Supreme Court Sets High Bar for Finding Induced Infringement

In the war between tech companies and the so-called patent trolls who sue them, the Supreme Court on Tuesday handed defense lawyers a powerful tool.

In an 8-1 decision involving a patent on a deep fryer, the high court raised the standards for finding that a defendant has induced infringement. Although the court upheld a $4.65 million infringement verdict for French home appliance company SEB S.A., the court rejected the standard for induced infringment applied by the Federal Circuit to reach the same conclusion.

SEB had sued Pentalpha Enterprises, a subsidiary of Global-Tech Appliances Inc., for allegedly copying an SEB fryer that it had bought in Hong Kong with no patent markings. Pentalpha had asked a patent lawyer to conduct a so called “right-to-sue” study but didn’t tell the lawyer that it had copied the design from SEB. After SEB won won the infringement verdict, the Federal Circuit affirmed.

Writing for the majority, Justice Samuel Alito found that the Federal Circuit had applied the wrong standard, but the evidence was still sufficient to find liability under the doctrine of willful blindness. “Given the long history of willful blindness and its wide acceptance in the Federal Judiciary, we can see no reason why the doctrine should not apply in civil lawsuits for induced patent infringement,” Alito wrote.

Global-Tech, represented by William Dunnegan of Dunnegan LLC, maintained in its brief that it could not be liable without actual knowledge of SEB’s patent. SEB, represented by R. Ted Cruz of Morgan, Lewis & Bockius, had argued that nothing in the statute required direct evidence of actual knowledge. In the alternative, SEB contended that if actual knowledge was required, the verdict should be upheld because of Phentalpha’s willful blindness of its patent.

Morgan Lewis’s Cruz, who said his client was gratified by the court’s decision, said the ruling clarifies the induced infringement standard in two respects. “It will ensure that good faith commercial development of products will not lead to baseless patent infringement suits,” he said. “And two, it will protect the intellectual property rights of U.S. patent holders by ensuring that foreign manufacturers can’t copy their products and remain immune from inducement liability by being willfully blind to their patent rights.”

“The potential fallout [of this decision] is huge,” said Edward Reines of Weil, Gotshal & Manges, who submitted an amicus brief for a group of tech companies supporting Global-Tech, including Yahoo! and Hewlett Packard. (Other powerful Global-Tech allies that wrote amicus briefs include Google, Microsoft, and Facebook.) Previously, Reines said, the standard for finding induced infringement had been fuzzy, floating between negligence and recklessness. Now, plaintiffs will have a much higher bar to cross to recover back damages.

Justice Anthony Kennedy dissented, calling the willful blindness test a “mistaken step.” He wrote: “Willful blindness is not knowledge; and judges should not broaden a legislative proscription by analogy.”