The United States Supreme Court has taken up the issue of the intent required for induced infringement under 35 U.S.C. § 271(b) by granting a writ of certiorari to review the Federal Circuit’s decision in SEB S.A. v. Montgomery Ward & Co., Inc., 594 F.3d 1360 (Fed. Cir. 2010). The question to be decided by the Court on certiorari is: “Whether the legal standard for the state of mind element of a claim for actively inducing infringement under 35 U.S.C. § 271(b) is ‘deliberate indifference of a known risk’ that an infringement may occur, as the Court of Appeals for the Federal Circuit held, or ‘purposeful, culpable expression and conduct’ to encourage an infringement, as this Court taught in MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 937, 125 S. Ct. 2764, 2780, 162 L. Ed. 2d 781, 801 (2005)?” Global-Tech Appliances, Inc. v. SEB S.A., cert. granted, 79 U.S.L.W. 3220, 3226 (U.S. Oct. 12, 2010) (No. 10-6).
In SEB, the Federal Circuit elaborated on the “knowledge-of- the-patent” requirement for inducement liability forth in the earlier case of DSU Medical Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006) (en banc in relevant part). DSU held that inducement liability requires proof “that the alleged infringer knew or should have known that his actions would induce actual infringements.” DSU further held that “[t] he requirement that the alleged infringer knew or should have known the actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent.” SEB held that this requirement for knowledge of the patent can be satisfied by showing a “deliberate indifference” to the existence of a patent, reasoning that “the standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge.” Thus, according to the court, “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 facts that led to this decision were as follows.
More than eleven years ago, patentee SEB S.A. sued Pentalpha, Global-Tech Appliances, and Montgomery Ward for patent infringement of U.S. Pat. No. 4,995,312 (“the ‘312 patent) in the Southern District of New York. The ‘312 patent claims an electrical deep fryer with a plastic outer shell called a “skirt” which surrounds the deep fryer’s metal pan and acts as an external heat insulator.
Pentalpha, a Hong Kong corporation, and its parent company, Global-Tech (collectively “Pentalpha”), began selling the accused deep fryers in 1997 to non-party Sunbeam Products which then resold them under its own trademarks in the US. In developing the accused deep fryer, Pentalpha purchased the patentee’s deep fryer in Hong Kong and copied each of the “cool touch” features. Shortly after agreeing to supply Sunbeam with its deep fryers, Pentalpha obtained a right-to-use study from a patent attorney located in Binghamton NY, who analyzed 26 patents and concluded that none of the claims in those patents read on the accused deep fryers. However, Pentalpha did not tell that attorney that it had copied the SEB deep fryer.
Subsequently, SEB sued Sunbeam in the District of New Jersey in 1998, alleging that the deep fryers resold in the US infringed the ‘312 patent. That suit eventually ended in a settlement. At the same time, Pentalpha also sold the accused deep fryers to co-defendant Montgomery Ward and non-party Fingerhut Corporation, both of whom sold the products under their own trademarks in the US. Pentalpha was aware of the SEB-Sunbeam suit at the time of these later sales. Pentalpha sold the accused deep fryers to these three companies free on board (“f.o.b.”) Hong Kong or mainland China.
Following a claim construction hearing, the district court granted SEB’s motion for a preliminary injunction on September 10, 1999, holding that SEB was likely to prove at trial that Pentalpha’s deep fryers infringe at least claim 1 of the ‘312 patent. The Federal Circuit affirmed the preliminary injunction order without opinion. Thereafter, Pentalpha modified its deep fryer by redesigning the ring that separated the skirt and the pan. However, the district court granted SEB’s application for supplemental injunctive relief in 2001 that the modified fryer still infringed at least claim 1 of the ‘312 patent under the doctrine of equivalents.
After the close of evidence, Pentalpha moved for JMOL on SEB’s claim that Pentalpha had induced infringement of the ‘312 patent by selling the accused deep fryers overseas to Sunbeam, Fingerhut and Montgomery Ward, who resold them in the US. Pentalpha’s JMOL motion was based on the lack of evidence that anyone at Pentalpha “had any knowledge with respect to the existence of the ‘312 patent.” The trial court denied the motion, finding that Pentalpha’s failure to tell its patent attorney that it had copied SEB’s product was such a significant omission that the attorney’s search for relevant patents was “doomed to failure,” and that this could support an inference that Pentalpha knew it was infringing a patent. Thus, according to the district court, there was sufficient evidence to support SEB’s theory of inducement:
[SEB is] saying that you could infer the specific intent to . . . encourage the infringement by the fact that [Pentalpha’s president] doesn’t disclose that [Pentalpha copied the SEB product] to the people doing the [patent] search. [Pentalpha] wants them to do a search that . . . is doomed to failure, and that that is enough, that a reasonable jury could infer that, specific intent . . . . Here is the argument. There are a zillion patent attorneys in New York City, [yet] [t]hey go to this guy in the middle of nowhere to do this patent search. . . . I don’t know what happened. I’m not in [Pentalpha’s President’s] head. I don’t know what he did. . . . I think it is . . . a reasonable argument, could a jury infer from those actions, if they chose to believe them in the way the plaintiffs want, that that was an indication that [he] understood that he was likely violating a patent, in fact violating a patent.
On appeal, Pentalpha raised several issues, one of which related to the intent requirement of induced infringement.
