July 1, 2015

Supreme Court Suggests a Shield Against Infringement Liability

Supreme Court Suggests a Shield Against Infringement Liability

Ronald G. Embry, Jr.

The U.S. Supreme Court announced in Commil USA Inc. v. Cisco Systems Inc. , No. 13-896, slip op. May 26, 2015, that good-faith belief that a patent is invalid does not constitute a defense to induced infringement of that patent.

The claims of a patent may be infringed directly or indirectly.

“[W]hoever without authority makes, uses, offers to sell or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.” 35 U.S.C. § 271(a).

Direct infringement requires a party to perform or use each and every step or element of a claimed method or product. Muniauction Inc. v. Thomson Corp. , 532 F.3d 1318 (Fed. Cir. 2008). If the invention is a method, a single actor must perform every step. Id. See, also, Limelight Networks Inc. v. Akamai Techs. Inc., 134 S.Ct. 2111 (2014).

Indirect infringement occurs when a party induces another party to direct infringement of a patent (35 U.S.C. 271(b)) or contributes to direct infringement by another party (35 U.S.C. 271(c)). In either case, direct infringement of the patent, as set forth in section 271(a), is required. See Dynacore Holdings Corp. v. U.S. Philips , 363 F.3d 1263, 1274 (Fed. Cir. 2004). The indirect infringement statutes are as follows:

“Whoever actively induces infringement of a patent shall be liable as an infringer.” 35 U.S.C. 271(b).

“Whoever offers to sell or sells within the United States or imports into the United States a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.” 35 U.S.C. 271(c).

Contributory infringement under section 271(c) requires knowledge that the component is made for use in directly infringing a patent. Previously, the Supreme Court has held that contribution and inducement have similar scienter requirements. See Global-Tech Appliances Inc. v. SEB S.A., 131 S.Ct. 2060 (2011). Thus, for inducement to be “active,” as required by the statutory language, the alleged inducer must have known about the patent, and must have known that the induced actions would constitute direct infringement of the patent.

The defendant in Commil sought to introduce evidence of a good-faith belief that the patent was invalid as a defense to the charge of inducement. The district court ruled the evidence inadmissible, and found inducement. The Federal Circuit reversed, in a 2-1 decision, holding that it is not possible to induce infringement if one truly believes a patent to be invalid, because an invalid patent cannot be infringed. In so holding, the majority expanded the rule of Global-Tech to encompass a good-faith belief in invalidity.

Writing for the majority, Justice Anthony Kennedy agreed with the dissenting opinion of the appellate panel, which stated that belief in validity or invalidity of a patent is not an element of the inducement analysis. The court reviewed the circumstances and holding in the Global-Tech case, emphasizing that inducement requires actual knowledge that the induced acts constitute infringement of a patent and distinguishing those circumstances from a good-faith belief in invalidity of the patent.

The Commil court reiterated the holding of Global-Tech that a good-faith belief that induced acts do not constitute infringement of the patent may serve as a defense to a charge of inducing infringement of a patent. Commil also seems to require that not knowing the acts are patented may serve as a defense.

It is notable that the Commil courtdid not decide or imply that evidence of invalidity or non-infringement, or good-faith belief therein, could have no relevance at all. The primary takeaway is that evidence of invalidity does not affect a determination of whether a claim has been infringed. In its opinion below on the Commil case, the Federal Circuit stated, “It is axiomatic that one cannot infringe an invalid patent” (120 F.3d at 1368). The Federal Circuit cited two of its prior cases for this proposition, and pointed to three district court cases relying on the proposition.

It is apparent that the Supreme Court approaches the issue differently, holding that validity and infringement are two different issues that do not affect each other, although the liability for infringement is certainly affected by invalidity. This is not an entirely foreign approach to the Federal Circuit, which in CEATS Inc. v. Continental Airlines Inc. , 526 F. App’x 996 (Fed. Cir. 2013), affirmed a district court holding that claims were infringed but the patent was invalid. Judge PaulineNewman predicted the Supreme Court’s approach in her dissent below, stating, “A good-faith belief in patent invalidity may be raised as a defense to willfulness of the infringement, but it is not a defense to the fact of infringement” (120 F.3d at 1373). She pointed out that civil liability generally may attach even though the defendant had a good-faith belief that his actions were lawful.

