United States: Indirect Patent Infringement And Global-Tech

On May 31, 2011 the U.S. Supreme Court found that the Federal Circuit's application of its "deliberate indifference" test in SEB S.A. v. Montgomery Ward & Co., 594 F.3d 1360 (2010), was inappropriate to establish the knowledge required for inducement under 35 U.S.C. § 271(b), but that a defendant's "willful blindness" could, alternatively, be used to satisfy this knowledge requirement.

Background of the Global-Tech decision

Inducement is a theory of indirect patent infringement. 35 U.S.C. § 271(b) provides that "[w]hoever actively induces infringement of a patent shall be liable as an infringer." To establish active inducement, a plaintiff must generally show that: (1) a direct infringement occurred, (2) the defendant's actions induced this direct infringement, and (3) the defendant had a specific intent to induce infringement.¹

In its decision in SEB, the Federal Circuit addressed the scope of knowledge required for a defendant to have a specific intent to induce infringement. The Federal Circuit found that a direct showing of a defendant's actual knowledge of the patent was not necessary.² The court did not establish, however, an objective standard for what would be necessary. Instead, it found that the knowledge requirement could be satisfied by a subjective test — a showing of the defendant's "deliberate indifference of a known risk" that the plaintiff had a protective patent.³ The Federal Circuit rationalized this on the grounds that such a deliberate disregard by a defendant was, in actuality, a form of actual knowledge. Applying this test to the case at bar, the court found that the record contained adequate evidence that the defendant, Pentalpha, had deliberately disregarded a known risk that the plaintiff, SEB, had a patent. Pentalpha copied all but the cosmetics of SEB's patented product, a deep fryer. Pentalpha also hired an attorney to conduct a right-to-use analysis, but did not inform him of this copying, and the company's president was well-versed in patent law and understood plaintiff to be as well.⁴

The U.S. Supreme Court responded as follows.

1. Is the "deliberate indifference" test an appropriate standard for finding knowledge under § 271(b)?

No. The Supreme Court ruled that "deliberate indifference" does not satisfy the knowledge requirement under § 271(b).⁵ The Court criticized this test as allowing a finding of "knowledge" when there is merely a "known risk."⁶ The Court also criticized this test as demanding only "deliberate indifference" to this risk, instead of "active efforts by an inducer to avoid knowing about the infringing nature of the activities."⁷

While the Court thus eschewed the Federal Circuit's test, it did rule that the knowledge requirement in § 271(b) could be satisfied by willful blindness.⁸ The Court found that "willful blindness" includes two basic requirements: (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 that fact.⁹ The Court looked to criminal law in reaching this conclusion, where it found that courts apply "willful blindness" to hold that "defendants cannot escape the reach of ... statutes by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances."¹⁰ The Court apparently felt that the "willful blindness" standard could be used to extend liability to those defendants who are "just as culpable as those who have actual knowledge" of a patent, but at the same time was appropriately limited in scope (in that, for example, the standard is a higher threshold than recklessness or negligence).¹¹ Justice Kennedy dissented from the Court's opinion, arguing that "[w]illful blindness is not knowledge; and judges should not broaden a legislative prescription by analogy."¹²

2. Did defendant Pentalpha "willfully blind" itself and have the knowledge required for inducement under § 271(b)?

Yes. Although the Federal Circuit had not applied the Supreme Court's "willful blindness" standard, the Supreme Court found that the evidence on record was sufficient under its standard.¹³ In finding that Pentalpha willfully blinded itself to the infringing nature of the sales it encouraged others to make, the Court relied on many of the same facts that the Federal Circuit had under its test — Pentalpha copied all but the cosmetics of SEB's patented deep fryer, Pentalpha did not inform the attorney it hired to conduct a right-of-use analysis of this copying, and Pentalpha's president was well-versed in patent law.¹⁴

Looking forward after Global-Tech

The Court's decision arguably further heightens the showing that a plaintiff must make for a defendant to be liable for active inducement of infringement under § 271(b). In the absence of actual knowledge, a plaintiff will now have to establish a defendant's subjective belief that there is a high probability that the relevant product is patented, and then must show deliberate actions that the defendant took to avoid learning this fact. Correspondingly, opinions of counsel, such as prior art searches and noninfringement opinions, will likely continue to play an important role in potentially avoiding liability under § 271(b). Companies obtaining such opinions, however, should avoid the mistakes that befell Pentalpha, and be sure to first inform their patent attorneys conducting such an analysis of any third-party products or services that may have served as an inspiration for the company's new product or service. Companies should also consider informing their attorneys of other key facts they have knowledge of that may facilitate the search and analysis, such as known close products or services they have reviewed.

The fact that the Supreme Court has arguably heightened the standard for proving knowledge for indirect infringement under § 271(b) is further notable because the Federal Circuit has recently limited direct infringement in other contexts, potentially forcing plaintiffs to rely on such an indirect infringement theory in certain instances. For example, the Federal Circuit recently found that, for systems claims where the end user's acts satisfy certain claim limitations and a company's acts satisfy others, the company cannot be liable for direct infringement unless it puts the system as a whole into service (i.e., controls the system and obtains a benefit from it).¹⁵ In many instances, however, the end user will put the system into service (i.e., "use" the system), and thus plaintiffs may be forced to rely on a theory of indirect infringement such as active inducement.

Footnotes

1 See, e.g., i4i Ltd. Partnership v. Microsoft Corp., 598 F.3d 831 (Fed. Cir. 2010); DSU Medical Corp. v. JMS Co., Ltd., 471 F.3d 1293, 1304 (Fed. Cir. 2006); SEB, 594 F.3d at 1377.

2 SEB, 594 F.3d at 1377.

3 Id.

4 Id. at 1377-78.

5 Global-Tech Appliances, Inc. v. SEB S.A., Slip Op. at 10.

6 Id. at 14.

7 Id.

8 Id. at 12.

9 Id. at 13.

10 Id. at 10.

11 Id. at 10, 14.

12 Kennedy Dissent at 1.

13 Slip Op. at 14.

14 Id. at 14-16.

15 Centillion Data Systems v. Qwest Comm. Int'l, Inc., 631 F.3d 1279, 1284 (Fed. Cir. 2011).

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