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Deliberate Indifference of Competitor's Patent Leads to Finding of Induced Infringement

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03.15.2010 | Advisory

In a recent Federal Circuit decision, the court held that a defendant that acted with deliberate disregard to an overt risk that a device it copied might be associated with a patent was liable for induced infringement. While induced infringement requires both an occurrence of actual infringement and a finding that the alleged infringer knew or should have known that actions would induce actual infringements, this case makes it clear that pleading ignorance to avoid actual knowledge is not sufficient when there is an overt risk that an element of the offense existed. In SEB v. Montgomery Ward 1, the company accused of inducing infringement argued that because it had no knowledge of the patent in question, it could not be liable for induced infringement. However, because the accused infringer both admitted to copying a product that was covered by the patent, and failed to mention that it copied the product to the attorney conducting the clearance opinion, the court found that the accused infringer acted with “deliberate indifference,” and thus did have the requisite knowledge for finding induced infringement.

SEB S.A. (SEB) is the owner of U.S. Patent No. 4,995,312 (the ‘312 patent), which is directed to a deep fryer. SEB, along with its co-plaintiff T-Fal Corporation, which distributes SEB’s products in the United States (collectively, SEB), sued Montgomery Ward & Co., Inc. (Montgomery), as well as Global-Tech Appliances, Inc. and Pentalpha Enterprises, Ltd. (collectively, Pentalpha) alleging both direct infringement under 35 U.S.C. § 271(a) and induced infringement under 35 U.S.C. § 271(b). This article focuses on the induced infringement claim. In the present case, because Pentalpha supplied the alleged infringing products to Montgomery, it was Pentalpha that was liable for any induced infringement.

According to 35 U.S.C. § 271(b), “Whoever actively induces infringement of a patent shall be liable as an infringer.” Courts construe this statute to require two elements: (1) an occurrence of actual infringement; and (2) that the alleged infringer knew or should have known that actions would induce actual infringements.

The first element of induced infringement was virtually conceded by Pentalpha. Pentalpha admitted to purchasing an SEB deep fryer in Hong Kong and copying it. The district court found that Pentalpha copied everything but the cosmetics of the SEB deep fryer. The district court also found that a deep fryer constructed as a design-around by Pentalpha infringed under the doctrine of equivalents. Pentalpha failed to advance any arguments related to infringement on appeal, thereby conceding this first element of induced infringement.

Pentalpha’s defense instead focused on the second element. Pentalpha argued that because it had no knowledge of the existence of the ‘312 patent, that the second element for induced infringement could not be met. To support this position, Pentalpha relied on a Federal Circuit decision from 2006, DSU Med. Corp. v. JMS Co., which stated “[t]he requirement that the alleged infringer knew or should have known his actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent.”(Emphasis added.) While the district court agreed that there was no evidence that Pentalpha was aware of the ‘312 patent prior to being sued, the district court still found the second element met. In affirming the district court, the Federal Circuit agreed.

In distinguishing DSU, the Federal Circuit noted that DSU did not set out the metes and bounds of the knowledge-of-the-patent requirement. The court held that actual or constructive knowledge is appropriate for the second element of induced infringement. Further, in evaluating the “knew or should have known” standard, the court determined that acting with “deliberate indifference” was an extension of the “knowledge” requirement. Both “knowledge” and “deliberate indifference” are evaluated subjectively (unlike “should have known,” which is objectively), and the court held that if a defendant knew of and disregarded the overt risk that an element of the offense existed, this constituted knowledge.3

The court determined that Pentalpha acted with “deliberate indifference” based on two actions in particular. First, the action of copying all but the cosmetics of the deep fryer was an action indicating deliberate disregard of a known risk. While Pentalpha argued that the fryer it copied was not marked with a patent number, both because the fryer was purchased in Hong Kong (where there would be no U.S. marking requirement) and because Pentalpha failed to show that it concluded there was no risk because they did not see a patent number on the fryer, the court was not persuaded. Second, Pentalpha also deliberately disregarded a known risk by failing to disclose the copying of the SEB deep fryer to the attorney that conducted a clearance opinion for SEB. While obtaining a clearance opinion can generally be helpful in negating intent, a clearance opinion in which the party obtaining the opinion withholds a key fact like it copied the invention is not helpful in negating intent. In fact, the court stated that this failure on its face was highly suggestive of deliberate indifference. The court found this withholding even more troublesome because the president of Pentalpha was well-versed in the U.S. patent system. These factors all supported the court’s finding that Pentalpha acted with complete disregard to an overt risk, and thus had knowledge of the ‘312 patent by way of “deliberate indifference.”

In view of this decision, companies should act prudently when monitoring its competitors’ products. Companies should certainly avoid copying competitors’ products. Further, to the extent companies take actions to design-around particular products or particular patents, it is generally a good idea to have an independent clearance opinion performed prior to using, making, or offering for sale the resulting product. Companies should openly disclose to the attorney providing the clearance opinion any products or patents that the resulting product was designed-around.

1___ F.3d ___, 93 U.S.P.Q.2d 1617, Civ. Act. No. 2009-1099, -1108, -1119, 2010 WL 398118 (Fed. Cir. February 5, 2010).
2471 F.3d 1293, 1304, 81 U.S.P.Q.2d 1238, 1246 (Fed. Cir. 2006) (en banc only on issue of required intent for induced infringement).
3The court noted, however, that a defendant can defeat an allegation of “deliberate indifference” by showing it was genuinely “unaware even of an obvious risk.”

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.
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