Global-Tech Appliances, Inc. v. SEB S.A. (10-6)

Oral argument: Feb. 23, 2011

Appealed from: United States Court of Appeals for the Federal Circuit (Feb. 5, 2010)

PATENT, INFRINGEMENT, INDUCEMENT, STATE OF MIND

Respondent SEB S.A. owns a patent for a deep fryer featuring an inexpensive, insulated plastic outer shell. In 1997, Petitioner Pentalpha Enterprises, LTD, a subsidiary of petitioner Global-Tech Appliances, Inc. (collectively, “Global-Tech”), developed and manufactured a deep fryer that copied features of SEB's deep fryer. On August 27, 1999, SEB sued Global-Tech for patent infringement in the United States District Court for the Southern District of New York. The jury found Global-Tech liable for direct and active inducement of patent infringement, and Global-Tech appealed to the Court of Appeals for the Federal Circuit. That court affirmed, holding that Global-Tech acted with deliberate indifference to the risk of infringing SEB's patent. Global-Tech appealed, arguing that the Federal Circuit applied the wrong standard for the mental-state element of actively inducing patent infringement under 35 U.S.C. § 271(b). Global-Tech asserts that the proper standard is “purposeful, culpable expression and conduct to encourage an infringement,” the standard the Supreme Court articulated in MGM Studios, Inc. v. Grokster, Ltd. On the other hand, SEB argues that a patent infringer does not need to have actual knowledge of a patent to be liable for actively inducing patent infringement. The Supreme Court’s decision will affect patent litigation, the extent and cost of patent searches, and market competition and innovation.

Question presented

Whether the legal standard for the state of mind element of a claim for actively inducing infringement under 35 U.S.C. § 271(b) is “deliberate indifference of a known risk” that an infringement may occur, as the Court of Appeals for the Federal Circuit held, or “purposeful, culpable expression and conduct” to encourage an infringement, as this Court taught in MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 937, 125 S. Ct. 2764, 2780, 162 L. Ed. 2d 781, 801 (2005)?

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Issue

To prove that a defendant induced patent infringement, is it necessary to show that the defendant intended or actually knew of the infringement, or is evidence of the defendant’s deliberate indifference sufficient?

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Facts

SEB S.A. specializes in the design and manufacture of home cooking appliances. See SEB S.A. v. Montgomery Ward & Co, Inc., 594 F.3d 1360, 1365 (Fed. Cir. 2010). SEB owns a patent for a deep fryer featuring an inexpensive, insulated plastic outer shell, or skirt. See id. at 1365–66. In 1997, Sunbeam Products, Inc. requested that Pentalpha Enterprises, a subsidiary of Global-Tech Appliances Inc. (collectively “Global-Tech”) develop and manufacture a deep fryer. See Brief for Petitioners, Global-Tech Appliances Inc. and Pentalpha Enterprises, Ltd. at 3. Global-Tech purchased an SEB deep fryer and copied its features. See SEB, 594 F.3d at 1366. Sunbeam resold the Global-Tech deep fryers under its own trademark. See id. Global-Tech also sold its deep fryers to Fingerhut and Montgomery Ward, who then resold the deep fryers under their own trademarks. See id.

On March 10, 1998, SEB sued Sunbeam in the United States District Court for the District of New Jersey, alleging patent infringement. See SEB, 594 F.3d at 1366. On April 9, 1998, Global-Tech received notice of the lawsuit against Sunbeam. See id. This case was eventually settled. See id.

On August 27, 1999, SEB sued Global-Tech in the United States District Court for the Southern District of New York, claiming that Global-Tech infringed SEB’s patent. See Brief for Petitioners at 7. On September 10, 1999, SEB successfully filed a motion for a preliminary injunction against Global-Tech. See SEB, 594 F.3d at 1367. Global-Tech subsequently redesigned its deep fryer, but the District Court also granted SEB’s motion to enjoin Global-Tech from manufacturing the redesigned deep fryer. See id. During trial, Global-Tech moved for judgment as a matter of law, arguing that there was no evidence that any of its personnel had knowledge of the SEB patent. See id. The court ruled against Global-Tech, reasoning that although it did not have notice of SEB’s patent until April 9, 1998, a jury could find that Global-Tech infringed SEB’s patent. See id. On April 21, 2006, a jury found that Global-Tech had directly infringed and induced infringement of SEB’s patent. See Brief for Petitioners at 8. Global-Tech filed another motion for judgment as a matter of law, arguing that SEB did not prove that Global-Tech induced infringement of SEB’s patent under 35 U.S.C. § 271(b). See SEB, 594 F.3d at 1368. The District Court denied this motion. See id.

