Upholding a district court’s jury instruction, the U.S. Court of Appeals for the Federal Circuit found that sales of products delivered free on board (f.o.b.) to a destination outside the United States could be infringing sales under 35 U.S.C. §271(a) and that the “knowledge of the patent” requirement for inducing infringement under §271(b) and DSU Medical can include deliberately ignoring the risk that a protective patent exists. SEB S.A. and T-Fal Corp. v. Montgomery Ward & Co. et al., Case No. 09-1099 (Fed. Cir., Feb. 5, 2010) (Rader, J.).

SEB, a French company that specializes in home-cooking appliances, brought a patent infringement action against Pentalpha Enterprises, Montgomery Ward & Co. and Global-Tech Appliances, for selling accused deep fryers in the United States. Pentalpha is a Hong Kong corporation that sold the accused deep fryers to, inter alia, Montgomery Ward f.o.b. Hong Kong or mainland China. According to the Court, “‘f.o.b’ is a ‘method of shipment whereby goods are delivered at a designated location, usually a transportation depot, at which legal title and thus the risk of loss passes from seller to buyer.’” At trial, the district court instruction and jury from arguably would permit the jury to assess damages based either on inducement or direct infringement alone.

On appeal, Pentalpha challenged the jury instructions and form, arguing it was “hopelessly ambiguous” as to whether the jury based its damages award on direct or indirect infringement and that the court erred in finding liability for inducement as SEB had not proven knowledge by defendants of the patents-in-suit. The Court, however, upheld the jury instruction, finding that an infringement verdict was proper on either ground.

Regarding direct infringement, Pentalpha argued that the district court (the U.S. District Court for the Southern District of New York) should have charged the jury that an offer in the United Stated to sell goods outside of the United States does not violate the “offer to sell” provision of the 35 U.S.C. §271(a). Pentalpha also argued that the district court erred by instructing the jury that, in determining if a sale occurred within the United States, it could consider “where the products were shipped from and where the products were shipped to.”

The Federal Circuit noted that Pentalpha failed to raise an objection to these portions of the jury instructions on the record, and stated that the applicable circuit (Second Circuit) law limits review in such a case to fundamental errors, rather than the lower bar of plain error. Upon such a standard, the Court found that neither of the alleged problems constituted fundamental error.

The Federal Circuit insisted that it has “rejected the notion that simply because goods were shipped f.o.b., the location of the ‘sale’ for purposes of §271(a) must be the location from which the goods were shipped,” citing it prior decision in Lightcubes. Moreover, the Court found that the record supported a finding that Pentalpha intended to sell its deep fryers directly to the United States because it labeled them with its customers’ United State’s trademarks, manufactured them with North American electrical fittings and because customer invoices showed delivery to U.S. destinations. With such evidence, the Court concluded there was no fundamental error in the jury instruction regarding direct infringement.

With regard to inducement, Pentalpha argued that it did not induce infringement because it did not have knowledge of the asserted patent and, therefore, did not have the specific intent to encourage another’s infringement. The Federal Circuit ruled that the “specific intent” requirement of its en banc decision in DSU Medical is “not so narrow at to allow the accused wrongdoer to actively disregard a known risk that an element of the offense exists.” Rather, citing to Supreme Court and sister circuit cases involving child pornography, prison inmate safety and age discrimination, the Court sua sponte created a “deliberate indifference” exception to the DSU rule, noting substantial evidence that Pentalpha “deliberately disregarded” a known risk that SEB had a protective patent. The Court explained that a “claim for inducement is viable even where a patentee has not produced direct evidence that the accused infringer actually knew of the patent-in-suit.” In this case, while SEB did not produce direct evidence that Pentalpha knew of the asserted patent, the evidence did show that Pentalpha purchased a SEB deep fryer, reverse engineered it, copied it and sold it as its own; Pentalpha commissioned a “right to use” study but did not inform the commissioned attorney that the deep fryer was copied; Pentalpha’s president was “well versed” in U.S. patent law and was a named inventor on 29 U.S. patents; and Pentalpha and SEB had an earlier business relationship. Moreover, Pentalpha did not provide evidence that it actually believed no SEB protective patent existed. Thus, the Court did not find a fundamental error in the jury instruction regarding indirect infringement.

Finding that an infringement verdict was proper under either theory, the Court upheld the district court’s jury instruction as the ambiguity was non-consequential because the jury’s damages award could have been properly based either on a finding of direct or indirect infringement, or both.