Global-Tech Appliances, Inc. v. SEB S.A. (2011)

Supreme Court Renders Opinion on Induced Infringement

By Kevin E. Noonan --

The Supreme Court issued its opinion today in Global-Tech Appliances, Inc. v. SEB S.A., affirming the Federal Circuit decision upholding a jury verdict that defendants were liable for inducing infringement.  As was the case in Bilski v Kappos, the opinion today spends little time discussing why the Federal Circuit decision was correct.  Instead, it concerns itself with construing the inducement statute and criticizing the appellate court for applying the wrong standard to arrive at the right result.  In doing so, the High Court evinces again its penchant for reaching far afield (here, criminal law) for principles that permit it to criticize the Federal Circuit in the exercise of its role in defining the contours of U.S. patent law, its recognized area of expertise.

Here, the Federal Circuit was confronted with the following factual situation.  The District Court had upheld (by denying defendants' motion for judgment as a matter of law) a jury verdict that defendants were liable for inducing infringement of the patent-in-suit.  The facts supporting this decision were these:

• Defendants had copied "all but the cosmetics" of one of patentee's commercially available deep fryers;

• The copied article was purchased (and copied) outside the country, where no U.S. patent markings were placed on the article;

• Defendants obtained an opinion of counsel regarding freedom to operate, but did not inform the patent attorney performing the patent search that the article had been copied;

• Defendant's president was "well versed" in U.S. patents (holding several himself) and was aware that the patentee was also "cognizant of patent rights" from prior dealings; and

• There was no exculpatory evidence that defendants had any actual belief that the copied article was not protected by a patent.

The Federal Circuit, in an opinion by (then) Circuit Judge Rader joined by Circuit Judges Bryson and Linn, recognized that there was no direct evidence that defendants were aware of a patent, and yet this pattern of behavior is certainly suggestive that the defendants had done everything they could to remain ignorant of the existence of any patent covering the copied product.  In this absence of evidence of actual knowledge the panel turned to Supreme Court precedent, applying the "deliberate indifference" standard.  This standard, adopted from "a different civil context" was "not necessarily a 'should have known' standard," since "[t]he latter [i.e., the "should have known" standard] implies a solely objective test, whereas the former may require a subjective determination that the defendant knew of and disregarded the overt risk that an element of the offense existed," citing Farmer v. Brennan, 511 U.S. 825, 840 (1994).  Expanding on how the panel applied this test, the opinion stated that "an accused infringer may defeat a showing of subjective deliberate indifference to the existence of a patent where it shows that it was genuinely 'unaware even of an obvious risk'" and that "the standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge," citing examples from its sister circuits.  Thus, contrary to its traditional tendency to establish objective, bright-line tests that can be clearly understood by patentees and accused infringers alike (and after a decade of Supreme Court reversals of their efforts), the Federal Circuit applied a subjective test for inducing infringement that defendants clearly satisfied.  The panel was even careful to eschew any interpretation that the opinion was intended to be definitive:

This opinion does not purport to establish the outer limits of the type of knowledge needed for inducement.  For instance, a patentee may perhaps only need to show, as Insituform []Techs., Inc. v. CAT Contracting, Inc., 161 F.3d 688, 695 (Fed. Cir. 1998) suggests, constructive knowledge with persuasive evidence of disregard for clear patent markings, similar to the constructive notice requirement in § 287(a) . . . .  This court does not set those boundaries now, just as it did not set them in DSU Med. [Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006) (en banc)].

These efforts did not satisfy the Supreme Court.  Writing for an 8-1 majority (with dissenting Justice Kennedy espousing an even more stringent "actual knowledge" standard), Justice Alito first parsed 35 U.S.C. § 271(b) for exactly what knowledge the accused infringer needed to possess:  whether it is just that "the inducer lead another to engage in conduct that happens to amount to infringement" or whether the inducer knows that the induced conduct is infringing.  The statute is unclear, or at least ambiguous, according to the Court, since it can be sensibly read either way.  The Court found the case law to be equally unavailing, since cases prior to enactment of § 271 as part of the 1952 Patent Act included under "inducing infringement" conduct now codified as inducing infringement (§ 271(b)) and contributory infringement (§ 271(c)).  Reviewing those cases, the opinion finds that what is now called contributory infringement was "more common" but that the cases contain "conflicting signals" as to the nature and extent of the required knowledge.

The Court finds precedential its decision in Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U. S. 476 (1964), where the Court found that contributory infringement under § 271(c) required that an infringer "must know 'that the combination for which his component was especially designed was both patented and infringing," despite the Court's characterization that Aro was "a badly fractured decision"; indeed, the principle relied upon by the Court was contained in Justice Black's dissent (because he disagreed with the judgment; however, he was in the majority with respect to the interpretation of § 271(c), and his opinion sets out the reasoning of the majority on this point).  This decision had stare decisis effect, because "[t]he 'holding in Aro II has become a fixture in the law of contributory infringement under [section] 271(c),'" citing 5 R. Moy, Walker on Patents § 15:20, p. 15–131 (4th ed. 2009).  Further, the opinion noted that respondent SEB "has not asked us to overrule it" and that "Congress has not seen fit to alter §271(c)'s intent requirement in the nearly half a century since Aro II was decided."  The Court thus assessed the meaning of § 271(b) "on the premise that §271(c) required actual knowledge of the patent that is infringed."  Using this premise, the Court finds that "the same knowledge is needed for induced infringement under §271(b)," in view of the "common origins" of the two statutory provisions and their similar language.  "It would thus be strange to hold that knowledge of the relevant patent is needed under §271(c) but not under §271(b)," Justice Alito concludes.

