Virginia IP Law : Virginia Intellectual Property Lawyer & Attorney : Troutman Sanders Law Firm : Technology & Patent Litigation

In a near unanimous, 8 to 1, decision  today, the Supreme Court held that induced infringement under 35 U.S.C. § 271(b) requires knowledge that the induced acts constitute patent infringement but such knowledge need not rise to the level of actual knowledge. Global-Tech Appliances, Inc. v. SEB S.A., No. 10-6 (U.S. Sup. Ct. May 31, 2011) (found here).

Instead of an actual knowledge requirement, the Court adopted the criminal doctrine of “willful blindness” and held that a defendant is liable for induced infringement if it (1) subjectively believed that there is a high probability that the acts it induces infringe a patent; and (2) took deliberate actions to avoid learning of that infringement. Willful blindness, the Court held, has a “limited scope that surpasses recklessness and negligence” and that a willfully blind defendant “is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and can almost be said to have actually known the critical facts.”

Our earlier posts on the Global-Tech case, which detail the facts of the case and the Federal Circuit’s decision can be found here, here and here. In short, the Federal Circuit held that inducement liability requires only a “deliberate indifference” to a known risk that a patent exists. The Supreme Court rejected this holding as flawed because it permits a finding of knowledge where there is merely a “known risk” that the induced acts are infringing and because the “deliberate indifference” standard did “not require active efforts by an inducer to avoid knowing about the infringing nature of the activities.”

While the Supreme Court overturned the Federal Circuit’s deliberate indifference standard, it affirmed the result on the grounds that the evidence was more than sufficient for a jury to find that the accused infringer met the willful blindness standard.Specifically, the Court pointed out that  the infringer, Pentalpha:

• Copied the patentee’s “cool-touch” deep fryer;
• Believed that the patentee’s product embodied advanced technology, as shown by its decision to copy all but the cosmetic features of the deep fryer;
• Copied an overseas model of the patented deep fryer with the awareness that it would not bear U.S. patent markings;
• Failed to inform the attorney from whom it sought a right-to-use opinion that it had copied the deep fryer. The Court stated that it “cannot fathom” what motive Pentalpha might have had for withholding this information from its attorney.

Despite the result in Global-Tech, most plaintiffs asserting an inducement claim will still have to meet the higher standard of proving that a defendant had actual knowledge that the acts it induced constitute patent infringement. Except in extreme cases like Global-Tech -- where an accused infringer copies a competitor’s product and takes active steps to avoid finding out if the product is patented -- the willful blindness standard will be difficult to meet. As the Supreme Court pointed out, willful blindness requires more than reckless or negligent conduct, and evidence that an accused infringer subjectively believed that there was a high probability that it was inducing patent infringement will be difficult to obtain. If Pentalpha itself, for example, had just told its right-to-use attorney that it had copied a competitor’s product or even if it had copied a U.S. model of the deep fryer that had no patent markings, it may have escaped liability. Thus, it is likely that cases of inducement liability in the absence of proof of actual knowledge of the infringing nature of the induced acts will be few and far between.

One last note -- the one dissenting Justice was Justice Kennedy, who is almost always in the majority because of his status as the swing-vote in most cases.   Global-Tech is the rare case where he not only wrote a dissent, but he couldn't get any other justice to join him.

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In a small, but interesing decision, Chief Judge Spencer of the EDVA made clear that a plaintiff may assert state law trademark infringement claims even if the defendant is not subject to personal jurisdiction in the state at issue.  In M. Shanken Comm’s., Inc. v. Variant Events, LLC,Case No. 3:10CV804, 2011 U.S. Dist. LEXIS 56138 (E.D.Va. May 25, 1011) (Spencer, J.) (found here), the plaintiff, Shanken, alleged trademark infringement, trademark dilution and unfair competition under New York law. The defendant, Variant, moved to dismiss those claims on the grounds that it did not use the marks at issue in connection with goods sold or services rendered in New York.  Variant's only connection with New York was that it had a passive website which could be accessed by New York residents, and it sent "save the date" emails, flyers and corporate sponsorship packages to organizations across the country, including New York.  Variant pointed to a prior ruling in the case in which a New York federal court ruled that these contacts were insufficient to subject it to personal jurisdiction in federal court.

Judge Spencer denied the motion to dismiss, distinguishing between the standards for personal jurisdiction and for whether trademarks are “in use” in a state. While Variant’s passive website did not create personal jurisdiction in New York, the marks were still “in use” in New York.  While not a significant decision, it points out that a plaintiff can make use of state trademark laws from anywhere in the U.S. as long as the defendant meets the low threshold of putting the marks "in use" in that state through advertising.

