Commil USA, LLC v. Cisco Systems, Inc.

Issues 

Is a defendant’s reasonable, good-faith belief that a patent is invalid a viable defense to patent infringement by inducement under 35 U.S.C. § 271(b)?

Oral argument: 
March 31, 2015

The Supreme Court will determine whether a defendant with a good-faith belief that a patent is invalid can be found liable for induced infringement. Commil argues that a good-faith belief defense of a patent’s invalidity is irrelevant to the intent requirement to establish infringement by inducement under § 271(b). In opposition, Cisco argues that a good-faith belief defense of a patent’s invalidity is crucial to determining culpability and thus, relevant in establishing infringement by inducement. The ruling in this case will impact the scope of a patent owner’s rights and the availability of a new defense to patent infringement by inducement. Additionally, the decision in this case could have important consequences for the sale and marketing of generic-drug counterparts.

Questions as Framed for the Court by the Parties 

Commil holds a patent teaching a method to implement short-range wireless networks. At trial, the jury returned a verdict that Commil's patent was valid, that Cisco directly infringed but did not induce infringement, and awarded damages. Because Cisco's counsel invoked stereotypes about Commil's Jewish owner and inventors during trial, the district court found the verdict "inconsistent with substantial justice" and ordered a new trial on inducement and damages only. At the second trial, the jury returned a verdict that Cisco induced infringement and awarded damages. The Federal Circuit reversed and remanded for a third trial on two grounds. First, although Commil's patent is valid, the Federal Circuit held that Cisco's "good faith belief” that the patent was invalid is a defense to induced infringement. Second, although Cisco had actual knowledge of Commil's patent, the Federal Circuit held that this Court's opinion in Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011) rendered erroneous and prejudicial the jury instruction based on DSU Medical Corp. v. JMS Co., 471 F.3d 1293 (Fed. Cir. 2006).

Did the Federal Circuit err in holding that a defendant's belief that a patent is invalid is a defense to induced infringement under 35 U.S.C. § 271(b)?

Facts 

Petitioner Commil USA, LLC (“Commil”) owns a patent, U.S. Patent No. 6,430,395 (“the ’395 patent”), relating to wireless local area networks (“WLANs”). WLANs—commonly referred to as “WiFi”—allow mobile devices to communicate with each other through access points called “base stations.” As the network coverage area increases, more base stations are required to provide consistent wireless coverage. The ’395 Patent seeks to improve the efficiency and reliability of handoffs of mobile devices between base stations in large wireless networks.

In 2007, Commil filed suit in the United States District Court for the Eastern District of Texas (“district court”) against Respondent Cisco Systems, Inc. (“Cisco”), alleging that Cisco, a “major supplier of WiFi access points and controllers,” was liable under § 271(b) of the Patent Act (codified in 35 U.S.C. § 271(b)) for inducing infringement of the ’395 patent, among other things. Section 271(b) imposes liability on any individual who “actively induces” patent infringement as if that individual were an infringer. Originally, a jury found Cisco liable for direct infringement but not liable for induced infringement; however, the court granted Commil’s motion for a new trial “on the issues of induced infringement and damages.” In the second trial, the jury returned a verdict finding Cisco liable for induced infringement upon the district court’s instruction to consider whether “Cisco actually intended to cause the acts that constitute direct infringement and that Cisco knew or should have known that its actions would induce actual infringement.”

Cisco appealed the district court decision to the United States Court of Appeals for the Federal Circuit (“Federal Circuit”). Among several other claims, Cisco contended that “the district court erroneously precluded Cisco from presenting evidence of its good-faith belief of invalidity to show that it lacked the requisite intent to induce infringement of the asserted claims.” The Federal Circuit agreed, holding that “evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.” The court reasoned that an invalid patent could not be infringed. Furthermore, the court held that a “good-faith belief of invalidity” and a “good-faith belief of non-infringement” were one and the same for purposes of determining whether an alleged infringer possessed a specific intent to induce patent infringement. The Federal Circuit later denied Commil’s motion for rehearing en banc on the issue of Cisco’s good-faith belief of invalidity.

