Commil USA, LLC  v. Cisco Systems, Inc. (Supr. Ct. May 26, 2015)

Pharmaceutical patents commonly include claims directed to methods of treatment using a purportedly novel compound, formulation or treatment regimen. In Hatch-Waxman litigations, branded pharmaceutical patent holders frequently assert allegations of infringement of such method claims against generic pharmaceutical manufacturers, using theories of indirect infringement. Patent holders allege that clinicians are induced to practice the method claims when generic manufacturers sell generic pharmaceutical products with labeling including indications of use and directions for administration. In response, generic manufacturers commonly counterclaim with defenses of non-infringement and/or patent invalidity of the asserted method claims.

On May 26, 2015, the Supreme Court of the United States held that “a defendant’s belief regarding patent validity is not a defense to an induced infringement claim”—it is only a defense to liability. Commil USA, LLC  v. Cisco Systems, Inc., Case No. 13-896, 575 U.S. ___ (S.Ct. May 26, 2015). The Court reached this holding in a long-running patent infringement dispute relating to “method[s] of implementing short-range wireless networks.” Although this was not a Hatch-Waxman case, the Supreme Court’s decision may have a significant impact in abbreviated new drug application (ANDA) litigation involving claims of induced infringement.

Following a first trial in the U.S. District Court for the Eastern District of Texas, a jury found wireless equipment provider Cisco liable for direct, but not induced, infringement. Commil sought a new trial on the issue of inducement, and during a second trial, Cisco raised a good faith belief of patent invalidity as a defense to Commil’s induced infringement allegations. Cisco’s evidence on this issue was excluded at trial, without express explanation by the court, and Cisco was found liable for indirect infringement.

Cisco appealed to the U.S. Court of Appeals for the Federal Circuit on bases including the preclusion of evidence, as well as Commil’sjury instruction, which improperly articulated the standard of proof for induced infringement as including negligence, rather than the required showing of intent—that the alleged inducer knew of the patent in question and knew the induced acts were infringing. Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. __ (2011). The Federal Circuit panel determined that the lower court erred in both 1) instructing the jury on inducement using a negligence standard and 2) precluding Cisco from presenting evidence of its good faith belief of patent invalidity in its defense. Commil USA, LLC  v. Cisco Systems, Inc., 720 F.3d 1361 (2013). On the second point, the Federal Circuit stated that it was “axiomatic that one cannot infringe an invalid patent,” and concluded, “Evidence of an accused inducer’s good faith belief of invalidity may negate the requisite intent for induced infringement.” Id. at 1368. Although the Federal Circuit denied the parties’ request for a hearing en banc, the Supreme Court granted certiorari to address the question relating to the invalidity defense to induced infringement. The Court vacated the Federal Circuit’s decision.

Writing for the majority, Justice Anthony Kennedy (joined by Ginsburg, Alito, Sotomayor and Kagan and, in part, by Thomas, with Breyer abstaining) framed this issue as one of first impression: In view of the intent requirement for proving induced infringement “whether defendant’s belief regarding patent validity is a defense to a claim of induced infringement.”  Simply stated, the Court concluded, “[I]t is not”—“Infringement and invalidity are separate matters under patent law.” Applying similar logic to that stated in the dissenting opinion of Judge Pauline Newman of the Federal Circuit, the Court concluded, “The scienter element of induced infringement concerns infringement; that is a different issue than validity . . . And because infringement and validity are separate issues under the Act, belief regarding validity cannot negate the scienter required under §271(b).” The Court explained that non-infringement and invalidity have been historically viewed as alternative defenses, and that the structure of the Patent Act separates validity and infringement in Parts II and III, respectively. Furthermore, permitting an invalidity defense to the scienter requirement of induced infringement would impact the burdens and order of evidence; undercut the long-standing presumption of patent validity; and the clear-and-convincing standard required to prove patent invalidity. The Court commented that practitioners improperly conflate the alternative defenses when saying, “An invalid patent cannot be infringed . . . because invalidity is not a defense to infringement, it is a defense to liability.”

The Court opined that a belief in invalidity defense to induced infringement is not necessary, because alternate paths to obtaining a ruling on invalidity (including a traditional defense of invalidity, a declaratory judgement proceeding on invalidity, and U.S. Patent and Trademark Office procedures of inter partes review and ex parte re-examination), and a belief in invalidity defense may complicate litigation. Finally, in dicta, the Court noted that some patent holders pursue frivolous patent claims. While “[n]o issue of frivolity has been raised by the parties in this case . . . district courts have the authority and responsibility to ensure frivolous cases are dissuaded” using Rule 11 sanctions and §285 attorney’s fee awards.

In dissent, Justices Antonin Scalia and John Roberts disagreed with the majority’s view that infringement and invalidity as entirely independent issues. They note that, “To infringe a patent is to invade the patentee’s right of exclusivity. An invalid patent confers no such right.” Further, “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.” Therefore, good faith belief of invalidity is a defense to infringement. The dissenting opinion briefly responds to the remaining arguments set forth by the majority: 1) The Patent Act’s separate treatment of validity and infringement is irrelevant, as these issues are necessarily intertwined for the reasons stated above; 2) the statutory presumption of invalidity would not be undermined as the burden of proving invalidity by clear and convincing evidence remains; and 3) the practical reasons not to create an invalidity defense to induced infringement are not the concern of the Court; the Court is to interpret the Patent Act. Finally, the dissent notes that it if were the Court’s province to consider the practical implications of the ruling, the majority holding “increases the in terrorem power of patent trolls,” which is not preferred.