How to Effective Litigate a Case of Active Inducement H. Keeto Sabharwal and Melissa D. Pierre

2 35 U.S.C. § 271(b): “Whoever actively induces infringement of a patent shall be liable as an infringer" Allows patentee to sue entities that sell products used to practice a claimed method even though defendant does not directly infringe that claim – E.g., instruction manuals, brochures, website information, product labels Imposes the same level of liability on a person or entity who induces infringement as it does on direct infringers

3 Contributory versus Inducement Contributory Infringement: 35 U.S.C. section 271(c) – “Whoever offers to sell or sells within the United States...a component of a patented machine...constituting a material part of the invention...and not a staple article of commerce suitable for substantial noninfringing use...” – E.g., selling a formulation containing an infringing component covered by a U.S. Patent manufactured by another company

4 Contributory versus Inducement (cont’d) Inducement: 35 U.S.C. section 271(b) – E.g., method of use claim (“method of increasing lean body mass through the administration of an effective amount of chromium picolinate”) – E.g, method or process claim (“method of remotely powering an access device in a data network comprising [steps a, b, c, d, etc]... “)

5 Two Requirements for Finding Inducement 1.A showing that the conduct being induced is, in fact, a direct infringement ; and 2.Proof of intent

6 Direct Infringement If there is no direct infringement to which the Defendant contributed, liability cannot be extended Plaintiff bears the burden of showing direct infringement by a preponderance of the evidence Direct Infringement of a Third Party (e.g., consumer)

7 Direct Infringement (cont’d) How to Prove Direct Infringement: Direct Evidence – E.g., Testimony that consumer is taking product for patented use(s) (e.g., ingesting chromium picolinate to increase lean body mass) – E.g., Testimony that consumer is performing all the steps of a method claim – E.g., Survey evidence showing that consumers are ingesting product for patented use(s)

8 Direct Infringement (cont’d) – Note: Need at Least One Instance of Direct Infringement – E-Pass Technologies, Inc. v. 3Com Corp., 473 F.3d 1213 (Fed. Cir. 2007) (simply inferring that customers used a device in an infringing manner without showing at least one customer actually performed all the steps of the claimed method is not sufficient)

9 ACCO Brands, Inc. v. ABA Locks Manufacturer Co., Ltd. et. al., 501 F.3d 1307 (Fed. Cir. 2007) Plaintiff was the owner of three patents directed to locking systems that inhibit the theft of equipment, e.g. personal computers The lock could be operated in two ways, one infringing (Dornfield method) and the other non-infringing (press-to-lock method) Plaintiff instructed its customers to use the non-infringing press-to- lock method – parties agreed to this District Court: Jury found Defendants ABA Lock and Belkin willfully induced infringement for the asserted claims of one of the patents; Belkin appealed

10 ACCO Brands, Inc. : Lack of Evidence of Direct Infringement ACCO’s expert was the sole witness who testified regarding use of the lock in an infringing manner No evidence provided that any customer ever used the lock in an infringing manner The record was devoid of other evidence that actual users had operated the lock in an infringing manner Although the arguably “most natural and intuitive” way of using the lock would infringe, there were other non-infringing ways of using the lock

11 Because it was shown that accused device could be used at any time in a non-infringing manner, it did not “necessarily infringe” the patent-in-suit Defendant ABA Lock included a set of instructions with its product that described the infringing method (ABA hang card) However, Defendant Belkin did not provide the ABA hang card to purchasers, or otherwise know of the use of the hang card or was involved in its preparation ACCO Brands, Inc. : Lack of Evidence of Direct Infringement

12 ACCO Brands, Inc. : Presence of Infringing and Non-Infringing Uses “[A]CCO must prove specific instances of direct infringement or that the accused device necessarily infringes the patent in suit, in order to sustain the jury verdict of induced infringement.”

13 ACCO Brands, Inc. : No Direct or Induced Infringement Court: “[H]ypothetical instances of direct infringement are insufficient to establish vicarious liability or indirect infringement.” Because ACCO’s failed to prove direct infringement, the Federal Circuit reversed the lower court’s ruling on direct and induced infringement, as well as the judgment with respect to willfulness, enhanced damages, and attorney fees

14 Intent - Overview Analogous to a criminal statute imposing liability for one who acts as an accessory before the fact Plaintiff need not prove that Defendant exercised control over third party infringer’s actions – only demonstrate that the Defendant knowingly aided and abetted another’s direct infringement Intent to induce may also be established by circumstantial evidence Plaintiff bears this burden of proof by a preponderance of the evidence

15 The Varying Standards for Intent Hewlett-Packard v. Bausch & Lomb (Fed. Cir. 1990) : intent to induce requires a showing that the alleged infringer intended to cause the acts which led to the direct infringement of the patent Manville Sales v. Paramount Systems (Fed. Cir. 1990) : imposes liability where alleged infringer intended to cause the acts that led to the direct infringement and intent to infringe

16 The Hewlett-Packard Standard Federal Circuit: If the Plaintiff can prove that the Defendant “actually intended to cause the acts which constitute the infringement”, the Defendant is liable for inducement Defendant need only intend to encourage the conduct that ultimately turns out to be infringing Defendant could be found liable for inducement even if it believes that its acts do not constitute patent infringement and, therefore, does not intend for infringement to occur

17 The Manville Sales Standard Plaintiff must prove not only an intent to cause the acts that turn out to be infringing, but also an actual intent to infringe the patent “The plaintiff has the burden of showing that the alleged infringer’s actions induced infringing acts and that he knew or should have known his actions would induce actual infringements.”

