Recent Changes in U.S. Patent Law Affecting Cloud Services

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1 Recent Changes in U.S. Patent Law Affecting Cloud Services Robert S. Blasi, Esq. Partner, Intellectual Property Transactions & Strategies November 7, Goodwin Procter LLP

2 About Goodwin Procter Global law firm Most of our attorneys in Boston, California, and New York City. Large technology companies practice 160+ attorneys focused on technology clients. Many attorneys from Testa Hurwitz, Gunderson Dettmer, Wilson Sonsini. Open source clients include Acquia, Citrix (Xen), Engine Yard, Hadapt, Hortonworks, Modo Labs, Pentaho, RStudio, Sencha, Twilio & Vyatta. Goodwin Procter LLP 2

3 Agenda Statement of the Problem Patent law in United States, pre-limelight The Limelight Decision The McKesson Decision Recommendations Questions? Goodwin Procter LLP 3

4 Statement of the Problem More data, more businesses moving into the cloud. Not a return to client-server model; third parties in the mix. Cloud services providers, cloud services consumers, private clouds. Patent litigation is prevalent, increasing. Outright purchases of patents also increasing. Strategic patent litigation in the minority, more troll litigation. Are you increasing your exposure by migrating to a cloud model? If so, can you address or hedge this risk? Goodwin Procter LLP 4

5 Patent Law in United States, pre-limelight A patent is a right to stop others; not a right to do something. Patents can cover methods of doing things, as well as things per se. A patent is a territorial right. E.g., U.S. patent reaches U.S. activities, but nothing lacking nexus with the U.S. Strongest kind of IP protection there is. Protects against independent reimplementation. Reaches making, using, selling, importing, offering for sale, etc. Goodwin Procter LLP 5

6 Patent Law in United States, pre-limelight (cont d) Joint infringement/a.k.a. divided infringement Infringement of a method requires a single entity to perform all the steps of the method. Third parties only count if they are: (a) agents of the entity, or (b) acting at the direction and control of the entity. What about infringement claims involving acts outside the U.S.? Microsoft v. EOLAS/AT&T Software crossing territorial borders counts as a component of an invention for infringement purposes Bayer v. Housey Pharma But mere information does not NTP v. RIM A system is used where it is used as a whole or where it is controlled ; in contrast, a method is used in a jurisdiction when all of the steps are performed in the jurisdiction Goodwin Procter LLP 6

7 Patent Law in United States, pre-limelight (cont d) Induced infringement You can also be liable if you get another to infringe a patent. But consider the interaction with joint infringement. Under these rules, you could reduce patent risk by: Shifting operations completely outside of the United States Breaking operations into stages and, optionally, placing a stage outside the United States Locating apparatus that you don t control outside the U.S. Cloud based operations facilitate these kinds of changes. Goodwin Procter LLP 7

8 The Limelight Decision Akamai has patent on a method for efficient delivery of web content Place some of a content provider s content elements on a set of replicated servers, and Modify the content provider s web page to instruct web browsers to retrieve that content from the replicated servers Limelight Maintains a network of servers and allows for efficient content delivery by placing some content elements on its servers Does not modify the content providers web pages Instructs its customers on the steps needed to do that modification Goodwin Procter LLP 8

9 The Limelight Decision (cont d) Finding of non infringement after jury verdict For a party to be liable for induced infringement, some other single entity must perform all steps of method No one infringing entity - Limelight s customers (and not Limelight itself) performed one of the steps of the claimed method. Decision reversed on appeal. New rules announced. Limelight would be liable for inducing infringement if Limelight: Knew of Akamai s patent Performed all but one of the steps of the claimed method, Induced the content providers to perform the final step, and The content providers in fact performed that final step Goodwin Procter LLP 9

10 Law of Induced Infringement and New Question 35 U.S.C. 271(b) Whoever actively induces infringement of a patent shall be liable as an infringer A party who advises, encourages, or otherwise induces others to engage in infringing conduct is liable Inducement requires that Alleged infringer knowingly induced infringement, and Possessed specific intent to encourage another s infringement No indirect infringement without direct infringement Inducement gives rise to liability only if the inducement leads to actual infringement Should a party inducing infringing conduct be liable when no single induced entity commits all of the infringing acts or steps? CAFC holds yes overrules prior case law Goodwin Procter LLP 10

11 Court s Reasoning Proving that there has been direct infringement is not the same as proving that a single party would be liable as a direct infringer (original emphasis) No reason to immunize an inducer If the inducer knowingly induced others to commit the acts necessary to infringe a patent, and Those others commit those acts Simply because the parties structured their conduct so that no single defendant committed all of the acts constituting infringement Statute and underlying policy do not distinguish between inducing one direct infringer and several actors who infringe together Goodwin Procter LLP 11

12 The McKesson Decision McKesson has a patent on a method of electronic communication between healthcare providers and their patients Steps are divided between Patients who initiate communications, and Healthcare providers, who perform the remainder of the steps McKesson loses on summary judgment Patients (and not Epic s direct customers) performed the step of initiating the communication On appeal, Epic can be held liable for inducing infringement if it: Knew of McKesson s patent Induced the performance of the claimed method steps, and Those steps were performed I.e., Epic doesn t need to be involved in the infringing process. Goodwin Procter LLP 12

13 Recommendations for Patent Holders Always file system claims Draft method claims to avoid joint infringement. One party per group of claims: CSP, cloud customer, or end user. Patent technology visible to end user. Easier to identify infringement. Patent what is new and non-obvious. Not enough to move known service to the cloud. File multiple applications for each invention. Easier to prosecute, easier to license. Goodwin Procter LLP 13

14 Recommendations for Cloud Users Cloud migration doesn t make patent exposure better or worse. BUT!, be careful not to move regulated data in contravention of law E.g., personally-identifiable information, healthcare data, controlled technologies, etc. Still prudent to make cloud vendor bear that risk. Can t diligence their technology, can t control their operations. Freedom to operate opinions under old standard may be obsolete Old standard: no direct infringement, no indirect infringement New standard: do you know customers are infringing using your products/services? Goodwin Procter LLP 14

15 Questions?