Changes Of Mind, Part I: Commil USA v. Cisco Systems

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Changes Of Mind, Part I: Commil USA v. Cisco Systems

by Kenneth J. Weatherwax

In European countries, a patentee often must prove the accused infringer’s negligence in order to obtain patent infringement damages. In America, the situa­tion is arguably more complicated. This post briefly addresses some of the questions relating to this situation that are currently submitted for decision before the United States Supreme Court in Commil USA, LLC v. Cisco Systems, Inc., and the historical context (the full text of the CAFC decision can be found here). A follow-on post will consider more deeply the possible resolutions of the Commil case.

American law distinguishes many varieties of patent infringement. The varieties relevant here are, on the one hand, the distinction between direct infringement and inducement of infringement, and on the other hand, the distinction between willful and non-willful infringement.

Direct Infringement Versus Inducement Of Direct Infringement

Direct infringement is making, using, selling, importing, or offering to sell a patented product or process – one which meets all the limitations of a patent claim. Inducement, in contrast, is a form of indirect infringement: doing something which induces someone else to commit direct infringement.

Inducement is sometimes the only type of infringement argument available to a patentholder against an importer or manufacturer where the patent claim is a method claim. That is often because method claims are drafted so that only an end user’s activities meet the claim’s limitations. Patents with such claims are sometimes called “use patents.” For example, suppose a patent claim covers a method of scanning a document and e-mailing it. For such a claim, only those who actually operate a scan­ner and an e-mail system – the ultimate users of the scanner and system, in other words – directly infringe. A common way that one would induce infringement of such a claim would be by selling a scanner, along with instructions (or perhaps a menu item) for e-mailing what one has scanned.

Willful Infringement Versus Non-Willful Infringement

In contrast to many European countries, direct infringement of an American patent requires no negligence, or indeed any intent at all: rather, “[d]irect infringement is a strict-liability offense.” BMC Resources, Inc. v. Pay­men­tech L.P., 498 F.3d 1373, 1381 (Fed. Cir. 2007). Thus, the accused infringer’s knowledge of the patent and intent are not generally relevant to whether direct infringement has occurred. Rather, they are primarily relevant to whether the infringement is will­ful, in which case damages may be increased by the judge. However, either direct or indirect infringement may be found to be willful. So for inducement, the accused infringer’s knowledge of the patent and state of mind may be relevant both to whether the indirect infringement occurred at all and to whether the indirect infringement is willful.

What state of mind is required for willfulness? The rules for how to prove infringement to be willful have repeatedly changed in recent years. Until several years ago, willfulness of infringement was judged largely by whether the accused infringer had obtained an exculpatory opinion of counsel from a patent law firm. This former requirement was certainly a source of income for some firms, but was subject to considerable criticism, not least because it required the accused infringer to waive attorney-client privilege as to the exculpatory legal opinion (a waiver that, although its necessary scope was left somewhat unclear, weighed heavily on most waiving litigants, especially under American discovery rules). In Knorr-Bremse Sys­teme für Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004) (en banc), the full Federal Circuit reconsidered and pared back the opinion of counsel require­ment. Later, in In re Seagate Tech­nology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc), the full Federal Circuit again reconsidered the opinion of counsel require­ment – once again receiving, as in Knorr-Bremse, numerous friend-of-the-court briefs urging its elimination – but this time set out an ambiguous softening of the require­ment. The enemies of the opinion of counsel willfulness rule finally got the atten­tion of Congress, and the America Invents Act of 2011 added a new sec­tion 298 to the patent code which read: “The failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer will­fully infringed the patent or that the infringer intended to induce infringe­ment of the patent.”

The State Of Mind Required For Inducement

While the law of willfulness was undergoing the evolution just described, another Federal Circuit Panel, in Manville Sales Corp. v. Paramount Systems Inc., 917 F.2d 544, 553-54 (Fed. Cir. 1990), decided that an opinion of counsel should be not just a defense to willful­ness, but also a defense to inducement of direct infringement.   Thus, if an accused inducer had obtained an exculpatory opinion of counsel, not only would it not need to pay increased damages for willful infringement, it would not be liable for induce­ment at all – at least if it didn’t persist in its inducing conduct after the acts it had induced had been found by the court to be infringing. Logi­cally, the outcome in Manville could only be justi­fied if induce­ment had some sort of state of mind requirement. This require­ment was des­cribed, by those panels that adhered to the Man­ville case, as “spe­ci­fic intent.”

The rule that inducement, in contrast to direct infringement, had a specific intent requirement was a classic example of a Federal Circuit rule adopt­ed by one panel but rejected or resisted by other panels of the same Court. In Tegal Corp. v. Tokyo Electron Co., 248 F.3d 1376, 1378 (Fed. Cir. 2001), for example, another panel appeared to take issue with Manville’s characterization of the specific intent requirement, retorting (emphasis added):

“Of course inducement has connotations of active steps knowingly taken – knowingly at least in the sense of purposeful, intentional as distinguished from acci­den­tal or inadvertent. But with that qualifying approach, the term is as broad as the range of actions by which one in fact causes, or urges, or encourages, or aids another to infringe a patent.”

Even­tually, these two lines of Federal Circuit panel decisions were addressed by the full court in DSU Medical Corp. v. JMS Co., 471 F.3d 1293 (Fed. Cir. 2006) (en banc in relevant part). The judges reached a com­pro­mise: essentially, that inducement requires negligence on the part of the accused infringer, and the indirect infringer is liable if it “knew or should have known” that the actions it was inducing constituted infringement.

