THE DISTRICT COURT CASE

Transcription

1 Supreme Court Sets the Bar High, Requiring Knowledge or Willful Blindness to Establish Induced Infringement of a Patent, But How Will District Courts Follow? Peter J. Stern & Kathleen Vermazen Radez On May 31, 2011, the Supreme Court of the United States issued its opinion in Global-Tech Appliances v. SEB S.A. The Court ruled that induced infringement under 35 U.S.C. 271(b) requires knowledge that the induced acts constitute patent infringement, but also held that knowledge could be established under the doctrine of willful blindness. CASE BACKGROUND The Supreme Court granted certiorari in Global-Tech Appliances v. SEB S.A. to determine the standard of intent necessary to establish liability for actively inducing patent infringement under 35 U.S.C. 271(b). 1 This case was appealed from the United States Court of Appeals for the Federal Circuit, which held Global-Tech liable for inducing patent infringement. 2 The case originated when Pentalpha, a subsidiary of Global-Tech Appliances, designed a deep fryer that infringed one of SEB s patents. SEB was a competing manufacturer of deep fryers. Of importance to the trial court s analysis of inducement to infringe, Pentalpha designed its infringing deep fryer by purchasing an SEB deep fryer in Hong Kong and copying some of its features. Subsequently, Pentalpha prepared to launch its deep fryer in the U.S. market and secured a non-infringement opinion from a U.S. patent attorney. The opinion stated that Pentalpha s fryer did not infringe any U.S. patent; Pentalpha failed, however, to inform its attorney that it had designed its fryer by copying features from another product on the market a disclosure that might have enabled the attorney to locate SEB s patent. Pentalpha did not learn of SEB s patent until SEB sued to enforce the patent. 3 THE DISTRICT COURT CASE SEB filed its case in the U.S. District Court for the Southern District of New York. A jury found Global-Tech liable for both direct infringement and inducement of infringement. Only the inducement claim remained at issue before the Supreme Court. SEB based its inducement claim on Global-Tech s sales of the Pentalpha deep fryers to retailers such as Sunbeam, Montgomery Ward, and Fingerhut companies that then, SEB alleged, infringed SEB s patent by importing and selling the deep fryers in the United States. Purportedly following the Federal Circuit s en banc opinion in DSU Med. v. JMS, 4 the district court held that proving inducement requires demonstrating that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another s infringement, and that the Peter J. Stern is a partner in the San Francisco office of Morrison & Foerster LLP. Kathleen Vermazen Radez, formerly an associate at Morrison & Foerster LLP in San Francisco, currently serves as law clerk to Justice Goodwin Liu of the California Supreme Court U.S.C. 271(b) states: Whoever actively induces infringement of a patent shall be liable as an infringer. 2 Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2064 (2011). The Federal Circuit opinion appears at 594 F.3d 1360 (2010). 3 Brief for Petitioner at 6, Global-Tech, No (Nov. 29, 2010). 4 DSU Med. Corp. v. JMS Co. Ltd., 471 F.3d 1293 (Fed. Cir. 2006) (en banc). sf

2 inducer had actual or constructive knowledge of the patent. 5 However, despite Global-Tech s lack of actual knowledge of the patent-in-suit prior to SEB s suit, the court refused to overturn the jury s finding of inducement of infringement (and infringement), stating that the evidence was sufficient to establish specific intent and action to induce infringement. 6 THE FEDERAL CIRCUIT APPEAL The parties appealed the case to the Federal Circuit, which began its opinion by acknowledging that under its en banc decision in DSU Medical, the plaintiff must show that the alleged infringer knew or should have known that his actions would induce actual infringements, a showing that necessarily includes the requirement that he or she knew of the patent. 7 However, focusing on the knowledge element, the Federal Circuit held 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, if the defendant deliberately disregarded a known risk that [the plaintiff] had a protective patent. 8 The Federal Circuit held that this standard was met because Global-Tech failed to disclose to its attorney that its product had been designed on the basis of copying. 9 THE SUPREME COURT S DECISION The Supreme Court affirmed the original jury verdict of induced infringement, but it rejected the Federal Circuit s deliberate indifference standard in favor of an alternative standard predicated on willful blindness. The Court, in an opinion written by Justice Alito for eight Justices, held first that induced infringement under 271(b) requires knowledge that the induced acts constitute patent infringement. 10 The Court examined the statutory text and found it ambiguous as to what the inducer was required to know to be liable. 11 Likewise, the Court found that the case law regarding contributory infringement prior to the 1952 enactment of 271(b) was also ambiguous. 12 The Court concluded that 271(b) should be interpreted consistently with 271(c), given the common origin of these two subsections in the pre-1952 understanding of contributory infringement. The Court held that its prior decision in Aro Manufacturing v. Convertible Top Replacement 13 had interpreted 271(c) to require knowledge of the existence of the patent that is infringed. It thus applied the same knowledge requirement to 271(b) SEB S.A. v. Montgomery Ward & Co., No. 99 Civ. 9284, 2007 U.S. Dist. LEXIS 80394, at **8-9 (S.D.N.Y. Oct. 9, 2007) (internal quotation omitted). 6 Id. at *10 (quoting DSU Med. Corp., 471 F.2d at 1305). 7 SEB S.A. v. Montgomery Ward & Co., Inc., 594 F.3d 1360, 1376 (Fed. Cir. 2010) (quoting DSU Med., 471 F.3d at 1304). 8 Id. at Id. 10 Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011). 11 Id. at Id. at U.S. 476 (1964). 14 Global-Tech, 131 S. Ct. at sf

