Secondary liability for actively inducing patent infringement: which intentions pave the road?

• Author: Kedem, Tal

INTRODUCTION I. WELL-SETTLED ACTIVE INDUCEMENT LAW II. THE FEDERAL CIRCUIT "SPLIT" IN ACTIVE INDUCEMENT SCIENTER JURISPRUDENCE A. Hewlett-Packard v. Bausch & Lomb B. Manville Sales v. Paramount Systems C. Controversy and the Progeny of Hewlett-Packard and Manville in the District Courts and the Federal Circuit D. Why Hewlett-Packard and Manville Do Not Really Present a "Split" At All III. METRO GOLDWYN-MAYER STUDIOS V. GROKSTER: SECONDARY LIABILITY IN COPYRIGHT PROVIDING A WINDOW INTO THE SUPREME COURT'S INTERPRETATION OF ACTIVE INDUCEMENT IV. WHY THE MANVILLE STANDARD SHOULD BE--AND ALREADY HAS BEEN ADOPTED A. The Manville Standard Comports with the Intent of the Patent Act, with the Common Law from Which Active Inducement Springs, and with the Federal Circuit's Nonpatent Aiding and Abetting Jurisprudence B. Criticisms of the Manville Standard Are Not Insurmountable CONCLUSION INTRODUCTION

The grant of patents is one of Congress's most particularly important and special powers. This power is one of Congress's specifically enumerated powers (1) and enjoys a particularly long and established history in the United States. The first U.S. patent statute was passed in April 1790 (2) by the First Congress, and the first patent was issued shortly thereafter. (3) A patent gives the patentee the exclusive right to exclude others from making, selling, or using the patented invention within the United States. (4) Those who violate any of these rights are considered direct infringers. (5) The patent statutes also expose some people who indirectly infringe a patent to liability. In modern terms, indirect liability is divided into two categories: active inducement to infringe patents (6) and contributory infringement. (7)

In two opinions decided three months apart, Hewlett-Packard Co. v. Bausch & Lomb Inc. (8) and Manville Sales Corp. v. Paramount Systems, Inc., (9) the Federal Circuit espoused two seemingly contrasting views of what kind of knowledge and intent is required to hold someone liable for having actively induced another to infringe a patent. Generally speaking, commentators and courts have interpreted these cases as holding either that a finding of active inducement to infringe a patent requires a showing of general intent to cause acts that constitute infringement or that such a finding requires a showing of specific intent to purposefully cause infringing acts. District courts have been overwhelmingly inconsistent in interpreting the Federal Circuit's intent, commentators have noted a lack of clarity, and even the Federal Circuit itself has split into two seemingly contradictory lines of cases. The uncertainty in this aspect of patent law is problematic for patentees, those who wish to avoid infringement, and practitioners who advise both patentees and potential indirect infringers. This situation is particularly troublesome for corporate officers: they undoubtedly intend to cause their corporations to act, but not every corporate officer intends for his corporation to infringe. The muddled state of active inducement jurisprudence provides no guide for how such officers should direct their companies and can paralyze innovation.

This Note argues, ultimately, that this seeming schism is, in fact, illusory and the result of a widespread misreading of the relevant case law. Part I discusses those aspects of [section] 271(b) active inducement law that are well-settled before the Federal Circuit. Part II discusses the two cases central to this controversy, Hewlett-Packard and Manville, in great detail to explain how they have been misread by some courts and some commentators. Part III discusses how the Supreme Court's recent decision in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., (10) a copyright case in which the Supreme Court explicitly incorporated the active inducement standard from patent law into copyright law, may serve as a useful window to the Supreme Court's interpretation of the scienter requirement for active inducement. Part IV discusses how this Note's understanding of the case law comports with the common law underlying the development of the doctrines of active inducement and contributory infringement in the patent law, discusses the legislative history of the Patent Act, and addresses some criticisms of the standard this Note proposes.

