CPLRG™ 0067 - Global-Tech Appliances, Inc. v. SEB S.A - May. 31, 2011

Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011) (ALITO, Roberts, Scalia, Thomas, Ginsburg, Breyer, Sotomayor, Kagan) GlobalTech.05312011.ussc

MAJOR ISSUES: active inducement of infringement; Section 271(b); knowledge of patent; willful blindness as knowledge

COMMENTS: Section 271(b) imposes liability on those who actively induce infringement. The statute and its sister provision on contributory infringement, Section 271(c), impose liability for “indirect” infringement, that is, for acts of causing another to commit direct infringement by unauthorized making, selling, etc. As has long been recognized, the two statutes are ambiguous on what level of knowledge and intent an accused indirect infringer must have.

In Global Tech, the Supreme Court confirms that (1) there is a requirement that an indirect infringer have knowledge of the patent in question, (2) the knowledge requirement may be met by a showing of “willful blindness, but (3) the Federal Circuit erred by adopting a standard of “deliberate indifference to a known risk.

As discussed below, in Global-Tech, the Supreme Court did not address the difficult questions that arise when an accused inducer clearly knows of a patent, knows of the patent owner’s accusation of infringement, but believes that there is no infringement. For example, the accused inducer may rely on an opinion of counsel that the patent’s claims are invalid or that the infringement accusation is based on an unsupportably broad interpretation of the claims. As of June 2011, Federal Circuit and district court decisions do impose an “intent” requirement and have upheld findings of no liability when an accused inducer believed in good faith that there was no infringement. The issue may be reevaluated by the courts in the future.

CROSS REFERENCES: On active inducement, see Chisum on Patents § 17.04. For case law, see Chisum Patent Law Digest § 5115.

In Global-Tech Appliances, Inc., the Supreme Court returned to the law on contributory and inducing patent infringement. The Court had last directly addressed indirect patent infringement liability in the 1964 Aro II decision, Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964), though it had discussed such liability in the context of two copyright infringement suits, Sony Corp. v. Universal City Studios, 464 U.S. 417 (1984), and Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913 (2005).

1. Knowledge Requirement. The question the Court addressed was: “whether a party who ‘actively induces infringement of a patent’ under 35 U.S.C. § 271(b) must know that the induced acts constitute patent infringement.” In an opinion by Justice Alito, the Court held that “induced infringement under § 271(b) requires knowledge that the induced acts constitute patent infringement.”

The Court found the language of the statute to be ambiguous on the knowledge question. From the words “induce” and “actively,” the Court could infer that “at least some intent is required,” but it was unclear whether the inducer must (1) simply know that his or her actions will “lead another to engage in conduct that happens to amount to infringement,” or (2) also know that the conduct is infringement. The Court noted that the direct infringer, that is, the person who is induced by the inducer, need not know that his or her actions are infringing.

The Court then looked to the pre-1952 case law on contributory infringement, which Section 271(b) and its companion, Section 271(c), were meant to codify. Unfortunately, there was authority dating back into the 19th century on both sides of the question. Dictum in Grokster supported interpreting the case law as requiring knowledge of infringement.

The decider was Aro II, in which the Supreme Court had ruled that knowledge was required for Section 271(c). That decision was on a 5 to 4 vote, and there was “much to be said in favor of both views.” However, in Global-Tech Appliances, the Court did not revisit the merits of the holding because (1) the patent owner in the case at bar had not asked the Court to overrule Aro II, (2) “Congress seen fit to alter § 271(c)’s intent requirement in the nearly half a century since Aro II was decided,” and (3) the doctrine of stare decisis (precedent) applies with “special force” to “questions of statutory interpretation.”

Given the settled law on the knowledge requirement for Section 271(c) contributory infringement, the Court concluded that “the same knowledge is needed for induced infringement under § 271(b).” It would be “strange” to hold otherwise given that both Section 271(c) and Section 271(b) had “a common origin in the pre-1952 understanding of contributory infringement ….” and both provisions posed “the same difficult interpretive choice.”

2. Standard for Knowledge; Willful Blindness.   The Court next addressed the issue of what standard should govern the knowledge requirement under the active inducement provision, Section 271(b). The issue was important in the case because, as described below, there was no direct evidence that the accused inducing infringer had actual knowledge of the patent in question until the patent owner filed suit for infringement. The Court held that a doctrine of “willful blindness,” which it deemed to be well-established in criminal law, provided the appropriate standard.