3 The Court made clear, however, that actual knowledge of infringement was not necessarily required in order to satisfy the requirements of 271(b). The Court held it was enough to show that the inducer was willfully blind to the possibility that the acts it had induced constituted patent infringement. Drawing on the doctrine of willful blindness in criminal law, the Court stated that the standard requires that (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. 15 This standard thus has an appropriately limited scope that surpasses recklessness and negligence. 16 The Court rejected the Federal Circuit s deliberate indifference to a known risk standard, on the grounds that the presence of a known risk that the induced acts are infringing is insufficient to show knowledge, and that mere deliberate indifference does not require active efforts by an inducer to avoid knowing about the infringing nature of the activities. 17 While the Court thus rejected the Federal Circuit s test, it nonetheless affirmed the Federal Circuit s judgment because, in the Court s view, there clearly was sufficient evidence for the jury to have found that Pentalpha willfully blinded itself to the infringing nature of the sales it encouraged Sunbeam to make. 18 The Court did not address the related question of whether the willful blindness standard would also extend to the occurrence of the induced acts that constitute infringement. The Court explained that this question was not presented in the case because Pentalpha was indisputably aware that its customers were selling its product in the American market. 19 Justice Kennedy, dissenting alone, would have rejected the willful blindness standard. 20 SUBSEQUENT APPLICATION OF WILLFUL BLINDNESS STANDARD TO PATENT CASES MAY INDICATE A LOWER BAR FOR INDUCED INFRINGEMENT In the approximately six months following Global-Tech, more than 30 trial court and appellate decisions have cited the case. The varying procedural posture of these decisions makes it difficult to generalize about how lower courts are applying Global-Tech. 21 Nonetheless, the 15 Id. at 2070 (citations omitted). 16 Id. at Id. at 2071 (emphasis added). 18 Id. The Court rejected Pentalpha s request for remand for a new trial under the Court s standard, because Pentalpha had not objected to the jury instructions in the Federal Circuit. Id. at 2071 n Id. at Id. at (Kennedy, J., dissenting). 21 The cases reviewed here occur at three distinct stages of the proceedings: motions to dismiss, motions for summary judgment, and motions for judgment as a matter of law. A court considering a pre-trial motion to dismiss under Federal Rule of Civil Procedure ( Rule ) 12(b)(6) for failure to state a claim will assume the truth of the allegations and look only to the four corners of the complaint to determine whether the plaintiff s case should be permitted to go forward. A pre-trial motion for summary judgment under Rule 56 seeks judgment as a matter of law on the ground that there is no genuine issue of material fact; the court will review documentary evidence including pleadings, depositions, affidavits, and other discovery filed in the case, and will view all facts in the light most favorable to the non-moving party. Motions for judgment as a matter of law under Rule 50 apply the same standard sf

