Supreme Court Rules That Defendant May Be Liable For Indirect Infringement Despite Good Faith Belief That Patent Is Invalid

(The following is a guest contribution from Thomas A. Lewry of Brooks Kushman P.C., a patent and technology law firm with offices in Detroit and Los Angeles. Thomas has over 30 years of experience in patent litigation. He can be contacted at tlewry@brookskushman.com.) 

In a case at odds with long-standing assumptions about the legal status of invalid patents, the U.S. Supreme Court has ruled that a defendant’s good faith belief that a patent is invalid is not a defense to active inducement of infringement under 35 U.S.C. § 271(b). Commil USA, LLC v. Cisco Systems, Inc., No. 13-896 (U.S. May 26, 2015). Full opinions HERE. The decision raises a number of practical concerns for companies facing potential claims for indirect infringement of process patents arising from the activities of customers and other product end users.

Background:

Commil USA, LLC sued Cisco Systems, Inc. in the U.S. District Court for the Eastern District of Texas, alleging that Cisco infringed U.S. Patent No. 6,430,395 (entitled “Wireless private branch exchange (WPBX) and communicating between mobile units and base stations”). The ‘395 patent claims methods for improved protocols used to hand-off communications between mobile devices and base stations in a wireless network. Commil alleged that Cisco directly infringed the ‘395 patent and also actively induced infringement by causing users of its wifi network products to practice the claimed methods. A jury found that Cisco actively induced infringement and awarded over $60 million in damages.

On appeal to the U.S. Court of Appeals for the Federal Circuit, Cisco challenged the judgment on multiple grounds. Among other things, Cisco argued that the district court erred in excluding evidence that it believed in good faith that the ‘395 patent was invalid. Cisco offered this evidence to prove that it lacked an intent to cause infringement. In a divided opinion, the Federal Circuit vacated the judgment below. The majority agreed with Cisco by holding “that evidence of an accused infringer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.” Commil USA, LLC v. Cisco Systems, Inc., 720 F.3d 1361, 1368 (Fed. Cir. 2013). The Federal Circuit denied Commil’s petition for en banc review, although five judges dissented from that denial.

Supreme Court Decision:

In a 6-2 decision written by Justice Kennedy, the Supreme Court vacated the Federal Circuit’s opinion and remanded. (Justice Breyer did not participate in the case). The principal question presented in the appeal was whether a defendant accused of active inducement may defend by proving that it believed in good faith that the patent at issue was invalid. The Court held that such a belief is not a defense. Rejecting long-accepted patent dogma, the Court rules that an invalid patent can be infringed, but the infringer may raise invalidity as a defense to liability.

First, the Court reaffirmed the high intent standard for indirect infringement established in Global-Tech Appliances, Inc. v. SEB SA, 563 U.S. ___, 131 S. Ct. 2060 (2011). In that case, the Court held that “induced infringement under §271(b) generally requires knowledge that the induced acts constitute patent infringement.” 131 S. Ct. at 2068. The Court rejected Commil’s suggestion that the standard only requires that the defendant know of the patent, not that the induced actions infringe the patent. The Court noted that the defendant in Global-Tech was liable for active inducement not only because it knew of the patent, but because it “knew it would be causing customers to infringe [the] patent.” Slip op. at 8. Thus, indirect infringement requires both knowledge of the patent and knowledge that the induced acts result in direct infringement.

Second, the Court ruled that a belief that a patent is invalid does not negate knowledge that a customer or other third party is infringing the patent. The Court stressed that invalidity and infringement are “different” and “separate” issues governed by provisions in different sections of the Patent Act. Moreover, the Court noted that conjoining the two legal concepts would erode the presumption of validity that each issued patent enjoys: “But if belief in invalidity were a defense to induced infringement, the force of that presumption would be lessened to a drastic degree, for a defendant could prevail if he proved he reasonably believed the patent was invalid.” Thus, the Court concluded invalidity is unrelated to infringement, and consequently irrelevant to a defendant’s intent to cause infringement:

An accused infringer can, of course, attempt to prove that the patent in suit is invalid; if the patent is indeed invalid, and shown to be so under proper procedures, there is no liability. That is because invalidity is not a defense to infringement, it is a defense to liability. And because of that fact, a belief as to invalidity cannot negate the scienter required for induced infringement.

