December 9, 2014
Intellectual Property Today
Authored by Jia Lu and William B. Raich, Ph.D.
In June of 2013, a split panel of the Federal Circuit in Commil USA, LLC v. Cisco Systems, Inc. held that a defendant may avoid liability for induced infringement by demonstrating that it had a good-faith belief that the infringed patent was invalid.1 In addition to a panel dissent, five judges subsequently dissented from the denial of the petition for rehearing en banc. This article reviews how courts have applied Commil, analyzes the interplay with post-grant proceedings at the Patent and Trademark Office ("PTO"), and discusses implications of the decision. In October of 2014, attorneys representing the United States filed an amicus brief recommending that the Supreme Court grant certiorari to address this issue, characterizing the Federal Circuit's holding as "inconsistent with the text, structure, and purposes of the relevant Patent Act provisions."2 On December 5th, the Supreme Court granted certiorari on this issue. This article reviews how courts have applied Commil, analyzes the interplay with post-grant proceedings at the Patent and Trademark Office ("PTO"), and discusses implications of the decision.
The patent statute states that whoever "actively induces" infringement of a patent shall be liable as an infringer, which has been interpreted to mean that the inducer must have a "specific intent" to induce infringement. Prior to Commil, the Federal Circuit established that a good-faith belief of non-infringement is relevant evidence, because it tends to show that the accused inducer lacked the requisite intent to "actively induce" infringement.
The Federal Circuit expanded this doctrine in Commil v. Cisco Systems, holding for the first time that evidence of a good-faith belief of patent invalidity may negate the requisite "specific intent" required to induce infringement. The panel majority stated that there is "no principled distinction" between a good-faith belief of invalidity and a good-faith belief of non-infringement for evaluating specific intent. Because one cannot be found liable for infringing an invalid patent, a good-faith belief of invalidity was held to be relevant evidence that should be considered by the factfinder in assessing induced infringement.
This holding has had an immediate and substantial impact on litigation. Since Commil, parties defending against claims of induced infringement have sought to rely on evidence of a good-faith belief of the asserted patent's invalidity to show the lack of intent required for proving induced infringement. A number of cases explore how the defense has evolved, and reveal the creativity of litigants and courts in attempting to apply it.
In Bose Corp. v. SDI Technologies, Inc., just one month after Commil, the district court granted summary judgment of no indirect infringement for a number of accused products.3 Of relevance here, the defendant had obtained an opinion of counsel concluding that the patent-in-suit was invalid as obvious over two prior art references. Additionally, later in time, the same two prior art references were combined to reject all claims of the asserted patent in a reexamination proceeding before the PTO. The district court concluded that in view of this evidence, no reasonable jury could find that the defendant had the specific intent necessary to support a finding of inducement.
The Federal Circuit reversed and remanded, finding that this evidence cannot entirely absolve the defendant of indirect infringement liability. In its analysis, the court looked at several different time periods.
The Bose case therefore illustrates the complicated interplay between Commil, obtaining opinions of counsel, and post-grant proceedings at the PTO.
Another case highlights another complication with Commil: whether the good-faith belief of invalidity is objective, subjective, or both. In Toshiba Corp. v. Imation Corp., the district court declined to use the defendant's assertion of a good-faith belief of invalidity as the basis for granting its motion for JMOL.4 The defendants, charged with induced infringement, did not present evidence at trial that they relied on advice of counsel. Nor did they present any other evidence of subjective belief of good-faith. Instead, they asked the court to find, as a matter of law, that they had an objectively reasonable defense to infringement. While the court found that the defenses raised were relevant, it declined to revisit the jury's decision because Commil stated that evidence of an accused inducer's good-faith belief of invalidity should be considered by the fact-finder.
In Halo Electronics, Inc. v. Pulse Electronics, Inc., the jury actually did consider evidence of a good-faith belief of patent invalidity in an induced infringement charge.5 But the evidence failed to make a difference in the outcome. The defendant argued it had a good-faith belief that the asserted patents were invalid, and the jury was instructed that if the defendant believed that the patents were invalid, the jury could not find that the defendant induced infringement. Despite this, the jury found the defendant liable for induced infringement, and the court agreed. The court noted that the evidence offered by the defendant, which largely consisted of an employee's "very limited analysis," "could not establish that a decision maker at [the defendant] actually relied upon the analysis in continuing to sell the accused products." The court was also troubled by the four-year lapse between the defendant's first learning of the patents and its rendering of the patent analysis.
As in the Bose case above, a number of cases have involved scenarios where defendants sought to rely on events in parallel proceedings at the PTO, such as post-grant reviews or inter partes reviews. To initiate a post-grant review, the challenger of the patent must show that the patent is at least more likely than not invalid. Similarly, to initiate inter partes review, the challenger must show a reasonable likelihood of success of invalidating the patent. Parties have sought to use these PTO actions for establishing a good-faith belief of invalidity.
