• Federal Circuit Discusses Standard for Induced Infringement, But Declines to Clearly Define Bounds
  • February 25, 2010 | Author: Malcolm K. McGowan
  • Law Firm: Bingham McCutchen LLP - Washington Office
  • On February 5, 2010, the U.S. Court of Appeals for the Federal Circuit issued its opinion in SEB S.A. and T-Fal Corporation v. Montgomery Ward & Co, Inc. and Global-Tech Appliances, Inc., and Pentalpha Enterprises, Ltd., upholding the finding of the U.S. District Court for the Southern District of New York that the defendants directly infringed, and induced infringement of, the claims of SEB’s U.S. Patent 4,995,312 (“the ‘312 patent”). In deciding the case, the Federal Circuit declined an opportunity to set clear guidelines on what constitutes inducement to infringe.

    The court found that defendant Pentalpha, a Hong Kong corporation, purchased an SEB fryer in Hong Kong, and disassembled it in order to reverse-engineer its own fryer design. Pentalpha initially sold the accused fryers to non-party Sunbeam Products Inc., which imported them into the U.S. for sale under its own name. Shortly after agreeing to supply Sunbeam, Pentalpha obtained a “right-to-use” study from a U.S. attorney. Pentalpha “did not tell the attorney that it had copied an SEB deep fryer.” The attorney analyzed 26 patents, and concluded that none of the claims of those patents read on the Pentalpha deep fryer. Apparently, the attorney did not uncover, and so did not consider, SEB’s ’312 patent.

    In 1998, SEB sued Sunbeam, which notified Pentalpha of the suit. That suit ended when Sunbeam agreed to pay SEB $2M. Subsequent to learning of SEB’s suit against Sunbeam, Pentalpha sold the same deep fryers to Montgomery Ward, which in turn sold the deep fryers in the U.S. under its own name. Plaintiffs accused Pentalpha of both direct and induced infringement.

    With respect to the claim of induced infringement, at the close of evidence Pentalpha moved for JMOL on the basis that no evidence had been presented that anyone at Pentalpha “had any knowledge whatsoever with respect to the existence of the patent” prior to the lawsuit against Sunbeam. In response, SEB argued that the jury could infer specific intent from Pentalpha’s failure to inform its patent attorney that it had copied an SEB fryer. The District Court denied the motion, holding that there was evidence to support SEB’s theory of inducement.

    Section 271(b) of 35 U.S.C. provides that “[w]hoever actively induces infringement of a patent shall be liable as an infringer.” A plaintiff charging induced infringement must show that the alleged infringer “knew or should have known that his actions would induce actual infringements.” Per the Federal Circuit’s 2006 decision in DSU Medical Corp. v. JMS Co., the requirement that the alleged infringer knew or should have known that his or her actions would induce actual infringement “necessarily includes the requirement that he or she knew of the patent.” In DSU Medical, there was no dispute that the accused infringer knew of the patent-in-suit, so in that case the Federal Circuit explicitly declined to address the scope of the knowledge requirement for intent. In this case, presented with another opportunity to explicitly define the scope of knowledge required for intent, the court again declined. As a result, the law surrounding inducement remains in flux with respect to the intent requirement.

    However, the court has clearly backed away from the requirement that the accused infringer must be shown to have had actual knowledge of the patent-in-suit to prove inducement. Instead, the intent requirement may be satisfied, even if there is no “direct evidence that the accused infringer actually knew of the patent-in-suit,” where there is “adequate evidence to support a conclusion that [the defendant] deliberately disregarded a known risk that [plaintiff] had a protective patent.” The court did not define what constitutes a “known risk.” However, the court pointed to Pentalpha’s failure to inform its opinion counsel of the copying of SEB’s fryer, along with evidence that Pentalpha’s president was the named inventor on 29 U.S. patents, and that “Pentalpha and SEB had an earlier business relationship that involved one of Pentalpha’s patented steamer products.” The court found Pentalpha’s actions, in view of the fact that Pentalpha and its president were knowledgeable about patent matters in general, to constitute “considerable evidence of deliberate indifference” on the part of Pentalpha.

    The court notes that “proof of knowledge through a showing of deliberate indifference may be defeated where an accused infringer establishes that he actually believed that a patent covering the accused product did not exist.” The court does not explain how this standard can be met. However, Pentalpha’s argument that SEB’s fryer was not marked with its U.S. patent number was not persuasive. This is somewhat surprising in light of the court’s prior holding in Insituform Techs., Inc. v. CAT Contracting, Inc.. In Insituform, the court held that in the absence of evidence of actual knowledge of the patent-in-suit, constructive knowledge may be shown “with persuasive evidence of disregard for clear patent markings, similar to the constructive notice requirement of §287(a).” The court in this case explained that the lack of marking by SEB did not excuse Pentalpha because “Pentalpha does not argue that it relied on the lack of a mark to come to a belief that the deep fryer was not patented. And even if it had, such an argument would likely lack credibility unless it were supplemented by an explanation for why one would expect an SEB deep fryer purchased in Hong Kong to have U.S. patent markings.”

    The critical factor for the court with respect to inducement appears to have been the circumstances surrounding Pentalpha’s right-to-use investigation. Had the right-to-use investigation covered the SEB patent, then Pentalpha could have argued that they had a reasonable basis for believing that they did not infringe. Instead, it appears that Pentalpha argued that it commissioned a search that did not uncover the SEB patent, so it had no idea that there was a patent on the SEB fryer. The court found this unpersuasive, presumably concluding that, had Pentalpha informed its opinion counsel that it had copied the SEB fryer, the SEB patent would have been discovered and considered. Had Pentalpha not sought an opinion of counsel, or not introduced evidence of that opinion, the court might not have been left with the impression that Pentalpha had concealed the copying of the SEB fryer from its opinion counsel. This decision, then, provides further evidence that careful consideration needs to be given to the decision to seek an opinion of counsel, and to introduce that opinion in court.