In Global-Tech Appliances, Inc. v. SEB S.A, 563 U.S. ___ (2011), the Supreme Court addressed the type of knowledge a defendant must possess to be liable for inducement of infringement under 35 U.S.C. § 271(b). The Global-Tech opinion contains two significant holdings: First, the Court held that “induced infringement under § 271(b) requires knowledge that the induced acts constitute patent infringement.” Second, where the defendant asserts that it had no knowledge of the patent, the Court held that the knowledge requirement can be satisfied by a showing that the defendant was “willfully blind” to the possibility that its conduct would result in infringement by others. Willful blindness, as articulated by the Court, requires that a defendant: (1) “subjectively believe that there is a high probability that a fact exists” and (2) “take deliberate actions to avoid learning of that fact.”
The facts of the case involve the increasingly common situation where a foreign party produces an infringing product for eventual sale in the United States. Plaintiff SEB is the owner of a United States patent for a deep fryer. SEB claimed that defendants Global-Tech and Pentalpha (collectively, “Pentalpha”), actively induced the infringement of its patent. Specifically, SEB alleged that Pentalpha bought an SEB deep fryer in Hong Kong, reverse-engineered it, and sold copies to third-party resellers in the United States who later resold the copies in the United States under their respective trademarks. SEB also contended that Pentalpha copied every functional aspect of SEB’s deep fryer, but kept this information from the patent attorney it had retained to perform a right-to-use study. Finally, the record showed that Pentalpha conducted extensive research into the U.S. market during the time period in question and its CEO was a named inventor on a number of U.S. patents.
SEB eventually sued Pentalpha for inducement of infringement under § 271(b), asserting that Pentalpha actively induced the resellers to “sell or offer to sell [SEB-derived fryers] in violation of SEB’s patent rights.” In defense, Pentalpha argued that it did not have knowledge of SEB’s patent when the allegedly infringing acts occurred and thus could not be liable under an induced infringement theory. Rejecting this argument, a jury found Pentalpha liable for actively inducing the infringement of SEB’s patents. An appeal followed, and the Federal Circuit affirmed the judgment of infringement. SEB S.A. v. Montgomery Ward & Co., 594 F.3d 1360 (Fed. Cir. 2010).
Citing DSU Medical Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006) (en banc), the Federal Circuit stated that induced infringement under § 271(b) requires a “plaintiff [to] show that the alleged infringer knew or should have known that his actions would induce actual infringements” and that this showing includes proof that the alleged infringer knew of the patent. 594 F.3d at 1376. Although there was no evidence that Pentalpha knew of SEB’s patent before one of its customers was sued for infringement, the Federal Circuit found adequate evidence to support a finding that “Pentalpha deliberately disregarded a known risk that SEB had a protective patent.” Id. at 1377. Such disregard, the court said, “is not different from actual knowledge, but is a form of actual knowledge.” Id.
The Supreme Court subsequently granted Pentalpha’s petition for certiorari. The question presented was whether liability for induced infringement requires “deliberate indifference of a known risk” that an infringement may occur, as the Federal Circuit held, or “purposeful, culpable expression and conduct” to encourage an infringement, the standard the Court adopted for inducement of copyright infringement in MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 937 (2005).
Induced Infringement Under § 271(b) Requires Knowledge that the Induced Acts Constitute Patent Infringement
The Court first turned to the text of § 271(b), which provides:
Whoever actively induces infringement of a patent shall be liable as an infringer.
The Court noted that this language is ambiguous with respect to the type of knowledge required for liability: “In referring to a party that ‘induces infringement,’ this provision may require merely that the inducer lead another to engage in conduct that happens to amount to infringement, i.e., the making, using, offering to sell, selling, or importing of a patented invention. . . . On the other hand, the reference to a party that ‘induces infringement’ may also be read to mean that the inducer must persuade another to engage in conduct that the inducer knows is infringement. Both readings are possible.” To resolve this ambiguity, the Court turned to § 271(c), which is directed to contributory infringement:
Whoever offers to sell or sells . . . a component of a patented [invention] . . ., constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer. (Emphasis added).
The Court noted that “[t]his language contains exactly the same ambiguity as § 271(b). The phrase ‘knowing [a component] to be especially made or especially adapted for use in an infringement’ may be read to mean that a violator must know that the component is ‘especially adapted for use’ in a product that happens to infringe a patent. Or the phrase may be read to require, in addition, knowledge of the patent’s existence.”
In Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 488, and n.8 (1964), the Court construed § 271(c) as requiring knowledge of the patent. This holding is relevant to the construction of § 271(b), the Court reasoned, because “induced infringement was not considered a separate theory of indirect liability in the pre-1952 case law. Rather, it was treated as evidence of ‘contributory infringement,’ that is, the aiding and abetting of direct infringement by another party. . . . When Congress enacted § 271, it separated what had previously been regarded as contributory infringement into two categories, one covered by § 271(b) and the other covered by § 271(c).” In view of the common origin of §§ 271(b) and (c), the Court reasoned that it would “be strange to hold that knowledge of the relevant patent is needed under § 271(c) but not under § 271(b).” Accordingly, the Court held that “induced infringement under § 271(b) requires knowledge that the induced acts constitute patent infringement.”
“Willful Blindness” Satisfies the Knowledge Requirement, but “Deliberate Indifference to a Known Risk” Does Not
Having decided that liability under § 271(b) “requires knowledge that the induced acts constitute patent infringement,” the Court turned to the issue of whether such knowledge can be imputed to a defendant who contends that it did not know the patent existed. On this issue, the court rejected the Federal Circuit’s holding that “deliberate indifference to a known risk that a patent exists” is sufficient to satisfy the knowledge requirement. Instead, the Court held that a defendant who claims not to have known of the patent is liable only if the patentee can satisfy the more rigorous standard of proving that the defendant was “willfully blind” to the infringing nature of the activities it has induced.
The Court based this holding on criminal law principles. It noted that “[m]any criminal statutes require proof that a defendant acted knowingly or willfully, and courts applying the doctrine of willful blindness hold that defendants cannot escape the reach of these statutes by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances. The traditional rationale for this doctrine is that defendants who behave in this manner are just as culpable as those who have actual knowledge.” Given “the long history of willful blindness and its wide acceptance in the Federal Judiciary,” the Court saw “no reason why the doctrine should not apply in civil lawsuits for induced patent infringement under 35 U.S.C.§ 271(b).”
Reviewing case law from various courts of appeals, the Court discerned “two basic requirements” for a finding of willful blindness:
(1) The defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate acts to avoid learning of that fact. . . . Under this formulation, a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts.
The Court explained that the Federal Circuit’s “deliberate indifference to a known risk” standard differed from the proper “willful blindness” standard in two ways: “First, it permits a finding of knowledge when there is merely a ‘known risk’ that the induced acts are infringing. Second, in demanding only ‘deliberate indifference’ to that risk, the Federal Circuit’s test does not require active efforts by an inducer to avoid knowing about the infringing nature of the activities.”
Reviewing the record, the Court found ample evidence that Pentalpha had willfully blinded itself to the patent’s existence and the possibility that its customers would directly infringe the patent when they resold the deep fryers in the United States. First, because Pentalpha decided to copy “all but the [fryer’s] cosmetic features,” the Court reasoned that Pentalpha knew that the fryer would be valuable in the U.S. market. Second, the Court inferred that Pentalpha copied an overseas model of SEB’s fryer with the knowledge that products bound for non- U.S. markets do not display U.S. patent markings. Finally, Pentalpha did not tell the attorney it retained to conduct a patent search that its product “was simply a knockoff of SEB’s fryer.” The Court found this omission “even more telling” of Pentalpha’s willful blindness, stating that it could not “fathom what motive [Pentalpha] could have had for withholding this information” besides a bad faith attempt to create plausible deniability. Thus, the Court reasoned that the evidence “was more than sufficient” to show that Pentalpha “subjectively believed there was a high probability that SEB’s fryer was patented, that [Pentalpha] took deliberate steps to avoid knowing that fact, and that it therefore willfully blinded itself to the infringing nature” of the acts of the third-party resellers.
Going forward, Global-Tech may have significant implications for e-commerce. For example, Google argued in an amicus brief that “without clear, well-defined knowledge and intent requirements, merely linking to, hosting and providing information or software could be argued to give rise” to liability for induced patent infringement. Brief for Google Inc. as Amicus Curiae Supporting Petitioners, Global-Tech v. SEB, 563 U.S. ___ (2011). Thus, a willful blindness intent standard may impose burdens on large tech companies, such as Google, whose existence relies on partnering with massive numbers of quasianonymous third parties. Insofar as a high probability exists that some quasi-anonymous third parties are committing infringement, companies such as Google may need to institute extensive monitoring and infringement response regimes. An example of such monitoring can be seen in Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93 (2d Cir. 2010). There, even though eBay conceded that it knew as a general matter that counterfeit Tiffany products were listed and sold through its website, eBay was found to be “not willfully blind to the counterfeit sales” because it spent as much as $20 million each year on programs to deter them. Id. at 98, 110. Consequently, the net effect of Global-Tech’s ruling may be to increase burdens on e-companies by forcing them to police the activity of their partners.