Argument preview: Court to consider standard for secondary patent liability

By Ronald Mann
on Feb 18, 2011 at 9:50 am

At first glance, Global Tech Appliances, Inc. v. SEB S.A. (to be argued February 23) has all the classic features of recent cases from the Federal Circuit.  The Federal Circuit adopts a broad pro-patentee rule that imposes large risks on businesses.  The Supreme Court, giving no credence to the Federal Circuit’s institutional expertise in patent law, grants review in the absence of a circuit conflict.  Academics and businesses weigh in, predominantly on the side of the alleged infringer.  The Supreme Court predictably reverses.  But a closer look suggests there might be more here.

The issue in this case is the state of mind necessary for imposing liability under Patent Act § 271(b), which concisely states: “Whoever actively induces infringement of a patent shall be liable as an infringer.”  The facts are simple enough.  The plaintiff is SEB, a large French appliance manufacturer that is justifiably proud of a patent it holds on a design for a deep-fat fryer that has a cool external surface.  Deep-fat fryers that SEB manufactured under that patent were widely successful in the United States market.  The defendants (petitioner Global-Tech and a variety of affiliates) are a group of companies that design and manufacture appliances, largely in China.  [Although petitioners refer to themselves collectively as “Pentalpha,” it makes more sense here to use the named petitioner’s name “Global-Tech.”]  After Sunbeam requested that Global-Tech manufacture a deep-fat fryer, Global-Tech purchased several deep-fat fryers in Hong Kong, studied them, and developed a proposal that incorporated some of the most desirable features of those fryers, as well as a few new features of its own.  SEB’s fryer was one of those that Global-Tech examined.  After settling on a design for a fryer, Global-Tech obtained a patent opinion from its United States attorney indicating that the proposed fryer would not infringe any United States patents.  Of some importance – Global-Tech did not disclose to the attorney the specific manufacturers whose fryers it had examined, and the attorney did not locate SEB’s patent.

When Sunbeam began distributing the Global-Tech fryers in the United States, SEB sued Sunbeam and Global-Tech.  Sunbeam settled, but the litigation with Global-Tech continued.  Global-Tech’s liability for direct infringement (under Patent Act § 271(a)) was dubious because Global-Tech did not make or sell the fryers in the United States (it delivered them to Sunbeam in China).  Thus, the case has centered on its responsibility for inducing Sunbeam’s alleged infringement in the United States (under Patent Act § 271(b)).

Global-Tech took the position that its actions could not be “active” inducement because it had not known about SEB’s patent.  SEB took the position that Global-Tech’s admitted copying of its product from SEB’s was sufficient to satisfy the requisite state of mind.  A jury found for SEB.  On appeal, Global-Tech argued that liability was flatly inconsistent with the Federal Circuit’s recent en banc decision in DSU Med. Corp. v. JMS Co. Ltd. (2006), which stated that liability under Section 271(b) required knowledge of the allegedly infringed patent.  The panel’s opinion concluded that Global-Tech’s conduct amounted to deliberate indifference without explaining clearly how liability could be reconciled with DSU.  The Court granted review, responding to a petition that treated the panel decision as creating a conflict with the Court’s decision in Grokster (a case involving copyright law) and an intra-circuit conflict with the en banc decision in DSU.

The heart of Global-Tech’s argument is a bright-line rule that liability under Section 271(b) requires in all cases knowledge of the patent alleged to be infringed.  The strongest support, ironically, is the Court’s recent decision in Grokster.  Grokster considered the standard for secondary liability under the Copyright Act, which does not include any codification of cases on that subject.  The Grokster Court responded by importing the doctrine of secondary liability developed in cases under the Patent Act.  Crucial for Global-Tech’s argument is the Grokster Court’s description of the patent standard as requiring “an affirmative intent that the product be used to infringe” and “purposeful, culpable expression and conduct.”  Relying on that understanding of Section 271(b), it is easy for Global-Tech to contend that the Federal Circuit’s “deliberate indifference” standard is much more lenient than the “purposeful” and “culpable” conduct Grokster understood patent law to require.

SEB’s bottom-side brief emphasizes two points.  First, it argues that the standard of intent Global-Tech proposes amounts to a requirement of willfulness.  Because several standards in the Patent Act directly require willfulness, and because the language of Section 271(b) does not directly require willfulness, it puts some strain on the statute to interpret Section 271(b) as requiring such a high standard.  SEB also canvasses the facts of this particular case in support of a variety of narrow possible bases for affirmance.  Responding to the likelihood that the Court will be troubled by the potential for mischief in the Federal Circuit’s lax “deliberate indifference” standard, SEB emphasizes, for example, the unquestioned copying that occurred here: few infringement cases involve proof that the defendant unquestionably designed its product by copying the defendant’s product.

As is typical of patent cases in recent years, the Court confronts a large stack of more than a dozen amicus briefs, many of which reject the Federal Circuit’s approach as excessively favorable to the patentholder.  Space does not permit me to summarize all of them, but several are noteworthy.  Given the Court’s recent attention in patent cases to academic writings, the most important brief probably is the brief that Mark Lemley files on behalf of more than forty professors.  Generally, he argues that the structure of Section 271 is inconsistent with the Federal Circuit’s decision.  In the academics’ view, the low standard of intent in Section 271(b) would make that section swallow the much more detailed provision on contributory infringement that follows (Section 271(c)).

Other noteworthy filings include one by Tom Hungar at Gibson, Dunn (on behalf of Comcast, Microsoft and several other large IT companies).  Hungar’s brief provides an excellent summary of the cases that were codified in Section 271(b), designed to show that the Federal Circuit’s reading of the statute is inconsistent with Congressional intent.  Given the importance of the early cases to the Court’s decision in Bilski, this brief is likely to be important to at least some of the Justices.  And finally, there is a filing with typical verve from Eben Moglen on behalf of the Software Freedom Law Center, pointing out the risk to independent software developers of a standard that exposes them to liability for patents of which they have no reason to be aware.