Mealey's Litigation Report - Protecting Yourself From Claims Of Inducing Patent Infringement

Mealey's Litigation Report - Protecting Yourself From Claims Of Inducing Patent Infringement

Mealey's Litigation Report: Intellectual Property May 3, 2010

 

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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 Infringement

BODY:
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 level."22

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
 
Conclusion

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.
 
Endnotes

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. Cir. 2006).

5. 594 F.3d 1360 (Fed. Cir. 2010).

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 infringement.").

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.'") (citation omitted).

10. 471 F.3d at 1306.

11. Id. at 1304 (emphasis added).

12. 594 F.3d at 1377.

13. Id.

14. See id.

15. Id. at 1378.

16. 550 U.S. 544 (2007).

17. 129 S. Ct. 1937 (2009).

18. Rule 8(a)(2), Fed. R. Civ. P.

19. 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 570).

20. Id. (citing Twombly, 550 U.S. at 555).

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 60).

24. Id. (quoting Iqbal, 129 S. Ct. at 1949).

25. Id.

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 patent-in-suit").

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 to relief").

EDITOR-NOTE:
[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 kassenoffa@gtlaw.com or 212-801-2157. Copyright 2010 by Allan Kassenoff. Responses to this commentary are welcome.]