Method inducement requires all steps

On June 2, 2014, in Limelight Networks, Inc. v. Akamai Technologies, Inc., et al., No. 12-768 (2014), the U.S. Supreme Court held that liability for inducement of infringement of a patented method must be predicated on direct infringement. Akamai maintains a global network of content delivery servers that invisibly redirects users of their customer’s Web sites to content cached on Akamai’s servers. Limelight is a competitor whom Akamai sued for direct infringement of U.S. Patent No. 6,108,703 (‘703) for a “Global Hosting System” under 35 U.S.C. § 271(a) and for inducement of infringement under 35 U.S.C. § 271(b). The method claims in the ‘703 patent recite tagging content in a customer’s Web site and serving the tagged content from caching servers. Limelight, however, requires their customers to do their own tagging.

The jury found direct infringement and awarded Akamai $41.5M in damages. Upon motion for reconsideration, the district court granted Limelight’s previously-denied JMOL in light of the Federal Circuit’s holding in Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (C.A.F.C. 2008). In Muniauction, the Federal Circuit held that a defendant that does not perform all claimed steps is only liable for direct infringement when either an agency relationship or a contractual obligation exists with a third party who performs the claimed steps. A panel of the Federal Circuit initially affirmed the district court’s granting of the JMOL that Muniauction precluded a finding of direct infringement, but upon rehearing en banc, the Federal Circuit reversed and found that liability for induced infringement can arise when a defendant carries out some steps of a claimed method and “encourages” others to carry out the remaining steps.

A unanimous Supreme Court sharply rejected the en banc Federal Circuit’s holding, stating that “inducement liability may arise ‘if, but only if, [there is] . . . direct infringement.’” Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U.S. 336, 341 (1961), accompanied by the terse observation that, “[o]ne might think that this simple truth is enough to dispose of this appeal.” They went on to blankly explain that, “[a] method patent claims a number of steps; . . . The patent is not infringed unless all of the steps are carried out. . . .There has simply been no infringement of the method in which respondents have staked out an interest, because the performance of all the patent’s steps is not attributable to any one person.” (emphasis added).

The Aftermath of Alice Corp.

On June 25, 2014, the USPTO issued preliminary examination instructions to address the Supreme Court’s recent decision in Alice Corp. Pty. Ltd. V. CLS Bank Int’l et al. (“Alice Corp.”), which held that the patent claims at issue were not subject matter eligible under 35 U.S.C. § 101. When the notice first came out, we wondered how the instructions might affect the actual examination of patent applications.

This situation reminded me of the time when the Bilski v. Kappos decision was handed down in 2010. There, as here, the USPTO issued interim guidance for determining subject matter eligibility for process claims. Many of us were concerned about how the machine-or-transformation test would affect claim allowance and what amendments would be needed to place the claims in a condition for allowance. After months of working with examiners, we found that standard language regarding inclusion of a “suitably-programmed computer” or “a processor to execute method steps” could place process claims in compliance with the USPTO’s interpretation of Bilski.

Less than two weeks after having been decided, the Alice Corp. decision is already influencing the examination of software claims by throwing a metaphorical wrench into the familiar interpretation of statutory subject matter under the Bilski guidance. Now, under the new Alice Corp. instructions, statutory subject matter interpretation seems to suggest that: 1) a general computer is not enough to make a software claim statutory and the standard language used to comply with the requirements of Bilski under the former guidance will likely not make the software claim statutory; and 2) the steps of a method claim should be steps that cannot be performed by a human or alternatively, are known to be performed only by a computer and not a person, such as encryption.

My concern that the United States is moving closer to a view of software patents similar to that held by the European Patent Office appears to be validated. Currently, examiners and practitioners are struggling to interpret the Alice Corp. instructions; the examining corps has not yet been trained under the new instructions. Perhaps, once training has been provided and examiners have had an opportunity to work through a few cases, the actual implementation of the guidelines will be less stringently interpreted than appears to be the case today.

Patentability of computer software

On June 19, 2014, the U.S. Supreme Court revisited the question of the patentability of computer software in Alice Corp. PTY. LTD. v. CLS Bank Int’l et al. The patent in suit covered a scheme of mitigating settlement risks in a financial transaction, as implemented on a computer. The Court analyzed whether the recitation of a computer to perform the scheme made the claims patent-eligible and concluded that the invention neither improved the functioning of the computer nor any other technology or technological field. The Court found that the scheme was a non-statutory abstract idea, a fundamental practice in commerce, and “a building block of modern economy.” Relying on earlier precedent, the Court held that the claims merely recited a generic computer implementation of an abstract idea, which failed to transform that abstract idea into a patent-eligible invention.

Although the Court did not establish a bright-line test for the patentability of computer software, the Court has signaled that computer software may now be required to improve the functioning of the computer involved in the execution of the software to qualify as patentable subject matter. The decision also appears to be a step towards European patent practice, where an advantageous technical effect may be necessary to support the showing of an inventive step.

In light of Alice Corp., claims should recite improvements to avoid being construed as “a generic computer to perform generic computer functions” that are “well-understood, routine, [and] conventional.” Improvements either to the computer proper or to “any other technology or technological field” ought to be clearly set forth in the specification to ensure ample support to the claims.