This term, the Supreme Court is reviewing five patent cases, an unusually high number, and the Supreme Court’s new-found interest in patent law is perhaps motivated by the increasing concerns over the patent system’s notable flaws and increasing litigation caused by patent trolls. Although the highest profile of these cases, Alice Corp. v. CLS Bank, involving the patentability of software, has yet to be decided, the Supreme Court did issue an interesting opinion yesterday addressing induced patent infringement. This opinion, Limelight Networks, Inc. v. Akami Technologies, Inc., could pose substantial problems to business method patent holders suing others for infringement. Akami is an exclusive licensee of a patent claiming a method for delivering data through a content delivery network (a “CDN”). One of the steps listed in the business method patent is that Akami designate, or “tag,” certain components of its client’s web sites to be stored on Akami’s servers. Limelight similarly operates a CDN. However, Limelight does not “tag” the content itself; rather, it provides instructions to its clients on how to tag the content. Akami sued Limelight for patent infringement. The Federal Circuit Court, sitting en banc, held that a finding of infringement against Limelight could be upheld even though Limelight itself did not take every step constituting the method patent. The Federal Circuit Court of Appeals reasoned that evidence presented “could support a judgment in [Akami’s] favor on a theory of induced infringement . . .”

The Supreme Court disagreed in a very strongly-worded opinion. The crux of the Supreme Court’s 9-0 opinion, authored by Justice Alito, is based upon a prior Federal Circuit court opinion – Muniauction, Inc. v. Thomson Corp. (532 .3d 1318 (2008)). The Federal Circuit held in Muniauction that direct infringement “requires a single party to perform every step of a claimed method.” Judge Alito, accepting as true the view of direct infringement set forth in Muniauction, reasoned that liability for induced infringement “must be predicated on direct infringement.” In order for a method patent to be infringed, each step set forth in the patent must be carried out. Where, as in the present case, no one party carries out each step set forth in the patent, no direct infringement has occurred, and therefore no liability for inducement can arise.

The obvious problem with the Supreme Court’s opinion is that savvy companies can structure their operations so that they carry out certain steps set forth in a method patent, but “outsource” the final step or steps to their clients, thereby avoiding liability for infringing. The Supreme Court acknowledged this concern, but said that this was a “natural consequence” of the Muniauction holding, and the Supreme Court assumedMuniauction to be correctly decided for purposes of this opinion.

The Akami decision is a victory for technology companies who feared infringement liability based upon the activities of their clients. This fear motivated companies like Google, Oracle, SAP and Cisco to support Limelight’s position. Indeed, under the rationale of Akami and Muniauction, induced infringement of a business method patent can only occur if someone induces another to infringe every single step of the patent. However, the victory may be short lived, as the case has now been remanded back to the Federal Circuit. At this point, the Federal Circuit may reevaluate theMuniauction decision, and could potentially scrap the single-actor rule established in that opinion. In fact, other than Akami, the biggest loser in this case is probably the Federal Circuit, the specialized court which oversees patent matters, because, although the implications of Akami may be limited if the Federal Circuit overturns Muniauction, a public rebuke from the highest court lasts forever.

The opinion can be read at here.

For more commentary, see the PatentlyO post on the subject here.