U.S. Supreme Court Establishes State-of-Mind Requirement for Inducing Infringement Liability

Today, the U.S. Supreme Court issued its decision in Global-Tech Appliances, Inc., et al. v. SEB S.A., No. 10-6 (2011), holding that to prove inducing infringement under 35 U.S.C. § 271(b) a plaintiff must prove that the infringer had knowledge that “the induced acts constitute patent infringement.” The Court also held that this knowledge requirement can be satisfied by evidence of “willful blindness.”

Morgan Lewis represented SEB in this case.

On the facts of the case, SEB had developed an innovative method to produce household deep fryers and received a U.S. patent for this invention. A foreign competitor, Global-Tech Appliances, purchased one of SEB’s fryers in Hong Kong where it would not have patent markings, reverse-engineered SEB’s fryer, and then copied the SEB fryer’s unique technology. Global-Tech hired a patent attorney to conduct a patent search, but deliberately chose not to tell that attorney that its fryer was a copy of another company’s commercially successful fryer. The attorney did not locate SEB’s patent in its patent search. Global-Tech then sold its fryers to U.S. companies to sell within the United States. SEB sued Global-Tech for patent infringement and inducing infringement, and the jury found for SEB on all counts.

On appeal, Global-Tech challenged the finding on inducing infringement liability due to a lack of evidence of its actual knowledge of SEB’s patent. Section 271(b) provides that “[w]hoever actively induces infringement of a patent shall be liable as an infringer.” Over the last two decades, the Federal Circuit has offered various formulations of what mental-state requirement must be proven to establish liability under § 271(b). On appeal in this case, the Federal Circuit held that the mental-state requirement could be satisfied by evidence of “deliberate indifference of a known risk that a patent exists” and that Global-Tech’s actions constituted such deliberate indifference.

The Supreme Court rejected the Federal Circuit’s analysis but nonetheless affirmed the judgment. The Court held that inducing infringement liability under § 271(b) requires evidence that the infringer had knowledge that “the induced acts constitute patent infringement.” Adopting the argument advanced by SEB, the Court held that this knowledge requirement could be satisfied by evidence of “willful blindness.” After analyzing the record, the Court held that the judgment for SEB could be affirmed based on the evidence of Global-Tech’s willful blindness. The Court focused on Global-Tech’s decision to purchase the fryer to reverse-engineer it overseas (where it would not have U.S. patent markings) and then to deliberately withhold from its attorney the basic information that its fryer was a copy of SEB’s fryer.

This decision clears up an issue of long-standing confusion in the Federal Circuit as to the mental-state requirement of § 271(b). The Court’s explication of the standard should be welcome news to both innovators and holders of patents. The decision prevents frivolous claims of inducing infringement by requiring proof of knowledge of infringement. At the same time, it allows companies to protect their intellectual property rights against those companies that willfully blind themselves to a lawful patent in order to copy a commercially successful product. Corporations hiring attorneys to conduct patent searches should be sure to disclose to their attorneys any products copied or relied upon in developing a new technology.

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Federal Judge Orders California Waste Hauling Firm to Reinstate Two Drivers and Cease Anti-Union Activity

At the request of the National Labor Relations Board, a U.S. District Judge this week ordered a San Jose area waste hauling company to offer reinstatement to two drivers and restore full assignments to other drivers who had expressed support for a union during an organizing campaign.

In issuing the temporary injunction May 17, Judge Jeremy Fogel of the U.S. District Court in San Jose said the NLRB’s Office of General Counsel was likely to win its case against the company, OS Transport LLC, and that the employees would experience irreparable harm if an order did not issue immediately.

The decision stated that the agency “has made a substantial showing that (the company) engaged in serious unfair labor practices, including the termination of a lead organizer and another Union supporter, retaliation against Union efforts in the form of unfavorable assignments, threats to Union supporters, and promises of improved treatment of employees who disavow the Union. These actions appear calculated to chill the employees’ rights to the point that the organizing campaign could be defeated before the Board issues its final determination.”

The dispute began in January 2010, when drivers were told they must incorporate as individual corporate entities in order to continue working. The drivers, who spoke primarily Spanish, were later told to sign incorporation applications filled out in English, or risk being fired. During this period, some drivers contacted the Teamsters Union, Local 350, and signed a joint letter of protest to the company. The union supporters were reassigned to less lucrative routes, and two were later fired.

The union filed charges with the NLRB Regional Office in Oakland and, following investigations, complaints were issued in December 2010 and February 2011 alleging multiple violations of federal labor law. The case was heard by an administrative law judge early this year, but a decision has not yet issued.

Under the injunction, the company owner must read the full order to employees in English and Spanish, or be present when the full order is read by an agent of the NLRB. In addition, the company must provide full names and addresses of employees to union representatives.