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Global-Tech, Inc. v. SEB, S.A. – A Changing Standard for Active Inducement of Patent Infringement?

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03.22.2011 | Advisory

March 22, 2011

Induced infringement applies to the sale of products necessary to perform a claimed process – even when the product has non-infringing uses – if the product was sold with express instructions for use in the infringing manner.  Asserting induced infringement has also become an effective weapon for U.S. patent holders against foreign manufacturers when the patent covers a product sold by the foreign manufacturer to a U.S. distributor for importation into the U.S.  Increasingly, federal courts have disregarded defenses raised by foreign manufacturers who assert that their sale was outside of the U.S. and that they should not be held liable for the distributors’ actions.

While active inducement of infringement has traditionally required that the actor “knew or should have known” that his actions would induce infringement, thereby requiring actual knowledge of a U.S. patent that covers the infringing process or product, this “state of mind” requirement is being reexamined by the U.S. Supreme Court in the case of Global-Tech v. SEB S.A.  

This case centers around Global-Tech’s agreement to manufacture deep-fryers to be sold in the U.S. by Sunbeam.  After Global-Tech purchased several deep-fryers (including SEB’s “Cool Touch” fryer, which was not marked with any U.S. patents), Global-Tech reverse-engineered and manufactured deep-fryers that were very similar to SEB’s “Cool Touch” product for sale to Sunbeam.  SEB sued both Sunbeam (the U.S. distributor) for direct infringement and Global-Tech (the foreign manufacturer) for induced infringement.  Even after Sunbeam and SEB settled the direct infringement claim, SEB continued to pursue the induced infringement claim against Global-Tech.

After a jury trial, Global-Tech was found to have induced infringement by selling to Sunbeam products that Global-Tech knew would be resold in the U.S.  The trial judge, however, did not instruct the jury that they were required to find that the defendant had knowledge of the patent-in-suit when they sold the infringing goods to Sunbeam.

On appeal, the Federal Circuit affirmed the decision of the district court.  In doing so, the Federal Circuit moved away from its previous requirement that the inducer have knowledge of the infringed patent, and instead held that “deliberate indifference” by Global-Tech was enough to meet the standard for actively inducing infringement.  The Federal Circuit noted that Global-Tech reverse-engineered the SEB design, but did not check to see if the product was covered by SEB’s U.S. patents.  More damning was testimony that Global-Tech asked a U.S. attorney to render a clearance opinion for their deep-fryers, but failed to notify the attorney that their product copied SEB’s design.

The Supreme Court granted certiorari and heard oral arguments in the case on February 23, 2011.  Global-Tech’s brief relied heavily on the Supreme Court’s 2005 decision in MGM Studios v. Grokster.  Although Grokster was a copyright case, the Court in Grokster relied on the provisions in 35 U.S.C. § 271(b) directed to actively inducing patent infringement as a guide for interpreting the meaning of “inducing” copyright infringement.  Global-Tech argued that Grokster requires that inducement requires “purposeful, culpable expression and conduct” that encourages infringement.  Global-Tech further argued that a relaxed “deliberate indifference” standard would stifle competition by preventing some foreign manufacturers from bringing their product to market to choose to avoid the expense of a full U.S. patent clearance search. A number of influential companies with overseas operations, such as General Motors, Microsoft, Cisco, Intel and Hewlett Packard have sided with Global-Tech and filed amicus briefs opposing the “deliberate indifference” standard.  Internet service providers, such as Google, Yahoo, Comcast and Facebook, have also lined up in support of Global-Tech’s position.

SEB, on the other hand, argued that nothing in jurisprudence or 35 U.S.C. § 271(b) requires that an inducer of infringement have specific knowledge of the infringed patent.  Moreover, if Congress had intended to include a knowledge requirement, it would have used the language found in 35 U.S.C. § 271(c) that requires knowledge to succeed in a claim for contributory infringement.

During oral arguments, the Federal Circuit’s “deliberate indifference” standard did not appear to sit well with the Court as it seemed to excessively lower the threshold for liability.  Chief Justice Roberts expressed concern that such a relaxed standard for actively inducing infringement “would bring the semiconductor industry to halt.”  He noted that there were 420,000 U.S. patents directed to semiconductors such that if you do virtually anything in that field, “you’re going to hit a semiconductor patent owned by somebody.”  

Although the Justices seemed uncomfortable with the “deliberate indifference” standard, the Court seemed equally unimpressed by Global-Tech’s pleas of innocence.  Indeed, several of the Justices appeared to regard the patent clearance opinion sought by Global-Tech as a sham.  While predicting the outcome of Supreme Court decisions based on oral arguments is often a dubious endeavor, the overall tenor of the hearings suggested that the Court supports the ultimate result that Global-Tech should be liable for inducing infringement, although for reasons that differ from the Federal Circuit’s conclusion that Global-Tech was deliberately indifferent to the existence of SEB’s patent rights.  In fact, Justice Breyer posed several alternative standards during oral arguments including “conscious disregard” and “willful blindness” of SEB’s U.S. patent rights.  “Willful blindness” may indeed be where the Supreme Court ends up as they did in the recent case of United States v. Santos, 553 U.S. 507 (2008).  In Santos, which also turned on the issue of “intent” (but in a non-patent context), the Court applied the “willful blindness” standard and held that “willful blindness arises when a party, aware of a high probability of a fact, deliberately avoids learning the truth.”

The final decision by the Supreme Court in Global-Tech v. SEB S.A. could lower the standard for patentees to show active inducement of infringement.  Nutter attorneys will continue to monitor progress of this case and provide updates in future advisories.      

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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