The Federal Circuit Opens the Door to an Additional Defense to Inducement

It is well established law that liability for inducement requires the specific intent to induce another to infringe.  It is also well established law that a defendant may rely on a good faith belief that the there is no patent infringement to defeat the intent element.  See DSU Medical Corp. v. JMS Co. Ltd., 471 F. 3d 1293 (Fed. Cir. 2006) (en banc).  What was not clear from the Federal Circuit's precedent, was whether a defendant’s good faith belief that the patent in question was invalid could also be used as evidence to overcome an allegation of inducement.  That question has now been answered.  In Commil USA v. Cisco Systems 2012-1042 (Fed. Cir. June 25, 2013), the majority held that “evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.”  Opinion at  11.  This holding, however, does not establish a bright line defense, as the Court went on to say “[t]his is, of course, not to say that such evidence precludes a finding of induced infringement. Rather, it is evidence that should be considered by the fact-finder in determining whether an accused party knew  ‘that the induced acts constitute patent infringement.’” Id. (citations omitted).

Judge Newman was on the three judge panel and issued a strong dissent.  A small snippet from her dissenting opinion captures the theme:

A good-faith belief of patent invalidity may be raised as a defense to willfulness of the infringement, but it is not a defense to the fact of infringement. Patent invalidity, if proved, eliminates an invalid patent and thus is a total defense to infringement. However, a “good-faith belief” in invalidity does not avoid liability for infringement when the patent is valid.1 No rule eliminates infringement of a valid patent, whether the infringement is direct or indirect. Newman Dissent at 2

The practical impact of this decision is significant.   Evidence that a party believed a patent was invalid, such as an opinion of counsel of invalidity or a well-founded reexamination request, is now clearly admissible evidence that can be presented not only to defend against willfulness (a damages issue), but also to defeat a showing of liability when the theory of infringement rests on inducement.

A Divided En Banc Federal Circuit Changes the Law of Divided Infringement

For the last five years, the law with respect to liability for inducement of a method claim was relatively clear and fairly consistently applied.  (A rare treat in patent law!) When infringement of a method claim was based on inducement, there needed to be either one party performing all of the steps of the claimed method or, if more than one party was involved in performing the method, there needed to be a “mastermind” directing all of the parties to perform the various steps of the method.  Without a "mastermind" (later clarified as requiring a contractual or agency relationship) there was no direct infringement of the method and, therefore, no liability for inducement.  The Federal Circuit took two cases en banc to consider the propriety of this “single actor” requirement.  Akamai Technologies, Inc. v. LimelightNetworks, Inc.,  2009-1372 and McKessonTechnologies, Inc. v. Epic Systems Corp., 2010-1291.  In a deeply divided decision, including a per curiam opinion along with dissenting opinions by Newman and Linn (joined by Dyk, Prost and O’Malley), the Federal Circuit announced a dramatic change in the law, holding that “we reconsider and overrule the 2007 decision of this court in which we held that in order for a party to be liable for induced infringement, some other single entity must be liable for direct infringement.  BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007).  To be clear, we hold that all the steps of a claimed method must be performed in order to find induced infringement, but that it is not necessary to prove that all the steps were committed by a single entity.” 

The majority opinion sets out the elements of the inducement claim in the context of multiple actors as follows:  When the party accused of infringement does not itself perform any steps of the claimed method, such as in the McKesson case, “a party can be found liable for inducing infringement if it can be shown that (1) it knew of [the] patent, (2) it induced the performance of the steps of the method claimed in the patent, and (3) those steps were performed.”  Majority Opinion at 35. In the case where the party accused of inducement performs some steps and another party performed other steps, as in Akamai, the elements are slightly modified to “1) it knew of [the] patent, (2) it performed all but one of the steps of the method claimed in the patent, (3) it induced the [other party] to perform the final step of the claimed method, and (4) the [other party] in fact performed that step.”   Majority Opinion at 36.  From these two statements from the court, we can generalize a bit, and set out the current law of inducement for a method claim as a single set of elements: (1) the defendant knew of the patent; (2) it either performed certain steps of the method claimed in the patent itself and/or induced others to perform those steps; and (3) all steps of the method were performed.

Interestingly, and much to the chagrin of J. Newman, this holding only applies to inducement under 35 U.S.C § 271(b).  With respect to direct infringement, the majority punted, stating that “[b]ecause the reasoning of our decision today is not predicated on the doctrine of direct infringement, we have no occasion at this time to revisit any of those principles regarding the law of divided infringement as it applies to liability for direct infringement under 35 U.S.C. 271(a)."  Majority Opinion at 13.  As a result, the law remains that for direct infringement liability, a single party needs to perform all steps of a method.  Those parties that perform only some of the steps, but do not induce the performance of the remaining steps of a claimed method, can still invoke divided infringement as a viable defense to an allegation of infringement and likely face no liability.