Global-Tech appealed to the Court of Appeals for the Federal Circuit, arguing that the District Court applied the wrong standard for patent infringement under Section 271(b) because Global-Tech did not have knowledge of SEB’s patent when it sold its deep fryers to Sunbeam. See Brief for Petitioners at 8. The Court of Appeals ruled in favor of SEB, holding that Global-Tech deliberately ignored the risk that SEB had a patent for its deep fryer when Global-Tech copied the SEB deep fryer. See SEB, 594 F.3d at 1378. The Supreme Court granted certiorari on October 12, 2010. See Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 458, 458 (2010).

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Discussion

In this case, the Supreme Court will decide whether deliberate indifference to a known risk or direct evidence of actual knowledge is required to prove active inducement of patent infringement under 35 U.S.C. § 271(b).

 

Global-Tech argues that a “deliberate indifference” standard would create uncertainty for companies, who would not know how to conduct their patent searches to ensure against a jury's finding that they acted with deliberate indifference to the risk of infringing a patent. See Brief for Petitioners, Global-Tech Appliances Inc. and Pentalpha Enterprises, Ltd. at 34. For example, Global-Tech contends that if a company did not conduct a patent search, the jury could find that the company acted with deliberate indifference to the possibility that such a search would have revealed a patent. See id. Global-Tech asserts that a jury could also find that the company acted with deliberate indifference if the company conducted a patent search but failed to obtain an attorney’s opinion. See id. Global-Tech further argues that this uncertainty will discourage competition and innovation because companies will have to decide whether to conduct a full patent search for every product they sell, and may conclude that the costs of doing so outweigh the benefits of creating new products. See id. at 34–35.

 

Various amici support Global-Tech’s argument that the “deliberate indifference” standard will discourage competition and innovation. Google argues that under the deliberate indifference standard, it would have to conduct a patent search for every application it developed, which would stifle Google’s development of open source software. See Brief of Amicus Curiae Google, Inc. in Support of Petitioners at 28–29. The nonprofit Software Freedom Law Center asserts that the deliberate indifference standard will chill the development of open source software because the developers of this software cannot afford to conduct patent searches or retain attorneys. See Brief of Amicus Curiae The Software Freedom Law Center in Support of Petitioners at 2–3. A group of law and economics professors also argue that the deliberate indifference standard will discourage market competition because companies will delay introduction of new products because of the risk that a new patent would be issued or discovered. See Brief of Amici Curiae 41 Law, Economics, and Business Professors in Support of Petitioners at 10. Amici including Yahoo!, eBay, and Hewlett-Packard maintain that this uncertainty will especially affect technological companies because the deliberate indifference standard will cause an increase in litigation, which will take funds away from research and development. See Brief of Amici Curiae Yahoo!, Inc., et al. in Support of Petitioners at 18.

 

On the other hand, SEB argues that deliberate indifference is the proper standard for liability under Section 271(b) because it prevents “willful blindness," which occurs when a party deliberately refuses to discover the existence of a patent in order to avoid liability for patent infringement. See Brief for Respondent, SEB S.A. at 39–43. SEB also contends that if Global-Tech is not held liable, other foreign manufacturers will think it permissible to copy products and sell them in the United States without regard to patent rights. See id. at 43. SEB responds to concerns about high search costs by arguing that the deliberate indifference rule would only affect companies who intentionally copied another company’s invention. See id. at 46–48. Specifically, SEB contends that because most patent cases involve companies who act in good faith and do not intentionally copy others' inventions, the deliberate indifference standard would almost always apply to only non-good-faith infringers. See id. at 48.