4 decisions to date suggest that the bar for induced infringement particularly with regard to the level of knowledge required of the alleged infringer may not be as high in practice as the language of Global-Tech might suggest. 1) Decisions focus on knowledge of the patent-in-suit, rather than knowledge of possible infringement. Although the Global-Tech opinion emphasized that the knowledge requirement for inducement applies to the possibility that the induced acts constitute patent infringement, lower court decisions following Global-Tech seem to focus largely on whether the defendant could be found willfully blind with regard to the existence of the patents-in-suit. For example, the Eastern District of Texas in SynQor v. Artesyn Technologies found that the jury had sufficient evidence to return a verdict of induced infringement where the plaintiff showed that (i) its products were marked with its patents upon issue; (ii) it was common in the parties competitive industry for companies to monitor each others products; and (iii) a skilled engineer would understand from patent markings that the product was protected by a patent. 22 The court found this to be sufficient for the jury to find actual pre-suit knowledge of the asserted patent. Though the court reviewed additional evidence supporting a jury finding of pre-suit knowledge, the court did not take the next step to determine whether there was knowledge or willful blindness with regard to the possibility of inducing infringement. 23 2) Pleading requirements remain unclear. One question raised by Global-Tech is what facts a plaintiff must allege in its complaint to survive a motion to dismiss on a claim of induced infringement. In the federal courts, a complaint must plead sufficient facts to state a claim of relief that is plausible on its face, 24 and must show more than a sheer possibility that a defendant has acted unlawfully. 25 In other words, the question for induced infringement is whether [the plaintiff] has plead sufficient facts... for the Court to infer that the defendants had knowledge of [the plaintiff s] patents and that their products infringed on those patents in a claim that must also be plausible. 26 But how does one sufficiently allege subjective knowledge prior to discovery? Two cases addressing this requirement provide divergent views on this open question. The Northern District of Illinois in Trading Technologies v. BCG Partners found that the plaintiffs met their pleading burden under Global-Tech by alleging facts sufficient to infer that the defendants knew about [the plaintiff s] patents. 27 While the general allegation that as those for summary judgment, but are made at or following trial and must be decided on the evidence admitted at trial. See generally 9 Moore s Federal Practice (Matthew Bender 3d Ed.). 22 SynQor, Inc. v. Artesyn Techs., Inc., No. 2:07-CV-497, 2011 U.S. Dist. LEXIS 91668, at **11-12 (E.D. Tex. Aug. 17, 2011). 23 Id. at ** Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1974 (2007). 25 Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). 26 Trading Technologies Int l v. BCG Partners, Inc., No. 10-C-715 consolidated, 2011 U.S. Dist. LEXIS 99415, at **13-14 (N.D. Ill. Sept. 2, 2011) (emphasis in original) (citing Iqbal, 129 S. Ct. at 1949). 27 Trading Technologies, 2011 U.S. Dist. LEXIS 99415, *14. sf

5 defendants knew of the patents-in-suit would not, by itself, be enough, the court found that the plaintiff met its burden by alleging that the defendants were in the same business, that the plaintiff had marked its products with a patent number, and that defendants continued to sell the allegedly infringing product after receiving actual notice through the lawsuit. 28 In contrast, the District Court of Delaware in Eon v. Flo TV found that the plaintiff had failed to meet its pleading burden by alleging that defendants knew or should have known of the patentin-suit not only as active and sophisticated participants in the relevant market, but because some defendants entered into a third-party licensing agreement and obtained rights to patents citing the patent-in-suit as prior art. 29 The court found the third-party licensing link too tenuous to support an inference of knowledge of the asserted patents. 30 It similarly rejected the plaintiff s suggestion that knowledge could be inferred through the competitive marketplace. 31 3) Inferring knowledge from circumstantial evidence, including market participation. Several decisions have made clear that circumstantial evidence can suffice to show knowledge under Global-Tech. 32 For example, the Eastern District of Virginia in MeadWestvaco v. Rexam PLC denied summary judgment under the Global-Tech standard, finding that a genuine issue of material fact existed as to the defendant s intent. 33 Here, the court focused on evidence of the defendant s actions, including attempts to design around the plaintiff s patents before they issued. 34 Moreover, the court found that complete ignorance by the defendant s employees of its manufacturer s process creates suspicion as to [the defendant s] credibility, and a reasonable jury could conclude that [the defendant] intentionally blinded itself to infringing actions by its manufacturer. 35 In contrast, another Eastern District of Virginia decision, eplus v. Lawson Software, focused on the plaintiff s actions in order to find sufficient circumstantial evidence of knowledge to deny the 28 Id. at ** Eon Corp. IP Holdings LLC v. FLO TV Inc., No , 2011 U.S. Dist. LEXIS 74586, at **11-13 (D. Del. July 12, 2011). 30 Id. at * Id. 32 See, e.g., Acorda Therapeutics Inc. v. Apotex Inc., No , 2011 U.S. Dist. LEXIS , at *40 (D.N.J. Sept. 6, 2011) ( [I]ntent can be shown by circumstantial evidence. ) (quoting Vita-Mix Corp. v. Basic Holding, Inc., 581 F.3d 1317, 1328 (Fed. Cir. 2006)); DataQuill Ltd. v. High Tech Computer Corp., No. 08cv542, 2011 U.S. Dist. LEXIS , at *27 (S.D. Cal. Dec. 1, 2011) ( A plaintiff may prove the intent element of inducement through circumstantial evidence. ) (citing Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1322 (Fed. Cir. 2009)); Synqor, 2011 U.S. Dist. LEXIS 91668, at *11 ( [K]nowledge of the patents may be proven by either direct or circumstantial evidence. ); Halo Elecs., Inc. v. Pulse Eng g, Inc., No. 2:07-CV-00331, 2011 U.S. Dist. LEXIS , at *77 (D. Nev. Sept. 6, 2011) ( While proof of intent is necessary, direct evidence is not required; rather, circumstantial evidence may suffice. ) (quoting MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicon, 420 F.3d 1369, 1378 (Fed. Cir. 2005)). 33 MeadWestvaco Corp. v. Rexam PLC, No. 1:10cv511, 2011 U.S. Dist. LEXIS 92947, at **46-48 (E.D. Va. Aug. 18, 2011). 34 Id. at * Id. at ** sf

