Justices Kill Good Faith Defense To Inducement
(Originally published in Los Angeles Daily Journal (May 27, 2015)
On Tuesday, in Commil USA LLC v. Cisco Systems Inc., the U.S. Supreme Court held that a defendant’s good faith belief that a patent is invalid is not a defense to a claim of induced infringement.
The case involves a patent holding company’s lawsuit against Cisco for infringing a patented method for providing faster and more reliable wireless communication. At trial, Cisco tried to defend against the charge it had induced its customers to infringe by showing that Cisco had always believed the patent was invalid. The U.S. District Court for the Eastern District of Texas excluded the defense. But a divided panel of the U.S. Court of Appeals for the Federal Circuit reversed. Observing that one cannot infringe an invalid patent, the Federal Circuit held that a defendant who reasonably believes a patent is invalid lacks the requisite intent to induce infringement. The Federal Circuit’s decision in Commil promised to be a valuable tool for defending against allegations of infringing dubious patents, particularly for companies accused of inducing their customers to infringe poorly written software patents.
But the Supreme Court rejected the good faith defense. Writing for the majority, Justice Anthony Kennedy observed that, just as a mistake of law is no defense to criminal prosecution, a mistaken belief that the patent is invalid cannot defeat a claim for inducing infringement. As in the usual case, Kennedy explained, “I thought it was legal” is no defense. The Federal Circuit may feel somewhat whipsawed by that rationale. Just last June, in Limelight Networks v. Akamai, the Federal Circuit had compared induced infringement to liability for “aiding and abetting” a criminal law. The Supreme Court rejected the criminal-law analogy as irrelevant to interpreting the inducement statute and held that companies could not be liable for dividing the steps of a method patent between themselves and a customer if the result was that neither one directly infringed.
Taking a different approach in Commil, the Supreme Court held that a defendant could have the requisite knowledge to induce infringement even though he believes the patent being infringed is invalid. Allowing a good faith defense, the court observed, would undermine the presumption of validity that Congress afforded patents. Whereas patents can only be invalidated by clear and convincing evidence under 35 U.S.C. Section 282(a), the Federal Circuit’s holding would effectively have allowed a defendant to lessen that presumption based on a mere reasonable belief that the patent was invalid.
The court also saw “practical reasons” not to create a good faith defense to inducement. Accused infringers who believe a patent is invalid are already allowed to seek declaratory relief on the issue, file an ex parte reexamination request, or seek inter partes review at the Patent Trial and Appeal Board. The Federal Circuit’s new good faith defense would instead have encouraged accused infringers to wait to be sued and put forward myriad arguments of invalidity during litigation, unnecessarily increasing the costs to everyone.
In a forceful dissent, Justice Antonin Scalia, joined by Chief Justice John Roberts, noted that the court only recently held in its 2011 decision in Global-Tech Appliances v. SEB S.A., that inducing infringement requires knowledge of infringement. Scalia argued that “[t]o talk of infringing an invalid patent is to talk nonsense.” Invalid patents confer no exclusive rights to exclude others from using an invention, so a defendant who reasonably believes the patent is invalid is not “knowingly” inducing infringement of that patent. Scalia observed that the court’s ruling increases the “in terrorem power of patent trolls.” Even the allegation that a company infringes an invalid patent – sometimes containing many patent claims – can force many companies to consider paying a nuisance value settlement to avoid the costs and risks of litigation. Justice Kennedy implicitly recognized the concern that the court’s decision might encourage assertion of invalid patent claims, but the answer to this problem, he argued, was robust use of Rule 11 sanctions, seeking attorney fees in “exceptional cases,” and petitioning the Patent Office to review invalid patents.
The Commil decision was not all bad news for companies concerned with allegations of patent infringement. Commil’s main argument was that the only “knowledge” required for inducing infringement is knowledge of the patent. That argument was supported by an amicus brief from the solicitor general, but it was rejected by the court. To be liable for infringing a patent, the court held, it is not enough that a company have knowledge of the patent or even that it should know its actions would cause infringement of the patent. All members of the court agreed that inducement only exists where a company knows the actions it is inducing others to take constitute infringement. In a typical case, where there are good faith debates about what actions can constitute infringement, it will be difficult for a patent owner to prove that a company was knowingly inducing others to take actions that would infringe a patent. That is particularly true in the case of poorly written patents subject to varying interpretations.
Commil highlights the importance of understanding and managing the risk of being accused of inducing infringing even marginal or weak patents. While good faith by itself is not a defense to inducement liability, it remains a defense to allegations of willful infringement and to potential enhanced damages. Under Commil, companies who believe they will ultimately prevail on invalidity should consider the benefits of seeking a determination on that issue from the Patent Office through reexamination or inter partes review. They should also consider the benefits of responding to a patent notice letter with a request that the patent owner provide a claim chart, identifying in detail the allegation of infringement. These measures are typically better options than allowing a notice of infringement to lie dormant in a company’s files simply based on the belief that the patent will one day be declared invalid.