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Expanding Defenses To Inducing Infringement

On Oct. 25, 2013, the Federal Circuit, by a vote of six-to-five, denied rehearing en banc in Commil USA, LLC v. Cisco Sys., Inc., (Commil II). That decision left intact the panel's holding, in a case of first impression, that an alleged indirect infringer's "good-faith belief of invalidity may negate the requisite intent for induced infringement."

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On Oct. 25, 2013, the Federal Circuit, by a vote of six-to-five, denied rehearing en banc in Commil USA, LLC v. Cisco Sys., Inc., No. 2012-1042 (Oct. 25, 2013) (Commil II). That decision left intact the panel’s holding, in a case of first impression, that an alleged indirect infringer’s “good-faith belief of invalidity may negate the requisite intent for induced infringement.” Commil USA, LLC v. Cisco Sys., Inc., 720 F.3d 1361 (Fed. Cir. 2013) (Commil I). According to one dissenting opinion from the rehearing denial, the panel’s majority opinion “created a new noninfringement defense to induced infringement,” premised on the accused infringer’s subjective belief of patent invalidity. Commil II, slip op. at 2 (Reyna, J., dissenting).

Commil had filed suit in the Eastern District of Texas, accusing Cisco of infringing a patent directed to a method of providing improved communication for mobile devices moving between base stations. Commil alleged that Cisco directly infringed certain method claims and induced infringement of those claims by others. During the first jury trial, Cisco was found liable for direct infringement but not induced infringement, and Commil was awarded $3.7M in damages. Commil I, at 1365.

The district court granted Commil a partial new trial on the issues of indirect infringement and damages. Id. Before the start of the second trial, the district court ruled that Cisco could not present evidence of its good-faith belief of patent invalidity to rebut the allegation of induced infringement. Id., at 1367. During the second trial, the district court instructed the jury that it could find Cisco liable for induced infringement if it “actually intended to cause the acts that constitute direct infringement and that Cisco knew or should have known that its actions would induce actual infringement.” Id., at 1366. The jury returned a verdict in favor of Commil on induced infringement, and awarded $63.7 M in damages. Id., at 1365.

The Commil I Panel Opinions

Cisco brought several issues on appeal, including: 1) whether the district court gave an erroneous instruction to the jury regarding the knowledge requirement for induced infringement; and 2) whether the district court properly precluded Cisco from presenting to the jury the evidence of its good-faith belief of invalidity of the patent during the second trial, to show that it did not have the requisite intent to induce infringement.

The panel produced three separate opinions. In the majority opinion, the judges agreed that the jury instruction was erroneous because it was based on Federal Circuit case law as it existed before the Supreme Court’s decision in Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011). The Supreme Court in Global-Tech held that induced infringement “requires knowledge that the induced acts constitute patent infringement,” and that the knowledge element may be met by showing actual knowledge or willful blindness, thereby rejecting negligence or recklessness as a basis for finding induced infringement. Commil I, at 1366 (quoting Global-Tech, at 2068). The panel observed that, “to the extent our prior case law allowed the finding of induced infringement based on recklessness or negligence, such case law is inconsistent with Global-Tech and no longer good law.” Commil I, at 1366. Under the erroneous instruction, “the jury was permitted to find induced infringement based on mere negligence where knowledge is required,” and thus the instruction was prejudicial to Cisco. Id. at 1367. Therefore, the panel vacated the indirect infringement verdict and damages award, and remanded the case for a new trial on these issues. Id.

The panel disagreed on whether the evidence of an accused infringer’s belief that the asserted patent was invalid is relevant to an induced infringement analysis. In the opinion by Judge Prost, a two-judge majority held that a good-faith belief in invalidity “may negate the requisite intent for induced infringement.” Commil I, at 1368.

Recognizing that a good-faith belief in invalidity as a defense to inducement presented a question of first impression for the Federal Circuit, the majority opinion examined prior cases addressing the issue of intent. Federal Circuit cases had previously ruled that a good-faith belief in non-infringement is relevant evidence tending to prove that the accused inducer lacked the required intent to infringe. Id., at 1367-68. According to Judge Prost, there is “no principled distinction between a good-faith belief of invalidity and a good-faith belief of non-infringement” for determining whether a defendant had the specific intent to induce infringement. Id., at 1368. Because “[i]t is axiomatic that one cannot infringe an invalid patent,” the majority opinion reasoned that a party aware of a patent but believing its claims invalid could encourage another to practice the claimed invention without intending to induce infringement. Id. Accordingly, Judge Prost concluded that “a good-faith belief of invalidity is evidence that may negate the specific intent to encourage another’s infringement.” Id.

In holding that a reasonable belief in patent invalidity ” may negate the requisite intent for induced infringement,” the panel majority took pains to emphasize that it does not hold that this evidence “precludes a finding of induced infringement.” Id., at 1368-69; see also, id. at 1368 n.1. Rather, the majority said that such evidence “should be considered by the fact-finder in determining whether an accused party knew ‘that the induced acts constitute patent infringement.’” Id., at 1369 (quoting Global-Tech, at 2068).