Federal Circuit Rules That “Deliberate Indifference” to Known Risk of Infringement Satisfies Intent Requirement for Inducement of Infringement
In a decision authored by Judge Rader, joined by Judges Bryson and Linn, the Federal Circuit elaborated on the law regarding the knowledgeof- the-patent requirement for induced infringement under § 271(b), which provides: “Whoever actively induces infringement of a patent shall be liable as an infringer.” The court reiterated the intent requirement from DSU, which requires that “the plaintiff [ ] show that the alleged infringer knew or should have known that his actions would induce actual infringements.” Further, “[t]he requirement that the alleged infringer knew or should have known the actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent.”
However, the SEB court acknowledged that DSU did not determine “the metes and bounds of the knowledge-of-the-patent requirement,” or the “nature” or “scope” of the knowledge requirement for intent. Rather, the court explained, DSU “resolved conflicting case law setting forth both a requirement to knowingly induce infringement and to merely knowingly induce the acts that constitute direct infringement.” In other words, DSU determined “the target” of the knowledge requirement for intent.
On the issue of the knowledge-of-the-patent requirement, the Federal Circuit concluded that “as courts have observed in a variety of settings, the standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge.” SEB, 594 F.3d at 1377 (emphases added). In reaching this conclusion, the Federal Circuit cited United States v. Carani, 492 F.3d 867, 873 (7th Cir. 2007) (a criminal case holding that “[d]eliberate avoidance is not a standard less than knowledge; it is simply another way that knowledge may be proved”) and Woodman v. WWOR-TV, Inc., 411 F.3d 69, 84 n.14 (2d Cir. 2005) (a civil case holding that “a party’s knowledge of a disputed fact may also be proved through evidence that he consciously avoided knowledge of what would otherwise have been obvious [to] him”).
The SEB court also applied the rule that inducement of infringement also requires “specific intent to encourage another’s infringement.” Citing two federal appellate cases that equated “deliberate indifference” with “specific intent,” or “intentional misconduct with knowledge,” the court held that “specific intent in the civil context is not so narrow as to allow an accused wrongdoer to actively disregard a known risk that an element of the offense exists.” SEB, 594 F.3d at 1376 (emphases added) (citing Crawford-El v. Britton, 951 F.2d 1314, 1318 (D.C. Cir. 1991) (a civil case that equates specific intent and deliberate indifference); Boim v. Holy Land Found. for Relief & Dev., 549 F.3d 685, 693 (7th Cir. 2008) (a civil case that equates intentional misconduct with knowledge and deliberate indifference)).
Applying these principles, the Federal Circuit concluded that “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 cautioned that “[t]his opinion does not purport to establish the outer limits of the type of knowledge needed for inducement.” For example, it suggested that a patentee may “only need to show . . . constructive knowledge with persuasive evidence of disregard for clear patent markings, similar to the constructive notice requirement in § 287(a).” The Federal Circuit further stated that it “does not set these boundaries now, just as it did not set them in DSU Medical.”
Applying The “Deliberate Indifference” Standard In SEB
Despite the fact that the trial record in SEB provided no direct evidence that Pentalpha had actual knowledge of the patent, the Federal Circuit affirmed the judgment of inducement liability, concluding that there was “adequate evidence to support a conclusion that Pentalpha deliberately disregarded a known risk that SEB had a protective patent.”
In reaching this conclusion, the Federal Circuit relied heavily on the same facts that the district court found important, viz., (1) that Pentalpha had purchased an SEB deep fryer in Hong Kong, and then exactly copied all features except for the cosmetics of those fryers; and (2) even though Pentalpha hired an attorney to conduct a rightto- use study, it failed to tell the attorney that it had based its deep fryer on SEB’s product. The court noted that such a “failure to inform one’s counsel of copying would be highly suggestive of deliberate indifference in most circumstances.” The Federal Circuit also found it significant that Pentalpha’s president was “well-versed in the U.S. patent system and understood SEB to be cognizant of patent rights as well,” and that he was the inventor of 29 U.S. patents. Finally, the court noted that Pentalpha and SEB had an earlier business relationship that involved one of the Pentalpha’s patented steamer products. Considering the combination of these facts, the Federal Circuit was convinced that the record contained “considerable evidence of deliberate indifference.”
The court stated that “proof of [Pentalpha’s] knowledge [of the patent] through a showing of deliberate indifference may be defeated where an accused infringer establishes that he actually believed that a patent covering the accused product did not exist.” However, Pentalpha did not produce any exculpatory evidence. The court finally concluded that there was sufficient support for finding that “Pentalpha deliberately ignored the risk that SEB had a patent that covered its deep fryer” and affirmed the jury’s finding of induced infringement.
The Supreme Court’s Review of the Standard for Induced Infringement
After the Federal Circuit denied Pentalpha’s petition for an en banc review on March 25, 2010, Pentalpha filed a petition for a writ of certiorari to the Supreme Court on June 23, 2010. The Court granted its petition on October 12, 2010. The case will likely be argued in early 2011, with a decision likely by the end of the Court’s term in late June 2011.
This case will be the tenth patent case that the Court will hear since 2005 after Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193 (2005); Illinois Tool Works, Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006); eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006); LabCorp. of Am. Holdings v. Metabolite Labs., Inc., 548 U.S. 124 (2006); MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007); KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398 (2007); Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007); Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008); Bilski v. Kappos, --- U.S. ---, 130 S.Ct. 3218 (2010).