Report: Intellectual Property May 3, 2010
LexisNexis, Division of Reed Elsevier Inc.
Copyright in individual articles as noted therein.
Mealey's Litigation Report: Intellectual Property
May 3, 2010
18-15 Mealey's Litig. Rep. Intell. Prop. 31 (2010)
SECTION: Volume 18, Issue #15
HEADLINE: Protecting Yourself From Claims Of Inducing Patent
By Allan Kassenoff
Companies are well-aware of the risk of being sued for patent infringement
these days. In fact, patent litigation has increased by more than 230% over the
past 20 years.1 One of the primary reasons for this marked increase is the
prevalence of so-called patent "trolls." Patent trolls, also called
non-practicing entities, are individuals or companies that typically produce no
products or services but seek money by licensing and/or filing lawsuits on
patents they own.2 Trolls frequently sue in plaintiff-friendly jurisdictions
such as the Eastern District of Texas where plaintiffs often win large jury
verdicts.3 To protect themselves against claims of patent infringement,
companies typically search issued patents and published patent applications in
their respective area of technology to confirm that none of their products
directly infringe any patent. However, that is not enough. Given the fact that
plaintiffs include an allegation of inducing and/or contributory infringement
(i.e., indirect infringement) in most patent infringement complaints, companies
should also ensure that their products do not indirectly infringe any patent.
This article will first explain the difference between direct and indirect
infringement. Then, it will analyze DSU Med. Corp. v. JMS Co.4 and SEB S.A. v.
Montgomery Ward & Co.,5 two recent Federal Circuit cases that have
elaborated on the elements of inducing infringement. Third, the effect on an
inducing infringement claim as a result of the Supreme Court's recent
clarification of the pleadings standard will be examined. Finally, the article
will address how these developments will affect bringing and defending against
inducing infringement claims going forward.
Direct Vs. Indirect Infringement
The patent statute, 35 U.S.C. sec. 1 et seq., provides that a company can be
liable for infringing a patent through direct infringement, induced
infringement and/or contributory infringement. Unlike direct infringement which
requires that an individual perform the act of infringement, indirect
infringement can occur when a person or entity actively induces a third party
to directly infringe a patent or "contributes" to a third party's act
of infringement.6 For example, inducing infringement claims can be based upon a
company encouraging or instructing others to infringe a patent. Contributory
infringement can occur when a person or entity offers to sell or sells in the
United States or imports into the United States a component of a patented
machine, manufacture, combination or composition that is not a staple article
of commerce suitable for substantial noninfringing use.7 To indirectly infringe
a patent, whether by inducing another's infringement, or by contributing to
another's infringement, there must be some act of direct infringement by a
third party.8 Moreover, to be liable for inducing another's infringement, the
indirect infringer must intentionally aid and abet that direct infringement
with knowledge of the patent.9
Inducing Infringement - The 'Knowledge' Requirement
In DSU Med. Corp. v. JMS Co., the Federal Circuit addressed the
"knowledge" requirement of an inducing infringement claim. According
to the DSU Court, "inducement requires evidence of culpable conduct,
directed to encouraging another's infringement, not merely that the inducer had
knowledge of the direct infringer's activities."10 The Court continued,
and explained that "[t]he requirement that the alleged infringer knew or
should have known his actions would induce actual infringement necessarily
includes the requirement that he or she knew of the patent."11 The Court,
however, did not elaborate any further on the "knowledge of the
patent" requirement. On February 5, 2010, the Federal Circuit in SEB S.A.
v. Montgomery Ward & Co., revisited inducing infringement and explained
that constructive knowledge of a patent can suffice when a person disregards a
known risk of the existence of the patent-in-suit. According to the SEB Court,
"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."12 In SEB, the Court explained that the defendant
"deliberately disregarded a known risk that SEB had a protective patent."13
Specifically, the defendant purchased and copied a SEB deep fryer (the subject
of the patent-in-suit); the defendant hired an attorney to perform a
right-to-use study but did not inform him that it copied the SEB product; the
defendant's president was knowledgeable of U.S. patent rights and was the named
inventor on 29 U.S. patents; and the defendant did not produce any exculpatory
evidence showing that it believed that a patent covering its product did not
exist.14 Based upon these facts, the Federal Circuit affirmed the jury's
finding of induced infringement because "the record establishes sufficient
support for the conclusion that [the defendant] deliberately ignored the risk
that SEB had a patent that covered [the accused product.]"15 In short, one
can no longer plead ignorance of the patent-in-suit in an attempt at avoiding a
finding of induced infringement. Rather, if one knew of a risk of the existence
of a patent, a court may find the knowledge requirement met.
