but whether the relationship between the parties is such that acts of one may be attributed to the other.” –That there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps.” –The Federal Circuit found no infringement by Limelight because its customers were not tagging the objects on behalf of Limelight. 20 © AIPLA 2012

McKesson Techs. Inc. v. Epic Systems Corp. Background December 2006, McKesson Sued Epic For Induced Infringement. May 2011, District Court Grants Summary Judgment Of Non-infringement. McKesson Appeals To The Federal Circuit. 21 © AIPLA 2012

McKesson Techs. Inc. v. Epic Systems Corp. (cont’d) Claim At Issue In Mckesson —A method of automatically and electronically communicating between at least one health-care provider and a plurality of users serviced by the health-care provider, said method comprising the steps of: initiating a communication by one of the plurality of users to the provider for information, wherein the provider has established a preexisting medical record for each user; enabling communication by transporting the communication through a provider/patient interface over an electronic communication network to a website… electronically comparing content of the communication with mapped content… returning the response to the communication automatically to the user’s computer… 22 © AIPLA 2012

McKesson Techs. Inc. v. Epic Systems Corp. (cont’d) Epic’s customers – healthcare providers – licensed the accused software from Epic. It was undisputed that none of the healthcare providers “initiated a communication” as the claim required. —The initiating step was performed by the healthcare providers’ patients. McKesson alleged that Epic infringed via the healthcare providers’ use of the system. 23 © AIPLA 2012

McKesson Techs. Inc. v. Epic Systems Corp. (cont’d) Original Federal Circuit Panel Affirmed No Infringement –Reaffirmed the holding in Akamai that an agency relationship is required to support a finding of joint infringement. –Because the healthcare providers’ patients held the choice of whether to “initiate a communication” there was no joint infringement. 24 © AIPLA 2012

Federal Circuit Grants En Banc Review Questions To Be Addressed By The En Banc Review Akamai —If separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable? McKesson —If separate entities each perform separate steps of a method claim, under what circumstances, if any, would either entity or any third party be liable for inducing infringement or for contributory infringement? —Does the nature of the relationship between the relevant actors – e.g., service provider/user; doctor/patient – affect the question of direct or indirect infringement liability? 25 © AIPLA 2012

Amicus Briefs Support Change In Law AIPLA Position —The so-called “single entity” rule for deciding method claim infringement where multiple actors perform the claim steps has created loopholes that drastically reduce the exclusive rights conferred by validly issued patents. —35 USC § 271(a) which deals with direct infringement provides: “Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patent invention during the term of the patent therefor, infringes the patent. “Whoever” applies to one or more person or persons unless context indicates otherwise 1 U.S.C. § © AIPLA 2012

Amicus Briefs Support Change In Law (cont’d ) AIPLA Position (cont’d) —While proof of infringement requires evidence that all of the method claim steps are performed, nothing in § 271(a) or its history requires that all of those steps be performed by a single entity. —A direct infringement determination should establish whether there has been an unauthorized practice of all of the method stops in the patent claim, without regard to the number of actors engaged in the performance of such steps. —Determining direct infringement based on whether the participants in the method steps had principal/agent relationship is not appropriate – it invites a defendant to simply outsource steps to avoid infringement. 27 © AIPLA 2012

Joint Infringement: System Claims Joint Infringement Is Not Solely An Issue For Process Claims. Liability For Infringement Of A System Claim May Arise When A Single Entity Controls The Patented System And Obtains A Benefit From It. The Federal Circuit Addressed Joint Infringement Of System Claims In: –NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005) 28 © AIPLA 2012

Joint Infringement: System Claims NTP, Inc. v. Research in Motion, Ltd Claims Were Directed To Systems And Methods That Permitted End Users To Receive Over A Network. Rim Argued That Its Blackberry Systems Did Not Infringe NTP’s Patent Because It Utilized A Relay Located In Canada And, Therefore, There Was No Use Of The System In The United States The Federal Circuit Disagreed And Held That The “Use” Of A System Only Requires That A Party Exercise Control Of The System As A Whole And Obtain Benefit From It. —Because end Blackberry users sent and received messages from their devices in the United States, this amounted to an infringing “use” of the patented system in the United States. 29 © AIPLA 2012

Minimizing Divided/Joint Infringement Issues Draft Method Claims Such That The Recited Steps In Each Claim Can Be Satisfied By A Single Actor. —Focus on one entity and whether it supplies or receives any other elements of the invention. Draft Claims That Capture The Behavior Of Potential Infringers In The U.S. - Performance Of Any Method Step Outside The United States Will Likely Avoid Direct Infringement. Draft Claims Directed To Systems, Which Under Current Law More Easily Avoid Issues Of Direct Infringement. See NTP. 30 © AIPLA 2012

Minimizing Divided/Joint Infringement Issues If A Patent Has Already Issued And Contains Claims Requiring Joint Infringers, Several Strategies May Be Employed To Ensure Protection: –If a continuation application is still pending, draft claims in unitary style. –If there is no continuation pending, an applicant may seek a reissue patent, but Because it may be a broadening reissue, it must be filed within two years of issuance from the original patent. This may create intervening rights for competitors that adopted the technology before the reissue application issued. 31 © AIPLA 2012

DIVIDED/JOINT INFRINGEMENT – WILL A LOOPHOLE BE CLOSED? Joseph A. Calvaruso Orrick, Herrington & Sutcliffe LLP 51 West 52 nd Street New York, NY Thank You 32