 

Several law professors support SEB’s argument that the deliberate indifference standard will lead to willful blindness, and further assert that if a company could claim it lacked knowledge of a patent to avoid liability for patent infringement, companies would not check patents at all before launching their products. See Brief of Amici Curiae Law Professors in Support of Respondent at 33. Contrary to arguments made by Petitioners’ amici, the American Intellectual Property Law Association asserts that the deliberate indifference standard encourages innovation because it protects inventors’ patents. See Brief of Amicus Curiae American Intellectual Property Law Association in Support of Respondent at 23. The William Mitchell College of Law Intellectual Property Institute argues that the deliberate indifference standard will not cause uncertainty or limit innovation because it only applies to companies who intentionally sold infringing products. See Brief of Amicus Curiae William Mitchell College of Law Intellectual Property Institute in Support of Respondent at 22–23.

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Analysis

This case concerns an interpretation of federal patent law, specifically 35 U.S.C. § 271(b), which imposes liability on anyone who “actively induces” patent infringement. Global-Tech argues that no one may be held liable for inducing patent infringement without first having an affirmative intent to encourage the infringement to take place. See Brief for Petitioners, Global-Tech Appliances at 10–11. SEB, on the other hand, believes it is improper to require a patent holder to prove that the alleged infringer actually knew about the patent. See Brief for Respondent, SEB S.A. at 13. The Federal Circuit agreed with SEB and ruled that “deliberate indifference” of a known risk was itself a form of actual knowledge and, therefore, was sufficient to satisfy Section 271(b). See id. at 11–12.

Does existing Supreme Court precedent require proof of actual knowledge to prevail on a claim of patent infringement?

Global-Tech’s argument relies heavily on the Supreme Court’s decision in a 2005 copyright infringement case, MGM Studios, Inc. v. Grokster, Ltd. Global-Tech believes that the Grokster ruling imposes the requirement that an alleged patent infringer must act with an unlawful purpose to be liable for actively inducing infringement. See Brief for Petitioners at 16–17. Grokster speaks of “purposeful, culpable expression and conduct” and, according to Global-Tech, an actor who is unaware of a patent’s existence cannot be guilty of such behavior. See id. at 18, 26. Global-Tech, quoting Grokster, believes this standard is necessary to demonstrate that the defendant’s actions were indeed unlawful: “[A] showing that infringement was encouraged overcomes the law’s reluctance to find liability when a defendant merely sells a commercial product suitable for some lawful use.” See id. at 16. Therefore, Global-Tech concludes, a defendant without an unlawful purpose cannot be liable under the statute. See id. at 18.

SEB frames the issue largely in terms of what type of knowledge an actor must possess to be liable for inducing infringement. SEB points out that Grokster permitted liability for infringement without evidence that a defendant was actually aware of any specific copyrights. See Brief for Respondent at 30. Therefore, SEB says, liability for patent infringement should not require any actual knowledge either. See id. at 33. SEB essentially sees Grokster as requiring only “clear expression or other affirmative steps taken to foster infringement.” See id. The test SEB advocates, then, is essentially one “to distinguish ‘culpable’ behavior from innocent behavior . . . so that those fairly characterized as bad actors would face liability, and those simply engaging in ordinary commerce would not.” See id. at 30.

SEB also notes that Grokster involved copyright infringement, not patent infringement. See Brief for Respondent at 14. Global-Tech’s position, however, is that Grokster itself supports the view that an unlawful purpose standard is proper in patent law as well as in copyright law; indeed, the Grokster Court cited patent cases in reaching its conclusion. See Brief for Petitioners at 17. But SEB responds that, even if Grokster does apply to patent litigation, Global-Tech’s actions in this case at least met, if not exceeded, the Court’s Grokster test. See Brief for Respondent at 30–32.

Does the statute’s text suggest what the applicable mental state is?