In Virnetx, Inc. v. Cisco Sys., Inc., co-defendant Apple proffered the PTO's initial rejections of the asserted claims in several reexamination proceedings as evidence of a good-faith belief that the asserted claims were invalid.6 The district court excluded Apple's evidence and refused to allow the jury to consider the evidence, concluding that such non-final actions in pending reexaminations would be "highly prejudicial evidence that risks misleading the jury." On appeal, the Federal Circuit concluded that the district court did not abuse its discretion in excluding this evidence. Although the court declined to decide whether Commil "justifies reliance on reexamination evidence to establish a good faith belief of invalidity," it stated that "regardless of the evidence's relevance to a fact at issue at trial, the district court would still not have abused its discretion in finding that the probative value was substantially outweighed by the risk of unfair prejudice to the patentee." The court also questioned the relevance of this type of evidence, noting that "this court's precedent has often warned of the limited value of actions by the PTO when used for such purposes."
In moving for summary judgment, the defendants in Ultratec, Inc. v. Sorenson Communications, Inc. also sought to rely on a PTO decision as evidence of their good-faith belief that the asserted patent claims are invalid - in particular, the decision to institute inter partes review.7 Similar to the analysis in Bose, the district court analyzed "specific intent" for different periods of time, ultimately denying defendant's motion for summary judgment. For the period prior to suit, the court found that there was sufficient evidence such that a jury could conclude that the defendants' went out of their way to ignore the patents, and were therefore potentially liable. For the period of time after filing of the suit but prior to the date the PTO instituted inter partes review, the court found that defendants had proffered no evidence, such as an opinion of counsel, indicating how or when they came to a good-faith belief that the patents were invalid. For the period of time after institution of IPR, the court stated "it is difficult to argue that defendants did not hold a good-faith belief that the patents . . . would be found invalid." Nevertheless, the court determined that because this was merely evidence "that may negate the specific intent," it would leave the issue to the jury.
Because the induced infringement claims were subsequently dismissed from the case, it is unclear whether the jury would have been permitted to consider this evidence. But it is notable that the court excluded this evidence from the validity determination because it was "irrelevant and highly prejudicial to the jury's determination" due to "the different standards, procedures, and presumptions applicable to IPR proceedings."8
In Clouding IP, LLC v. Rackspace Hosting, Inc., the defendant moved to dismiss, arguing that the patentee failed to sufficiently plead the element of intent for its inducement claim.9 In part, the defendant argued it could not possess the requisite intent because the PTO granted a third party's petition for inter partes review of six of the patents-in-suit. The court held that there was no basis to expand Commil into a pleading requirement. Further, the court noted that the publicly-available IPR documents did not, taken in the light most favorable to Clouding, require a finding that the patentee's pleading of intent was deficient.
Defendants accused of induced infringement are routinely raising Commil as a defense, and many practitioners are advising their clients to obtain an opinion of counsel to support a good-faith belief of invalidity.10 However, at least some courts have been reluctant to expand Commil into a pleading requirement, to use it as a basis for summary judgment, or to revisit jury findings in response to post-trial motions. Moreover, in cases involving opinions of counsel, courts have scrutinized those opinions to determine if they were timely obtained and if the party relying on the evidence offered proof of good-faith reliance, and reliance on opinions opens the door to arguments about waiver of privilege. Further, at least some courts have dismissed evidence from concomitant PTO proceedings as unduly prejudicial.
Until the Supreme Court decides on the issue, defendants will still need to carefully weigh the advantages and disadvantages of asserting a Commil defense. And parties on both sides of the "v." need to keep a close eye on the Supreme Court—since their cases will be affected, for better or for worse.
Endnotes
1 Commil USA, LLC v. Cisco Sys., Inc., 720 F.3d 1361, 1368-69 (Fed. Cir.), reh'g denied, (Oct. 25, 2013).
2 Brief for the United States as Amicus Curiae, p. 6, Commil USA, LLC v. Cisco Sys., Inc., 720 F.3d 1361, 1368-69 (Fed. Cir.), reh'g denied, (Oct. 25, 2013).
3 Bose Corp. v. SDI Techs., Inc., 558 F. App'x 1012 (Fed. Cir. 2014).
4 Toshiba Corp. v. Imation Corp, 990 F. Supp. 2d 882 (W.D. Wis. 2013).
5Halo Elec., Inc. v. Pulse Electronics, Inc., 2:07-CV-00331-d, 2013 WL 44586754 (D. Nev. Aug. 16, 2013) aff'd, 2013-1472, 2014 WL 5352367 (Fed. Cir. Oct. 22, 2014).
6 Virnetx, Inc. v. Cisco Sys., Inc., 767 F.3d 1308 (Fed. Cir. 2014).
7 Ultratec, Inc. v. Sorenson Commc'ns, Inc., No. 13-CV-346-BBC, 2014 WL 4265847 (W.D. Wis. Aug. 28, 2014).
8Ultratec, Inc. v. Sorenson Commc'ns, Inc., No. 13-CV-346-BBC, 2014 WL 5023098 (W.D. Wis. Oct. 8, 2014).
9 Clouding IP, LLC v. Rackspace Hosting, Inc., CV 12-675-LPS, 2014 WL 495752 (D. Del. Feb. 6, 2014).
10 Brief for the United States as Amicus Curiae, p. 14, Commil USA, LLC v. Cisco Sys., Inc., 720 F.3d 1361, 1368-69 (Fed. Cir.), reh'g denied, (Oct. 25, 2013).
Originally printed in Intellectual Property Today. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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