“Willful Blindness” is a Substitute for Actual Knowledge in Indirect Patent Infringement Cases
Intellectual Property Update 06/06/11
A party who does not directly infringe a U.S. patent can be held liable for indirect infringement if the party "actively induces" a third party to engage in infringing acts. A supplier, for example, can be liable for active inducement when the supplier sells a product to a distributor, who then sells the product in the United States, infringing a U.S. patent. Similarly, a party who provides instructions on how to practice a patented invention can be liable for active inducement of infringement.
On Tuesday, May 31, in Global-Tech Appliances, Inc. v. SEB S.A. (2011) the Supreme Court held that actual knowledge of a patent is not required to be held liable for actively inducing another to infringe. Instead, the Court looked to criminal law doctrine and found the defendant had "actively induced" the infringement of a patent when it "willfully blinded" itself to the infringing nature of downstream product sales "by deliberately shielding themselves from clear evidence" of their wrongdoing.
The defendant in this case, Global-Tech Appliances, developed a deep-fryer to compete with SEB's patented deep fryer at the request of Sunbeam Products. During the development phase, Pentalpha, a subsidiary of Global-Tech Appliances, bought a foreign-made SEB fryer knowing that the fryer would not be marked with any United States patent numbers and copied all but the cosmetic features. Pentalpha then retained a patent attorney to conduct a "right-to-use" study of its design. Pentalpha did not tell the attorney that it had copied the SEB design. The attorney issued an opinion that the Pentalpha design did not infringe any of the patents he found, but his search did not uncover SEB's patent. Pentalpha sold its product to Sunbeam outside the United States, and Sunbeam resold the products in the United States, thereby infringing SEB's patent. SEB sued Sunbeam for direct infringement of its patent by selling the deep-fryer in the United States, and Sunbeam agreed to a settlement.
SEB then sued Pentalpha for "actively inducing Sunbeam… to sell or offer to sell" the deep fryers in violation of SEB's United States patent rights. Pentalpha argued it did not have knowledge of the patent by, among other things, citing its opinion of counsel. The district court found Pentalpha had actively induced Sunbeam's infringement. The Federal Circuit affirmed finding that, despite no direct evidence Pentalpha knew of SEB's patent, "Pentalpha deliberately disregarded a known risk that SEB had a protective patent."
Active inducement is found in Section 271(b) of the patent law. It states that "[w]hoever actively induces infringement of a patent shall be liable as an infringer." The Supreme Court found the statute ambiguous as to whether the accused party must know that the intended activity is an infringement.
The Court held that active inducement requires knowledge that the induced acts constitute infringement and applied a two step analysis. First, the accused party must intend a third party to take an infringing action. Second, the accused party must have knowledge of the relevant patent giving rise to the infringement. Because there was no evidence Pentalpha had actual knowledge of the patent, the Court then addressed the question of whether actual "knowledge" of SEB's patent was required.
Knowledge Can be Shown by Willful Blindness
The Court rejected the argument that "knowledge" requires actual knowledge. The Court also rejected the Federal Circuit's standard of "deliberate indifference to a known risk that a patent exists." Instead, the Court held that the knowledge requirement can be satisfied under the doctrine of willful blindness.
Willful blindness is a criminal law doctrine. The Court explained that "a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts." In essence, the willful blindness doctrine has two elements: "(1) the defendant must subjectively believe that there is a high probability that a fact exists; and (2) the defendant must take deliberate actions to avoid learning of that fact." The Court contrasted this to a "reckless" defendant who "merely knows of a substantial and unjustified risk" and a "negligent" defendant "who should have known of a similar risk, but did not," neither of whom could satisfy the knowledge requirement.
Applying this test to the facts, the Court held that "[t]he jury could have easily found that…Pentalpha willfully blinded itself to the infringing nature of the sales it encouraged Sunbeam to make." The Court pointed to the following facts:
- Pentalpha knew that SEB's cool-touch fryer was an innovation when it copied the design;
- Pentalpha knew that sales of SEB's fryer had been growing for some time;
- Pentalpha performed market research and gathered information as much as possible;
- Pentalpha decided to copy an overseas model of SEB's fryer knowing it did not contain United States patent markings; and
- Pentalpha failed to inform its attorney that the product to be evaluated was simply a knockoff of SEB's deep fryer and did not give him a United States version of that product.
First, this case has the effect of raising the standard relied upon by the Federal Circuit from reckless to deliberate. However, courts will likely frown on business practices designed to intentionally avoid "knowing" of competitors' patents. For example, as in this case, the Court (and the dissent) seemed to rely heavily on Pentalpha's use of foreign versions of the products it knew contained no patent marking in order to design its knock-off.
Second, opinions-of-counsel will remain important part of any defense for indirect infringement. Pentalpha's reliance on its opinion of counsel in this case was insufficient to avoid a finding of indirect infringement only because its own actions seemed to undermine the competency of that opinion. However, the Court reaffirmed that active inducement (and contributory infringement) require knowledge of the underlying direct infringement. Thus, a good faith belief based on objectively reasonable opinion of counsel of no direct infringement should provide a defense to indirect infringement. See, e.g., DSU Medical Corp. v. JMS Co. et al., 471 F 3d 1293 (Fed. Cir. 2006).
For more information on the SEB decision or other patent matters, please contact your local Quarles & Brady attorney.