J. Newman, in her dissent, harshly criticizes the majority, stating “[t]he majority’s theory is a spontaneous judicial creation.  And it is wrong.”  Newman dissent at 7.  J. Newman argues that precedent, legislative history and cannons of construction all indicate that under 271(a) direct infringement can be established when multiple actors perform the steps of the method and this act of direct infringement is the necessary predicate for finding liability for inducement. 

The Linn camp’s dissent is equally harsh on the majority, arguing that “[t]he majority opinion is rooted in its conception of what Congress ought to have done rather than what it did.”  Linn dissent at 3.  The Linn dissent argues that the single actor rule is properly founded in 271(a) and, like J. Newman, argues that precedent requires an act of direct infringement before there can be liability for inducement.   

As a result of this dramatic shift in the law, we can expect an increase in patent cases asserting inducement for method claims.  There are certainly patents out there with claims that were not asserted due to a divided infringement issue, but now are back in play. Companies that have previously evaluated patents and determined that they likely did not have exposure for infringement of method claims based on a divided infringement theory may need to revisit those patents and reevaluate those claims under this new law.

Given the import of this issue and the deep divide in the Federal Circuit, it would not be surprising to see this case go on the Supreme Court for final resolution.

Stating A Claim for Patent Infringement

Since 2007 when the Supreme Court decided Bell Atlantic v. Twombly, 550 U.S. 544 (2007), there has been debate (and motion practice) over what is required in a complaint to adequately plead a cause of action for patent infringement.  The debate centers on the tension between recent Supreme Court decisions (Twombly and Iqbal) which require pleading enough facts to “state a claim to relief that is plausible on its face” and Form 18 that is found in the Federal Rules of Civil Procedure, which requires only bare notice pleading.  This issue was squarely presented in R &L Carriers v. Drivertech LLC et al.,  2010-1493, Fed. Cir. June 7, 2012.

In R & L Carriers, the complaint alleged counts of contributory infringement and inducement against a number of defendants.  In pleading these counts of indirect infringement, the complaint alleged that certain of defendant’s customers were directly infringing the asserted patent.  The district court found that the allegations of direct infringement did not contain sufficient factual allegations to plausibly establish that any actor performed all steps of the asserted method claim and therefore did not satisfy the pleading requirements of Iqbal and Twombly.  Further, the district court found that the facts set forth in the complaint demonstrated that the accused systems actually had numerous non-infringing uses and, therefore, found that the allegations of contributory infringement could not be sustained.  Finally, the court held that the complaint failed to plausibly plead that the defendants had the requisite specific intent to induce infringement.  The amended complaint was dismissed.

With respect to direct infringement, the Federal Circuit reversed and held that “as long as the complaint in question contains specific factual allegations to meet the requirements of Form 18, the complaint has sufficiently pled direct infringement.”  Opinion at 19.  In discussing the pleading requirements for direct infringement, the Court pointed out that “Form 18 and the Federal Rules of Civil Procedure do not require a plaintiff to plead facts establishing that each element of an asserted claim is met…Indeed, a plaintiff need not even identify which claims it asserts are being infringed.” Opinion at 17.  Addressing the interplay between recent Supreme Court precedent and Form 18, the majority opinion states that “to the extent the parties argue that Twombly and its progeny conflict with the Forms and create differing pleadings requirements, the Forms control..”  Opinion at 15.

In addressing the counts of indirect infringement, the Court found that “[t]he Forms are only controlling for causes of action for which there are sample pleadings.”  Opinion at 20.  “[B]ecause Form 18 addresses only direct infringement, we must look to Supreme Court precedent for guidance regarding the pleading requirements for claims of indirect infringement.” Id.  In other words, to adequately plead indirect infringement, the complaint must plead facts sufficient to plausibly establish each element of the cause of action.  With respect to contributory infringement, this includes, inter alia, facts sufficient to establish that the accused components have no substantial non-infringing uses.  For inducement, this requires facts sufficient to reasonably infer that the defendant had the specific intent to induce infringement.  Merely reciting the elements without a factual pleading to support those elements will not suffice.

The Court found that the detailed factual allegations set forth in the complaint actually undermined the allegation of contributory infringement by establishing that the accused products have substantial non-infringing uses. “Where a product is equally capable of, and interchangeably capable of, both infringing and substantial non-infringing uses a claim for contributory infringement does not lie.”  Opinion at 23.  In this case, the Federal Circuit found that plaintiff’s complaint “supplies the very facts which defeat its claims of contributory infringement.”

Turning to inducement, with its specific intent element, the complaint included allegations that defendants’ employees had made statements touting the benefits of the patented method and that these statements were made after the defendant had received a cease and desist letter making it aware of the asserted patent.  Under these facts, the Federal Circuit agreed that sufficient facts were pled to make a plausible allegation that defendants “intended to induce its customers to use its products to practice the patented method and did so with knowledge of the patent.”  Opinion at 29.  At the pleading stage, the  “’plausibility requirement…simply calls for enough facts to raise a reasonable expectation that discovery will reveal’ that the defendant is liable for the misconduct alleged.”  Opinion at 30, citing Twombly.  Here, the Federal Circuit found that the complaint was sufficient to meet this standard.