Inducing Infringement - Motions To Dismiss
Despite one's best efforts to not infringe any issued patents, given the
prevalence of patent lawsuits being filed today it is highly likely that one
will be sued for indirect infringement at some point. When that happens, the
fastest way to dispose of that claim is via a motion to dismiss for failure to
state a claim - something that became a whole lot easier to succeed upon
following two recent Supreme Court cases, Bell Atlantic Corp. v. Twombly 16 and
Ashcroft v. Iqbal.17 Previously, such motions were rarely brought due to the
Federal Rules of Civil Procedure's minimal requirement that a complaint need
only contain "a short and plain statement of the claim showing that the
pleader is entitled to relief."18 In fact, even bare-bones allegations of indirect
infringement, such as the typical allegation that follows, were infrequently
challenged: "Defendant has infringed and continues to infringe, both
directly and indirectly, one or more claims of the patent-in-suit by making,
using, offering for sale, selling and/or importing products that infringe one
or more claims of the patent-in-suit, as well as inducing others to infringe
one or more claims of the patent-in-suit, and/or contributing to infringement
of the one or more claims of the patent-in-suit by others." However,
Twombly and Iqbal changed the landscape of such motions to dismiss by
clarifying the pleading standards under Rule 8(a).
In Iqbal, the Supreme Court held that "[t]o survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as true, to 'state a
claim to relief that is plausible on its face.'"19 The Court also made
clear that while "showing" an entitlement to relief does not require
"detailed factual allegations," it does "demand more than an
unadorned, the-defendant-unlawfully-harmed-me accusation."20 Thus,
complaints that provide "labels and conclusions" or simply list the
elements of a cause of action will no longer suffice under Rule 8(a)(2) of the
Federal Rules of Civil Procedure.21 As held in Twombly, "[f]actual
allegations must be enough to raise a right to relief above the speculative
Thus, plaintiffs can no longer simply recite that a defendant is
"indirectly" infringing the patent-in-suit. Rather, plaintiffs must
provide details in their complaint concerning such things as the identity of
the direct infringer; what specific product allegedly infringes the patent; and
how the defendant is allegedly inducing such infringement. In fact, several
courts have recently applied Twombly and/or Iqbal in granting motions to
dismiss insufficient allegations of indirect patent infringement. For example,
in Elan Microelectronics Corp. v. Apple, Inc., Defendant Apple filed several
counterclaims asserting that Elan is "'currently, directly and/or
indirectly infringing, in violation of 35 U.S.C. sec. 271' the specified patents
'through its design, marketing, manufacture and/or sale of touch sensitive
input devices or touchpads, including but not limited to the
Smart-Pad.'"23 The Northern District of California granted Elan's motion
to dismiss: "[Apple's] pleading plainly falls within the prohibition
against '[t]hreadbare recitals of the elements of a cause of action, supported
by mere conclusory statements.'"24 "Accordingly, the Court concludes
that the three challenged counterclaims do not comply with Rule 8, under the
standards enunciated in Twombly and Iqbal."25 Similarly, on March 29,
2010, the Eastern District of Texas granted the defendants' motion to dismiss
plaintiff's complaint for failure to state a claim.26 As to the indirect
infringement claims, the court stated that the complaint "does not
identify any accused products or services, nor does [it] expressly identify a
direct infringer."27 In short, since the Supreme Court's Twombly and Iqbal
decisions, courts have been much more prone to grant motions to dismiss patent
complaints for failure to state a claim.28
As shown above, DSU, SEB, Twombly and Iqbal have created a new world with
respect to claims for inducing patent infringement. In order to protect
themselves from such charges, companies should monitor issued patents and
published applications to confirm that they are not indirectly infringing any
patents. Furthermore, the failure to do so (especially of your known
competitors) may constitute a disregard of a known risk and lead to a finding
of indirect infringement. That being said, even the most careful company will
likely be sued for indirect patent infringement at some point. When that
happens, the prudent litigator should carefully analyze the complaint's
allegations and consider making a motion to dismiss under Twombly and Iqbal if
the complaint is deficient. Following this course of action will help companies
minimize the chances of being sued for indirect infringement and minimize legal
expenses when one is inevitably sued on such a claim.