1. WELL-SETTLED ACTIVE INDUCEMENT LAW

   The doctrines of indirect infringement (11) are intended to punish those whose actions, though they do not constitute direct infringement, are inequitable and run counter to the purpose of the patent laws. Courts have long recognized that "[t]he statutory liability for inducement of infringement derives from the common law, wherein acts that the actor knows will lead to the commission of a wrong by another, place shared liability for the wrong on the actor." (12)

   The common law principles codified in [section] 271(b) most closely resemble tort and criminal law principles of aiding and abetting or accessory before the fact. This analogy between the common law and statutory active inducement has been recognized by Congress, (13) esteemed contemporary patent scholars, (14) and courts of appeals decisions after the 1952 Patent Act and before the creation of the Federal Circuit. (15) Though both aiding and abetting (in a tort context) and accessory before the fact (in a criminal context) theories of liability involve assigning so-called "indirect" liability, they are not truly inchoate offenses like solicitation; one cannot be said to have aided and abetted or been an accessory before the fact if no actual or direct tort or crime occurs. (16) Following this reasoning, courts have consistently held that there can be no active inducement to infringe when there is no evidence of an underlying direct infringement. (17) Failure by a party to prove direct infringement necessarily results in the failure of any dependent indirect infringement claims (whether active inducement or contributory infringement), (18) though any underlying direct infringement can be proven through circumstantial evidence. (19)

   In addition to showing that there was some direct infringement, a plaintiff alleging active inducement must show some degree of knowledge. "[A] person [actively induces infringement] by actively and knowingly aiding and abetting another's direct infringement. Although [section] 271(b) does not use the word 'knowing,' the case law and legislative history uniformly assert such a requirement." (20) The controversy at hand, however, is about what specific kind of knowledge or intent is required.

2. THE FEDERAL CIRCUIT "SPLIT" IN ACTIVE INDUCEMENT SCIENTER JURISPRUDENCE

   To show active inducement, a plaintiff must prove that there were instances of underlying direct infringement and that the defendant had some degree of knowledge. Even within the Federal Circuit, however, opinions have varied widely on what kind of knowledge a plaintiff must show. (21) Fundamentally, the court seems to be split on whether a plaintiff must show general knowledge or intent--that is, that the defendant knew and intended that a third party would engage in the actions that constitute direct infringement--or specific intent--that is, that the defendant knew and intended that a third party would engage in infringing actions. Different panels of the Federal Circuit have ruled in mutually inconsistent fashion. (22)

   Scholars and commentators have called these inconsistent rulings in the Federal Circuit a split within the Circuity Numerous district courts have followed these seemingly divergent lines of cases, (24) and recently the Federal Circuit has even explicitly acknowledged that "there is a lack of clarity concerning whether the required intent [is] merely to induce the specific acts or additionally to cause an infringement." (25) The Federal Circuit, it seems, has been content to avoid "resolv[ing] [this] ambiguity" in a case if there is enough evidence to show infringement under the stricter of the two standards (intent to induce infringing actions) (26) or if there is not enough evidence to show infringement under even the broader standard (intent to cause the acts that constitute infringement). (27)

   All this ongoing and acknowledged confusion among the district courts and within the Federal Circuit stems from two Federal Circuit opinions issued three months apart in 1990, Hewlett-Packard Co. v. Bausch & Lomb, Inc. (28) and Manville Sales Corp. v. Paramount Systems, Inc. (29) To understand this apparent split--and why there may not be a split at all--requires a deeper analysis of each of these two cases.

   1. Hewlett-Packard v. Bausch & Lomb

      In Hewlett-Packard, plaintiff Hewlett-Packard Company (HP) was the assignee of the "LaBarre" patent (30) "relat[ing] to X-Y plotters used to create a two-dimensional plot, such as a chart or a graph, on a sheet of paper." (31) The LaBarre patent covered plotters that moved paper through the use of grit-covered wheels. (32) Bausch & Lomb (B&L) was the assignee of another patent, the "Yeiser" patent, (33) which described an X-Y plotter that moves paper back and forth with pinch wheels that "have a surface with a high coefficient of friction formed 'by knurling or by a layer of rubber or the like.'" (34)

      B&L sold plotters having grit-covered pinch wheels "sometime in late 1982 or early 1983" through one of its divisions called Houston Instruments. (35) In September of 1985, B&L entered into an agreement with Ametek, Inc. in which B&L sold the Houston Instruments division to Ametek and B&L agreed, among other things, to grant Ametek a license to the Yeiser patent, indemnify Ametek against liability for infringing the LaBarre patent, and jointly work with Ametek toward developing a plotter that would not infringe the LaBarre patent. (36)

      HP brought suit against B&L accusing B&L of direct infringement of the LaBarre patent for the time period prior to the sale of Houston Instruments to Ametek and of [section] 271(b)...