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In early 2005, Judge Robert E. Payne of the EDVA dismissed Rambus’ long-running patent infringement litigation against Infineon on the grounds that Rambus had destroyed documents after litigation became reasonably foreseeable. The Infineon case settled before Judge Payne could issue a written opinion and Rambus mooted a similar case before Judge Payne, Samsung Electronics Co. v. Rambus Inc., 439 F.Supp.2d 524 (E.D. Va. 2006), by granting Samsung covenants not to sue on the patents at issue.

It took six years and two other Rambus suits, but the Federal Circuit has finally agreed with Judge Payne, essentially adopting his spoliation reasoning in its twin opinions in Micron Technology, Inc. v. Rambus, Inc., No. 2009-1263, 2011 U.S. App. LEXIS 9730 (Fed. Cir. May 13, 2011) (found here) and Hynix Semiconductor, Inc. v. Rambus, Inc., No. 2009-1299, 2011 U.S. App. LEXIS 9728 (Fed. Cir. May 13, 2011) (found here).

Rambus sued Infineon in the EDVA way back in 2000. Rambus, Inc. v. Infineon Tech’s. AG, 3:00CV524 (E.D.Va.). After a trial which went in Infineon’s favor and a Federal Circuit appeal which resulted in a partial remand, post-remand discovery revealed that Rambus had destroyed documents as part of several “shred-days” in 1998 and 1999. Judge Payne ruled that the spoliation warranted piercing the attorney-client privilege and held a bench trial on Infineon’s defense of unclean hands. In February, 2005, Judge Payne ruled from the bench that Infineon had proven that Rambus had spoliated evidence, for which dismissal was the appropriate sanction. Before the Court could issue a written opinion, however, Rambus and Infineon settled.

Soon after, Samsung filed a declaratory judgment action against Rambus in the EDVA based on the same theories of spoliation and unclean hands asserted by Infineon. Samsung Elec’s. Co. v. Rambus, Inc., Case No. 3:05CV406 (E.D.Va.). In an apparent attempt to avoid any ruling on spoliation by Judge Payne, Rambus granted Samsung covenants not to sue on the four patents at issue, made an offer of judgment to pay Samsung’s attorney’s fees incurred in the EDVA action and then moved to dismiss for lack of subject matter jurisdiction. Judge Payne, however, held that he retained jurisdiction to determine whether the case was exceptional, and, in a lengthy opinion relying primarily on Silvestri v. General Motors Corp., 271 F.3d 583 (4th Cir. 2001), he held that Rambus had destroyed relevant documents at a point in time when it anticipated or reasonably should have anticipated litigation and that such destruction rendered the case exceptional. On appeal, the Federal Circuit vacated Judge Payne’s opinion on the grounds that the covenants not to sue and the offer to pay attorney’s fees rendered the case moot. Samsung Elec’s. Co. v. Rambus, Inc., 523 F.3d 1374 (Fed. Cir. 2008).

In the meantime, Hynix and Micron filed declaratory judgment actions against Rambus (Hynix in the Northern District of California and Micron in Delaware) and both asserted that Rambus’ document destruction barred any infringement claims. In Hynix, Judge Ronald Whyte ruled that Rambus did not actively contemplate litigation at the time of the document shredding, and so the document destruction did not constitute spoliation. In Micron, Judge Sue Robinson reached the opposite conclusion, holding that litigation was reasonably foreseeable at the time of the document destruction and held that the patents were unenforceable as a sanction.

The Federal Circuit sided with Judge Robinson, holding that the duty to preserve documents attaches when a reasonable party in the same factual circumstances would have reasonably foreseen litigation. Litigation need not be “imminent or probable without significant contingencies” as Rambus contended. Like Judge Payne six years earlier, the Federal Circuit relied on the Silvestri decision to conclude that the duty to preserve evidence begins when litigation is “pending or reasonably foreseeable.” Likewise, in language very similar to Judge Payne’s decision in Samsung, the Federal Circuit rejected Judge Whyte’s conclusion that litigation was not reasonably foreseeable because multiple contingencies had not yet occurred. While certain contingencies had to occur before litigation would begin, “contingencies whose resolution are reasonably foreseeable do not foreclose a conclusion that litigation is reasonably foreseeable.”

