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The Changing Law of Multiparty Patent Infringement in the U.S. and How It Differs from Europe: Part Two

Tuesday, September 13, 2011

By Anthony C. Tridico and Mary E. Chlebowski, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

Part one of this article focused on the evolving law of "joint" multiparty patent infringement in the United States.1 In this second part, the authors review "indirect" multiparty patent infringement as recognized in both the United States and Europe. Further, the implications of multiparty infringement as a whole are discussed with a particular eye toward patentees and businesses.

Indirect Infringement

In addition to joint direct infringement (discussed in part one of this article), the United States also recognizes indirect infringement as a means of patent protection in multiparty suits. In the United States, there are two types of indirect infringement: contributory infringement and induced infringement.2

Similarly, the European Community Patent Convention ("CPC") recognizes indirect infringement. Article 26 of the CPC is entitled "[p]rohibition of indirect use of the invention" and appears to encompass both contributory and induced infringement, though the latter is explicitly connected to the former rather than forming a separate doctrine.3 In both the United States and Europe, indirect infringement always requires knowledge of the infringement.

— Induced Infringement in the United States

According to statute, induced infringement arises when one "actively induces infringement of a patent."4 In considering this sparsely worded statute, the U.S. Court of Appeals for the Federal Circuit has held that a patentee must show (1) that there is direct infringement; (2) that the accused infringer induced the infringement; and (3) that the accused infringer knew or should have known that its actions would induce actual infringement.5 The latter element, which relates to the necessary intent for induced infringement, has had a cloudy history in case law. Due to the resulting uncertainty, the issue of intent in situations of alleged induced infringement was recently considered by the U.S. Supreme Court in Global-Tech Appliances Inc. v. SEB S.A.6

In Global-Tech, SEB's patent claimed an electrical deep fryer, which included an air space between the heating pan and an outer plastic housing.7 Evidence in the case established that Global-Tech's subsidiary company, Pentalpha, purchased an SEB fryer, copied its design, and then supplied the fryers to various third parties who resold them under their own trademarks.8 At trial, a jury found Pentalpha liable for induced infringement,9 and the Federal Circuit affirmed.10Because the first two elements for induced infringement appeared to be readily satisfied,11 the appeal focused exclusively on the third element (i.e., the required intent).12 In particular, the defendants argued that they could not have had the intent to induce infringement because there was no evidence that they knew of SEB's patent.13

In prior cases, the Federal Circuit held that inducement required evidence of culpable conduct directed to "encouraging" another's infringement.14 In order to encourage infringement, the court reasoned that knowledge of the patent is a necessary prerequisite.15 Global-Tech was an interesting case in this regard because there was no direct evidence of knowledge of the patent.16 On the other hand, the Federal Circuit pointed to substantial circumstantial evidence that Pentalpha "deliberately disregarded a known risk" that SEB had a patent on the fryer that Pentalpha copied.17 Thus, the Federal Circuit effectively held that deliberate indifference of a known risk was a sufficient state of mind to prove induced infringement. Given the potential impact of this ruling, the U.S. Supreme Court granted certiorari to determine the proper state of mind for cases of induced infringement.18

After considering the language in the statute and relevant case law, the Supreme Court concluded that induced infringement requires knowledge that the induced acts constitute infringement.19 In other words, it is not enough to show that the accused knew that certain acts would occur. Rather, the accused must have known that there was a patent and that the acts infringed that patent.

The Court then considered, and rejected, the Federal Circuit's "deliberate indifference of a known risk" standard.20 Nonetheless, the Court affirmed the Federal Circuit's finding of infringement based on the doctrine of "willful blindness."21 The Court noted that willful blindness is a well-established principle in criminal law.22 In that context, the theory is applied to prevent defendants from escaping liability by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances.23 Given the long history and acceptance of this doctrine, the Court found no reason why willful blindness should not also apply in civil suits.24 The Court stated that willful blindness occurs when a defendant subjectively believes that there is a high probability that a fact exists and that the defendant takes deliberate actions to avoid learning of those facts.25 In comparison with the "deliberately disregarded a known risk" standard proposed by the Federal Circuit, the Supreme Court noted two important differences.26 In particular, according to the Supreme Court, the Federal Circuit's test would permit a finding of knowledge when there was merely a known risk that the acts were infringing and that the test would not require any active efforts by the defendant to avoid knowing about the infringing nature of the activities.27

Applying the "willful blindness" test to the facts of Global-Tech, the Court affirmed a finding of induced infringement.28 The Court noted, for example, that Pentalpha knew that SEB's fryer had a substantial share of the market compared with other fryers.29 Pentalpha also chose to copy an overseas model of the SEB fryer knowing that overseas models usually do not bear the U.S. patent markings.30 Further, Pentalpha obtained a freedom-to-operate opinion without informing the attorney that it had reverse engineered SEB's fryer.31 Finally, the Court noted that there was no evidence to explain why Pentalpha failed to disclose that copying to the attorney.32 As a result of the evidence of record, the Court held that a reasonable jury could find that Pentalpha subjectively believed there was a high probability that SEB's fryer was patented, that Pentalpha took deliberate steps to avoid knowing that fact, and that it therefore willfully blinded itself to the infringing nature of the third-party sales.33

