S.E.B. v. Montgomery Ward & Co., et al., __F.3d__, No. 2009-1099, 2010 WL 398118 (Fed. Cir. Feb. 5, 2010).

On February 5, the Federal Circuit ruled that “deliberate indifference” may be enough to constitute “actual knowledge” of a patent. Thus, a claim for inducement of patent infringement is viable even where a patentee has not produced direct evidence that the accused infringer actually knew of the patent-in-suit. The Federal Circuit (in an opinion by Judge Rader) upheld a district court decision that “the standard of deliberate indifference …is not different from actual knowledge, but is a form of actual knowledge.”

The Defendant had purchased the Plaintiff’s product and copied all features except for cosmetic attributes. The record also showed that the Defendant hired an attorney to conduct a right-to-use study without telling the attorney it had copied the Plaintiff’s product. The Federal Circuit stated that a failure to inform one’s counsel of copying would be highly suggestive of deliberate indifference in most circumstances. (See Op. at 25).

The Defendant also did not produce any exculpatory evidence other than arguing that the Plaintiff’s product that it copied was not marked with a patent number. The Federal Circuit did not find this persuasive. The Federal Circuit noted that the Defendant did not argue that it actually believed that the Plaintiff’s patent did not exist. Rather, Defendant’s brief simply “implied that it should be excused because the [Plaintiff’s product] that it copied was not marked with a U.S. Patent number.” (See Op. at 26). While the Federal Circuit did not conclusively establish a rule relating to marking, the opinion suggests “a patentee may perhaps only need to show, as Insituform suggests, constructive knowledge with persuasive evidence of disregard for clear patent markings, similar to the constructive notice requirement in § 287(a).” (See Op. at 26).

Finally, the record also showed that Defendant’s president was well versed in the U.S. patent system, and Defendant and Plaintiff had an earlier business relationship that involved another patented products. Thus, according to the Federal Circuit, the record established sufficient support that Defendant deliberately ignored the risk that Plaintiff had a protective patent. (See Op. at 26).

This case will likely trigger more allegations of inducing patent infringement. Patentees will find this case helpful in supporting such allegations, particularly if they may not have direct evidence that an accused infringer actually knew of an asserted patent. It may be helpful for patentees to carefully document prior business transactions with manufacturers or competitors, specifically if they involve patents relating to similar technologies because this can be evidence of “constructive knowledge with persuasive evidence of disregard [of protective patents]” (See Op. at 26). As a result of this case, potential defendants might consider fully informing their attorney conducting a right-to-use or clearance study of any copying that might have taken place during product development. While failing to inform is not likely to be automatically fatal in most cases, it will likely be an extremely difficult hurdle to overcome given the Federal Circuit’s position in this case.