Induced Patent Infringement

By James A. Johnson

JRNL_JanApril20_Johnson_Patent_blog

INTRODUCTION

Article I, Section 8, Clause 8 of the U. S. Constitution provides, in pertinent part: The Congress shall have Power . . . . To promote the Progress of Science and useful Arts by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. Patentees have the right to exclude others from making or using their invention. A party that causes another to infringe a patent may be liable for induced infringement.

United States patent law recognizes direct infringement1 and two forms of indirect infringement, inducement and contributory infringement.2 35 U.S.C. § 271(b) provides that “whoever actively induces infringement of a patent shall be liable as an infringer.”3 The reason for the law of inducement is that a party who brings about the infringement of a patent should not escape liability just because another party is actually using the infringing product or method.

SCIENTER

A patent inducement cause of action has a knowledge and intent element indicated by the requirement for “active” inducement in the statute. The Federal Circuit in 2006 held in DSU Medical Corp. v. JMS Co. that the intent requirement for inducing acts of inducement required that the alleged inducer knew or should have known his actions would induce actual infringement.4 In addition, the inducer must have had an affirmative intent to cause direct infringement.5 But it is not clear as to what degree the alleged inducer is required to assess the validity of the patent. Or to what degree to conduct a study to determine whether the acts of the induced party infringed any claims of the asserted patent.

The scienter element is difficult to apply in the inducement analysis. Compounding the problem is the 2011 U.S. Supreme Court’s decision in Global-Tech Appliances, Inc. v. SEB S. A. by introducing willful blindness into the analysis.6 The willful blindness test is characterized by the Supreme Court as something more than recklessness or negligence.7 The concept of willful blindness permits the trier of fact to impute the requisite knowledge to an alleged inducer in certain situations by circumstantial evidence. This mens rea is difficult to assess particularly with communication technology companies because these entities involve a plethora of interoperating providers and users.

CIRCUMSTANTIAL EVIDENCE

Under 35 U.S.C. § 271 (a), inducement of infringement cause of action requires a degree of fault or culpability. The reliance on circumstantial evidence and inference creates a low threshold for satisfying the scienter requirement. Moreover, circumstantial evidence may be used to establish willful blindness. Therein lies the problem: the degree of knowledge the alleged inducer must have concerning the validity of the patent.

Patentees are vulnerable to inducement suits because circumstantial evidence may be used to establish not only requisite knowledge, but also specific intent.8 Liability for inducement requires affirmative conduct by the alleged inducer and is construed broadly.9 The U.S. Supreme Court in Global-Tech establishes liability for actively inducing patent infringement under 35 U.S.C. § 271(b). It is sufficient for the defendant to have taken deliberate actions to avoid confirming a subjective belief of a high probability of wrongdoing.10 Therein lies the concept of willful blindness congruent with the established principle that the intent element for inducement may be proved by circumstantial evidence.11 The standard set out in Global-Tech as to knowledge and intent is helpful to catch patent trolls or non-practicing entities, but is problematic for innocent providers of developing technology companies of computer software and hardware. Moreover, the low threshold of the scienter requirement that can be established by inference and circumstantial evidence creates a fact question for a jury to decide. Thus, a motion for summary judgment by the alleged inducer under Federal Rule of Civil Procedure 56(a) would not be successful where the dispute concerns a material fact. The court must consider all reasonable inferences in favor of the non-moving party. Therefore, a defendant accused of inducing infringement is subject to costly litigation.

In 2012 the Federal Circuit in Limelight Networks Inc v. Akami Technologies, Inc. established liability for inducement of patent infringement where there was no direct infringement. This was characterized as inducement only liability.12

The development of information in the rapidly advancing communication technologies presents a dilemma and an opportunity for potential patent litigants such as competitors and patent trolls. The theory of induced infringement provides opportunities for suing service and technology companies that provide service to consumers and other parties engaged in performing steps that are claimed in the method claims of a patent.