Even though intent in cases like Global-Tech requires a rather detailed review of the evidence, other cases of induced infringement present an easier analysis. For example, in i4i Ltd. Partnership v. Microsoft Corp.,34 the Federal Circuit upheld a jury verdict finding that Microsoft induced infringement through the sale of Microsoft's Word programs that included an XML editor feature. The claims at issue were directed to methods for producing a map of metacodes.35 Microsoft's XML editor was allegedly able to execute all steps of the method but required that someone activate the program before the steps would be performed.36 The court found that the jury could reasonably have concluded that at least one person used the editor and directly infringed the claims, satisfying the first prong of the test.37 Microsoft's sale of Word satisfied the second element of induced infringement (i.e., the accused infringer induces the infringement). Finally, regarding the intent element, the court found that i4i presented sufficient evidence such that a reasonable jury could conclude that Microsoft had an affirmative intent to cause direct infringement.38 For example, the court noted that online training and support services provided detailed instructions for using the XML editor and pointed to internal Microsoft emails that suggested Microsoft had knowledge of the patent and knew of the infringing nature of the editor.39 Thus, facts similar toi4i will present a more straightforward analysis than those in Global-Tech.40

— Contributory Infringement in the United States

Contributory infringement is defined as the sale, or offer to sell, within the United States or the importation into the United States of "a component of a patented machine, manufacture, combination, or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use."41

The Federal Circuit has essentially broken the statute down into four elements. More specifically, in order to establish contributory infringement, the court has held that a patent owner must show: (1) that there is direct infringement, (2) that the accused infringer knew that the combination for which its components were being made was both patented and infringing, (3) that the component has no substantial noninfringing uses, and (4) that the component is a material part of the invention.42

The Federal Circuit opined on these factors in the i4i case discussed above. There, the Federal Circuit affirmed a jury's determination that Microsoft indirectly infringed the methods of producing maps of metacodes claims under a contributory infringement theory.43 As discussed above, Microsoft's XML editor was allegedly able to execute all steps of the method but required that someone activate the program before all the steps would be performed.44 In considering the contributory infringement verdict, the Federal Circuit found that a jury could reasonably have concluded that at least one person used the editor and thus there would have been direct infringement, satisfying the first prong of the test.45 Regarding the second element, the court noted that there was circumstantial evidence that Microsoft knew its use of the XML editor would infringe.46 For example, evidence showed that the Word development team heard a presentation by i4i, asked how the software worked, and received marketing materials about the software.47

As noted above, the third element of contributory infringement involves determining if the component at issue has substantial non-infringing uses. The Federal Circuit first considered the relevant "component" at issue.48 In this regard, Microsoft argued that the relevant component was the Word program as a whole rather than the XML editor feature within Word.49 The court, however, disagreed.50 In particular, the court found that the editor was a "separate and distinct" tool within Word because, among other things, some versions of Word 2003 did not include the XML editor.51

Having thus concluded the relevant component was the XML editor, the Federal Circuit then considered whether the editor possessed "substantial non-infringing uses." In this regard, the court held that a reasonable jury could conclude that the editor had no substantial non-infringing use based on expert testimony presented at trial.52 The court further noted that Microsoft's evidence that some customers used the editor in non-infringing ways was not enough to render the jury's verdict unreasonable because the standard is "substantial" non-infringing use.53 Regarding the fourth element, the court did not explicitly touch on the issue of whether the XML editor was a material part of the invention. However, because the editor was able to perform all the steps in the claimed method but for the activation of the program, the court likely assumed the editor to be material to the invention. Thus, finding that i4i had presented enough evidence to prove each element, the court upheld the jury's verdict of contributory infringement.

— Joint Infringement in the Context of Induced and Contributory Infringement in the United States

As explained, both induced and contributory infringement require a showing of direct infringement. Direct infringement in the United States can take the form of single-party infringement or multiparty joint infringement, the latter being referred to as "joint" infringement (discussed in part one of this article). Proving indirect infringement based on joint infringement can be quite complex given the additional requirements for showing joint infringement.

The issue of using joint infringement to prove indirect infringement recently arose in McKesson Technologies, Inc. v. Epic Systems Corp.54 In McKesson, the claims were directed to methods of communication between healthcare providers and patients via a webpage established by the provider.55 Evidence in the case established that , a healthcare provider, using software provided by Epic, performed each step of the claimed method except that the claims required the patient to initiate the communication.56 McKesson sued Epic for induced infringement because it licensed the accused software to healthcare providers.57Essentially, McKesson alleged that the healthcare providers and patients jointly infringed the claimed methods and that Epic induced that joint infringement by making the accused software available to the healthcare providers.

