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In SEB S.A. v. Montgomery Ward & Co., Inc., decided on February 5, 2010, the US Federal Circuit Court of Appeals decided that parties can be liable for induced infringement, even in the absence of direct evidence that they knew about the patent being infringed. This is an important precedent concerning the level of knowledge necessary to show induced infringement.

Under the patent statute, a company can be liable for infringing a patent through direct infringement, induced infringement or contributory infringement. Claims of induced infringement can arise, for example, where a company is not actually infringing a patent itself, but is encouraging or instructing others to infringe the patent.

In its previous decision in DSU Medical, the Federal Circuit held that in order to support a finding of induced infringement, a plaintiff must show that the alleged infringer knew or should have known that its actions would induce actual infringement by another. The court further stated that “the 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.” However, the court’s opinion did not set out the “metes and bounds” of the knowledge requirement. This was the issue addressed in SEB.

SEB is a French company that specializes in home cooking appliances. Pentalpha Enterprises, one of the defendants in the case, developed its own deep fryer by purchasing an SEB deep fryer in Hong Kong and copying its “cool touch” features. Shortly after agreeing to supply products to Sunbeam, Pentalpha obtained a “right to use” study from an attorney in Binghamton, New York. The attorney analyzed 26 patents and concluded that none of the claims in those patents read on Pentalpha’s deep fryer. Pentalpha, however, did not tell the attorney that it had copied an SEB deep fryer. Pentalpha proceeded to sell the same deep fryers to Fingerhut Corp. and defendant Montgomery Ward after SEB had initiated a lawsuit against Sunbeam for patent infringement.

At trial, Pentalpha moved for a judgment as a matter of law on SEB’s claim of induced infringement, arguing that there was no evidence that anyone at Pentalpha “had any knowledge whatsoever with respect to the existence of the patent.” The district court judge agreed that there was no evidence that Pentalpha was aware of the patent, but nevertheless held that there was evidence to support SEB’s theory of inducement, since a jury could infer that specific intent to violate the patent existed.

On appeal, the Federal Circuit affirmed the district court’s rulings. It held that while inducement requires a showing of “specific intent to encourage another’s infringement,” the standard for specific intent “is not so narrow as to allow an accused wrongdoer to actively disregard a known risk that an element of the offense exists.” The court cited cases equating intentional misconduct with knowledge and deliberate indifference, noting that “as courts have observed in a variety of settings, the standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge.” Thus, “a claim for inducement is viable even where the patentee has not produced direct evidence that the accused infringer actually knew of the patient-in-suit.”

The Federal Circuit held that such circumstances existed here. Pentalpha had deliberately disregarded a known risk that SEB had a patent. The fact that Pentalpha had copied SEB’s product was an important consideration. Also important was the fact that Pentalpha had hired an attorney to conduct a right to use study, but did not tell the attorney that it had copied SEB’s product. “A failure to inform one’s counsel of copying would be highly suggestive of deliberate indifference in most circumstances.” Furthermore, Pentalpha’s president was “well versed in the U.S. patent system and understood SEB to cognizant of patent rights as well.” Thus, the record contained “considerable evidence of deliberate indifference.” In contrast, Pentalpha failed to produce any exculpatory evidence, noting that “a showing of deliberate indifference may be defeated where an accused infringer establishes that he actually believed that a patent covering the accused product did not exist.” No such evidence was presented by Pentalpha.

The Federal Circuit also noted that its opinion “does not purport to establish the outer limits of the type of knowledge needed for inducement.” For example, the court noted that it may be sufficient to show “constructive knowledge with persuasive evidence of disregard for clear patent markings.” Leaving the setting of those boundaries to another day, the court concluded that in this case, Pentalpha had deliberately ignored the risk that SEB had a patent that covered its deep fryer; therefore, the jury’s finding of inducement was justified, and its damage award was allowed to stand.

This decision is important in that it further defines the type of evidence that can constitute specific intent and knowledge of another’s patent rights in induced infringement cases. The decision means that a company that is aware that a patent risk might exist cannot escape liability simply because it did not have specific knowledge of a patent. In addition, companies that seek advice or opinions of counsel and fail to disclose highly relevant facts, such as copying of another company’s product, do so at their peril, risking a potential finding that they may be found to be “deliberately indifferent” to the patent rights of another. Therefore, companies that are aware of potential patent issues need to proceed with caution: even if they are not direct infringers, they may be liable based on a theory of induced infringement.

For more information about the SEB decision, or any other matter raised in this client alert, please contact Gary Hnath at +1 202 263 3040.

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