Enter Akamai Techs., Inc. v. Limelight Networks, Inc. Akami and Limelight are both internet content delivery networks (CDNs). In 2006, after a possible merger of Akamai’s acquisition of Limelight failed, Akami filed suit for patent infringement against Limelight. Akamai tagged or designated certain components of a content provider’s website to be stored on Akamai’s servers. Limelight did not tag the content but rather provided instructions to its customers to tag for themselves.13 This tagging is a step in the claimed method patent.14

In 2008, the Federal Circuit in Muniauction, Inc. v. Thompson Corp held that for direct infringement, a single party must perform every step of the claimed method.15 Thus, the district court granted Limelight’s motion for reconsideration16 and held that since Limelight did not perform all the steps, there was no direct infringement.17 However, the Federal Circuit reversed,18 stating that even if no one could be liable as a direct infringer there still could be a judgment on induced infringement.19

The Federal Circuit on remand reaffirmed the original holding against Akamai.20 However, the Federal Circuit en banc reconsidered the law of direct infringement and held that in a case of direct, but divided infringement, one entity could be found liable under two circumstances: (1) where one entity directs or controls the other entity’s performance or (2) where the entities form a joint enterprise.21

The Federal Circuit reviewed the facts and held that Limelight was liable for direct infringement because it directed or controlled its customers’ performance.22 Limelight establishes the manner and timing of its customers performance so that customers can only avail themselves of the service upon performance of the method steps.23

U.S. SUPREME COURT

In 2014 the U.S. Supreme Court addressed the question of whether the performance steps of a patented method by multiple independent entities infringes the patent under 35 U.S.C. § 271(a) when no entity performs all of the steps of the method either directly or vicariously. The U.S. Supreme Court rejected inducement only liability and reversed the Federal Circuit in holding that a defendant will not be liable for induced infringement under 35 U.S.C. § 271(a) when no one has directly infringed the patent.24

DIRECT INFRINGEMENT

In order to understand indirect infringement, one must understand what constitutes direct infringement. Direct infringement is defined under 35 U.S.C. § 271 (a) as “whoever without authority makes, uses offers to sell, or sells any patented invention within the United States or imports into the United States any patented invention during the term of the patent therefore, infringes the patent.” Direct infringement is determined by first properly construing the asserted patent claims and then comparing the claims to the accused process or device. If the accused process literally meets each and every claim limitation or its substantial equivalent, the claim is directly infringed. Thus, direct infringement is a strict liability tort. The motives of the direct infringer that he or she made a mistake or lacked knowledge of the patent are irrelevant to the determination of liability.

To infringe a patent under 35 U.S.C. § 271(a), one must without permission make use, offer to sell or sell a patented invention. In the context of a method patent the induced infringer must perform all the steps of the claimed method, either personally or through another acting under his direction or control.25 In order to show that a party is liable for induced infringement, a plaintiff must show first that the patent was directly infringed and then that the accused party aided or abetted in the infringement. Now, induced infringement may only arise if and only if there is direct infringement.26 This decision changes how companies evaluate infringement risk. Before Akamai, a company had to evaluate not only whether it was directly infringing but also whether it was an induced infringer. A company had to look at the steps being performed by its customers or by its suppliers in conjunction with the steps the company was performing.

ATTORNEY FEES

Also, in 2014 the U.S. Supreme Court addressed the question of the availability of attorneys’ fees to prevailing parties under 35 U.S.C. § 285 in two cases. In Octane Fitness v. ICON Health & Fitness, Inc27 and Highmark Inc., v. Allcare Health Management System, Inc.28 the court clarified the meaning of exceptional. An exceptional case is one “that stands out from others with respect to the substantive strength of a party’s litigating position . . . . or the unreasonable manner in which the case was litigated,” and should be decided on a case by case basis in the district court’s discretion, considering all the circumstances.29 The Court substantially lowered the requirement to meet the statutory threshold that a case be “exceptional” to justify an award of fees from clear and convincing to a mere preponderance of the evidence. It also held that district judges’ decisions on whether this standard was met were to be reviewed only for abuse of discretion and not de novo. Justice Sotomayor writing for the unanimous Court held that the abuse of discretion standard is to be used to review all aspects of a district court’s determination of the award of attorney’s fees under the Patent Act.30

The U. S. Supreme Court in 2016 decided in Halo Electronics, Inc. v. Pulse Electronics that § 284 of the Patent Act provides, in a case of infringement, courts may increase damages up to three times the amount found or assessed.31 The Supreme Court emphasized the use of the word “may” should not be subject to a rigid formula as set out In re Segate Technology.3232 In sum, § 284 allows district courts to punish the full range of culpable behavior. They should take into account the particular circumstances of each case and reserve punishment for egregious cases typified by willful misconduct.

