Actual Reliance on an Opinion-of-Counsel May Negate Liability for Inducement
Gary H. Levin is a partner at Woodcock Washburn LLP and head of the firm's Litigation Services Group. Joseph Milowic III is an associate at Woodcock Washburn LLP and was recently named a "Rising Star" by Law & Politics magazine.
On December 13, 2006, in DSU Medical Corp. v. JMS Co., 04-1620, 05-1048, -1052 (Fed. Cir. Dec. 13, 2006), the en banc Federal Circuit resolved "conflicting precedent" and unambiguously announced that liability under 35 U.S.C. §271(b) for inducement requires a "specific intent to infringe," and not merely an intent to induce the acts that are later charged with infringement. This decision alters conventional wisdom and further increases the value of opinions of counsel.
Despite suggestions in earlier Federal Circuit and district court case law, until now it has been unclear whether intent to cause infringement over and above knowledge of the patent and intent merely to cause the acts accused of infringement was necessary for liability under section 271(b), and if so, whether a traditional opinion-of-counsel defense was available to negate that intent.
The en banc Federal Circuit has now clearly adopted the elevated level of "specific intent" for all cases involving any defendant, corporate or otherwise, accused of inducing infringement. This decision could elevate the importance of opinions of counsel where potential liability is based on inducement under §271(b). Good-faith reliance on an objectively reasonable opinion of counsel, previously viewed as an effective defense against a claim of willful infringement but not necessarily infringement per se, now becomes a potential shield against liability for any level infringement under §271(b).
In DSU Medical, the patentee sued JMS and ITL for infringing patents on a needle guard assembly. ITL made "open" needle guards overseas and sold its products to JMS for distribution in the U.S. The guards were intended to be closed around needles, to form the assembly, and it was only when the ends of the guards were "closed" that the assembly arguably met the claim limitations. JMS closed the guards around the needle sets before importing and selling them to U.S. customers and thereby directly infringed DSUs patents. Evidence at trial established that ITL knew of the patent and intended that JMS form the assembly by closing the guards, but ITL also presented evidence to show that it did not intend to infringe. The jury found JMS liable for direct infringement, but it absolved ITL of any liability for inducing infringement.
On appeal, the en banc Federal Circuit affirmed the finding of no infringement for inducement. Significantly, the Court specifically pointed to the following evidence that ITL did not intend to cause the infringement:
- ITL had contacted an Australian attorney, who concluded that its product would not infringe;
- ITL obtained letters from U.S. patent counsel advising that its product would not infringe; and
- One of the owners of ITL who had participated in the design of the product testified that ITL had no intent to infringe the patent.
"On this record, the jury was well within the law to conclude that ITL did not induce JMS to infringe by purposefully and culpably encouraging JMSs infringement. To the contrary, the record contains evidence that ITL did not believe its [product] infringed. Therefore, it had no intent to infringe."
In so ruling, the en banc Court also opted to resolve conflicting precedent. The conflict stemmed from two 1990 cases, which were decided within three months of each other by two different panels of the Court, Hewlett-Packard Co. v. Bausch and Lomb, Inc., 909 F.2d 1464, 1469 (Fed. Cir. 1990) and Manville Sales Corp. v. Paramount Systems, Inc., 917 F.2d 544, 554 (Fed. Cir. 1990). These "inducement cases" involved the not-uncommon situation where a patentee sues not only a party who directly infringes its patent, by, for example, selling the patented product or performing the patented method, but also sues a party who does not itself directly infringe but who "actively induces" the direct infringement. 35 USC §271(b).
Under Hewlett-Packard, to establish liability under section 271(b), the patentee had to show that the accused inducer, with knowledge of the patent, had "actual intent to cause" the acts that are found to have directly-infringed. Hewlett-Packard, 909 F.2d at 1469. But there can be a difference between intending to cause the acts that are accused of infringement and further intending (or believing) that those acts indeed constitute infringement. Hewlett-Packard had left unclear whether liability under section 271(b) required this further aspect of intent, and if so, whether good-faith reliance on a non-infringement opinion of counsel could negate the existence of any such intent and thus provide a defense to liability under §271(b).
