Federal Circuit Clarifies Knowledge Required for Inducement

Federal Circuit Clarifies Standards for Inducement and for Sales in the United States.

In SEB S.A. v. Montgomery Ward & Co., 93 USPQ2d 1617 (Fed. Cir. 2010), SEB manufactures and sells cooking products in the United States through a subsidiary T-Fal Corp.  SEB owns U.S. Patent No. 4,995,312 (the ‘312 patent), which is directed to a deep fryer that is sold in the U.S. through T-Fal.  Pentalpha is a Hong Kong corporation who sold a deep fryer to Sunbeam Products, Inc., which then sold the fryers in the U.S. using the remaining defendants.  In developing the fryer, Pentalpha purchased SEB’s fryer in Hong Kong, and copied SEB’s fryer.

Pentalpha asserted that the fryer it purchased in Hong Kong was not marked with a patent number.  However, the majority of fryers SEB sold in the U.S. were marked with the ‘312 patent.

Pentalpha had obtained a right-to-use study from a U.S. attorney for its fryer.  This study indicated that the fryer was not infringing a U.S. patent.  Notably, the study did not cover the ‘312 patent, and Pentalpha did not reveal to its counsel that the fryer was copied from a competing product sold by SEB or T-Fal.  Pentalpha then provided its fryer free-on-board (fob) to Sunbeam in Hong Kong using Sunbeam’s U.S. brand, and Sunbeam imported the fryer into the U.S.

On learning of the fryer sold by Sunbeam, SEB sued Sunbeam for infringing the ‘312 patent in 1998.  Sunbeam settled the suit by agreeing to pay SEB $2 million.

Pentalpha also sold the accused fryer to others, including defendant Montgomery Ward, after Pentalpha learned of the suit against Sunbeam.  In these sales, the accused fryers were also branded with trademarks used by defendant Montgomery Ward, and were also delivered fob in Hong Kong or China.  Further, the invoices all clearly indicated that the purchasers were in the U.S.

On learning of these additional sales, SEB brought suit against Montgomery Ward and Pentalpha in 1999.  The jury found that the accused fryer sold by Montgomery Ward and Pentalpha infringed the ‘312 patent, and found Pentalpha to have infringed the ‘312 patent directly under 35 U.S.C. §281(a), and under a theory of inducement under 35 U.S.C. §271(b).

On appeal, the Federal Circuit confirmed that the accused fryer did infringe the ‘312 patent. However, Pentalpha further argued that it should not be liable for direct or induced infringement under 35 U.S.C. §271(a) or (b) since the sales were fob in Hong Kong, and since there was no evidence that Pentalpha actually knew of the ‘312 patent.

Direct Infringement for Selling in the U.S.

On the issue of whether Pentalpha could be liable for making an offer to sell the infringing fryer, the Federal Circuit noted that it has not precisely defined the extent to which foreign acts can be used to show an offer to sell for purposes of 35 U.S.C. §271(a).  Citing to Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d 1246, 1260 (Fed. Cir. 2000), the court noted that prior caselaw appears to hold that infringement under 35 U.S.C. §271(a) is not possible where all acts occur overseas, but there is no clear holding of the such in relation to offers for sale.

 

However, the Federal Circuit noted that it need not define the extraterritorial effect of 35 U.S.C. §271(a) since the only evidence that the sale occurred overseas was the fob language in the sales.  The fob language in the invoices relates only to where the risk of loss occurred and not to the location of the sale itself.  The Federal Circuit noted that its caselaw expressly found that fob language does not control the location of a sale for purposes of infringement.  Litecubes, LLC v. N. Light Prods., Inc., 523 F.3d 1353, 86 USPQ2d 1753 (Fed. Cir. 2008).

Moreover, while there was a lack of evidence that the sale occurred outside of the United States, the record showed that Pentalpha intended to sell the infringing fryers to U.S. customers, affixed the marks used by the U.S. customers, used electrical fittings used in the U.S., and identified in the invoices the U.S. destination of each shipment.  Thus, as there was sufficient evidence in the record to support a finding that the offers for sale were in the United States as opposed to overseas, the Federal Circuit upheld the finding of direct infringement under 35 U.S.C. §281(a).

Inducement Includes Where Infringer Deliberately Avoided Knowledge of Patent

On the issue of the knowledge requirement for 35 U.S.C. §271(b), the Federal Circuit first noted that the level of intent was recently decided in DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006) (en banc).   Under DSU, the intent required for inducement is that the infringer knew or should have known that the infringer’s actions would result in infringement, which would “necessarily” include a requirement that the inducing infringer knew of the patent.  In distinguishing from DSU, the Federal Circuit clarified that, in DSU, it was undisputed that the inducing infringer actually knew of the patent.  Therefore, DSU does not answer the question of when does the inducing infringer know of the patent

In resolving the question, the Federal Circuit noted that inducement requires a specific intent to cause another’s infringement.  Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 699 (Fed. Cir. 2008).  Further, the Federal Circuit took note that other courts have found in other like contexts that deliberate indifference is the same as specific intent.   Thus, “the standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge.”

In applying this standard, the Federal Circuit found that the evidence supported a finding that Pentalpha “deliberately disregarded a known risk that SEB had a protective patent.”  Such evidence included the fact that Pentalpha copied the SEB design; hired outside counsel to perform the right-to-use study without informing the counsel that it copied the design from SEB; and was headed by a President who had detailed knowledge of patent law and had worked on other projects with SEB in which SEB patented the resultant product.  There was no evidence that Pentalpha reasonably believed the fryer was not patented.  Thus, the Federal Circuit found that Pentalpha exercised deliberate indifference to the existence of a patent, and that this deliberate indifference was sufficient to show inducement to infringe under 35 U.S.C. §271(b).

Significance for Patent Owners and Foreign Sellers

As discussed more completely in the below Feature Comment, SEB confirms that offers for sale by foreign entities can still be infringing under 35 U.S.C. §271(a) where much of the activity is directed to a U.S. purchaser.  Additionally, SEB confirms that inducement can occur even where patent owner is deliberately avoiding finding patent.  As such, foreign producers of goods need to be aware that, even where they do not directly import goods into the United States, their sales can still incur liability under the right set of facts such as those in SEB.

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