opinions are often a wise business investment when taking a product to market.
A thorough freedom-to-operate analysis includes not only the client's
activities that might directly result in infringement, but also the possibility
that a client may be liable when others directly infringe a patent. Under 35
U.S.C. § 271(b), "[w]hoever actively induces infringement of a patent shall
be liable as an infringer." Induced infringement commonly involves an entity
selling a product, whereby end-use by a customer amounts to patent infringement.
It was long held that in order to actively induce infringement of a patent,
however, the inducer needed actual knowledge of the existence of that patent.
This is no longer entirely true, and it should be noted that inducing
infringement can lead to damage awards similar to those awarded for direct
5, 2010, the U.S. Court of Appeals for the Federal Circuit affirmed a district
court decision and further held that "deliberate indifference" to potential
patent rights satisfies the knowledge requirement for induced infringement. SEB
S.A. v. Montgomery Ward & Co., Nos. 2009-1099, 2009-1108, 2009-1119 (Fed.
Cir. Feb. 5, 2010). At issue in SEB was whether actual knowledge of
existing patent rights was required before infringement could be induced. The
court's interpretation of § 271(b) was that deliberate indifference to a known
risk was not different from actual knowledge, but was instead a form of actual
at 12. Therefore, a deliberate disregard of a known risk that patent rights
exist can satisfy the "actual knowledge" requirement of § 271(b).
owner of U.S. Patent No. 4,99,312 ("the '312 patent"), filed a lawsuit in the
U.S. District Court for the Southern District of New York against Montgomery
Ward & Co, Inc. ("Montgomery Ward"), Global-Tech Appliances, Inc.
("Global-Tech"), and Pentalpha Enterprises, Ltd. ("Pentalpha") for alleged
infringement of the '312 patent directed toward construction of a deep fryer
with a well-insulated outer skirt. A jury returned a verdict and found that Pentalpha
both willfully infringed and induced infringement of claim 1 of the '312
patent. SEB initially was awarded reasonable royalty damages of $4.65 million,
an amount that later was reduced by the district court by $2 million. Pentalpha
appealed asserting errors by the district court that relate to the jury verdict
and several post-trial rulings. SEB cross-appealed and sought enhanced damages.
opinion, the Federal Circuit concluded that "Pentalpha deliberately disregarded
a known risk that SEB had a protective patent." SEB S.A. v. Montgomery Ward
& Co., slip op. at 13. The Federal Circuit also stated that, even
without actual knowledge, "a claim for inducement is viable even where the
patentee has not produced direct evidence that the accused infringer actually
knew of the patent-in-suit." Id.
There is, however, a distinction between "deliberate indifference" and a
"should have known" standard of care. Farmer
v. Brennan, 511 U.S. 825, 840 (1994). A "should have known" standard uses
an objective test, while "deliberate indifference" uses a subjective
determination of whether the defendant knew of a risk and then disregarded that
risk. Effectively, deliberate indifference to a known risk can rise to the
level of "actual knowledge" for the purpose of actively induced infringement
suits when the accused infringer chooses to ignore the potential patent rights
pointed to three facts that supported a finding of deliberate indifference in
this case. Pentalpha purchased an SEB deep fryer and copied the product.
Pentalpha hired a patent attorney to conduct a freedom-to-operate study, but
failed to tell him it copied SEB's product. "A failure to inform one's counsel
of copying would be highly suggestive of deliberate indifference in most
circumstances." SEB S.A. v. Montgomery Ward & Co., slip op. at 13.
Finally, the president of Pentalpha also studied patent law, so he was aware of
the concepts of infringement in the U.S. patent law system. These
factors all contributed to strong evidence of deliberate indifference and,
therefore, actively induced infringement.
somewhat clarifies the bounds of what level of knowledge is sufficient for
a finding of actively induced infringement. In this regard, "deliberate
indifference" can satisfy the requirements of § 271(b). SEB is
self-limiting, however, because the opinion explicitly stated that it "does not
purport to establish the outer limits of the type of knowledge needed for
at 14. The court further provided a defense to a showing of deliberate indifference
"where an accused infringer establishes that he actually believed that a patent
covering the accused product did not exist." Id. at 13. Nevertheless, SEB provides
additional deterrence to the intentional copying of patents and should stand as
a reminder that copying a product without reasonable IP diligence is risky