The Federal Circuit cited several considerations which “compel a finding that litigation was reasonably foreseeable” prior to the second shred day in August, 1999:

• It was not clear error for Judge Robinson to conclude that Rambus adopted its document retention policy to further its litigation strategy;
• Rambus was on notice of infringing activities . “While it might not be enough to have a target in sight, the knowledge of likely infringing activity by particular parties makes litigation more objectively likely to occur.”
• Rambus took several steps in furtherance of litigation prior to the second shred day.
• That the Rambus had not received Board approval for licensing negotiations or litigation showed only that litigation was not imminent, not that litigation was not reasonably foreseeable.
• As the plaintiff-patentee, the decision whether litigation would ensue was within Rambus’ control;
• Rambus’ business relationship with the manufacturers did not make litigation significantly less likely, nor was there a longstanding and mutually beneficial relationship that made litigation less foreseeable;

Digging a little deeper, findings of spoliation such as in Rambus may be rare in the future. In Rambus, a great deal of the evidence about Rambus’ “shred days” and its litigation strategy was available to Hynix and Micron because all three district judges pierced the attorney-client privilege based on the basis of the crime-fraud exception. Without that evidence, it would have been difficult to satisfy the “reasonably foreseeable litigation” standard. Such evidence may not be available in other cases, though the Federal Circuit’s Micron decision provides litigants with a roadmap for establishing a prima facie case of the crime-fraud exception to the attorney-client privilege. 

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The Federal Circuit’s recent decision in Radio Systems Corp. v. Accession, Inc., Case No. 2010-1390, 2011 U.S. App. LEXIS 8465 (Fed. Cir. April 25, 2011), found here, does not plow much new ground, but it provides a helpful primer on personal jurisdiction over a patentee in a declaratory judgment action.
In Radio Systems, the patentee (Accession) was in New Jersey, and the declaratory judgment plaintiff (Radio Systems) was in Tennessee. Over the course of three years:

• The inventor corresponded with Radio Systems by mail and email about the issuance of the patent and his desire to license his product to the plaintiff for commercialization;
• The inventor travelled to Tennessee and met with Radio Systems to demonstrate his product and show a product video;
• Accession’s counsel contacted Radio Systems’ counsel by telephone and mail. Those communications included an outline of Accession’s infringement allegations and an assertion that the interference proceedings would be warranted between Radio Systems’ patent and the Accession patent;

Based on these actions, Radio Systems brought a patent declaratory judgment action in Tennessee. The District Court dismissed the case for lack of jurisdiction, and the Federal Circuit affirmed.
In its decision, the Federal Circuit reiterated its prior holdings that an action for declaratory judgment must arise of efforts by the patentee to enforce the patent in suit, not just to commercialize the patent. The Court’s discussion of its authority in the area provides a helpful summary of the activities that do and do not create jurisdiction.

Activities that Do Not Create Jurisdiction

• Attempts to commercialize a patent by selling a product or licensing a patent are insufficient, even where the patentee travels to the forum state. Radio Systems; Avocent Huntsville Corp. v. Aten Int’l Co., 552 F.3d 1324, 1332 (Fed. Cir. 2008);
• Ordinary cease and desist notices sent to an alleged infringing party in the forum state is insufficient. Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998);
• Entering into non-exclusive licenses with residents of the forum to sell the patented product is not enough. Red Wing Shoe at 1359;

Activities that Do Create Jurisdiction

• Hiring an attorney in the forum state who communicated with the declaratory judgment plaintiff relating to enforcement of the patent is enough. Electronics for Imaging, Inc. v. Coyle, 340 F.3d 1344, 1351 (Fed. Cir. 2003);
• Enlisting a third party to remove to remove the accused products from a trade show is sufficient. Campbell Pet Co. v. Miale, 542 F.3d 879 (Fed. Cir. 2008);
• Entry into an exclusive license with an entity in the forum state is sufficient. Breckenridge Pharm, Inc. v. Metabolite Labs., Inc., 444 F.3d 1356, 1366-67 (Fed. Cir. 2006);
• Contracting with an exclusive distributor to sell the patented product in the forum state, where the agreement is analogous to a patent license, is sufficient. Genetic Implant Sys., Inc. v. Core Vent Corp., 123 F.3d 1455, 1458 (Fed. Cir. 1997);
• Suing another infringer on the same patent in the forum is enough. Viam Corp. v. Iowa Exp.-Imp. Trading Co., 84 F.3d 424, 430 (Fed. Cir. 1996);
• Exclusive licensing of the accused infringer’s competitor in the forum is enough. Akro Corp. v. Luker, 45 F.3d 1541, 1548-49 (Fed. Cir. 1995);

For patentees, the bottom line is that while sending a cease and desist letter to an accused infringer will create subject matter jurisdiction for a declaratory judgment action, a patentee can still control the forum for patent litigation by avoiding any other enforcement activities in the forum state.

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On November 23, 2010, the United States District Court for the Eastern District of Virginia (“EDVA”) endorsed the AmericanCollege of Trial Lawyers’ Code of Pretrial and Trial Conduct.  A recent article (co-authored with David N. Anthony and Nicholas R. Klaiber) appearing in the Winter/Spring 2011 issue of the Virginia State Bar Litigation Section's Litigation News discusses the implications of the EDVA's endorsement of the Code of Conduct.  That article can be found here. 

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