Slip op. at 11 (citation omitted). This analysis would appear to apply both to active inducement and contributory infringement based on the legislative history of 35 U.S.C. § 271(b) and (c).

In a dissent, Justice Scalia, joined by Chief Justice Roberts, argued that, “It follows, as night the day, that only valid patents can be infringed. To talk of infringing an invalid patent is to talk nonsense.”

Impact on Patent Practice:

The Commil decision raises a number of practical issues for companies seeking to contain their patent liability risk.

The decision is likely to impact companies that are potential targets for induced and contributory infringement claims. In the past, companies could disprove intent to infringe by relying on an opinion of counsel that a patent of interest was invalid. Although opinions may remain useful, especially since the Court reaffirmed Global-Tech’s high intent standard, such opinions now should focus on noninfringement, not validity. In fact, the Court suggested that a defendant may lack the necessary intent to cause infringement if it relies on a reasonable interpretation of the patent claims that is different from the patentee’s interpretation. Slip op. at 9.

The Commil decision may be particularly problematic for companies accused of inducing customers or other third parties to infringe patents directed to business methods and other abstract computer-implemented processes that appear to be ineligible for patent protection under recent cases including Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. __, 134 S. Ct. 2347 (2014). Many of these patents may claim abstract ideas and thus appear to be invalid as ineligible in light of current law, but the applicable eligibility standards are continuing to evolve. Commil suggests that a defendant may not avoid liability for indirect infringement by pointing out that it reasonably viewed a patent to be invalid at one point in time, if the claimed invention proves eligible under a later standard.

The Court conceded that its decision would increase the risk of liability for indirect infringement claims amid public concern about perceived abuses of the patent system, including infringement actions by patent-assertion entities and deceptive patent demand letters. It pointed out however, that the “proper ways” to challenge patents as invalid are to commence a declaratory judgment action or AIA post-grant proceeding. Besides the obvious expense required, these procedures may not be available in all situations. For example, declaratory judgment jurisdiction requires an actual case and controversy, and AIA inter partes review proceedings only are available for prior art-based validity challenges. Nonetheless, companies should weigh the benefits of proactively challenging the validity of a patent if a noninfringement opinion is unavailable. Furthermore, the Court cited last term’s Octane Fitness decision in again endorsing attorney fee awards as sanctions for frivolous infringement suits:

Nonetheless, it is still necessary and proper to stress that district courts have the authority and responsibility to ensure frivolous cases are dissuaded. If frivolous cases are filed in federal court, it is within the power of the court to sanction attorneys for bringing such suits. Fed. Rule Civ. Proc. 11. It is also within the district court’s discretion to award attorney’s fees to prevailing parties in “exceptional cases.” 35 U. S. C. §285; see also Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U. S. ___ (2014) (slip op., at 7–8). These safeguards, combined with the avenues that accused inducers have to obtain rulings on the validity of patents, militate in favor of maintaining the separation expressed throughout the Patent Act between infringement and validity.

Slip op. at 14.

Finally, the Commil decision creates an apparent tension with current law and practice relating to willful infringement. Although the Court suggested that its decision would prevent the additional discovery and cost of litigating the defendant’s belief as to the validity of the patent in suit, a defendant’s good faith belief of invalidity remains relevant to the Seagate Technology willfulness standard. In re Seagate Technology, LLC., 497 F.3d 1360 (Fed. Cir. 2007). Under that standard, defendants frequently rely on invalidity opinions to disprove willful infringement. If, however, belief as to invalidity is not related to infringement for purposes of indirect infringement, then its role in avoiding willfulness may be open to question in future cases.