Opinion analysis: Justices eat their own words in dispute about inducing patent infringement
on May 27, 2015 at 9:40 am
Justice Kennedy’s opinion in Commil USA v. Cisco Systems managed to pull off a hard trick: getting a majority of the Justices to ignore the explicit language of an opinion so recent that all of those who signed it are still on the Court. The case involves the requisite intent for inducing patent infringement. Specifically, the question is whether a business can “actively induce” patent infringement if it holds a good-faith (albeit mistaken) belief that a patent is invalid.
Because the statute offers no more guidance than the general instruction that “[w]hoever actively induces infringement of a patent shall be liable as an infringer,” all agree that the question turns on the Court’s 2011 decision in Global-Tech Appliances v. SEB S.A. The Court in that case faced the question whether a party could be liable for inducing infringement if it did not know that the induced acts amounted to infringement. The Global-Tech Court acknowledged that the statute said nothing about the requisite intent, but concluded that the statute implicitly imposed an intent requirement. The Global-Tech Court concluded, with only Justice Kennedy dissenting: “[W]e now hold that induced infringement . . . requires knowledge that the induced acts constitute patent infringement.”
Because it is impossible to infringe an invalid patent, a literal reading of the Global-Tech opinion would dispose of this case directly: if you do not believe that the patent is valid, then you cannot have knowledge that what you are inducing would amount to patent infringement. But when you recall that Justice Kennedy (the author of the opinion for the Court) was the lone dissenter in Global-Tech, you can’t be too surprised that the analysis here cuts back sharply from the Global-Tech holding. So, the Court blandly explains that “because infringement and validity are separate issues under the Act,” a rule requiring knowledge of the former says nothing at all about the need for knowledge of the latter. In the Court’s view, suggesting that infringement depends on validity “conflate[s] the issues of infringement and validity.” The Court then reasons that requiring knowledge of validity as a predicate for infringement would undermine the long-standing presumption of validity. Accordingly, the Court concludes that a patent-holder can make out a suit for induced infringement even if the defendant in fact believes that the patent in question is not valid.
Predictably, this reading of the opinion in Global-Tech spurs Justice Scalia to quips that are pointed even by the elevated standards of his stylistic panache. He starts with the basic point: “Infringing a patent means invading a patentee’s exclusive right to practice his claimed invention. Only valid patents confer exclusivity—invalid patents do not. It follows, as night the day, that only valid patents can be infringed. To talk of infringing an invalid patent is to talk nonsense.” To the Court’s suggestion that he was conflating the distinct issues of validity and infringement, he retorts: “Saying that infringement cannot exist without a valid patent does not ‘conflate the issues of infringement and validity’ any more than saying that water cannot exist without oxygen ‘conflates’ water and oxygen.”
The most noteworthy aspect of the Court’s opinion is its Part III, decrying the problem of patent “trolls.” Quoting Justice Kennedy’s concurring opinion in eBay v. MercExchange and a position paper of the FTC, the Court sternly criticizes entities that enforce patents they do not practice:
The Court is well aware that an “industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.” Some companies may use patents as a sword to go after defendants for money, even when their claims are frivolous. This tactic is often pursued through demand letters, which “may be sent very broadly and without prior investigation, may assert vague claims of infringement, and may be designed to obtain payments that are based more on the costs of defending litigation than on the merits of the patent claims.”
The Court joins that passage to a paragraph emphasizing “the power of the court to sanction attorneys for bringing such suits.” Noting last Term’s decision in Octane Fitness v. Icon Health and Fitness, the Court also underscores “the district court’s discretion to award attorney’s fees to prevailing parties in ‘exceptional’ cases.” To be sure, as Justice Scalia points out, a court truly concerned about trolls might have thought twice before barring a defense of perceived invalidity, a rule that (as Justice Scalia puts it) only “increases the in terrorem power of patent trolls.” Still, even granting the arguable incoherence as a matter of policy, the backdrop of the Court’s decision last year in Highmark v. Allcare Health Management Systems, in which the Court limited Federal Circuit review of fee awards to abuse of discretion, makes it likely that the district courts will hear the Court’s call for more rigorous oversight loud and clear.
PLAIN LANGUAGE: A patent-holder can sue anyone who infringes the patent; it also can sue anyone who induces a third party to infringe the patent. But a party is not liable for inducing liability unless it knows that the acts it is inducing actually infringe the patent. The question in this case is whether it “counts” as a defense if the defendant doesn’t think the patent is valid. The Court says that it does not. This means that a defendant who actually believes a patent is invalid can be liable for inducing infringement if it turns out that the patent was valid.