Supreme Court Mildly Narrows Federal Circuit Standard of Deliberate Indifference
In Global-Tech Appliances v. SEB S.A., 563 U.S.____; 98 USPQ2d 1665 (2011), SEB, a French maker of home appliances, filed a lawsuit against Pentalpha for direct infringement and active inducement of another in infringing of U.S. patent 4,995,312. Pentalpha is a wholly owned subsidiary of Global-Tech Appliances, Inc.
SEB designed an innovative deep fryer and obtained patent ‘312 in 1991, subsequently SEB commenced production of the fryer under the T-Fal brand in the Untied States. Sunbeam products, a U.S. competitor of SEB, requested Pentalpha Enterprises Ltd. to supply it with deep fryers of specific specification. While developing a fryer for Sunbeam, Pentalpha purchased a SEB fryer, in Hong Kong, which did not bear a patent identifier. Pentalpha copied all but the cosmetic details of the SEB fryer. Pentalpha then retained an attorney to perform a right-to-use study, but failed disclose that the design was copied directly form the SEB fryer. The attorney failed to locate the SEB patent, and in August 1997 issued a letter stating that in his opinion Pentalpha’s fryer did not infringe any of the patents he had found.
Pentalpha commenced selling its fryer to Sunbeam, which resold them in the United States under its trademarks. Sunbeam in obtaining lower production costs was able to under cut the SEB price and capture sizable market share. In March 1998, SEB sued Sunbeam for infringement of the ‘312 patent. Sunbeam notified Pentalpha in April 1998 of the lawsuit and settled with SEB for $2 million. Even after notice of the lawsuit Pentalpha sold deep fryers to Fingerhut Corp. and Montgomery Ward & Co., which in turn resold them in the Untied States under their own trademarks.
SEB sued Pentalpha asserting two theories of recovery; 1) in violation 35 U.S.C. § 271(a) Pentalpha had directly infringed by selling or offering to sell the deep fryers; 2) in violation of 35 U.S.C. § 271(b) Pentalpha had actively induced Sunbeam, Fingerhut, and Montgomery Ward to sell or offer to sell Pentalpha’s deep fryers which infringed SEB’s patent rights. Both the District and Court of Appeals for the Federal Circuit found in favor of SEB, rejecting Pentalpha’s argument that there was insufficient evidence to support a finding of induced infringement under 35 U.S.C. § 271(b), because they had no actual knowledge of SEB’s patent until it received notice of the Sunbeam lawsuit in April of 1998.
Question of Certiorari
Whether a party who “actively induces infringement of a patent” under 35 U.S.C. § 271(b) must know that the acts constitute patent infringement?
Statutory Interpretation of § 271(b).
The Supreme Court in applying a textualist approach found that an affirmative action that persuades or influences infringement is required. The Court found that the “induce infringement” term could mean the inducer lead another to engage in conduct that happens to amount to infringement or persuade another to engage in conduct that the inducer knows is infringement. The Court then turned to the case law defining the principals of contributory infringement, codified in the Patent Act of 1952.The Patent Act of 1952 split the singular doctrine of contributory infringement into 35 U.S.C. §271(b) and 35 U.S.C. 271(c) (sale of a component of a patented invention).
In Thomson-Houston Elec. Co. v. Ohio Brass Co., Judge Taft wrote that it was “well settled that where one makes and sells one element of a combination covered by a patent with the intention and for the purpose of bringing about its use in such a combination he is guilty of contributory infringement,” requiring only that the party intentionally contribute to the act, which the court holds to be infringement. 80 F. 712, 721 (CA6 1897). On the other hand in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., the Supreme Court held “the inducement rule…premises liability on the purposeful, culpable expression and conduct,” suggesting that the defendant have notice of the patent rights. 545 U.S. 913, 937 (2005); Cortelyou v. Charles Eneu Johnson & Co., 207 U.S. 196, 200 (1907).
The Supreme Court’s holding in Aro Mfg. Co. v Convertible Top Replacement Co., 377 U.S. 476 (1964) resolves the conflicting interpretations of the pre-1952 case law and the statutory language of 35 U.S.C. § 271(b). The Court held that a violator of § 271(c) must know of the existence of the patent that it infringes.Id. at 488. As the statute sections have a common origin and the provisions have similar interpretive choice the Court held that the knowledge requirement of 35 U.S.C. §271(c) applies in 35 U.S.C. §271(b).
Having determining that knowledge that the induced acts constitute patent infringement for “inducing infringement under 35 U.S.C. §271(b), the court analyzed Pentalpha’s challenge, agreeing that deliberate indifference to a known risk that a patent exists does not meet the standard under 35 U.S.C. §271(b), but found that Pentalpha had “knowledge” under the doctrine of willful blindness.
The willful blindness doctrine states that one is just as culpable as if they had actual knowledge; where the party knows enough to blind themselves to direct proof of critical facts, in effect has actual knowledge of those facts. Edwards, The Criminal Degrees of Knowledge, 17 Mod. L. Rev. 294, 302 (1954); United States v. Jewell, 532 F.2d 697, 700 (CA9 1976). This doctrine has been widely accepted and has a long history in criminal law within the Federal Judiciary. With this in mind the Supreme court found no reason why it should not apply in civil suits for induced patent infringement under § 271(b). The court articulated the requirements/limitations of willful blindness as 1) the defendant must subjectively believe that there is a high probability that a fact exists and 2) the defendant must take deliberate actions to avoid learning of that fact.
The Supreme Court determined that the Federal Circuit had applied an inappropriately low standard of willful blindness in the case at bar, finding knowledge when there was merely a “known risk” and requiring only “deliberate indifference” to that risk. Applying the “proper” standard of willful blindness, the court found that the jury could have easily found that Pentalpha willfully blinded itself to the infringing nature of the sales it encouraged Sunbeam and others to make. Pentalpha knew that the SEB fryer was an innovation in the U.S. market, as evidenced by their market research. Pentalpha believed that the SEB fryer had superior qualities that would make it valuable in the U.S. market as evidenced by the copying of the design. Pentalpha copied an overseas design knowing that the product was designed for the U.S. market, being well aware that products made for overseas markets do not bear the U.S. patent markings. Finally, and most telling, Pentalpha withheld information from the attorney hired for a right-to-use opinion that the design was a copy of the SEB fryer.
In affirming the finding against Pentalpha, the Court found that Pentalpha “subjectively believed that there was a high probability that the SEB fryer was patented and took deliberate steps to avoid that fact, willfully blinding itself to the infringing nature of Sunbeam’s sales.”
Significance for Patent Owners and Foreign Sellers
As discussed more completely in the Feature Comment of the Stein McEwen Newsletter, Volume 6, Issue 1 (March 2010), 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. While the Supreme Court has replaced the deliberate indifference standard proposed by the Federal Circuit with a willful blindness standard, the difference in nomenclature does not dramatically affect the risk to the exporter community. 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.