1. 2008 Patent Litigation Study: Damages awards, success rates and
time-to-trial, at 1 (PricewaterhouseCoopers 2008) ("PWC Report")
(showing that fewer than 1200 patent infringement litigations were filed in
1991 versus nearly 3,000 in 2007).
2. Steve Seidenberg, Troll Control, ABA Journal (Posted on Sept. 24, 2006),
available at http://www.abajournal.com/magazine/article/troll_control.
3. PWC Report at 14 (noting that patent plaintiffs in the Eastern District of
Texas succeeded at trial 71.9% of the time for a median damage award of nearly
$19.7 million for the years 1995-2007).
4. 471 F.3d 1293 (Fed.
5. 594 F.3d 1360 (Fed.
6. 35 U.S.C. sec. 271(b) and (c).
7. 35 U.S.C. sec. 271(c).
8. See Joy Techs., Inc. v.
Flakt, Inc., 6 F.3d 770, 774 (Fed. Cir. 1993)
("Liability for either active inducement of infringement or for
contributory infringement is dependent upon the existence of direct
9. See Warner-Lambert Co.
v. Apotex Corp., 316 F.3d 1348, 1363 (Fed. Cir. 2003)
("Under sec. 271(b), 'whoever actively induces infringement of a patent shall
be liable as an infringer.' To succeed on this theory, a plaintiff must prove
that the defendants' 'actions induced infringing acts and that [they] knew or
should have known [their] actions would induce actual infringement.'")
10. 471 F.3d at 1306.
11. Id. at 1304
12. 594 F.3d at 1377.
14. See id.
15. Id. at 1378.
16. 550 U.S. 544
17. 129 S. Ct. 1937
18. Rule 8(a)(2), Fed. R. Civ. P.
19. 129 S. Ct. at 1949
(quoting Twombly, 550 U.S.
20. Id. (citing Twombly, 550 U.S.
21. Id. (holding that "[t]hreadbare recitals of the elements of a cause of
action, supported by mere conclusory statements" do not meet the pleading
requirements under Rule 8(a)(2) of the Federal Rules of Civil Procedure).
22. Twombly, 550 U.S.
at 555 (citations omitted).
23. 2009 U.S. Dist. LEXIS 83715, at *4 (N.D. Cal. Sept. 14, 2009) (quoting Apple, Inc.'s
First Amended Answer, Affirmative Defenses, and Counterclaims, ?? 50, 55, and
24. Id. (quoting Iqbal, 129 S. Ct.
26. Bedrock Computer Techs., LLC v. Softlayer Techs., Inc., Case No. 609 CV 269
(E.D. Tex. Mar. 29, 2010).
27. Id. at 5; see also id. (holding that the plaintiff also failed to adequately
plead direct infringement because the complaint "does not identify any
accused products, services, or methods or other infringing acts for the
28. See, e.g., Performance Aftermarket Parts Group, Ltd. v. TI Group Auto.
Sys., LLC, 2007 U.S. Dist. LEXIS 70974, at *4 (S.D. Tex. Sept. 25, 2007) (applying Twombly
to conclude that defendant failed to adequately plead a counterclaim for
contributory infringement as defendant failed "to give notice to
[plaintiff] that [it] is asserting a claim for contributory
infringement"); Anticancer Inc. v.
Xenogen Corp., 248 F.R.D. 278, 282 (S.D. Cal. 2007)
(applying Twombly in granting defendants' motion to dismiss "[s]ince the
Plaintiff has failed to plead any further facts beyond a bare statement of
direct and indirect infringement so as to demonstrate a plausible entitlement
[Editor's Note: Allan Kassenoff is a Shareholder in Greenberg Traurig LLP's New
York office where he focuses his practice on patent litigation. He can be
reached at firstname.lastname@example.org
or 212-801-2157. Copyright 2010 by Allan Kassenoff. Responses to this
commentary are welcome.]