In Commil USA, LLC v. Cisco Systems, Inc. (No. 13-896, May 26, 2015), the United States Supreme Court held that a good faith belief in the invalidity of a patent is not a shield to liability for active inducement of infringement. In so holding, the Court eliminated a defense which the Federal Circuit established just two years ago. Justice Kennedy, writing for the majority in this 6-2 decision, however, made clear that the removal of this quiver from an alleged infringer’s arsenal of defenses is not an endorsement of patent trolls.
Active inducement liability is established by 35 U.S.C. § 271(b). That statute simply states: “Whoever actively induces infringement of a patent shall be held liable as an infringer.” Courts interpreting that statute, including SCOTUS, have held that a finding of inducement requires both knowledge of the patent and knowledge that the induced acts constitute patent infringement. With regard to the second prong, the Federal Circuit previously ruled that a good faith belief in the invalidity of the asserted patent could negate the latter knowledge requirement. Accordingly, in 2013, the Federal Circuit reversed a $63 million jury verdict against Cisco, finding that Cisco did not believe the patent-in-suit to be valid and that there was “no principled distinction between a good-faith belief of invalidity and a good-faith belief of non-infringement for purpose of whether a defendant possessed the specific intent to induce infringement of a patent.”
Today the Supreme Court flatly rejected that argument. The Court’s holding is anchored on the dichotomy between infringement and validity and concerns about conflating the two. In addition, Justice Kennedy noted that allowing a good faith belief in invalidity to defeat an indirect infringement claim would undermine the presumption of validity enjoyed by all patents. This presumption is a “common core of thought and truth” which the Supreme Court has long protected.
Of specific note, in the last section of the Court’s opinion, Justice Kennedy addressed the issue of patent monetization/assertion entities. He noted that “[t]he Court is well aware that an ‘industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.’” The Court stressed that district courts have the authority to sanction attorneys or impose attorneys’ fees on parties who bring frivolous claims. Thus, neither litigants nor district courts should feel powerless when dealing with frivolous patent claims. This commentary—given that there were no allegations of frivolity raised by the parties in the present case—indicates that the Court is feeling somewhat defensive about its pro-patentee holding.
As a result of this decision, parties potentially liable for inducement of patent infringement should re-evaluate defenses they are relying on and may need to adjust their business practices accordingly.
This advisory was prepared by Heather B. Repicky, a partner in the Intellectual Property Litigation practice group at Nutter McClennen & Fish LLP. For more information, please contact Heather or your Nutter attorney at 617-439-2000.
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