6 defendant post-trial relief following a jury verdict. Here, the court found sufficient evidence where the plaintiff presented evidence that the patents were marked and publicized within the industry, and that the defendant knew of the plaintiff as a competitor. 36 The eplus decision raises the possibility that marketplace activities may be a sufficient basis to infer subjective knowledge of an allegedly infringed patent in a suit for induced infringement. Similarly, the court in Trading Technologies rejected a motion to dismiss where the plaintiff had marked its product with a patent number, finding that it was not a stretch to infer that the defendants are competitors with [the plaintiff] and would be keeping an eye on patents issued to [the plaintiff] and other competitors. 37 4) The absence of legal opinion letters may be relevant to show knowledge or intent to induce infringement. Of greatest significance for potential defendants may be those decisions that seem to require affirmative steps to avoid an inference of inducement. The focus of these decisions is on opinions of counsel. While such opinions are traditionally used as a shield by defendants to parry allegations of willful infringement, some recent decisions suggest that even after Global- Tech, the absence of opinion letters could also be used as a sword by plaintiffs to show inducement. For example, the Nevada District Court in Halo Electronics v. Pulse Engineering considered the lack of an opinion letter as relevant to the issue of intent to induce. In Halo, the plaintiff sent two letters to the defendant before filing suit. The first referenced the plaintiff s relevant patents and solicited the defendant s interest in licensing. 38 The second noted that the plaintiff had not yet reached any conclusive determinations as to whether defendant s products were covered by these patents, and again stopped short of alleging infringement. 39 The defendant never obtained a legal opinion of non-infringement. While knowledge of the patents-in-suit was admitted, the defendant disputed that it had either knowledge of infringement or the intent to induce its customers to infringe those patents. The court found that the defendant s failure to obtain an opinion of counsel may be probative of its intent to induce infringement, thus creating a genuine issue as to whether the defendant knowingly induced infringement with the specific intent to do so. 40 Similarly, the Southern District of California in DataQuil v. High Tech Computer rejected a motion to dismiss, observing inter alia that the defendant has not presented any evidence showing that it obtained a competent opinion letter stating that it did not infringe the patent-in- 36 eplus, Inc. v. Lawson Software, Inc., No. 3:09cv620, 2011 U.S. Dist. LEXIS 89950, at *16 (E.D. Va. Aug. 11, 2011). 37 Trading Technologies, 2011 U.S. Dist. LEXIS ** Halo Elecs., Inc. v. Pulse Eng g, Inc., et al., No. 2:07-CV-00331, 2011 U.S. Dist. LEXIS , at *5 (D. Nev. Sept. 6, 2011). 39 Id. at ** Id. at *78 (citing Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 699 (Fed. Cir. 2008). sf

7 suit prior to the filling of that lawsuit. 41 In this case, the court made clear that the presence or absence of the opinion letter was relevant to intent, rather than knowledge of infringement. CONCLUSION As with many Supreme Court decisions, the meaning of the willful blindness test articulated in Global-Tech will be largely left in the hands of the district courts and the Federal Circuit. Even so, a few patterns are emerging: Lower court decisions tend to focus the Global-Tech inquiry on knowledge of the patentin-suit, rather than knowledge of possible infringement. While the pleading requirements under Global-Tech remain unclear, the early cases do not suggest a significantly increased bar for plaintiffs. Lower courts appear willing to infer knowledge based on various forms of circumstantial evidence, including market participation. While legal opinion letters have traditionally been used defensively to show a lack of willfulness, courts may be increasingly receptive to plaintiffs arguments that their absence is indicative of intent or even knowledge of induced infringement. These early cases suggest that while Global-Tech may purport to impose a higher standard for plaintiffs than the prior deliberate indifference test, the result may in fact be a more demanding legal standard for defendants facing such claims. 41 DataQuill Ltd. v. High Tech Computer Corp., No. 08cv542, 2011 U.S. Dist. LEXIS , at *32 (S.D. Cal. Dec. 1, 2011). sf