The Commil court did not directly address good-faith belief of noninfringementas evidence of lack of intent to induce infringement, but amplified the holding in Global-Tech that knowledge of infringement is required. The Federal Circuit, in its Commil opinion, cited four of its prior cases to show that good-faith belief of noninfringement can be used as a defense to a finding of inducement (120 F.3d at 1368). The Commil result thus suggests that a reasonable opinion of noninfringement that is relied upon may still be a defense to a charge of indirect infringement. As noted by the court, both inducement and contributory infringement require knowledge that a patent is directly infringed. Reliance on a reasonable opinion of counsel regarding non-infringement is evidence tending to show lack of such knowledge.

Additionally, a reasonable opinion of counsel regarding invalidity of a patent may still be effective to prevent a finding of willful infringement. In Finisar Corp. v. DirectTV Group Inc., 523 F.3d 1323 (Fed. Cir. 2008), the Federal Circuit stated, “[t]hus a competent opinion of counsel concluding either that DirecTV did not infringe the ‘505 patent or that it was invalid would provide a sufficient basis for DirecTV to proceed without engaging in objectively reckless behavior with respect to the ‘505 patent.” Finisar had obtained an opinion that the ‘505 patent was not infringed, but the opinion did not take a position on validity of the patent. The district court faulted Finisar for failing to obtain an opinion of invalidity. The Federal Circuit reversed, pointing to its en banc decision in In re Seagate Techs. LLC, 497 F.3d 1360 (Fed. Cir. 2007), that there is no affirmative duty to obtain an opinion of counsel.

In Seagate, the Federal Circuit held that the test for willfulness is in two parts. The infringer must have acted despite an objectively high likelihood that its actions constituted infringement of a valid patent, and the infringer must have had knowledge, or should have known, of the risk. The Commil opinion has not directly disturbed this result, either. The Seagate standard for willfulness differs from the statutory standard for indirect infringement at
least in requiring knowledge not only of infringement, but also knowledge that the infringement is of “a valid patent.” Thus, a reliable opinion of counsel that a patent is invalid is evidence that the defendant lacked the requisite knowledge for willful infringement.

An opinion of invalidity may be effective against a charge of willfulness even if the opinion is ultimately wrong. Recently, in Halo Electronics Inc. v. Pulse Electronics Inc. , No. 13-1472 (Fed. Cir. Oct. 22, 2014), the Federal Circuit held that, although the defendant was ultimately unsuccessful in demonstrating invalidity of the patent, he did raise a substantial question as to the obviousness of the Halo patents (slip op. at 18). Noting that the Seagate standard requires that the risk be “objectively high,” the court held that when the defendant points to a substantial question of invalidity, evidence thereof may be enough to escape willful infringement.

Opinions still matter in the aftermath of Commil. The Supreme Court has definitively stated that infringement and validity are two different issues in a patent trial, and evidence of belief that a patent is invalid does not defeat a claim of induced infringement of the patent. The Supreme Court has not, however, stated or implied that evidence of good-faith belief that a patent is invalid may not be used to demonstrate lack of willfulness. The court left apparently undisturbed prior jurisprudence holding that evidence of good-faith belief that a patent is not infringed may serve as a defense to indirect infringement, which requires that the defendant knew a patent was infringed.

When the chips are down and the stakes are high, a reliable opinion of counsel regarding invalidity and/or noninfringement is still a legally effective shield against charges of indirect infringement and willful infringement.

Ronald G. Embry, Jr. is a partner in the Houston office of Patterson & Sheridan. His practice focuses on intellectual property issues including patent prosecution, risk assessment, opinions and pre-litigation counseling for clients in oil, gas, chemical, semiconductor and related industries. He can be reached at [email protected].

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