On December 5, 2014, the Supreme Court granted Commil’s writ of certiorari, to determine whether a good-faith belief that a patent is invalid is a defense to liability for inducing infringement of the patent.

Analysis 

Section 271(b) of the Patent Act requires that “whoever actively induces infringement of a patent shall be liable as an infringer.” In Global-Tech Appliances, Inc. v. SEB S.A. (“Global-Tech”), the Supreme Court established that “induced infringement under § 271(b) requires knowledge that the induced acts constitute patent infringement.” In this case, the Court will decide whether a defendant’s good-faith belief that a patent is invalid is a defense to induced patent infringement under § 271(b). Commil argues that good-faith belief defense of a patent’s invalidity is irrelevant if § 271(b)’s intent requirement is satisfied. On the other hand, Cisco argues that a good-faith belief defense is pertinent to establishing culpability and thus, relevant in determining induced infringement under § 271(b).

DOES INDUCEMENT LIABILITY DEPEND ON KNOWLEDGE OF DIRECT INFRINGEMENT?

The Intent Requirement Under § 271(b)

Commil argues that § 271(b)’s intent requirement is satisfied under two conditions: the alleged inducer (1) had knowledge of the patent in question, and (2) “intended to cause third-party acts that directly infringe that patent.” In support, Commil points to Aro Manufacturing Co. v. Convertible Top Replacement Co. (“Aro II”) which established that proof of a patent owner’s opinion that a defendant engaged in contributory infringement—without consideration of a defendant’s subjective belief—satisfied the intent requirement. Commil contends that the reasoning for 271(c) contributory infringement applies to 271(b) induced infringement. Commil additionally asserts that Aro II, Global-Tech, and other cases have linked the intent requirement for indirect infringement to knowledge of the patent, as opposed to a defendant’s subjective belief regarding the strength of a liability defense.

Cisco, on the other hand, denies that Commil’s two conditions are sufficient to satisfy the intent requirement under § 271(b). Rather, Cisco contends that a third condition must be met: a defendant must have knowledge of direct infringement. Cisco argues that Global-Tech held unequivocally that “induced infringement under § 271(b) requires knowledge that the induced acts constitute patent infringement.” Cisco further asserts that Aro II, contrary to Commil’s characterization, required that a defendant know of the patent and the infringement. Hence, Cisco state that in addition to a defendant’s required knowledge of the patent or the patent holder’s allegation of infringement, the § 271(b)’s intent requirement mandates that a defendant possess knowledge of actual infringement.

The Statutory Text and Purpose of § 271(b)

Commil argues that a good-faith belief defense conflicts with § 271(b)’s text and purpose and that it is overly burdensome to require a patent holder to show that an inducer did not possess a subjective good-faith belief defense. According to Commil, Congress enacted §§ 271(b) and (c) with the purpose of codifying contributory infringement in the patent sphere, as well as providing a remedy to patentees, so that patent holders could efficiently protect their rights. Commil asserts that a good-faith defense would jeopardize Congress’s purposes by undermining this statutory remedy. Commil further contends that a good-faith belief defense would “inject uncertainty into the merits of inducement claims” and discourage the pursuit of lawsuits against manufacturers, thereby weakening the rights secured by § 271(b). Lastly, Commil argues that a “good-faith belief” defense runs counter to the purpose of § 271(b) because it both fails to promote the policy behind § 271(b)’s scienter requirement (actual knowledge or willful blindness) and does not offer any “countervailing policy benefits.”

Cisco argues that Global-Tech’s interpretation of § 271(b)—inducement liability requires a defendant’s knowledge of infringement—is consistent with the statutory text and purpose. Cisco argues that a “natural” reading of the statute recognizes t two conduct elements (direct infringement by a third party and defendant’s inducement) in addition to a scienter requirement. Cisco further argues that the knowledge-of-infringement requirement aligns with § 271(b)’s purpose and Congress’s objective to establish liability for “conduct that was not only instrumental to infringement, but culpably so.”

