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IP, Patent

Global-Tech Appliances, SEB Argue Inducing Patent Infringement At Supreme Court

As previously reported, the Supreme Court heard oral arguments this week in Global-Tech Appliances, Inc. v. SEB, involving whether Pentalpha Enterprises induced infringement of SEB’s patent (4,995,312). The CAFC affirmed a verdict holding Pentalpha liable because it agreed the facts supported a showing that Pentalpha deliberately ignored the risk that its deep fryer infringed SEB’s patent.  The critical issue presented to the Court is whether a claim of inducing infringement requires a “deliberate indifference of a known risk” that an infringement may occur or instead “purposeful, culpable expression and conduct” to encourage an infringement.  Specifically at issue is 35 USC 271(b): “Whoever actively induces infringement of a patent shall be liable as an infringer,” while the state of mind debate struggles to define what it means to actively induce something.

Pentalpha’s conduct leading up to this lawsuit was remarkable. Piecing together material provided in the CAFC’s opinion and the argument transcript, the facts were basically as follows: Pentalpha went shopping for deep fryers, and decided they liked one that was made by SEB. They took it home, reverse engineered it, and then created a design for a deep fryer of its own based on SEB’s design. Somehow, they had the foresight to send the design to a patent attorney for a legal opinion on the design (i.e., was the design infringing any known patents). However, they neglected to tell the attorney that their design specifically copied SEB’s deep fryer.

The argument featured more questions and pontifications by the Justices than actual argument from either attorney, and while other bloggers suggested that the Court was sympathetic to the CAFC’s rule, their actual direction is not all that clear.

Right off the bat, the Justice’s seemed hostile to Pentalpha’s practice and apparently willful ignorance of SEB’s patents:

JUSTICE GINSBURG: You said that the particular patent — the defendant would have to know that the device infringed the particular patent. I think that would be a standard that would be impossible to meet. We have to know if it was patent number, whatever it was, ‘312.

MR. DUNNEGAN: Well, you wouldn’t have to know the patent number, Your Honor, but what you would have to know is that your — the product which you are inducing a third party to make, use, or sell would be within the scope of a — of the claims of a particular patent. If you don’t know that, then you’re literally –

JUSTICE GINSBURG: But you can keep yourself ignorant of it. I mean, for example, you pointed out that the — that the device that was copied was purchased in Hong Kong, so it didn’t have any marking, but the same Pentalpha could have bought the device in Montgomery Ward, looked to see if it had a patent marking; didn’t do that.

MR. DUNNEGAN: It didn’t do that, Your Honor. What it did was better. It hired a United States patent attorney to conduct a search to see if there was any patent which was infringed.

JUSTICE GINSBURG: But didn’t tell that patent attorney that they had reverse-engineered a particular product. If the attorney had been told this device copied the SEB fryer, isn’t it 99 and 44/100ths percent sure that the attorney then would have found this patent?

MR. DUNNEGAN: We don’t know, Your Honor. We don’t know why the patent search failed. It could have failed for a number of reasons.

Pg 4-5.

Remarkably, the defendant’s attorney tried to argue that there’s no established conduct for clearing patent threats when a product is specifically reverse engineered from a competitor:

JUSTICE SCALIA: … if you’re honestly interested in finding out whether there is a patent that you’re infringing, why wouldn’t you tell me the reason we’re concerned is that we have reverse-engineered this from somebody else’s product? Just check to see if SEB has a patent on any of this stuff that we’ve reverse-engineered. That’s what I would have done.

MR. DUNNEGAN: Your Honor, maybe that’s what you would have done. Maybe that’s what I would have done, but there’s no — but the standard of that business — what they had done in the past was to give their design drawings to the patent attorney and say objectively check these design drawings.

Pg 6.

Scalia has it exactly right, of course. Pentalpha was looking for CYA coverage, not actual information. The dance eventually got downright dishonest:

JUSTICE SOTOMAYOR: … can you do a patent search on the basis of the name of the holder?

MR. DUNNEGAN: Yes, you can, Your Honor.

JUSTICE SOTOMAYOR: And the product that they copied, did it have the name of the holder of the patent?

MR. DUNNEGAN: Yes, it did, Your Honor.

JUSTICE SOTOMAYOR: So what is the likelihood that if they had actually given the attorney the name of the product, that he would not have found the patent?

MR. DUNNEGAN: We don’t know for sure, but the probability would be greater than 50 percent, Your Honor.

JUSTICE SOTOMAYOR: I think it would be probably 90 percent

(Shameless plug): If the attorney had used Patent Tools, the probability would have been 100%. A search for SEB as the owner and deep fryer in the text puts the ‘312 Patent a little past halfway down the first page of results.

But seriously, this attorney is deliberately suggesting that the patent attorney wouldn’t have found SEB’s deep fryer patent if he’d been told that the design was copied?

Justice Alito wanted to know why 271(b) carries a state of mind requirement at all:

JUSTICE ALITO: When I look at the language of the statute, I see no scienter requirement whatsoever. Whoever actively induces infringement of the patent — infringement is strict liability. So if you actively induce somebody to engage in conduct constituting infringement, you’re — you’re liable as an inducer.

***

JUSTICE ALITO: … I don’t understand why the scienter requirement for inducing should be higher than the scienter requirement for a direct infringement. Isn’t the standard rule for aiding and abetting that the aider and abetter — if (b) is an aiding and abetting provision, as one of the congressional reports said, the — the scienter for aiding and abetting is the scienter of the underlying offense? So if the underlying offense is a strict liability offense, then the inducement should be strict liability as well.

