Knowledge Of A Patent For Inducement To Infringe

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Knowledge Of A Patent For Inducement To Infringe

by Dorian Berger and Kenneth Weatherwax

Mozart’s unlikely plot in The Marriage of Figaro seems at first blush to have little bearing on patent law, but the concepts of deliberate indifference to known risks, and culpability for actively inducing a wrong by an innocent third party, are at the heart of the US Supreme Court’s grant last week of certiorari in Global-Tech Appliances, Inc. v. SEB S.A., No. 10-6.  In The Marriage of Figaro, Count Almaviva seeks to force his valet Figaro to marry the amorous but much older Marcellina in performance of a contract to pay off a debt.  But just as it seems the wedding is going to occur, evidence emerges proving that Marcellina is in fact Figaro’s mother.  “Riconosci in questo amplesso una madre [Recognize a mother in this hug],” Marcellina sings.  There is no indication that any of the characters at Figaro’s civil trial had previously realized that Figaro was Marcellina’s son. Yet the Count and indeed most of the other characters seem deliberately indifferent to a familial relationship that was becoming increasingly clear to the audience.  If his plot had not been foiled in time to stop the marriage, could the Count later have been held responsible for actively inducing Figaro to marry his own mother, if he was deliberately indifferent to a known risk of that possibility?   We will never know what liability the Count may have faced, but in Global-Tech, we may soon learn the answer to similar questions in the patent context, when the Supreme Court addresses the proof of intent and knowledge required to show an act of active inducement of patent infringement under 35 U.S.C. § 271(b).

This post provides background on Global-Tech’s facts, cases which have shaped doctrine regarding knowledge and intent required for inducement, and likely reasons why certiorari was granted.

Background

The Cool Touch
SEB S.A. makes home appliances, including deep fryers, and owns a patent on a cooling skirt around the base of the fryer to prevent it from becoming hot to the touch—known as the “cool touch” feature.  Global-Tech Appliances, Inc., through its subsidiary Pentalpha Enterprises Ltd. of Hong Kong, copied the SEB fryer with only small cosmetic alterations, and in 1998 began selling the copy through another company, Sunbeam.  Global-Tech obtained an opinion from a patent attorney that its fryer did not infringe any patents, but did not tell the attorney that it had copied SEB’s product.

SEB quickly filed an infringement action against Sunbeam, which hastily settled for $2 million.  Judging by the fact that the case is only now reaching the Supreme Court, that may have been the last time something happened quickly in litigation involving the patent.

A Deep Fryer Of Precedent
SEB then turned its sights on Sunbeam’s suppliers and sued Global-Tech (and Pentalpha) under 35 U.S.C. § 271(b) for actively inducing Sunbeam’s direct infringement.  Global-Tech argued that it could not have induced Sunbeam’s infringement because Global-Tech did not even know at the time that SEB’s patent existed.  The jury rejected this argument, found willful infringement, and awarded $4.65 million in damages, which the trial judge reduced to $2.65 million.

Global-Tech appealed to the Court of Appeals for the Federal Circuit, again arguing that it could not have actively induced infringement because there was no direct evidence it was aware of the patent or its infringement.  Global-Tech relied on DSU Medical Corp. v. JMS Co., Ltd., 471 F.3d 1293, 81 U.S.P.Q.2d 1238 (Fed. Cir. 2006) (en banc), which had held that inducement requires not only an intent to cause the acts that constitute direct infringement, but also a specific intent to cause direct infringement by performance of those acts.  In short, the inducer either must have actually believed, or have had reason to believe, that the actions he caused would result in infringement.  Moreover, the en banc court held, “[t]he requirement that the alleged infringer knew or should have known his actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent.”  Id. at 1304 (emphasis added).  SEB argued that there was no evidence it knew of SEB’s patent, so under DSU it could not have had reason to believe its actions would result in infringement of the patent.

In SEB S.A. v. Montgomery Ward & Co., Inc., 594 F.3d 1360, 93 U.S.P.Q. 1553 (Fed. Cir. 2010), a split panel affirmed that the jury could permissibly find that Global-Tech induced infringement. Judge (now Chief Judge) Randall Rader, who had written the opinion for the en banc court in DSU, also wrote the opinion for the panel in SEB.  Judge Rader’s majority opinion announced that “a claim for inducement is viable even where the patentee has not produced direct evidence that the accused infringer actually knew of the patent-in-suit.” SEB, 594 F.3d at 1377.  In such circumstances, the majority held, “deliberate indifference” to potential patent rights could be sufficient to satisfy the “actual knowledge” requirement for inducement.

Judge Rader’s majority opinion pointed to several facts to support an inducement finding, including Global-Tech’s direct copying of SEB’s fryer, Global-tech’s failure to inform its counsel of its copying, and the fact that Global-Tech’s president was “well versed in the U.S. patent system.”  Id.  Taken together, said Rader, these facts were substantial evidence of deliberate indifference, and thus actual knowledge, sufficient to support finding inducement.