18 The Federal Circuit Resolves the Conflict Stricter Manville Sales standard adopted DSU Medical Corp. v. JMS Co. et. al., 471 F.3d 1293 (Fed. Cir. 2006) “[T]he intent requirement for inducement requires more than just intent to cause the acts that produce direct infringement…[I]nducement requires evidence of culpable conduct, directed to encouraging another’s infringement, not merely that the inducer had knowledge of the direct infringer’s activities.”

19 DSU Medical Corp. : Background Facts DSU’s invention reduced the risk of accidental needle-stick injuries The guards were intended to be closed around needles, to form the assembly; it was only when the ends of the guards were “closed” that assembly arguably met the claim limitations. Defendant ITL made “open” needle guards overseas and sold its products to Defendant JMS Co. for distribution in the United States. JMS closed the guards around the needle sets before importing and selling them to U.S. customers and thereby directly infringed DSU’s patents.

20 DSU Medical Corp. : The District Court Decision 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. After a six-week jury trial produced a unanimous verdict, the court entered a final judgment of infringement against JMS. ITL found not liable for inducing infringement.

21 DSU Medical Corp. v. JMS Co. et al., 471 F 3d 1293 (Fed. Cir. 2006) The jury instruction, which utilized the stricter Manville Sales standard, stated: “The plaintiff has the burden of showing that the alleged infringer’s actions induced infringing acts and he knew or should have known his actions would infringe actual infringements.”

22 DSU Medical Corp.: The Federal Circuit Finally Speaks Federal Circuit convened an en banc panel to resolve conflicting precedent over the intent element for proving inducement Upheld the district court’s jury instruction Standard: specific intent to induce actual infringement Specific intent requires a “showing that the alleged infringer’s actions induced infringing acts and that he knew or should have known his actions would induce actual infringements.”

23 DSU Medical Corp.: The Federal Circuit Finally Speaks Court relied on the Supreme Court’s recent copyright decision Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 125 S. Ct. 2764, 2779 (2005), where the high court stated that “[t]he inducement rule... premises liability on purposeful, culpable expression and conduct.” Federal Circuit held that the jury’s verdict that the defendant lacked sufficient intent to induce was supported by evidence relating to (1) opinions of non-infringement form its legal counsel and (2) testimony from a corporate official

24 DSU Medical Corp.: Opinion of Counsel Defense Specifically, the Court 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

25 Implications of DSU Medical Corp. for Infringers A good faith belief based on an objectively reasonable opinion of counsel of no direct infringement can provide a defense to a charge of inducing infringement Holding implies that a defendant’s reasonable belief in the invalidity of a patent could shield against a finding of inducement even if there was no dispute that the induced acts fell within the literal scope of the claims

26 Implications of DSU Medical Corp. for Patentees Burden of proving inducement is substantially increased Competent Opinions of Counsel – important to negating allegations of intent to infringe prong Leads to a dilemma regarding opinions of counsel

27 Opinions of Counsel Relevant to 2 issues in patent infringement action with differing standards and governing precedent – Intent prong of inducement claim (standard: “preponderance of evidence”) ( DSU Medical) – Negate allegations of willfulness (standard: clear and convincing evidence that defendant was “objectively reckless”) ( In re Seagate, August 20, 2007)

28 Opinions of Counsel – In re Seagate [T]he civil law generally calls a person reckless who acts in the face of an unjustifiably high risk of harm that is either known or so obvious that it should be known. Reliance on advice of counsel does not require waiver of attorney-client privilege Abandoned “due care” standard (tantamount to negligence) “No affirmative obligation to obtain an opinion of counsel”

29 Opinions of Counsel - Obtain / Produce? A belief that the patent-in-suit is either not infringed or invalid can negate a cause of action of inducement and willful infringement Do you obtain opinion? Do you produce opinion? – Not required under In re Seagate to negate allegation of willfulness – Probably, in cases involving allegations of inducement

30 Concluding Thoughts... Inducement requires (1) an underlying direct infringement; (2) some action to encourage the direct infringement; and (3) specific intent to encourage the infringement Direct infringement requires either evidence of “specific instances of direct infringement” or proof that using accused device “necessarily infringes” the patent-in-suit (e.g., no non-infringing use)

31 Concluding Thoughts... Direct Infringement: Direct Evidence is Key – Surveys / customer testimony – 3 rd party Intent to Induce: Opinions of Counsel - Important – Coverage of potentially inducing acts – Address non-infringement and/or invalidity – Probably a good idea to obtain and produce as defense