Global-Tech also relies on statutory grounds, arguing that reading a less stringent mental state into Section 271(b) would strip the following subsection, 35 U.S.C. § 271(c), of all its meaning. Although subsection (c) specifically deals with the trafficking of machine components and similar items, according to Grokster, one who sells such components might also be liable under subsection (b), which describes only someone who “actively induces infringement of a patent.” See Brief for Petitioners at 18. Global-Tech states that liability under subsection (c), which requires “knowing” that some material “be especially made or especially adapted for use in an infringement of [a] patent,” means that a defendant must have known of the danger of patent infringement. See id. at 18–19. But this standard is less strict than a requirement that the defendant intentionally encouraged an unlawful act, which Global-Tech maintains is applicable to subsection (b)’s description of inducement. See id. at 19. Global-Tech believes that although the activity described in subsection (b) may overlap some activity described in subsection (c), the different mental states still allow for the subsections to account for two distinct theories of liability. See id. at 18–19. However, if one reads a weaker mental state, such as deliberate indifference, into subsection (b), Global-Tech believes subsection (b) would completely subsume subsection (c). See id. at 19–20. Therefore, because the Court should give all the statute’s terms full effect and not render any of them meaningless if at all possible, Global-Tech claims that the stricter “purposeful, culpable expression and conduct” test should apply to a defendant’s liability for patent infringement inducement. See id. at 18–19.

SEB interprets the statute’s textual clues in exactly the opposite way. It notes that the text of 35 U.S.C. § 271(a), which describes liability for manufacture, use, and sale of patented inventions without the patent holder’s authority, mentions no mental state at all. See Brief for Respondent at 18. Because the Court has read that subsection as entailing strict liability for patent infringement, arguably the same result should apply to the inducement of patent infringement described in subsection (b). See id. at 19–20. But even if inducing patent infringement does require some form of intent, as the Court may have implied in Grokster, SEB would have the Court impose a “lower level of intent” than the subsection (c)'s requirement of a “knowing” violation. See id. at 22. It would be improper to apply that same standard to a claim of inducement, SEB argues, because doing so would not honor Congress’s decision to omit the word “knowing” from subsection (b). See id. Finally, SEB observes that 35 U.S.C. § 284 allows a trial court to grant a victorious plaintiff treble damages in patent infringement cases, and 35 U.S.C. § 285 provides for the recovery of attorney’s fees in like situations. See id. at 21. Because courts typically do not grant these remedies unless the defendant committed “willful” infringement, SEB contends that “willfulness” cannot possibly be the correct standard for liability under Section 271(b). See id. at 21, 23. To conclude otherwise would make attorney's fees and treble damages available to every successful plaintiff, which SEB sees as an illogical result. See id. at 23.

Global-Tech also contends that Congress intended the Patent Act to require a purposeful mental state. See Brief for Petitioners at 21–22. Global-Tech specifically relies on a Senate report that describes a moral component to the law as evidence that a morally culpable intent, not mere knowledge, is necessary to trigger liability under the statute. See id. SEB views the statute’s legislative history differently, emphasizing that Congress considered a proposal to replace the words “actively induces” with “willfully induces,” but then rejected the change. See Brief for Respondent at 26. To SEB, this fact demonstrates Congress’s desire to see liability attach even where defendants did not act with knowledge of the patents and did not actively intend to commit infringement. See id. at 26–28.

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Conclusion

The Supreme Court will decide whether deliberate indifference to a known risk or direct evidence of actual knowledge is required to prove active inducement of patent infringement under 35 U.S.C. § 271(b). Global-Tech argues that the proper standard is “purposeful, culpable expression and conduct to encourage an infringement,” the standard the Supreme Court articulated in MGM Studios, Inc. v. Grokster, Ltd. On the other hand, SEB argues that a patent infringer need not have actual knowledge of the owner’s patent to be liable for actively inducing patent infringement. The Supreme Court’s decision will ultimately impact patent litigation, patent searches, and competition and innovation in the market.

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Authors

Prepared by: Natanya DeWeese and James Rumpf

Edited by: Joanna Chen

Acknowledgements

The authors would like to thank former Supreme Court Reporter of Decisions Frank Wagner for his assistance in editing this preview.

Additional Sources

·          Wex: Patent Infringement

·          Patently-O: Supreme Court to Hear Case on Inducing Patent Infringement (Oct. 12, 2010)

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