Judge Rader took care to state that this “deliberate indifference” standard for inducement was consistent with his earlier en banc opinion DSU.  To find room for deliberate indifference within DSU ‘s repeated statement that it was necessary that the inducer “knew of the patent,” DSU, 471 F.3d at 1304-05, Judge Rader turned to cases outside the Federal Circuit to support the holding that “[t]he standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge.”  Id..  This resort to non-patent authority was striking, particularly given the large number of Federal Circuit patent cases that had previously examined the intent and knowledge requirements for establishing inducement.  Judge Rader’s opinion cited the following out of Circuit cases:

  • In Farmer v. Brennan, 511 U.S. 825 (1994), the Supreme Court had considered whether an incarcerated pre-operative transsexual could be held in a men’s prison, and held that a prison official could be liable for “deliberate indifference” to inmate safety.
  • In United States v. Carani, 492 F.3d 867, 873 (7th Cir. 2007), the Seventh Circuit had affirmed a child pornography conviction and held that a defendant’s knowledge of a child being a minor could be established by the defendant’s deliberate avoidance of  learning the truth of the child’s age.  Judge Rader’s opinion quoted Carani‘s holding that “‘[d]eliberate avoidance is not a standard less than knowledge; it is simply another way that knowledge may be proved.’”  SEB, 594 F.3d at 1377 (quoting Carani, 492 F.3d at 873).
  • In Woodman v. WWOR-TV, Inc., 411 F.3d 69 (2d Cir. 2005), an age discrimination case against a TV station, the Second Circuit held that a plaintiff failed to establish that their employer was aware of the relative ages of the employees.  Judge Rader focused on Woodman‘s holding that “‘a party’s knowledge of a disputed fact may also be proved through evidence that he consciously avoided knowledge of what would otherwise have been obvious to him.’” SEB, 594 F.3d at 1377 (quoting Woodman, 411 F.3d at 84 n.14) (alteration omitted).

Global-Tech’s petition for panel rehearing and rehearing en banc was denied on March 25, 2010.  Certiorari was granted October 12, 2010.

History Of Inducement’s Knowledge Requirement
The law regarding the knowledge and intend required for inducement of infringement has been somewhat muddled over the years.  Prior to the Patent Act of 1952, active inducement was generally taken as evidence to support a finding of contributory inducement, and inducement of infringement was not a standalone offense.  See Mark Lemley, “Inducing Patent Infringement,” 39 U.C. Davis Law Rev. 225, 238 (2005).  The 1952 Act split active inducement and contributory infringement into two separate offenses:

  • § 271(b):  “Whoever actively induces infringement of a patent shall be liable as an infringer.”  This can involve, e.g., a party directing another to infringe a patent with knowledge that the behavior being induced is wrongful.
  • § 271(c):  “Whoever offers to sell or sells . . . a component of a patented machine . . . knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.”  This can involve, e.g., a party supplying parts knowing that they are customized so that they have little or no other use than to infringe a patent.

Early inducement cases under the 1952 Act appeared to require proof that the defendant was aware of the fact of the direct infringer’s infringement.  See Knapp-Monarch Co. v. Casco Products Corp., 342 F. 2d 622, 626-27, 145 U.S.P.Q. 1, 4-5 (7th Cir. 1965) (“[Defendant] lacked knowledge of the alleged infringement by Casco. . . [and] cannot be said to have been [guilty of] active ‘inducement’ of infringement.”).

In 1990, the Federal Circuit sought to clarify the required level of intent for inducement, and appeared to announce a low standard approaching that of general (as opposed to specific) intent.  In Hewlett-Packard Co. v. Bausch & Lomb Inc., 909 F.2d 1464, 1469, 15 U.S.P.Q.2d 1525, 1528 (Fed. Cir. 1990), in an opinion written by the respected Judge Giles Rich, co-drafter of the 1952 Act, the Federal Circuit found that one could be guilty of inducement so long as a party could prove that the defendant, “intend[ed] to cause the acts which constitute the infringement.”  Such a standard seemed to make it possible that a party might violate 271(b) merely by intending to encourage conduct that later turned out to be infringing, without it being necessary for the inducer to have had any knowledge or even suspicion of the patent’s existence at the time.

Several weeks after Hewlett-Packard, in deciding another inducement case, another panel of the Federal Circuit propounded what seemed to be a markedly different standard.   In Manville Sales Corp. v. Paramount Systems, Inc., 917 F.2d 544, 16 U.S.P.Q.2d 1587 (Fed. Cir. 1990), the panel held that where a party had relied on an opinion of counsel concluding that the party was not infringing, the party would not have the requisite knowledge under 271(b).  The Manville panel held that mere knowledge of the act was not enough: one must also have knowledge of the legal consequence of that act.   Manville, 917 F.2d at 553.  Although the Manville panel cited the recent opinion in Hewlett-Packard, it made no attempt to explain how its holding could be consistent with Hewlett-PackardId.