Pg 11-13.

Meanwhile, Sotomayor wondered why a mistake of law (of the legal scope of the patent claims) should be a defense to inducement:

JUSTICE SOTOMAYOR: So you’re introducing a mistake of law defense to knowledge. You’re saying, I really didn’t know that it was unlawful. I knew that there was a patent, but I really thought that it wasn’t a legal patent, so I was going to violate what I know wasn’t legal. Is that what you’re saying?

MR. DUNNEGAN: Well, not exactly, Your Honor, because if you’re reaching the conclusion that the product is not within the scope of the claims of the patent, I don’t think that’s law. That’s fact. The reason it’s not law is that — it couldn’t be repealed. It’s — you can’t pass a law abrogating a patent.

JUSTICE SOTOMAYOR: Why do you get off the hook for making a mistake of law?

MR. DUNNEGAN: A mistake of law — generally you don’t get off the hook. What we have here is a mistake of fact concerning the scope of the claim of the patent.

Pg 25-26.

Actually, Mr. Dunnegan is dead wrong.  The scope of the patent claims is a question of law, not fact.  In fact, the Supreme Court has said so in the past.

I mentioned the pontificating, right? Here’s Justice Breyer going on and on about what the heck the CAFC’s “known risk” standard means:

JUSTICE BREYER: How do you say, I am not certain that willful blindness would support the conclusion below. The standard, the district court or the trial court said really, negligence, as I read it. The circuit said deliberate disregard of a known risk. Well, how much of a risk? I mean, the business world there is always a risk and we are talking about a complicated world, probably quite a lot of risk. And so I think that standard would create a great deal of uncertainty. Willful blindness has a tradition. So are you okay with willful blindness and we say we are afraid they did not do it, i.e., we are afraid, we do not know what they really meant here and so send it back and do it again. I am sure you wouldn’t be overjoyed. But do you think that would be a reasonable result?

MR. CRUZ: I think if the conclusion were to send it back and do it again, I don’t think that would be a reasonable result.

JUSTICE BREYER: What are you supposed to say known risk, sure he says he looked at five. And he says anybody can figure this thing out, all you do is put the little gizmos between the two sides, you know, and you have an inside and outside and you just suspend the inside with little bars of some kind. I do not know what, chewing gum or something, and he says anybody could figure that out, it couldn’t possibly be bad. And so that is their view, but how much of a risk, they will say little risk, big risk. So you see why I think we should send it back.

Pg. 29-30.

Ginsburg on the same topic:

JUSTICE GINSBURG: They’re dealing with a Federal Circuit decision, they’re reviewing that decision, the Federal Circuit had a formula. It said standard is deliberate disregard of a known risk. One thing you must surely do is to say whether that standard is right or wrong. So the Federal Circuit, whatever the jury found, Federal Circuit said the law is that you are liable under 271(b) if you are deliberately — if you deliberately disregard a known risk. Is that standard the right one?

MR. CRUZ: I agree the Federal Circuit had that language. I would not suggest that standard was the wrong standard, but what I would say, what the Federal Circuit in fact did is it applied willful blindness. If you look at the cases it cited, if you look at how it in fact interpreted it, although it used the deliberate indifference language, which I will concede was somewhat confusing in its reasoning. If you look at it, it framed it as whether Pentalpha had constructive knowledge of the patent, and it then cited willful blindness cases from other circuits that focused it on actively disregarding a known risk and deliberate avoidance and consciously avoided knowledge. All of that is willful blindness knowledge.

Pg. 45-46.

Finally, no oral argument for a patent case would be complete without a weird analogy from Justice Breyer. His Japanese Kabuki-theater costume analogy is found at pages 35-36:

JUSTICE BREYER: The difference, they say, between (b) and (c) is that (c) applies to a person who makes some really special thing that looks like a Japanese kabuki theater costume, and it’s actually made out of metal and it’s really — has a very bizarre thing, and it is only used — good use is to do this infringing thing. But (b) could apply to somebody who makes plastic shields. (B) can apply that — (b) could apply to anybody who makes anything; is that right?

MR. CRUZ: [DOESN’T MATTER, BREYER WASN’T LISTENING]

JUSTICE BREYER: Well, the argument is that the words “actively induced” are meant to be something greater than knowing, not something less than knowing. Because otherwise, you’re going to hold Aluminum Company of America, if that still exists, liable when it makes these aluminum sheets, because somebody uses an aluminum sheet apparently, et cetera. You see the problem.

It is quite different when you make this weird kabuki-looking thing that only has one use, and they — and that’s why it should be — it should be harder to hold that person to contributory infringement, not easier.
Now, that’s their argument. What do you say.

Nothing, Justice Breyer. I can’t solve your racoon problem, and I damn sure don’t know how to respond to your “weird kabuki-looking” analogy. Sorry.

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Discussion

4 thoughts on “Global-Tech Appliances, SEB Argue Inducing Patent Infringement At Supreme Court

  1. Seems to me that companies are pushing harder than before to compete with competitors without doing the actual work of inventing new things rather just building on the work of others I think as this trend continues so will the cases of
    patent infringement and patent litigation increase.

    Posted by Jared | March 1, 2011, 3:00 pm

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