The Federal Circuit issued a recent decision that bodes well for patentees claiming induced infringement. In SEB S.A. v. Montgomery Ward & Co., issued on February 5, 2010, the court held that a claim for induced patent infringement may be successful even without evidence that the accused infringer had actual knowledge of the patent-in-suit. SEB S.A. v. Montgomery Ward & Co., __ F.3d __, 2010 WL 398118 (Fed. Cir. Feb. 5, 2010). So long as the plaintiff shows that the defendant acted with “deliberate indifference” to potential patent rights, its claim for induced infringement is viable.

Under 35 U.S.C. § 271(b) “[w]hoever actively induces infringement of a patent shall be liable as an infringer.” This statute, as interpreted by the Federal Circuit, requires a certain level of intent on the part of the accused infringer. Specifically, the court has held that to establish liability under § 271(b), a patentee must show that the accused infringer knew or should have known its actions would induce another’s direct infringement. DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006). This intent requirement has two components: (1) the defendant, when committing the acts that induced the direct infringement, possessed the “specific intent” to cause the direct infringement, not merely the intent to cause the acts which, as it turned out, constituted infringement; and (2) the defendant knew of the patent at the time of the inducement.

In DSU Medical, the Federal Circuit’s previous opinion regarding the intent element, the court only addressed the first component, and set forth the “specific intent” standard. Importantly, the court in DSU Medical for the first time directly acknowledged, albeit without elaboration, the second component, stating, “[t]he requirement that the alleged infringer knew or should have known his actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent.” DSU Med. Corp., 471 F.3d at 1304. The record in DSU Medical showed that the alleged infringer had actual knowledge of the patent-in-suit, therefore, the court left for another day a discussion of the “knowledge of the patent” requirement.

That day came when the Federal Circuit heard SEB v. Montgomery Ward. In SEB, the Federal Circuit held that the “knowledge of the patent” component could be met by evidence of the alleged infringer’s “deliberate indifference” to potential patent rights. Thus, “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.” The court characterized “deliberate indifference of a known risk” as a form of actual knowledge, and noted that the “specific intent” standard set forth in DSU Medical was broad enough to impose liability on a defendant that “actively disregard[s] a known risk that an element of the offense exists.” Notably, the court delineated between “deliberate indifference” and a “should-have-known” standard, stating that “[t]he latter implies a solely objective test, whereas the former may require a subjective determination that the defendant knew of and disregarded the overt risk that an element of the offense existed. . . . For example, an accused infringer may defeat a showing of subjective deliberate indifference to the existence of a patent where it shows that it was genuinely ‘unaware even of an obvious risk.’”

The patent at issue in SEB related to a deep fryer cooking appliance with an inexpensive plastic outer shell that was well-insulated from the heat of the fryer’s metal pan. This allowed for the use of ordinary grade plastics, as opposed to expensive heat-resistant plastics, which are incompatible with the manufacture of low-priced fryers. Defendants in this case were Global-Tech, a British Virgin Islands corporation, and its subsidiary, Pentalpha, a Hong Kong manufacturer. Pentalpha, in developing its product, purchased plaintiff’s deep fryer in Hong Kong and copied its insulating features. It subsequently supplied its deep fryer to various U.S. retailers.

Although the plaintiff set forth no evidence of defendants’ actual knowledge of its patent, the Federal Circuit found that “the record establishe[d] sufficient support for the conclusion that [the defendants] deliberately ignored the risk that [the plaintiff patentee] had a patent that covered its deep fryer.” The court made its determination based on the following facts: (1) the defendants had deliberately copied plaintiff’s deep fryer; (2) the defendants hired a patent attorney to conduct a right-to-use study based on an analysis of 26 patents, but defendants failed to tell the attorney that they had copied plaintiff’s product; (3) Pentalpha’s president was well versed in the U.S. patent system and understood that the plaintiff company was also aware of patent rights; and (4) the defendants did not produce any exculpatory evidence showing a subjective and genuine belief that a patent covering the accused product did not exist. Consequently, the court upheld the jury’s finding of inducement, and allowed the damages award to stand.

The SEB opinion, however, did “not purport to establish the outer limits of the type of knowledge needed for inducement.” For example, the court noted that a patentee may merely need to show “constructive knowledge with persuasive evidence of disregard for clear patent markings” to satisfy the “knowledge of the patent” requirement.

This opinion could have significant implications for businesses. A company merely cognizant of the potential risk of another’s patent rights, for example, because of patent markings, or even through an awareness that the product owner may have a patent portfolio, might be open to exposure under a claim of induced infringement, regardless of the fact that it lacked specific knowledge of the existence of the patent-in-suit. Furthermore, the risk of liability to a company may be increasingly unpredictable due to the court’s unwillingness to draw bright line rules, and its acknowledgement that even a “constructive knowledge” standard could potentially suffice. In contrast, this case may help patentees in two ways. First, merely marking products may be sufficient to meet the “knowledge of the patent” standard. Second, the decision may significantly expand U.S. patent rights extraterritorially, holding foreign companies, which directly infringe patents outside the jurisdiction of the U.S., liable for induced infringement when they sell those infringing products to retailers operating domestically.