In a partial dissent, Judge Newman disagreed with the panel majority’s opinion that belief of patent invalidity may negate intent to induce infringement. Since “a ‘good-faith belief’ in invalidity does not avoid liability for infringement when the patent is valid,” it should not matter whether the infringement is direct or indirect. Commil I, at 1373 (Newman, J., dissenting). She argued that the majority’s view “is contrary to the principles of tort liability, codified in the inducement statute,” because a good-faith mistake of law is not a defense from tort liability (and noting that invalidity is a question of law). Id., at 1373-74. According to Judge Newman, tort law often imposes liability even though the actor lacked knowledge that the conduct was in violation of the law. Id., at 1374. Judge Newman also observed that, while invalidity is a defense to “willfulness” of infringement, it is not a defense to the “fact” of infringement. Id., at 1373.

Denial of En Banc Rehearing in Commil II

The Federal Circuit’s denial of rehearing en banc produced two separate dissents, both of which argued that the new defense to induced infringement established by the panel majority ‘ good-faith belief in patent invalidity ‘ was neither warranted nor appropriate. Judge Reyna, joined by four other judges, argues in a strongly-worded dissent that the original panel “wrongly rearranges the legal foundation that underpins the enforceability of valid patents and the finding of liability for infringement.” Commil II, slip op. at 2 (Reyna, J., dissenting). The dissent explains that neither the induced infringement statute, 35 U.S.C. ’271(b), nor its legislative history provides that one who knowingly and successfully induces infringement by another may avoid liability by holding a good-faith belief that the patent is invalid. Id., slip op. at 2-3. According to Judge Reyna, the panel rule would permit the party who induces infringement to escape liability while the unsuspecting third party infringer cannot, which is contrary to the rationale for imposing liability on the inducer in the first place ‘ namely, one who encourages or aids in an infringement is just as, if not more, culpable than those who actually perform the infringing acts. Id., slip op. at 3-4.

Furthermore, Judge Reyna explains that, because patent infringement and invalidity are separate and distinct issues that are determined independently from one another, the panel majority was wrong to impute invalidity into a question of induced infringement through “the guise of ‘intent.’” Id., slip op. at 4-5. He also argues that the panel majority “wrongly conflates the defense of noninfringement with the defense of invalidity” and “ignores the statutorily-mandated presumption of validity.” Id. at 5. The dissent states that the panel’s statement that “it is axiomatic that one cannot infringe an invalid patent,” id (quoting Commil I, at 1368), is incorrect, and that a “more accurate statement of our precedent is that ‘ one cannot be liable for infringement of an invalid patent.” Id. (emphasis in original).

Judge Reyna concludes by stating his view that the new rule “fundamentally changes the operating landscape, much like waking up and unexpectedly finding that the sky is now green.” Id., slip op. at 7. It provides an accused infringer with an escape path from liability for induced infringement that is not in the statute, and “has a compromising effect on the only axiom that we should all observe, and that is issued patents are presumed valid.” Id.

Judge Newman’s separate dissent emphasizes that “it is not ‘axiomatic that one cannot infringe an invalid patent’ as the majority opinion states,” but rather “[p]recedent is contrary.” Commil II, slip op. at 2 (Newman, J., dissenting).

Observations

By permitting an accused infringer to negate intent by offering evidence of a good-faith belief of patent invalidity, the Commil I majority has expanded the available defense to induced infringement liability. However, the ruling leaves uncertainty in its application and ultimate effect. In holding that evidence of good-faith belief of invalidity “may” negate the specific intent required for inducement, the panel opinion leaves open the key question: when (and under what circumstances) does such good-faith belief result in no inducement, and what circumstances should justify liability for induced infringement despite such belief?

Indeed, as Judge Reyna points out, the majority opinion did not provide guidance to the district courts:

[T]he majority does not instruct the lower courts how they are to apply the fix. Is the new rule a question of fact? Is it a question of law? Is it a question of law with underlying factual basis? Should the question of good faith belief of invalidity be tried along with the invalidity issues, or perhaps before any other issues are heard given its determinative effect on the outcome of the case?

Commil II, slip op. at 6-7 (Reyna, J., dissenting).

Thus, the district courts are left on their own to develop appropriate procedures, subject to further guidance in the future from the Federal Circuit. However, it is clear that this can become a powerful defense. There is hardly a patent infringement case where validity of the patent cannot be reasonably challenged. An alleged inducer of infringement would be advised to obtain an invalidity opinion of counsel, or other evidence to show its good-faith belief of invalidity, and present it to the trier of fact to be considered in determining whether the accused infringer knew that the induced acts constitute patent infringement. Under the Commil rule, the trier of fact may have little choice but to conclude that such belief negates intent to induce infringement.


Brian Mudge‘is a partner in Kenyon & Kenyon’s Washington, DC office. He can be reached at’bmudge@kenyon.com.’Ksenia Takhistova is an associate in Kenyon & Kenyon’s New York Office.’

The views expressed in the article are those of the authors and not necessarily the views of their clients or other attorneys in their firm.

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