In 2002, a later panel reiterated, in accord with Manville, that “mere knowledge of possible infringement by others does not amount to inducement.” Warner-Lambert Co. v. Apotex Corp., 316 F.3d 1348, 1364, 65 U.S.P.Q.2d 1481, 1491 (Fed. Cir. 2003).  The Warner-Lambert Court refused to find a possibility of inducement even where the defendants knew that off-label (i.e., infringing) uses of the product in question amounted to between 78% and 89% of total sales.  Id. at 1364-65.

With both Hewlett-Packard and Manville apparently still good law, however, these cases did little to clarify the standards for inducement.  In 2006, the Federal Circuit tried to clarify the standard in its en banc opinion in DSU holding that the better statement of the standard was that set forth in ManvilleSee DSU, 471 F.3d at 1304.  Judging by the holding and denial of rehearing in SEB, and the diverse views expressed in the patent community about whether SEB could be reconciled with DSU, it appears that more clarification may be beneficial.

What Certiorari Means
The Supreme Court’s grants of certiorari in patent cases, as in most cases, are rare.  In the past ten years, the Federal Circuit has terminated 15,781 cases and the Supreme Court has reviewed only 30 of them, a review rate of .177 percent, roughly inline with other Circuits.  See Supreme Court Reversal Rates: Roy E. Hofer, Evaluating the Federal Courts of Appeal, Landslide, Volume 2, Number 3, 2010.  When the Supreme Court grants certiorari in a patent case, however, the rates of reversal are unusually high.  Of the 13 patent cases reviewed in the past ten years, the Supreme Court reversed 12 cases in whole or in part.  This is a reversal rate of 92.3%, well above the average reversal rate of 68.29% in all reviewed cases.  Id. This overwhelmingly correctional trend may suggest that the grant of certiorari in SEB is likely to result in the SEB majority’s “deliberate indifference” standard being short-lived.

The Supreme Court’s views may have been influenced by an amicus brief filed in favor of granting certiorari, authored by Professors Mark Lemley of Stanford and Timothy Holbrook of Emory and a number of their fellow academics.  These amici argued that SEB‘s standard lowered the standard of intent for inducement so far that it blurred the line between inducement and contributory infringement.

It is also noteworthy that SEB is seen as expanding the potential for liability for patent infringement, while the Supreme Court’s recent reversals of Federal Circuit precedents have mostly constricted patent rights.  Thus, the Supreme Court may believe that the scope of potentially liable persons under 271(b) should be kept narrow as a matter of policy.  Human nature being what it is (see, e.g., Marriage of Figaro), any standard of inducement liability that potentially encompasses not only those who know exactly what patent they are infringing but the broader ranks of the deliberately indifferent, creates a much larger pool of would-be defendants.  A broader standard for inducement liability forces would-be defendants to be on guard.  Failing to consider the potential for infringing patents in their area of operation could leave them susceptible to charges of inducing infringement of a patent they knew nothing about, on the grounds that their lack of inquiry was, or at least might be, “deliberate indifference.”

Ironically, given the SEB majority’s extensive reliance on precedent outside the patent context to support its holding on patent inducement, the Supreme Court’s grant of certiorari in Global-Tech is probably motivated chiefly by a desire to harmonize the intent required for patent inducement with recent Supreme Court authority outside the patent context.   The briefing in support of certiorari argued that the “deliberate indifference” standard announced by the SEB majority is in tension with the recent holding in MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005).  In Grokster, a copyright case, the Supreme Court held that “mere knowledge of infringing potential or of actual infringing uses would not be enough . . . to subject a distributor to liability” and that a party must have “purposeful, culpable expression and conduct” to induce infringement.  Id. at, 936-37.  Although these statements were in the copyright context, they purported to apply the same inducement standard that applied to patents.  Id. Interestingly, the Supreme Court’s decision in Grokster was prominently cited in the Federal Circuit’s en banc opinion in DSU, but not even mentioned by the opinion in SEB.  The question presented in the order granting certiorari in Global-Tech leaves little or no doubt that Grokster will be at issue:

Whether the legal standard for the state of mind element of a claim for actively inducing infringement under 35 U.S.C. §271(b) is “deliberate indifference of a known risk” that an infringement may occur, as the Court of Appeals for the Federal Circuit held, or “purposeful, culpable expression and conduct” to encourage an infringement, as this Court taught in MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 937, 125 S. Ct. 2764, 2780, 162 L. Ed. 2d 781, 801 (2005)?

Order Granting Petition for Certiorari, No. 10-6 (U.S. Oct. 12, 2010).

It is likely that the Supreme Court will take this opportunity to clarify the intent required for inducement of infringement for both patent and copyright.  It is also likely that that standard the Court announces in Global-Tech will resemble Grokster (and probably DSU) more closely than it does the panel decision under review.

 

 Published October 28, 2010