The U. S. Court of Appeals for the Federal Circuit on March 20, 2019 provided guidance on willful infringement in SRI International, Inc. v. Cisco Systems, Inc. It vacated and remanded the district court’s jury finding of willful infringement and enhanced damages because it was not supported by substantial evidence. The standard for factual finding by a jury for willful infringement is only sustainable if the conduct rose to the level of wanton, malicious and bad faith behavior.33

The U.S. Supreme Court in Limelight Networks, Inc. v. Akamai Techs., Inc. reversed the federal circuit’s decision and held that active inducement cannot occur without direct infringement.34 Thus, a party will not infringe a patented method by active inducement when it performs some steps of the method and absent direct infringement, merely encouraging another party to perform the remaining steps.35

PATENT CLAIM CONSTRUCTION

Claim construction is the process by which the meaning of terms in a patent claim are determined. It is central to every patent case. Both validity and infringement hinge on the meaning of the patent claims. Claim construction is the single most important issue in patent litigation. It drives the argument in what has become known as Markman hearings in the Supreme Court’s decision giving judges, not juries, responsibility for interpreting a patent’s claim.36 Patent claims are generally given their customary and ordinary meaning from the prospective of a person having ordinary skill in the art.37

The district court must ascertain the proper legal scope of a patent’s coverage before the fact finder determines whether the patent is infringed. The U.S. Supreme Court in 2015 assessed the standard for reviewing a district court’s claim construction in Teva Pharmaceuticals USA, Inc. v Sandoz, Inc.38 The court held that the “clear error” standard under Federal Rule of Civil Procedure 52 (a)(6), not the de novo standard, must be applied to a district court findings of fact when construing patent claims.39 Moreover, the Court said that a judge, not a jury, is solely responsible for construing a patent claim and that the ultimate issue of the proper construction of a patent claim is a question of law to be reviewed de novo.40

In 2017 the U. S. Supreme Court narrowed the venues in which a patent holder could file a case alleging patent infringement. In TC Heartland LLC v. Kraft Foods Group Brands, LLC, the court held that for domestic corporations, the term “resides” under 28 U.S.C. §1400 means only the defendant’s state of incorporation. Previously a corporation could be sued for patent infringement anywhere it sold or offered an accused product for sale. Now it can only be sued in its state of incorporation or where it commits infringing acts and has a “regular and established place of business.”41

The Federal Circuit in the case In re Cray provided substantial guidance on the issue of what can be argued to constitute a “regular and established place of business” under the § 1404(b) second option. The Federal Circuit provided three general requirements relevant to the inquiry:

• There must be a physical place in the district;

• It must be a regular and established place of business; and

• It must be the place of the defendant.42

In 2018 the Federal Circuit issued three opinions that further clarified a patent plaintiff’s venue options. In In re Big Commerce,43 the court held that in a state that has multiple districts only the district where the company has its principal place of business or registered office is a proper venue. In In re HTC,44 the court held that nothing in TC Heartland changed the longstanding rule that foreign companies can be sued in any federal district court. Lastly, in In re ZTE (USA),45 the court held that the burden of proof to show that venue is proper on the plaintiff.

On October 10, 2018, the PTO published a rule changing the claim construction standard applied during IPR and other post-grant review proceedings. The change is from the “broadest reasonable interpretation” standard with the claim construction standard that is used for claims in civil actions in federal district court.46

USPTO GUIDELINES

The United States Patent Trademark Office (USPTO) has difficulty in applying the Supreme Court’s Alice/Mayo test for patent subject matter eligibility in a consistent and clear manner.47 The lack of clarity in the law with regards to patent subject matter eligibility under 35 U.S.C. § 101 has made it difficult for patent attorneys to advise their clients. Also, the case law regarding subject matter eligibility is constantly changing. In an effort to provide more consistent rulings, the USPTO published on January 7, 2019 the Revised Patent Subject Matter Eligibility Guidelines. In short, the USPTO Revised Guidelines provides a two-step process for determining whether a claim is drawn to patent-eligible subject matter. The Revised Guidelines supersede previous versions subject to the caveat that “any claim considered patent eligible under prior guidance should be considered patent eligible under this guidance.”48

The Patent Trial and Appeal Board provides guidance on the timing of requests for Certificates of Correction in Emerson Electric Co. v. Sipco, LLC (IPR 2016-00984-Jan 24, 2020). A patent owner is permitted to request a certificate of correction in accordance with 37 C.F.R. § 1.323, which allows patent owners to ask the director to make corrections to “mistakes” in a patent. However, 35 U.S.C. § 255 does not authorize a retroactive effect after the board’s final written decision. Therefore, it is best to file a request for a certificate of correction of a patent before inter partes review is instituted. After institution, the board has discretion to stay and effectively deny a patent owner’s ability to request a certificate of correction.