IS A DEFENDANT’S “GOOD-FAITH BELIEF” IN A PATENT’S INVALIDITY RELEVANT TO § 271(b)?

Commil argues that regardless of the relevancy of a defendant’s a good-faith belief in patent non-infringement, a defendant’s good-faith belief in patent invalidity is irrelevant. Commil asserts that patent invalidity and infringement are f separate legal issues. Commil argues that the Patent Act’s separate codification of infringement and validity—§§ 271 and 282, respectively—sheds light on Congress’s intention to distinguish the concepts of infringement and validity. Furthermore, Commil contends that case law precedent acknowledges infringement and validity as separate concepts. Accordingly, Commil maintains that infringement is contingent on whether a patent’s claims “cover[] the alleged infringer’s product or process.” However, Commil asserts that patent validity encompasses a multitude of “legal tests,” each tailored to various parts of the Patent Act. Hence under separate analyses, Commil contends, one might infringe a patent’s claims, but those claims might be invalid. Therefore, Commil contends that a defendant’s good-faith belief of patent invalidity has no impact on the required subjective intent for inducement under § 271(b). Moreover, Commil argues that allowing a defendant’s good-faith belief of invalidity to discharge liability for infringement would jeopardize § 282, a statutory presumption that patent claims—independent, dependent, or multiple-dependent form—are valid.

Cisco counters that only a valid patent can be infringed. Accordingly, Cisco maintains that a good-faith belief of a patent’s invalidity is relevant to the intent requirement under § 271(b). Cisco argues that it is immaterial that infringement and validity are codified in separate subsections. Rather, Cisco maintains that a scienter determination does not consider whether infringement and validity are separate legal issues. Cisco further contends that a good-faith belief of patent invalidity is relevant as evidenced by the Court’s decision in Grokster, which states that inducement requires “purposeful, culpable expression and conduct.” Cisco further cites to Global-Tech to argue that infringement by inducement requires a defendant’s knowledge of unlawful conduct and, because patent rights are nonexistent if a patent is invalid, this requires knowledge of a patent’s validity. Cisco argues that the distinct codification of infringement and validity does not demonstrate that infringement and validity are separate spheres, but merely recognizes that a patent holder’s “can lose” if the alleged infringer “did not practice the patent’s claims” or the patent is invalid. Furthermore, Cisco contends that the purpose of the presumption of patent validity is to place the burden of proof on the alleged infringer to prove patent invalidity and to heighten the standard of proof the alleged infringer must satisfy to prevail. Finally, Cisco maintains that Congress’s enactment of § 298 of the Leahy-Smith America Invents Act demonstrates that validity is relevant to the scienter requirement under §271(b) because § 298 is premised on the assumption that opinions of counsel are “relevant evidence of . . . intent to induce.”

Discussion 

In this case, the Supreme Court will determine whether a defendant’s good-faith belief in the invalidity of a patent is a defense to liability for induced infringement. Commil argues that a good-faith belief cannot negate the Patent Act’s intent requirement for inducement. Cisco counters that a good-faith belief defense is relevant to the intent requirement. The Court’s decision could affect the enforceability of patent rights, judicial economy, and the incentives for pharmaceutical companies to introduce new drugs into the market.

ENFORCEABILITY OF PATENT RIGHTS AND INNOVATION

Amici in support of Commil argue that a good-faith belief defense to induced patent infringement will significantly impede patent holders’ ability to enforce their patent rights against infringers. For instance, the Intellectual Property Owners Association (“IPO”) claims that infringement by inducement is the “only practical means” for patent owners to enforce their rights and that the good-faith belief defense effectively “guts” their ability to prevent induced infringement. To that end, the United States notes that “belief in invalidity . . . need not be meritorious or even objectively reasonable,” thus making it very difficult for patent holders to defeat a good-faith invalidity defense. Moreover, the American Intellectual Property Law Association (“AIPLA”) points out that patent owners are reluctant to sue their customers for direct infringement when theirs customer is the induced entity. Hence, the AIPLA contends, patent owners are effectively left without a direct-infringement claim in such cases.

