A recent decision by the Federal Circuit provides valuable guidance concerning the circumstances under which industry standards applicable to a given class of products may be used to prove that a particular accused product infringes a patent. The decision also addresses the type of evidence needed to prove contributory infringement and inducement of infringement where the accused device is capable of operating in an infringing manner but does not always do so. Fujitsu Ltd. v. Netgear Inc., Appeal No. 2010-1045 (Fed. Cir. Sep. 20, 2010).

Background

Fujitsu Ltd., U.S. Philips Corp., and LG Electronics (collectively, “Philips”) filed suit against Netgear Inc. (“Netgear”) alleging that Netgear contributorily infringed and induced infringement of three patents directed to wireless communications technology. Products in this industry adhere to standards to ensure interoperability. The infringement allegations in this case involved two standards: the Institute of Electrical and Electronics Engineers 802.11 2007 Standard (802.11 Standard) and the Wi-Fi Alliance Wireless Multi-Media Specification, Version 1.1 (WMM Specification).

Philips was part of a licensing pool (Via Licensing) that purports to include patents that any manufacturer of 802.11 and WMM compliant products must license. On June 15, 2005, Via Licensing sent a letter to Netgear offering to license a set of patents “essential” to the practice of the standard. Of the patents-in-suit, this letter mentioned only the ’952 patent and expressly stated that it was not claiming infringement. Philips never identified particular claims or accused products prior to filing the instant action.

After the district court construed the claims, Philips filed a first summary judgment motion. In this motion, Philips argued that by simply complying with the standard, Netgear necessarily infringed the asserted claims. The district court denied this motion, holding that Philips must show evidence of infringement for each accused product. The district court denied Philips’ subsequent motions for summary judgment of infringement and granted Netgear’s cross motion for summary judgment of noninfringement for a number of reasons related to the specific patents and products at issue.

Philips appealed the district court’s construction of certain claim terms, its denial of summary judgment of infringement, and its grant of summary judgment of noninfringement.

The key issues on appeal were: 1) whether district courts may rely on industry standards in analyzing whether a given accused product infringes a patent; and 2) whether plaintiffs may rely on circumstantial evidence to prove direct infringement. Other issues before the court included whether Netgear had the requisite knowledge required for contributory infringement and inducement of infringement, and whether Netgear’s products had substantial noninfringing uses.

Courts/Patentees Can Rely On Industry Standards To Prove Infringement

Noting that both contributory infringement and inducement of infringement require a finding of direct infringement by Netgear’s customers, the Federal Circuit turned first to that issue.

The Federal Circuit first addressed whether district courts “may rely on an industry standard in analyzing infringement.” Netgear argued that it is legally incorrect to compare claims to a standard rather than directly to an accused product and that this comparison would be bad public policy because “holding that practicing a standard infringes a patent would amount to an automatic conclusion of infringement against all future accused infringers.” Accordingly, “later litigants would be deprived of a fair opportunity to prove that their products do not infringe.” The court disagreed, stating that “if an accused product operates in accordance with a standard, then comparing the claims to that standard is the same as comparing the claims to the accused product” and that this approach had been previously used in Dynacore Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263 (Fed. Cir. 2004). Additionally, the court noted that the actual bad public policy would be to waste judicial resources by separately analyzing every accused product where it was not necessary to do so.

The court recognized that some standards may not be specific enough to ensure that all possible implementations infringe a patent claim and also that many standard sections are optional and users may never activate the infringing features.

The court addressed these concerns by stating that when a standard does not have the requisite level of specificity, or when a relevant section is optional, to prove infringement the “patent owner must compare the claims to the accused products, or if appropriate, prove that the accused products implement any relevant optional sections of the standard.” The court further clarified that “only in situations where a patent covers every possible implementation of the standard will it be enough to prove infringement by showing standard compliance.”

Where Accused Devices Are Capable Of Operating In Both Infringing And Noninfringing Manner, Evidence Of Actual Infringing Operation Is Required

The Federal Circuit next considered the evidence required to show acts of direct infringement. The district court held that Philips “must show evidence of direct infringement by showing that customers actually use the infringing” features. Specifically, the district court held that with the exception of four products where customer service records showed direct infringement, “other evidence (customer service manuals, advertisements, etc.) were only evidence of capability to infringe, and did not amount to evidence of actual direct infringement.” The Federal Circuit agreed, stating that unless “the claim language only requires the capacity to perform a particular claim element, we have held that it is not enough to simply show that a product is capable of infringement; the patent owner must show evidence of specific instances of direct infringement.” (emphasis added) Here, with the exception of the four products with customer service evidence, the court noted that evidence only shows that the “accused products are capable of infringement.”

The Knowledge/Intent Requirements

The Federal Circuit noted that contributory infringement requires proof that the defendant “knew that the combination for which its components were especially made was both patented and infringing.” To prove inducement, the patentee must show “that the accused infringer induced the infringing acts and knew or should have known that its actions would induce actual infringement.”

The district court held that Philips failed to establish the knowledge element of contributory infringement or the intent element of inducement of infringement, relying on its analysis of notice under the patent marking statute, 35 U.S.C. §287(a). The district court held that letters from Via Licensing that identified the ’952 patent and alleged infringement by any 802.11 compliant product were insufficient as a matter of law to provide Netgear with the type of knowledge required for contributory infringement, or to show that Netgear had the intent required for inducement liability. The Federal Circuit disagreed, finding genuine issues of material fact relating to knowledge and intent that precluded summary judgment on both contributory and induced infringement. In this case, Philips provided a letter that identified the ’952 patent and stated that all 802.11 compliant products infringe. Construing all facts in a light most favorable to Philips, the Federal Circuit determined that it could not hold that Netgear did not have the requisite knowledge or intent as a matter of law.

Substantial Noninfringing Use

The court next addressed whether Netgear’s products had a substantial noninfringing use. Netgear argued that because a user can shut off infringing the functionality, there is substantial noninfringing use. However, the court noted that it was undisputed that when the infringing features are activated the product is infringing. The court held that activation is relevant to the extent of direct infringement, but does not establish substantial noninfringing use. Accordingly, the case was remanded to the district court for further proceedings on Philips’ claims of contributory infringement and inducement of infringement.