There were no significant patent cases from the U. S. Supreme Court in 2019, but the Federal Circuit issued significant opinions. The Federal Circuit’s denial of en banc review of the question whether servers are a regular and established place of business such that venue is proper under 35 U.S.C. § 1400 (b).49

In Arthrex, Inc. v. Smith & Nephew, Inc,50 the Federal Circuit held the current statutory scheme for appointing administrative patent judges to the Patent Trial and Appeal Board (PTAB) is unconstitutional. I suspect petitions for en banc and U. S. Supreme Court review will be forthcoming.

Also, of note for Texas patent practitioners is the emergence of the patent infringement docket in the Waco Division of the Western District of Texas. In 2019 patent infringement filings were substantially increased.

CONCLUSION

The application of circumstantial evidence and inference coupled with the willful blindness standard lowers the threshold for establishing scienter for inducement. Until the rejection of the inducement only rule by the U.S. Supreme Court, information technology companies such as providers of hardware and software together with end users were vulnerable to inducement lawsuits.

Direct infringement of a patent occurs when an entity makes, uses, or performs each and every element of patent claim. Induced infringement occurs when one party encourages or aids another to infringe a patent. One of the key requirements that sets indirect infringement apart from direct infringement is that liability for indirect infringement has a scienter requirement.

In 2014 the U.S. Supreme Court reversed the Federal Circuit in holding that a defendant will not be liable for induced infringement under 35 U.S.C. § 271(a) where no one has directly infringed the patent. In order to show that a party is liable for induced infringement, a plaintiff must show first that the patent was directly infringed and then that the accused party aided or abetted in the infringement. A plaintiff must show that the accused inducer performed some offensive conduct with the requisite intent. Thus, a party will not infringe a patented method by active inducement when it performs some steps of the method and absent direct infringement, merely encourages another party to perform the remaining steps.

Today a company needs to consider only the steps it performs and no longer can it be found to infringe under induced infringement by performing some steps while its customers or suppliers performed other steps. The Supreme Court rejected inducement-only liability as the basis for liability in patent law. In 2017 the court held that for domestic corporations, a patent holder can only sue an accused infringer in its state of incorporation or where it commits infringing acts and has a regular and established place of business. In 2018 the Federal Circuit further clarified patent plaintiff’s venue options.

In 2014 the U. S. Supreme Court addressed the question of attorneys’ fees to prevailing parties under 35 U.S.C. § 285 in clarifying the meaning of exceptional. An exceptional case is one that stands out from all others with respect to the substantive strength of a party’s litigation position or the unreasonable manner in which the case was litigated. The standard to meet exceptional was lowered from clear and convincing to a preponderance of the evidence. In addition, the U.S. Supreme Court in June 2016 in Halo v. Pulse relaxed the standard for enhanced damages of infringement under Section 284 to the court’s discretion. The court may increase damages up to three times the amount found or assessed in egregious cases typified by willful misconduct.51

In 2017 the U. S. Supreme Court in Lexmark v. Impression Products dramatically upended long-established Federal Circuit precedent regarding exhaustion of U. S. patent rights for products sold either domestically or internationally, irrespective of any conditions of sale. When a patentee sells one of its products, the patentee can no longer control the item through the patent laws. Its patent rights are said to exhaust.52 When a patentee sells an item, that product is no longer within the limits of the patent monopoly. That product becomes the private individual property of the purchaser. The patentee may be able to enforce restrictions under contract law but may not be able to do so through a patent infringement lawsuit.

In 2018 the U. S. Supreme Court held that patent owners may recover lost profits when the infringing party exports parts from the United States for assembly in foreign countries, so long as the relevant infringing conduct occurred in the United States.53

In an interesting aside, on March 4, 2019, the U. S. Supreme Court resolved a circuit split regarding copyright infringement. It held that with limited statutory exceptions, the issuance of a registration from the Copyright Office is a prerequisite to filing a claim of infringement.54

1. 35 U.S.C. § 271(a); WesternGeco LLC v. Ion Geophysical Corp., 138 S. Ct. 2129, (2018) (under § 271 (f)(2) a company can recover lost foreign profits where components are shipped overseas to be assembled there).

2Id. § 271(b)–(c).

3Id. § 271(b) (emphasis added).

4. 471 F.3d 1293, 1304 (Fed. Cir. 2006).

5Id. at 1306.

6Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 759–766, 769 (2011).

7Id. at 769.

8Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1322 (Fed. Cir. 2009).

9Tegal Corp. v. Tokyo Electron Co., 248 F.3d 1376, 1379 (Fed. Cir. 2001).

10Global-Techsupra n. 6, at 769–70.