Hewlett Packard presented a traditional scenario in which a corporate defendant is accused of inducing customers to directly infringe a patent. Although the Federal Circuit had not directly addressed the intent questions left open by Hewlett Packard in that context, two panels of the Court had held that, at least in situations where corporate officers had been accused of personal liability for inducing their own corporations to directly infringe the patent, liability did require a further showing of intent -- the intent that the patent actually be infringed. In Manville Sales, 917 F.2d 544, 553 (Fed. Cir. 1990), the Court held that a patentee must show not only that the accused corporate officer caused the corporation to commit the acts alleged to constitute infringement, but also that "the defendant possessed specific intent to encourage [an] infringement." A similar level of proof was required in Micro Chem., Inc. v. Great Plains Chem. Co., 194 F.3d 1258, 1261 (Fed. Cir. 1999).
In both cases, although the corporations themselves were found to have directly infringed, the accused corporate officers were found not to be personally liable under section 271(b), in part because the officers had relied, in good faith, on counsel opinions that the corporate conduct would not be an infringement. See Manville Sales, 917 F.2d at 554; Micro Chem., 194 F.3d at 1261. Holding corporate officers personally liable for the infringements of their corporations had always required special proof -- that the officer, inter alia, was the "moving, active, conscious force" behind the corporate acts. Power Lift Inc. v. Lang Tools, Inc., 774 F.2d 478, 481 (Fed. Cir. 1985). Thus, the opinion-of-counsel shields in Manville Sales and Micro Chem. were seen by some as limited to this particular context of the personal liability of corporate officers.
Almost five years ago, Woodcock Washburn LLP partners Gary Levin and Paul Milcetic recognized the possibilities now established by DSU Medical in an article entitled "Recent Cases Raise Possibility of Opinion of Counsel Defense to Inducement."1 Until now, however, it was not entirely clear whether the panel decisions discussed in that article were indeed conflicting, merely a manifestation of different facts (i.e., corporate versus personal liability), or a cogent and reconcilable body of law.
The Federal Circuit has now, however, resolved the "conflicting precedent," by holding, as was stated in Manville Sales, that "the alleged infringer must be shown . . . to have knowingly induced infringement, not merely knowingly induced the acts that constitute direct infringement." DSU Medical (citations omitted; emphasis original).
In doing so, the en banc Court relied on the Supreme Court's recent copyright decision Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 125 S.CT. 2764 (2005), which discussed inducement of infringement, stating:
The rule on inducement of infringement as developed in the early cases is no different today. Evidence of "active steps . . . taken to encourage direct infringement," such as advertising an infringing use or instructing how to engage in an infringing use, show an affirmative intent that the product be used to infringe, and a showing that infringement was encouraged overcomes the laws reluctance to find liability when a defendant merely sells a commercial product suitable for some lawful use.
Grokster, 125 S. Ct. at 2779 (citing Water Technologies Corp. v. Calco, Ltd., 850 F.2d 660 (Fed. Cir. 1988); footnote omitted). The high court stated that "[t]he inducement rule . . . premises liability on purposeful, culpable expression and conduct ." Id.
The Federal Circuit cites Grokster as validating its own "articulation of the state of mind requirement for inducement under Manville Sales," where it had explained its "knowing" requirement as follows:
It must be established that the defendant possessed specific intent to encourage anothers infringement and not merely that the defendant had knowledge of the acts alleged to constitute inducement. The plaintiff has the burden of showing that the alleged infringers actions induced infringing acts and that he knew or should have known his actions would induce actual infringements.
DSU Medical, quoting Manville Sales, .917 F.2d at 553. Thus, a good faith belief, arising from reliance on an objectively reasonable opinion of counsel, that there will be no direct infringement can provide a defense to a charge of inducing infringement by negating the now-clearly-required intent to infringe.