Having determined that some knowledge regarding infringement was required, the majority then turned to the quality and quantity of that knowledge.  Without extensive comment on their reasoning, the majority states baldly that, in the absence of evidence of actual knowledge (which would satisfy the statutory requirement), "we agree [with defendant-petitioner] that deliberate indifference to a known risk that a patent exists is not the appropriate standard under §271(b)."  Instead, the opinion adopts the "willful blindness" doctrine from criminal law as the appropriate standard.  This standard requires "(1) the defendant must subjectively believe that there is a high probability that a fact exists [here, presumably, the existence of a patent] and (2) the defendant must take deliberate actions to avoid learning of that fact."  As applied in the criminal law, "defendants cannot escape the reach of these statutes [that require knowing or willful acts] by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances" and thereby are as culpable as defendants who have "actual knowledge."  Citing the ALI Model Penal Code, § 2.02(7), the standard includes "a situation in which 'a person is aware of a high probability of [the fact's] existence, unless he actually believes that it does not exist.'"  The Court further defines how the concept of willful blindness is to be applied by stating that it "surpasses recklessness and negligence," because "a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known of the critical facts," citing G. Williams, Criminal Law § 57, p. 159 (2d ed. 1961).  The opinion contrasts this level of culpability with recklessness, where the defendant "merely knows of a substantial and unjustified risk of such wrongdoing," citing ALI Model Penal Code § 2.02(2)(c) (1985), and with negligence, where the defendant "should have known of a similar risk but, in fact, did not," citing ALI Model Penal Code § 2.02(2)(d).

The Court's opinion states that the Federal Circuit test departs from the proper willful blindness standard in two important respects:

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.

Despite these criticisms, the majority upheld the Federal Circuit's decision affirming the District Court judgment below that defendants were liable for inducing infringement.

Reviewing the two opinions, the Supreme Court clearly believes that the difference in their approach and the standard applied by the Federal Circuit is that willful blindness requires not only the existence of a known risk but a high probability of that risk that is appreciated by the defendant, coupled with active efforts by the defendant to avoid knowing that the induced activities are infringing.  The latter is subject to objective evidentiary support, being based on conduct that can be interpreted regarding its intent.  The former requirement, however, is expressly subjective and perhaps not as amenable to competent proofs sufficient to establish infringement.  In this sense, the Court's opinion has increased the burden on patentees to enforce their patent rights.

In a biotech/pharma context, the effects of the opinion may be less negative.  For pharmaceutical products regulated by the FDA, the Orange Book provides not only actual notice but would be expected to vitiate any claim that an accused defendant did not appreciate the existence of the risk of patent infringement; the complex patent infringement portions of the recently enacted "follow-on biologics" approval pathway similarly make lack of appreciation of the known risk an unlikely defense.  In other aspects, particularly regarding method claims, the Court's decision may indeed make inducing infringement a less likely source of protection against infringement.

A careful consideration of the Court's opinion reveals parallels between the types of factual situations that arise in the inducing infringement context with another aspect of patent law where an accused malefactor's subjective knowledge and intent are at issue -- inequitable conduct.  While perhaps resulting in a different outcome, the application of the willful blindness standard to inducing infringement has obvious analogies with the question of the intent required to show a patentee's intent to deceive by failing to disclose information or references material to patentability.  There are certainly distinctions, in view of the "special relationship" traditionally recognized between the PTO and patent applicants and the duty of candor imposed upon applicants by Rule 56 and Supreme Court precedent, compared with a third-party infringer and the question of whether the existence of a patent and induced infringement thereof can be established by a patentee.  However, in both instances the accused's behavior and the intent of that behavior is at issue; it may be profitable to assess, in each instance, whether the principles enunciated today regarding the standard for inducing infringement may be adopted to defeat a charge of inequitable conduct.

Global-Tech Appliances, Inc. v. SEB S.A. (2011)
Opinion of the Court by Justice Alito, joined by Chief Justice Roberts and Justices Scalia, Thomas, Ginsburg, Breyer, Sotomayor, and Kagan;
Dissenting opinion by Justice Kennedy.

Comments

[EG]

Kevin,

Even when SCOTUS affirms the Federal Circuit, they still can't leave well enough alone. The Federal Circuit didn't choose "deliberate indifference" as the standard for 271(c) out of thin air, but based on both SCOTUS and other federal court precedence. Even SCOTUS admitted that what Congress intended "specific intent" in 271(c) to mean is ambiguous. My cynical view is that SCOTUS chose a different standard ("willful blindness") because they simply aren't going to accept the Federal Circuit's view, even though Congress clearly indicated by creating the Federal Circuit in 1982 that the Federal Circuit was to be the primary arbiter of patent law jurisprudence. Frankly, I find the difference between "willful blindness" (which comes from the criminal context mind you) and "deliberate indifference" a bunch of meaningless semantics. This decision reaffirms my dim view of SCOTUS, especially when it comes to patent law.

[patent litigation]

The Court's ruling makes sense because of a very important point: Pentalpha did not tell its attorney that it had purchased and directly, deliberately copied the SEB fryer. If Pentalpha had informed its lawyer as to this fact, then the attorney likely would have found the patent. Because of this deliberate failure to inform the attorney of its copying, the prior art search was just a cover, and "willful blindness" makes complete sense. That considered, I'm glad this patent litigation was decided in favor of SEB.
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