June 1, 2011

Supreme Court Clarifies Standards of Proof of Inducement in Global-Tech Appliances v. SEB Decision

Companies have faced accusations of inducing infringement for decades and, even in cases where the defendant had utterly no knowledge of the asserted patent, had to worry about being held liable for induced infringement.  The recent decision by the Supreme Court in Global-Tech Appliances, Inc. v. SEB S.A. clarified the standard required to prove inducement of infringement.  The Supreme Court’s new standard requires a defendant to have “knowledge that the induced acts constitute patent infringement,” while ensuring that a defendant cannot insulate itself from liability by remaining willfully blind.

On May 31, the Court upheld the Federal Circuit’s decision affirming a verdict of induced infringement.  While the justices upheld the appeals court’s decision, they rejected the Federal Circuit’s standard stating that “deliberate indifference to a known risk that a patent exists is not the appropriate standard under §271(b).”  The Court enumerated two shortcomings of the Federal Circuit’s deliberate indifference test: “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.”   

The Court examined the statutory language of §271(b) and its own precedent related to 35 U.S.C. §271(c) to come to the conclusion that induced infringement requires knowledge of the asserted patent.  The Court held “that induced infringement under §271(b) requires knowledge that the induced acts constitute patent infringement.”  Under that standard, an alleged infringer must have knowledge of the asserted patent to be liable under §271(b), however the Court did not limit induced infringement to actual knowledge. 

The justices borrowed a concept from criminal law, willful blindness, as the minimum standard for proving the knowledge required to be liable for induced infringement.  As rationale the Court stated “[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 doctrine of willful blindness is interpreted differently in different circuits.  To aid in the interpretation of this doctrine for induced infringement, the Court expressed two requirements 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 actions to avoid learning of that fact.”   

The Court identified a handful of facts of the case to support its decision to uphold the Federal Circuit’s decision and not remand for further proceedings.  First, the Court stated that “Pentalpha’s belief that SEB’s fryer embodied advanced technology that would be valuable in the U.S. market is evidenced by its decision to copy all but the cosmetic features of SEB’s fryer.” Second, the Court observed that it was revealing that Pentalpha chose to copy a version of SEB’s fryer meant for foreign markets, because Pentalpha “was well aware that products made for overseas markets usually do not bear U.S. patent markings.”  Finally, the Court explained “[e]ven more telling is [Pentalpha’s CEO and President’s] decision not to inform the attorney from whom Pentalpha sought a right-to-use opinion that the product to be evaluated was simply a knockoff of SEB’s deep fryer.”  Based primarily on those three facts, the Court found that Pentalpha was liable for induced infringement because it had knowledge of the patent under the doctrine of willful blindness.

The implications of this decision could be significant for defendants and plaintiffs.  Defendants in the high technology sector will have to navigate a particularly difficult new set of challenges.  As mentioned above, the Supreme Court’s test for willful blindness requires that “(1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact.”  When a company brings a new electronic consumer product to market, there is a high probability that some portion of the technology embodied by the product infringes a number of undisclosed patents.  There may be literally thousands of component parts that go into making that product.  Any one of them could infringe upon an issued patent.  That fact alone seems to satisfy the first prong of the Court’s test.  What does that company have to do in order to avoid liability for induced infringement under §271(b)?  Is a freedom to operate opinion required or necessary?  If the company simply brings the product to market without securing a freedom to operate opinion, has it taken “deliberate actions to avoid learning of that fact”?  The courts may determine that securing a freedom to operate opinion is necessary to avoid being accused of induced infringement. 

The Court’s opinion may also result in new pleading requirements for plaintiffs bringing suit.  In Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009), the Court held that the plaintiff’s “complaint failed to plead sufficient facts to state a claim.”  Id. at 1937.  The Court stated that “the tenet that a court must accept a complaint’ s allegations as true is inapplicable to threadbare recitals of a cause of action’s elements, supported by mere conclusory statements.”  Id. at 1941 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).  When alleging induced infringement under §271(b), plaintiffs must be careful include sufficient facts about the defendant’s state of mind and actions.  Since these facts are likely not in the plaintiff’s possession at the time of filing suit, the plaintiff will most likely have to amend its complaint once discovery is underway. 

Under the Supreme Court’s stricter standard, proving induced infringement will be more difficult.  However, it remains to be seen whether the Court’s new standard will be interpreted in a substantially differently way by the lower courts.  And, if so, whether the new standard results in new requirements for plaintiffs or defendants.