11Commil USA LLC v. Cisco Sys., Inc., 720 F.3d at 1366 (Fed. Cir. 2013); Commil USA, LLC v. Cisco Sys., Inc., 135 S. Ct. 1920, 1925, 1928 (2015).

12Akamai Techs. Inc. v. Limelight Networks, Inc., 692 F.3d 1301, 1307 (Fed. Cir. 2012), rev’d, 572 U.S. 915 (2014).

13Limelight Networks, Inc. v. Akamai Techs., Inc., 572 U.S. 915,917–19 (2014).

14Id.

15Muniauction, Inc. v. Thomson Corp, 532 F.3d 1318, 1329 (Fed. Cir. 2008).

16Akamai Techs., Inc. v. Limelight Networks, Inc., 614 F. Supp. 2d 90, 123.

17Id. at 122.

18Akamai Techs., Inc. v. Limelight NetworksInc., 692 F.3d 1301, 1319 (Fed. Cir. 2012) (per curiam), cert. dismissed sub nom. Epic Sys. Corp. v. McKesson Techs., 133 S. Ct. 1520 (2013), and cert. dismissed, 133 S. Ct. 1521 (2013), and cert. granted, 134 S. Ct. 895 (2014), and rev’d, 134 S. Ct. 2111 (2014), and cert. denied, 134 S. Ct. 2723 (2014).

19Id. at 1309.

20Akamai Techs., Inc. v. Limelight Networks, Inc., 786 F.3d 899, 903 (Fed. Cir. 2015).

21Akamai Techs., Inc. v. Limelight Networks, Inc., 797 F.3d 1020, 1022 (Fed. Cir. 2015).

22Id. at 1024–25.

23Id. at 1025.

24Limelight Networks, Inc. v. Akamai Techs., Inc., 572 U.S. 915, supra n. 13.

25Id. See Barry v. Medtronic, Inc., 1:14-cv-00104 (U.S.D.C. E.D. TX. Nov. 14, 2016)(jury found that Medtronic “actively induced” infringement of Dr. Barry’s vertebrae alignment patents & awarded $20.3 million in damages).

26Limelight, 572 U.S. 915, supra n. 13.

27Octane Fitness, LLC. v. ICON Health & Fitness, Inc., 572 U.S. 545, 548–49, 551–54 (2014).

28Highmark Inc., v Allcare Health Mgmt. Sys., Inc., 572 U.S. 559, 559–562(2014).

29Octane Fitness, 572 U.S. at 554.

30Highmark, Inc., 672 U.S. at 564.

31Halo Elects., Inc., v Pulse Elecs., Inc., 136 S. Ct. 1923 (2016).

32In Re Segate Tech. LLC., 497 F.3d 1360, 1371 (2007).

33SRI Int’l, Inc. v. Cisco Sys., Inc., 918 F.3d 1368, 1379–82 (Fed. Cir. 2019).

34Akamai, supra n. 13, 572 U.S. at 915.

35Markman v. Westview Inst., 517 U. S. 370 (1960).

36.Phillips v. AWH Corp., 415 F.3d 1303, 1312–13 (Fed. Cir. 2005).

37.Teva Pharms. USA, Inc. v. Sandoz, Inc., 574 U.S. 318, 318–19 (2015).

38.Id. at 324–28.

39.Id.

40.TC Heartland LLC v. Kraft Foods Grp. Brands, LLC., 137 S. Ct. 1514 (2017).

41In re Cray, 871 F.3d 1355 (Fed. Cir. 2017).

42.890 F.3d 978 (Fed. Cir. 2018).

43.889 F.3d 1349 (Fed. Cir 2018).

44.890 F.3d 1008 (Fed. Cir. 2018).

45. https://www.bigmoleculewatch.com/2018/10/10/pto-replaces-broadest-reasonable-interpretation-claim-construction-standard-in-ipr-pgr-cbm-proceedings/.

46Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208, 217–218 (2014) citing Mayo Collaborative Servs v. Prometheus Labs., Inc., 566 U.S. 66 (2012).

47 Revised Guidelines,. p. 7.

48In Re Google , 914 F. 3d 1377 (Fed. Cir. 2019).

49. No. 2018-21-2140 (Fed. Cir. Oct. 31, 2019)

50Halo Electronics, Inc. v Pulse Electronics, Inc., 136 S. Ct. 1923 (2016).

51Lexmark v. Impression Products, 137 S. Ct. 1523 (2017).

52WesternGeco v. ION Geophysical, 138 S. Ct. 2129 (2018).

53Fourth Estate Public Benefit Corp. v. Wall-Street.Com, LLC, 139 S. Ct. 881 (2019).

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