However, the full court’s compromise reached in DSU Medical failed to end the evolution of the intent requirement. In SEB S.A. v. Montgomery Ward & Co., 594 F.3d 1360 (Fed. Cir. 2010), a panel of the Federal Circuit considered an inducement case and elaborated on the negligence standard of DSU Medical. The SEB panel held that “deliberately disregard[ing] a known risk that [plaintiff] had a protective patent” met the negligence standard. At this point the United States Supreme Court stepped in and granted a writ of certiorari to review this panel decision.

The U.S. Supreme Court, as we know, has become far more active in patent law than it used to be – and decided to refine the test a bit. The high court held that the correct state of mind test for inducement, at least for cases where the defendant didn’t know of the exis­tence of the patent, was “willful blindness,” which requires that, at least, “(1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact.” Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011) (per Alito, J.).

The Commil Case

The story has not ended with Global-Tech. The next chapter to be written was the Federal Circuit’s decision in Commil USA v. Cisco Systems, 720 F.3d 1361 (Fed. Cir. 2013). The panel majority (two out of three judges) interpreted the Supreme Court’s softening of the intent standard in Global-Tech to mean that the negli­gence standard announced by the en banc Federal Circuit in DSU Medical was no longer sustainable: “[T]o the extent our prior case law allowed the finding of induced infringement based on recklessness or negligence, such case law is incon­sis­tent with Global-Tech and no longer good law.” Furthermore, the Commil panel majo­­rity considered whether an accused infringer could escape induce­ment liability simply on the basis that it believed that the asserted claims were invalid – or only if it believed that the asserted patent claims did not cover the acts by others that it was inducing. There is some language in the Commil opinion supporting the former statement. But the majority opinion ends with a surprisingly weak conclusion:

“Evidence of an accused inducer’s good-faith belief of invalidity may negate the requi­site intent for induced infringe­ment. This is, of course, not to say that such evidence precludes a finding of induced infringement. Rather, it is evi­dence that should be con­sidered by the fact-finder in determining whe­ther an accused party knew that the induced acts constitute patent infringe­ment.”

The U.S. Supreme Court then granted a writ of certiorari to review the Federal Circuit’s decision in Commil. (The Obama administration supported Commil’s petition for certiorari. Justice Breyer is apparently recused.) The high court’s interest in this subject now seems to be thoroughly aroused, and we once again await its decision, due this June, regarding the requisite state of mind to find that a person is liable for inducement.

The Question Presented

It is interesting to consider the possible scope of the Supreme Court’s decision in Commil. The Court accepted only the following, seemingly narrow, question for review: “[w]hether the Federal Circuit erred in holding that a defendant’s belief that a patent is invalid is a defense to induced infringement under 35 U.S.C. § 271(b).” Nonetheless, in its opening merits brief (p. 3), the petitioner Commil reached out further, to argue that “when an inducer knows of the patent and of the potential relevance of the patent to its activities (e.g., through discussions with, or a notice letter from, the patentee), the inducer’s ‘good-faith beliefs’ – whether they relate to infringement, validity, or enforceability – are not relevant to the induce­ment analysis.”

Commil’s position has some interesting implications. Were the high court to adopt Commil’s proposed formulation of the state of mind test, negligence would very possibly be measured in a purely objective fashion by the jury, ignoring the paid views of opinion counsel and the self-serving illu­sions of management, even if management manages to hold fast to them on the witness stand. (For comparison, consider whether, in evaluating the negligence of drivers in an auto accident, juries consider the subjective beliefs of the dri­vers as to, for example, whether they were driving at a prudent speed.)

Also lurking in the Commil case is a dispute as to whether good faith belief, if rele­vant at all to inducement, can extend to invalidity as well as to infringe­ment. In particular, if a good faith belief that a patent claim will eventually be found invalid is all that is necessary to prevent a finding of liability for inducement, how realistic is it that liability for inducement will be found?

It is also worth noting that, in light of the holding of Global-Tech, Commil argues for the irrelevance of good-faith beliefs only as to the issues of infringement, validity, and unenforceability. Commil does not argue for the irrelevance of a belief in good faith that no relevant patents exist – a belief one might have, for example, if one has asked a law firm to do a search for patents covering a proposed product and it stated that it couldn’t find any. Such a good faith belief might, of course, be rapidly and inex­pen­sively eliminated by the patent owner by sending a letter or e-mail.

There is a great deal more that could be added to this short historical sketch. Perhaps one more fact needs to be considered. There is another variety of indirect infringement called “contributory infringement,” which is committed by selling goods that have no substantial use besides infringing the patent. Many years ago the Supreme Court, perhaps unthinkingly, indicated that liability for con­tributory infringement requires knowledge of the existence of the patent, without mentioning any good faith belief requirement. See, e.g., Trell v. Marlee Electronics Corp., 912 F.2d 1443, 1447-48 (Fed. Cir. 1990) (“[D]amages cannot be awarded for contributory infringement unless there is evidence of knowledge of the existence of a patent.”) (citing Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964)). Whether the comparative state of mind requirements for contributory infringement and inducement will influence the Court’s decision remains to be seen.

Former Supreme Court Justice Oliver Wendell Holmes, Jr. wrote once that, in seeking to understand some issues of American law, “a page of history is worth a volume of logic.” New York Trust Co. v. Eisner, 256 U.S. 345, 349 (1921). On the state of mind of patent infringers, there is much more than a page of history already written. It is hoped that Justice Holmes’ successors will be able to keep all of it in mind.

Part II of this post will discuss in more depth how the Supreme Court might resolve the questions before it (and even possibly those not before it) in Commil. A decision is expected by next month, June 2015.

Kenneth Weatherwax
Lowenstein & Weatherwax LLP

 

Published May 17, 2015