Citing a string of joint infringement cases, including the Akamai case58 discussed in part one, a divided panel found no joint infringement (and therefore no direct infringement) because the patients were not considered to be "agents" of the healthcare providers.59 The court noted, for example, that none of the healthcare providers required their patients to use the software, nor was there any contractual obligation to perform any of the claimed method steps.60

The McKesson opinion was issued only eight days before the court agreed to rehear Akamai en banc. Because the Federal Circuit as a whole agreed to rehear the Akamai case to consider what circumstances lead to direct infringement of a method claim when separate entities perform separate steps of the method (i.e., joint infringement),61 the court recently granted McKesson's petition for rehearing en banc.62 The rehearing will focus on two issues. First, the court will consider what circumstances, if any, constitute induced or contributory infringement when separate entities perform separate steps of a method claim.63Second, the court will consider whether the nature of the relationship between the relevant actors (e.g., doctor-patient) affects the question of direct or indirect infringement liability.64 Essentially, the McKesson rehearing is the indirect-infringement counterpart to the Akamai direct infringement rehearing.

— Indirect Infringement in Europe

As noted above, most European states model their patent infringement laws on the provisions in the European Community Patent Convention ("CPC"). Article 26 of the CPC relates to indirect use of an invention. Under Article 26, third parties are liable for indirect infringement if they "supply[ ] or offer[ ] to supply . . . means, relating to an essential element of that invention, for putting it into effect therein, when the third party knows, or it is obvious in the circumstances, that these means are suitable and intended for putting that invention into effect."65 Article 26(2) creates an exception for means that are "staple commercial products," though this exception does not apply if the third party "induces" the other party to directly infringe.

Article 26(1) has obvious parallels to the law of contributory infringement in the United States under 35 U.S.C. § 271(c). For example, Article 26 targets means that constitute "an essential element" of the invention whereas U.S. law requires the component to be "a material part" of the invention.66 Further, the CPC is directed to the third party who "knows, or it is obvious in the circumstances" that the means are suitable and intended for putting an invention into effect without authorization from the patentee.67 Similarly, contributory infringement in the United States requires some form of knowledge that a patent is infringed. Indeed, the Supreme Court's recent holding in Global-Tech that a party may be liable under a theory of "willful blindness" may be seen as a corollary to the CPC's "obvious in the circumstances" provision.

Additionally, Article 26(1) states that the means must be "suitable and intended for putting [the] invention into effect." This provision arguably correlates to the requirement in the United States that the component "be especially made or especially adapted for use in an infringement of [the] patent."68 Finally, the CPC's exception for "staple commercial products" seemingly corresponds to the exception in the United States for a "staple article or commodity of commerce suitable for substantial non-infringing use."69

Despite the similarities, Article 26(1) should not be considered an exact equivalent to the law of contributory infringement in the United States. For example, the CPC provides no definitions for certain critical terms such as "essential element," "suitable and intended," or "staple commercial products." As such, parties must review the case law of individual European countries, which can, of course, be markedly different from definitions developed in the United States. Further, it may not be enough to simply look at the case law of the European court where the suit is filed. For example, in Grimme Maschinenfabrik GmbH & Co. KG v. Derek Scott (t/a Scotts Potato Machinery),70 the court considered, and actively encouraged consideration of, case law from other European courts.71

In addition to contributory infringement, Article 26 also appears to correspond to the law of induced infringement in the United States. In particular, Article 26(2) states that a party will be liable, even if the means are staple commercial products, if "the third party induces the person supplied to [directly infringe the patent]." However, because this provision is tied to the contributory-infringement provision (i.e., Article 26(1)), the law is not a perfect corollary to U.S. law. For example, because of Article 26(2)'s dependency, it requires the product supplied to be an "essential element" of the invention. The U.S. law, however, contains no explicit requirement.

Implications for Businesses and Patentees

For patentees, a primary means of dealing with the different requirements for proving infringement is, of course, proper claim-drafting. Ideally, one should draft claims that will be infringed by a single party. The Federal Circuit itself called attention to this possibility in Akamai.72 But in situations where this is not feasible, a patentee may want to draft a variety of different claim types such as system and method claims.

Businesses will also be affected by multiparty infringement suits. As such, they will want to structure their relationships carefully by, for example, ensuring that neither party is under the "control or direction" of the other. They may also decide to provide instructions to consumers, rather than requiring their customers to take specific acts. Finally, it may be advantageous for companies to survey the patent literature when structuring contracts in order to try to avoid an allegation of patent infringement.

And, importantly, both businesses and patentees should consider the differences in case law between the United States and European countries so as to ensure protection in two important world markets.

Anthony C. Tridico, Ph.D., is the managing partner of Finnegan, Henderson,Farabow, Garrett & Dunner, LLP's European office in Brussels, Belgium. He practices all aspects of intellectual property law, from strategic patent portfolio management to litigation. Dr. Tridico can be reached by telephone at +32 2 643 70 20 or email at anthony.tridico@finnegan.com.

Mary E. Chlebowski, Ph.D., is a student associate at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP's Washington DC office. She focuses on prosecution of U.S. and foreign patent applications involving chemical and pharmaceutical technologies. Dr. Chlebowski can be reached by telephone at 202.408.6059 or email at mary.chlebowski@finnegan.com.

Disclaimer

This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.

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