Today, in Commil USA, LLC v. Cisco Systems, Inc., the U.S. Supreme Court ruled that an accused infringer’s good faith belief that a patent is invalid is not a defense to induced infringement, reversing the Federal Circuit on that issue (see our June 25, 2013 post on the Federal Circuit’s decision).  The Court also clarified that the scienter requirement for induced infringement from Global-Techrequires knowledge that the patent was infringed and not merely knowledge of the patent.  Finally, perhaps in response to the current patent legislation debate, the Court stated that it was aware of concern that some entities assert patents for purposes of extracting money based more on the cost of defending a patent lawsuit, rather than the merits of the case, and the Court “stress[ed]” that district court’s already have “the authority and responsibility to ensure frivolous cases are dissuaded.”

Background

Patent owner Commil sued Cisco in 2007 for making and selling wireless networking equipment alleged to infringe Commi’s patent, alleging both direct infringement and induced infringement for selling infringing equipment for others to use.  Cisco sought reexamination of Commil’s patent, which proceeding ultimately confirmed the validity of the patents.  Cisco argued that it had a good-faith belief that the patent was invalid as a defense to induced infringement, but the district court excluded that argument.  On appeal, the Federal Circuit ruled that the district court erred in not permitting Cisco to present evidence of its good-faith belief that the patent was invalid as a defense to induced infringement (see our June 25, 2013 post).  The Supreme Court accepted certiorari to review that ruling (see our Dec. 5, 2014 post).

Decision

Clarifying Global-Tech’s Scienter Requirement.  The Supreme Court first reaffirmed its ruling in Global-Tech that induced infringement requires knowledge that the induced acts constitute patent infringement.  The Court rejected the argument by patent owner Commil and the U.S. Government that Global-Tech merely requires knowledge of the patent, stating:

Qualifying or limiting [Global-Tech’s] holding, as the Government and Commil seek to do, would lead to the conclusion, both in inducement and contributory infringement cases, that a person, or entity, could be liable even though he did not know the acts were infringing.  In other words, even if the defendant reads the patent’s claims differently from the plaintiff, and that reading is reasonable, he would still be liable because he knew the acts might infringe.  Global-Tech requires more.  It requires proof the defendant knew the acts were infringing.  And the Court’s opinion was clear in rejecting any lesser mental state as the standard.

Belief of Invalidity No Defense To Induced Infringement.  The Supreme Court held that an accused infringer’s good faith belief that a patent is invalid is not a defense to induced infringement for several reasons.

First, the Court held that infringement and validity are separate issues under the Patent Act.  They are separately listed defenses as to liability such that “invalidity is not a defense to infringement, it is a defense to liability.”

Second, allowing belief as to validity as a defense to induced infringement would undermine the presumption of validity that “is a ‘common core of thought and truth'” and “that presumption would be lessened to a drastic degree.”

Third, maintaining the separation of infringement and validity is important in “the orderly administration of the patent system” given the different procedural burdens, presumptions and evidence attendant to each.

Fourth, an accused infringer who believes a patent is invalid has many other ways to defend itself by challenging patent validity in a declaratory judgment action, in an inter partes review or ex partereexamination proceeding in the U.S. Patent & Trademark Office, or raising the defense in an infringement litigation.

Fifth, recognizing belief of invalidity as a defense to induced infringement would “render litigation more burdensome for everyone involved” including “increase[d] discovery costs and multiply[ing] the issues the jury must resolve” such that “the jury would be put to the difficult task of separating the defendant’s belief regarding validity from the actual issue of validity.”

Sixth, in other contexts the law recognizes that intentional acts can lead to liability “even if the actor lacked actual knowledge that her conduct violated the law”, stating: “In the usual case, ‘I thought it was legal’ is no defense.”  For similar reasons, belief that a patent is invalid “will not negate the scienter required under §271(b)”, which the court is limiting to knowledge that the patent is infringed.

Courts Should Dissuade Frivolous Cases.  The Court made clear that there was no issue of frivolity in this case.  But, as a nod to the current patent reform legislation efforts, the Court “stress[ed]” that districts “have the authority and responsibility to ensure frivolous cases are dissuaded.”  The Court stated it was “well aware” of a developing patent licensing industry where some demand money even where their claims are frivolous:

The Court is well aware that an “industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees” [citing Justice Kennedy concurrence in eBay].  Some companies may use patents as a sword to go after defendants for money, even when their claims are frivolous.  This tactic is often pursued through demand letters, which “may be sent very broadly and without prior investigation, may assert vague claims of infringement, and may be designed to obtain payments that are based more on the costs of defending litigation than on the merit of the patent claims.” [citing FTC Statement in 2014 on draft demand letter legislation].  This behavior can impose a “harmful tax on innovation.” [Id.]

The Court stated that this concern can be addressed using existing procedures for sanctioning attorneys for bringing frivolous cases, shifting attorney’s fees costs in “exceptional cases” and multiple avenues for an accused infringer to challenge patent validity, which thus favors maintaining the separation of infringement and validity, rather than conflating invalidity into a defense to induced infringement:

[I]t is still necessary and proper to stress that district courts have the authority and responsibility to ensure frivolous cases are dissuaded.  If frivolous cases are filed in federal court, it is within the power of the court to sanction attorneys for bringing such suits. Fed. Rule Civ. Proc. 11.  It is also within the district court’s discretion to award attorney’s fees to prevailing parties in “exceptional cases.” 35 U.S.C. §285; see also Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. __, __-__ (2014) (slip op., at 7-8).  These safeguards, combined with the avenues that accused inducers have to obtain rulings on the validity of patents, militate in favor of maintaining the separation expressed throughout the Patent Act between infringement and validity.  This dichotomy means that belief in invalidity is no defense to a claim of induced infringement.