The Court saw no merit in dissenting Justice Kennedy’s suggestion that the constitutional purposes of the patent system “demand[ed] a stricter standard for knowledge under § 271(b)”: “The dissent does not explain—nor can we see—why promoting ‘ “the Progress of Science and useful Arts,” ‘ … requires protecting parties who actively encourage others to violate patent rights and who take deliberate steps to remain ignorant of those rights despite a high probability that the rights exist and are being infringed ….”

The Court also saw not merit in the accused inducing infringer’s contention that the Grokster decision on inducing copyright infringement precluded application of the doctrine of willful infringement.

To find willful blindness, there are “two basic requirements: “(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.” These requirements assure that a knowledge finding based on willful blindness is more than merely recklessness or negligence.

In this case, the Federal Circuit had articulated a standard of “deliberate indifference to a known risk.” That standard was erroneous because it “departs from the proper willful blindness standard in two important respects.” First, the test would permit a knowledge finding based solely on “a ‘known risk’ that the induced acts are infringing.” Second, the test did “not require active efforts by an inducer to avoid knowing about the infringing nature of the activities.”

3. Facts of Case; Holding: Sufficient Evidence of Willful Blindness. The patent in suit concerned a deep fryer. U.S. Pat. No. 4,995,312.  USPatNo4995312 The patent owner sold a product covered by the patent. The product was a commercial success. An accused infringer purchased the patent owner’s product in Hong Kong. The product bore no U.S. patent number. The accused infringer copied the product, except for cosmetic details, and sold its products to companies in the U.S., which then resold them. The accused infringer requested a patent attorney to conduct a “right to sell” search but did not inform the attorney of the copying. In an infringement suit, the patent owner asserted both direct infringement (by sale) and indirect infringement (active inducement of the customers’ sales). A jury found infringement under both theories. The Federal Circuit affirmed.

The Supreme Court affirmed the judgment on active inducement even though the Federal Circuit had erred in applying a deliberate indifference test of knowledge.

The Court reasoned that the evidence was sufficient to support a jury’s finding of knowledge based on the willful blindness doctrine. At trial, the jury was not instructed on the correct willful blindness standard but instead was asked whether the accused infringer “knew or should have known” of the patent. The accused infringer did not challenge the instructions on appeal to the Federal Circuit and consequently the Supreme Court did not consider whether remand for a new trial due to the erroneous instruction would have been proper.

Several facts supported a jury finding of the accused infringer’s “knowledge under the doctrine of willful blindness.” First, the patent owner’s product, a deep fryer, was innovative and successful. The accused infringer conducted “market research” and copied all but the cosmetic features of the patent owner’s product, indicating the accused infringer’s belief that the patent owner’s “advanced technology … would be valuable in the U.S. market.” Second, the accused infringer chose to copy an “overseas” model of the patent owner’s product. The accused infringer’s president was named an inventor on other patents and “was well aware that products made for overseas markets usually do not bear U.S. patent markings ….” The accused infringer’s president hired an attorney to conduct a patent search but did not inform the attorney that the accused infringer’s product was “simply a knockoff” of the patent owner’s product. The Court could not “fathom what motive” the president could have had “for withholding this information other than to manufacture a claim of plausible deniability in the event that his company was later accused of patent infringement.”

The Court concluded:

“Taken together, this evidence was more than sufficient for a jury to find that [the accused infringer] subjectively believed there was a high probability that [the patent owner’s] fryer was patented, that [the accused infringer] took deliberate steps to avoid knowing that fact, and that it therefore willfully blinded itself to the infringing nature of [the customer] Sunbeam’s sales.”

4. Difficult Remaining Issues: Specific Intent.  The Supreme Court did not address difficult issues on “specific intent” and the effect of an accused inducer’s asserted good faith belief that a patent was not infringed or was invalid. These issues had been addressed by the Federal Circuit and district courts. The Court did refer to active inducers who “take deliberate steps to remain ignorant of those rights despite a high probability that the rights exist and are being infringed ….” In discussing the doctrine of willful blindness, the Court referred to a party’s subjective belief that “that there is a high probability that a fact exists.” Infringement and validity are not simple historical facts that exist or not and of which a human either knows or does not. The Court also referred to a “high probability of wrongdoing” and “active efforts by an inducer to avoid knowing about the infringing nature of the activities.” In discussing the evidence in the case, the Court referred to a permissible jury finding that the inducer “willfully blinded itself to the infringing nature of [the induced] sales.”  (Emphasis added).

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