Cisco responds that allowing a good-faith belief in the invalidity of a patent as a defense to inducement liability has no bearing on the relief available to patent owners against infringers or inducers. Rather, the only limitation on patent owners, according to Cisco, is that patentees may no longer “extract exorbitant awards” from entities unaware that their actions will induce infringement. Furthermore, Cisco providing a good-faith belief defense would harm innovation: for example, Cisco foresees “commercially successful companies” refraining from challenging potentially invalid patents. In a similar vein, supporting amici EMC Corporation and Public Knowledge argue that the law should permit innovative companies to “encourage other companies to use its innovation rather than finding itself, and everyone else in the industry, chilled from launching its product” out of fear of “crushing” infringement liability.

JUDICIAL ECONOMY

Commil expresses concern that allowing a good-faith belief of invalidity as a defense to inducement liability will prompt patent holders to sue “directly infringing customers” rather than the inducer. These suits will cause, the Biotechnology Industry Organization fears, an anomalous result given that consumers are likely much less culpable than companies who actually induce patent infringement. Moreover, Gilead Sciences, Inc. (“Gilead”) worries that the good-faith belief defense “invites difficult mini-trials about state of mind.” Accordingly, Gilead asserts that this defense puts a difficult burden on patent holders who have little access to a defendant’s subjective beliefs. IPO also worries that patent owners will be subject to increasingly long and complex patent trials by adding the alleged inducer’s good-faith belief to the long list of issues that the trier of fact must consider.

Cisco counters that “invalidity defenses are already common features of infringement litigation.” Moreover, Cisco explains, a defendant’s intent is a “routinely tested” issue on which plaintiffs frequently obtain favorable rulings. To that end, Cisco emphasizes that the proffering of evidence of a good-faith belief of invalidity will not “meaningfully complicate” patent infringement trials. Rather, Cisco contends it would merely permit the accused inducer to present evidence of the good-faith basis for its belief. Cisco also asserts that the burden is on the accused infringer to offer evidence of such a good-faith belief, or else “the patentee can establish the required knowledge of infringement of a (presumptively) valid patent” by establishing that the accused knew that the patent existed.

EFFECT ON THE PHARMACEUTICAL INDUSTRY

Amici in support of Commil argue that allowing a good-faith belief defense for inducement liability will have deleterious effects on the pharmaceutical industry. For example, AbbVie Inc. fears that a “good-faith belief of invalidity” defense will permit generic manufacturers to evade liability for patent infringement by finding an opinion of an attorney that the patent is invalid or offering other evidence of its allegedly good-faith belief. This would be detrimental to pharmaceutical innovators who spendaccording to Pharmaceutical Research and Manufacturers of America (“PhRMA”), “enormous investments into research and development”—over $2.5 billion on average. PhRMA worries that defense grounded in a good-faith belief of patent invalidity would undercut the predictability upon which the protection of these investments largely depends.

Cisco counters that a good-faith belief in a patent’s invalidity as a defense to inducement liability has no bearing on brand-name drug litigation. Cisco points out that inducement is irrelevant to litigation over new drugs that are subject to an abbreviated new drug application and covered by a composition patent. In such cases, Cisco explains, a generic manufacturer that sells the new drug or practices the method covered by a composition patent would directly infringe the patent. Moreover, several law professors in support of Cisco submit that the worry that defendants will obtain a false letter from an attorney is “overstated” as it is unlikely that “attorneys would risk committing professional misconduct.”

Conclusion 

In this case, the Supreme Court will determine whether a good-faith belief in the invalidity of a patent is a defense induced patent infringement. Commil contends that such a defense is immaterial to the intent requirement for induced infringement. Cisco counters that an inducement defendant who believes, in good faith, that a patent is invalid lacks the knowledge required under § 271(b) that the induced acts violate any patent rights. The Court’s decision may have significant implications for patent holders’ ability to enforce their rights, judicial economy, and brand-name drug litigation and the marketing of generic-drug counterparts.

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Acknowledgments 

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