Supreme Court: Good-Faith Belief in Patent Invalidity is No Defense to Induced Infringement Claim | Practical Law

Supreme Court: Good-Faith Belief in Patent Invalidity is No Defense to Induced Infringement Claim | Practical Law

In Commil USA, LLC v. Cisco Systems, Inc., a divided US Supreme Court vacated and remanded a decision of the US Court of Appeals for the Federal Circuit and held that a defendant's good-faith belief that an asserted patent is invalid is not a defense to an induced infringement claim under 35 U.S.C. § 271(b).

Supreme Court: Good-Faith Belief in Patent Invalidity is No Defense to Induced Infringement Claim

by Practical Law Intellectual Property & Technology
Published on 26 May 2015 • USA (National/Federal)
In Commil USA, LLC v. Cisco Systems, Inc., a divided US Supreme Court vacated and remanded a decision of the US Court of Appeals for the Federal Circuit and held that a defendant's good-faith belief that an asserted patent is invalid is not a defense to an induced infringement claim under 35 U.S.C. § 271(b).
On May 26, 2015, in Commil USA, LLC v. Cisco Systems, Inc., the US Supreme Court vacated the US Court of Appeals for the Federal Circuit's judgment that the US District Court for the Eastern District of Texas erred in excluding evidence of Cisco's good-faith belief that Commil's asserted patent was invalid as a defense to a 35 U.S.C. § 271(b) induced infringement claim (No. 13–896, (S. Ct. May 26, 2015)). The Supreme Court:
  • Reaffirmed its holding in Global-Tech Appliances, Inc. v. SEB S.A. that, to prevail on an induced infringement claim, a plaintiff must show that the alleged inducer both knew of the asserted patent and knew that the induced acts were infringing (131 S. Ct. 2060 (2011)).
  • Held that a defendant's good-faith belief that an asserted patent is invalid is not a defense to an induced infringement claim.

Background

Commil asserted a patent directed to short-range wireless (Wi-Fi) networks against Cisco in the US District Court for the Eastern District of Texas, alleging that Cisco:
  • Directly infringed its patent by making and using networking equipment.
  • Induced others to infringe its patent by selling infringing equipment.
After a first trial, a jury found Cisco liable for direct infringement, but not inducement, and awarded $3.7 million in damages. The district court granted Commil's motion for a new trial on inducement and damages, however, based on inappropriate comments Cisco's counsel made during the first trial.
Shortly before the second trial, the US Patent and Trademark Office (USPTO) granted Cisco's request to re-examine Commil's patent and ultimately confirmed patentability. At the second trial, Cisco proffered evidence that it had a good-faith belief that Commil's patent was invalid as a defense to Commil's inducement claim. The district court ruled this evidence inadmissible, however, apparently based on its determination that Cisco's belief concerning invalidity was not a defense to inducement. The second jury found Cisco liable for induced infringement and awarded $63.7 million in damages.
After the jury verdict but before the district court entered judgment, the Supreme Court issued its Global-Tech opinion, holding that induced infringement requires both:
  • Knowledge of the asserted patent.
  • Knowledge that the induced acts constituted infringement.
In view of Global-Tech, Cisco moved for a new trial based on the district court's erroneous jury instruction that Cisco could be liable for inducement if it "knew or should have known" that its actions would induce infringement. The district court denied Cisco's motion.
On appeal, the Federal Circuit vacated the district court's decision in part, holding that the district court erred in:
  • Instructing the jury that Cisco could be liable for induced infringement if it "knew or should have known" that its customers infringed.
  • Excluding Cisco's evidence of a good-faith belief that Commil's patent was invalid as a defense to the inducement claim.
The Supreme Court granted certiorari in part to review whether the Federal Circuit erred 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).

Outcome

In a 6-2 opinion (Justice Breyer did not participate), the Supreme Court vacated the Federal Circuit's decision, holding that a defendant's good-faith belief that an asserted patent is invalid is not a defense to an induced infringement claim.

Majority Opinion

The Supreme Court began by reaffirming its Global-Tech holding that a defendant may be liable for inducing infringement only if it knew both of the asserted patent and that the induced acts constituted patent infringement, rejecting Commil's and the government's argument that knowledge of the patent alone is enough to constitute induced infringement.
Turning to the inducement issue, the court explained that:
  • The scienter requirement under 35 U.S.C. § 271(b) concerns only infringement because the statute's "actively inducing" language does not implicate validity.
  • Patent law has always treated infringement and validity as separate legal concepts, particularly in that:
    • a party may seek declaratory judgment of invalidity, which is distinct from a patent owner's infringement claim;
    • non-infringement and invalidity are alternative grounds for dismissing a patent infringement suit; and
    • the Patent Act addresses infringement and validity in separate sections and identifies them as separate defenses to infringement (35 U.S.C. § 282(b)).
  • Allowing this new defense would undermine the principle that patents are presumed valid until proven invalid by clear and convincing evidence, and would upset the timing and presentation of evidence at trial.
  • Practical reasons counsel against creating this new defense to inducement, including that:
    • accused inducers who believe a patent is invalid have several other ways to challenge the patent, such as through a declaratory judgment action, an affirmative defense of invalidity, or inter partes review or ex parte re-examination at the USPTO; and
    • the defense would increase litigation burden and discovery costs as every accused inducer would try to develop invalidity defenses to avoid infringement liability even if they could not ultimately prove invalidity.
  • The Supreme Court has held in other legal contexts that an act may be intentional for civil liability purposes even if the actor is unaware that its conduct violated the law. For example, a party may be liable for trespass even if she believes she has a legal right to enter the property.
Finally, the court noted that its decision should not impair defendants' ability to counter infringement claims brought by non-practicing entities because district courts may issue sanctions for frivolous claims under Federal Rule of Civil Procedure 11 or award attorney's fees under 35 U.S.C. § 285 in exceptional cases.

Dissenting Opinion (Justice Scalia, Chief Justice Roberts)

Justice Scalia and Chief Justice Roberts issued a dissenting opinion emphasizing that there is no basis to separate infringement and validity concepts in the inducement context because the court has long held that only valid patents may be infringed. Justice Scalia also took exception with the majority's analysis of practical considerations mitigating against creating the new defense, noting that, to the extent the court should even consider the practical desirability of a new defense in reaching its ruling, the majority's decision is not practically preferable because it will increase the power of patent trolls.

Practical Implications

The Supreme Court's holding removes what may have been a powerful defense to induced infringement from accused infringers' arsenals. As both the majority and dissent noted, the ruling may be particularly relevant in cases involving non-practicing entities asserting inducement claims against, for example, computer service or software providers. However, although not directly at issue on certiorari, the court clarified and emphasized its Global-Tech holding that, to be liable for inducement, an accused infringer must know that the acts it induces actually constitute infringement. This knowledge requirement remains a significant potential defense to an inducement claim, and an accused infringer that also has a good-faith belief in an asserted patent's invalidity may still challenge the patent through litigation counterclaims and defenses, or at the USPTO.