In summary:  for direct infringement, Form 18 is sufficient.  For Indirect infringement (or other cause of action not covered by a specific Form),  Twombly and its progency control and the complaint must set forth a factual basis to support a reasonable inference that each element of the cause of action is satisfied.  For contributory infringement, use caution in pleading facts that may establish non-infringing uses for an accused product.

The Supreme Court Redefines the Knowledge Element of Inducement

The Supreme Court issued its opinion in Global Tech Appliances v. SEB S.A., 10-6 on May 31, 2011. The Global Tech case redefines the standard for the intent element of inducement under 35 U.S. C. 271(b).

Relying primarily on the Court’s longstanding ruling in Aro Mfg. Co. v. Convertible Top Replacement, Co., 377 U.S. 476 (1964)(“Aro II”), which addressed the knowledge requirement for contributory infringement under 35 U.S.C. 271(c), an 8-1 majority held that “induced infringement under 271(b) requires knowledge that the induced acts constitute patent infringement.” Slip Opinion at 10. The Court rejected the Federal Circuit’s “deliberate indifference to a known risk” standard, but affirmed the lower court’s finding of inducement without proof of actual knowledge by the infringer “because the evidence in this case was plainly sufficient to support a finding of Pentalpha’s knowledge under the doctrine of willful blindness.” Id. (emphasis added). Thus, the Supreme Court articulated a knowledge requirement for inducement that can be satisfied with constructive knowledge under the “willful blindness” doctrine.


The Court held further held that willful blindness has

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.

Opinion at 13.

The Court found that Pentalpha, which inter alia, had substantially copied a competitor’s product, and then had its patent attorney conduct a freedom to operate search for this product without informing him that the design was copied from a competitor. From this, the Court concluded that the “evidence was more than sufficient for a jury to find that Pentalpha subjectively believed there was a high probability the SEB’s fryer was patented, that Pentalpha took deliberate steps to avoid knowing that fact, and that it therefore willfully blinded itself to the infringing nature of Sunbeam’s sales.”

Justice Kennedy, the lone dissent, agreed that inducement has a knowledge component, but disagreed that “willful blindness” was an appropriate substitute for actual knowledge.

With the Supreme Court offering a degree of clarity that inducement requires knowledge that the “induced acts constitute patent infringement,” (which is consistent with Federal Circuit precedent since DSU) proving inducement in the course of patent litigation will often prove to be a challenge for patent owners. Moreover, a factually well founded and competent opinion of counsel indicating that the induced acts do not constitute infringement of a valid patent should provide a strong defense to allegations of inducement.

The Supreme Court is Set to Significantly Re-Shape Patent Rights and Litigation

The Court Agrees to Hear Three Patent Cases in 2011

The Supreme Court has agreed to hear three patent cases in its upcoming term. The first case touches upon the standard for establishing intent in the context of inducement of infringement. In October, the Supreme Court granted certiorari in Global-Tech Appliances Inc. v. SEB S.A. on the question of “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 or instead ‘purposeful, culpable expression and conduct’ to encourage an infringement.” The difference in these standards, essentially the difference between “known” and “should have known,” will significantly effect the way that businesses deal with third party patents from the point of conducting clearance searches and obtaining opinions all the way through trial.


The second case on the Supreme Court docket is Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems. In this case, the Supreme Court will consider ownership rights to inventions that were made with government funding under the Bayh-Dole Act. Although this case addresses a fairly narrow question, it could prove to be a significant case to universities and research institutions which rely heavily on federal research grants to sponsor wide ranging research projects which are the source of many inventions.


The third case, Microsoft v. i4i Ltd. 10-290, could prove to have a fundamental impact on every patent case, as it deals with the core issue of the burden of proof for establishing invalidity of a patent claim.


On November 29, 2010, the Supreme Court granted Microsoft’s petition for a writ of certiorari on the question “did the court of appeals [for the Federal Circuit] err in holding that Microsoft’s invalidity defense must be proved by clear and convincing evidence?”  As noted in a previous posting, Microsoft's petition was supported by numerous amici.

 At trial, Microsoft’s invalidity defense was based on a lack of novelty due to a prior sale of the patentee’s own earlier software. This prior art was not before the patent office during examination and was not considered by the patent examiner. Despite the fact the patent office never had the opportunity to consider this prior art, the patent benefited from the “presumption of validity” and the district court (bound by Federal Circuit precedent) rejected Microsoft’s request for a jury instruction seeking to prove invalidity only by a “preponderance of the evidence." The Federal Circuit affirmed, setting the stage for Microsoft's petition.

The Microsoft case has the potential to significantly change the nature of patent litigation and level the playing field between plaintiffs and defendants. If the Supreme Court reduces the burden of proof for proving invalidity on issues that were not before the patent examiner to a preponderance of evidence, defendants will face a far less daunting task in establishing a successful invalidity defense. Considering the less stringent standard for establishing obviousness under the Supreme Court’s holding in KSR, lowering the burden of proof required to establish an invalidity defense would certainly reduce perceived strength of every issued patent.