Addressing a syllogistic, perhaps paradoxical difference between belief of non-infringement and belief of invalidity, on May 26, 2015, the U.S. Supreme Court in Commil USA, LLC v. Cisco Systems, Inc.  held that an accused infringer’s good-faith belief that a patent is invalid is not a defense to induced infringement, vacating the prior judgment of the Federal Circuit. Induced infringement requires showing that the accused infringer knew of the patent and knew the induced acts were infringing. Although belief of non-infringement is a valid defense to induced infringement and invalidity is a defense to any form of infringement, including induced infringement, belief of invalidity is never a valid defense.

Background

Commil USA, LLC sued Cisco Systems, Inc., alleging Cisco infringed Commil’s patent for a method of implementing short-range wireless networks. Commil alleged Cisco induced others to infringe the patent by selling the infringing equipment for others to use. A jury found Cisco liable for direct infringement, but not liable for induced infringement. However, a new trial was granted on induced infringement. In its defense, Cisco argued it had a good-faith belief that Commil’s patent was invalid, but the District Court excluded this evidence. The jury in the second trial returned a $74 million verdict for Commil on the issue of induced infringement.

After the first trial, the Supreme Court issued its decision in Global-Tech Appliances, Inc. v. SEB S.A, 131 S. Ct. 2060 (2011), holding that for induced infringement, a plaintiff must show the alleged inducer knew of the patent and knew the induced acts were infringing. Cisco also sought ex parte reexamination of the patent’s validity, but the United States Patent and Trademark Office (USPTO) confirmed the patent’s validity.

On appeal, a panel of the Federal Circuit held that the District Court erred in excluding Cisco’s evidence of a good-faith belief that the patent was invalid. It found that evidence of an accused inducer’s good-faith belief of invalidity may negate the intent for induced infringement.

Supreme Court’s Decision

Holding that belief regarding a patent’s validity is not a defense to induced infringement, the Supreme Court vacated the Federal Circuit’s opinion. The Court discussed the statutory language and general standards under the Patent Act for direct infringement under section 271(a), induced infringement under section 271(b) and contributory infringement under section 271(c), noting that induced and contributory infringement require knowledge of the patent and knowledge of infringement. It reasoned that infringement is different and separate from validity under the Patent Act in that they require different burdens, presumptions and evidence.

The Court further reasoned that conflating the issue of infringement and validity would undermine the presumption of validity under section 282. The USPTO confers this presumption of validity to patent holders, and infringers must overcome this presumption with clear and convincing evidence when defending on invalidity grounds. The Court concluded that invalidity is a defense to liability, not a defense to infringement, and therefore, a belief as to invalidity cannot negate the knowledge of wrongdoing required for induced infringement.

As another basis, the Court reasoned that costs of litigation supported its conclusion because costs would rise given that evidence of knowledge of invalidity would be at issue. Moreover, in the Court’s view, if an accused infringer believes a patent is invalid, the law provides for relief; for example, filing a declaratory judgment, inter partes review or ex parte reexamination.

In the last part of the decision, the Court made what appeared to be a political statement. It mentioned the negative harm on innovation caused by patent trolling and frivolous cases, even though there was no issue of frivolity in the case. The Court stated that safeguards such as sanctions under Rule 11 of the Federal Rules of Civil Procedure and attorney’s fees in exceptional cases are available to dissuade frivolous cases, encouraging district courts’ deployment of these safeguards.

Justice Scalia and Chief Justice Roberts dissented. In the dissent, Justice Scalia dissected the majority’s decision and applied formal logic to conclude that belief of invalidity is a defense to infringement. According to Scalia, because “only valid patents can be infringed, anyone with a good-faith belief in a patent’s invalidity necessarily believes the patent cannot be infringed. And it is impossible for anyone who believes that a patent cannot be infringed to induce actions that he knows will infringe it. A good-faith belief that [a] patent is invalid is therefore a defense to induced infringement of that patent.”

Impact

From a litigation standpoint, costs may be lowered in induced infringement cases as parties will not have to litigate whether there was a belief of invalidity of the patent. The majority also reinforced the principle that district courts need to apply safeguards such as sanctions and attorney fee awards, especially for frivolous cases. Given this endorsement, the trend seen after the decision in Octane Fitness of courts awarding attorney’s fees in exceptional cases is likely to continue.

From a business perspective, businesses and people should always proceed with caution when inducing others to use or contributing to the use of patented or potentially patented subject matter. A person’s belief of non-infringement (that the conduct does not infringe the patent claims) is a defense to induced infringement and contributory infringement, but a belief that a patent is invalid is not a viable defense. Persons and businesses must therefore weigh operational costs and, when necessary, should consider filing a declaratory judgment, inter partes review or ex parte reexamination if the validity of the patent is questionable. Failure to confirm invalidity when there is knowledge of the patent and knowledge of infringement subjects parties to additional risk, potential liability, and possible damages for induced infringement or contributory infringement.