The Supreme Court's quiet revolution in induced patent infringement.

• Author: Holbrook, Timothy R.

ABSTRACT

The Supreme Court over the last decade or so has reengaged with patent law. While much attention has been paid to the Court's reworking of what constitutes patent-eligible subject matter and enhancing tools to combat "patent trolls, " what many have missed is the Court's reworking of the contours of active inducement of patent infringement under 35 U.S.C. [section] 271(b). The Court has taken the same number of [section] 271(b) cases as subject matter eligibility cases--four. Yet this reworking has not garnered much attention in the literature. This Article offers the first comprehensive assessment of the Court's efforts to define active inducement. In so doing, it identifies the surprising significance of the Court's most recent case, Commil USA, LLC v. Cisco Systems, Inc., where the Court held that a good faith belief on the part of the accused inducer that the relevant patent is invalid cannot negate the mental state required for inducement--the intent to induce acts of infringement. In so doing, the Court moved away from its policy of encouraging challenges to patent validity as articulated in Lear, Inc. v. Adkins and its progeny. This step away from Lear is significant and surprising, particularly where critiques of the patent system suggest there are too many invalid patents creating issues for competition. This Article critiques these aspects of Commil and then addresses lingering, unanswered questions. In particular, this Article suggests that a good faith belief that the induced acts are not infringing, which remains as a defense, should only act as a shield against past damages and not against prospective relief such as injunctions or ongoing royalties. The courts so far have failed to appreciate this important temporal dynamic.

INTRODUCTION

The Supreme Court has taken a considerable, if not somewhat odd, interest in patent law over the last few years. (1) Of all of the Court's interventions, its substantial reworking of the law surrounding patentable subject matter under 35 U.S.C. [section] 101 (2) has garnered most attention and commentary. (3)

Many have missed, however, the quiet revolution the Court has instigated with respect to active inducement of patent infringement under 35 U.S.C. [section] 271(b). The provision somewhat tersely states, "Whoever actively induces infringement of a patent shall be liable as an infringer." (4) Given this general, unenlightening language, the courts have been left to determine the contours of this provision, and the Supreme Court has been paying attention. Since the October 2004 term, the Supreme Court has decided four cases interpreting that provision, (5) the same number of cases as the Court's subject matter eligibility cases. (6) In the October 2015 term, the Court issued its most recent interpretation of [section] 271 (b) in Commil USA, LLC v. Cisco Systems, Inc., holding that an accused infringer's good faith belief that the relevant patent is invalid does not negate the requisite intent for inducing infringement. (7)

These cases provide important and interesting insights into the Supreme Court's views of patent law. At a minimum, the Court's active inducement decisions have favored the patent owner for the most part, which contrasts sharply with the general anti-patentee trend in the Court's other patent cases. (8) These four decisions, and particularly Commil, signal significant changes in the Supreme Court's views of patent law and policy. By holding that a good faith belief that the relevant patent is invalid does not negate the scienter requirement for active inducement, Commil represents a step away from the Court's policy preference of encouraging patent validity challenges in courts, as previously articulated in Lear, Inc. v. Adkins (9) and its progeny.

This Article is the first to provide a comprehensive assessment of this quiet revolution. It unpacks these important developments, particularly highlighting the implications of Commil. It then explores some unanswered questions in Commil. It highlights a glaring oversight not only in the Commil decision but also with all of the jurisprudence under [section] 271 (b)--the failure of the courts to recognize that a good faith belief (now only of non-infringement) should only shelter an accused infringer from past damages; the infringer should be subject to prospective remedies, such as ongoing royalties and permanent injunctions. Part I offers an overview of the tetralogy of cases and their broader impact. Part II then elaborates how the Court's decision in Global-Tech Appliances, Inc. v. SEB S.A. (10) advanced the Lear policy interest by encouraging potential infringers to review patents or else face liability. If such a review revealed a belief that the relevant patent was invalid, the parties would be more likely and willing to enter the market and ultimately challenge the patent. Commil, however, has greatly undermined this dynamic by eliminating a good faith belief that the patent is invalid as a defense to active inducement. Part III then discusses two open questions after Commil. First, it evaluates whether Commil eliminates other good faith defenses from active inducement, concluding that it does. Second, and more importantly, Part III argues that the remaining good faith defense--that the patent is invalid--should only preclude past damages and not prospective relief.

1. THE INDUCEMENT TETRALOGY--GROKSTER, GLOBAL-TECH, LIMELIGHT, AND COMMIL

   Prior to the adoption of the 1952 Patent Act, case law made clear that third parties could be held liable for the infringing acts of others through theories of joint tortfeasance. (11) When Congress adopted the 1952 Patent Act, it codified this common law into two forms of indirect infringement: active inducement under 35 U.S.C. [section] 271(b) and contributory infringement under 35 U.S.C. [section] 271(c), (12) the latter of which was the "most common" pre-1952 scenario for such indirect liability--the sale of a component of a patentee invention that is then incorporated into an infringing item. (13)

   Although Congress included within [section] 271(c) considerable details as to its requirements, (14) [section] 271(b) remains a vague, catch-all provision, the contours of which were left to the courts to determine. (15) Notwithstanding this apparent delegation to the courts, the Supreme Court remained silent with respect to active inducement until the mid-2000s. While the Court did address [section] 271(c) in 1964 in Aro Manufacturing Co. v. Convertible Top Replacement Co., (16) it took the Court over fifty years (17) to address [section] 271 (b). Somewhat surprisingly, when it decided to do so, it was in a copyright case.

   1. Induced Infringement and Illegal Downloads of Copyrighted Works in MGM Studios, Inc. v. Grokster, Ltd.

      The Supreme Court's first substantive discussion of [section] 271 (b) arose in the context of illegal digital downloads of copyrighted music. The accused copyright infringers, Grokster and StreamCast, ran a peer-to-peer file sharing systems whose primary uses were to exchange copyrighted music among users without permission from the copyright holders. (18) Prior to the decision, most observers believed that the Court would elaborate on its decision in Sony Corp. of America v. Universal City Studios, Inc. and explain its application in the online context. (19) In Sony, the Supreme Court incorporated patent law's contributory infringement doctrine under [section] 271(c) into copyright law. (20) That provision creates a safe harbor from liability if the component sold or imported has a substantial use that does not result in infringement of the patent. (21) Drawing on the idea of substantial non-infringing uses, the Supreme Court in Sony concluded that the manufacturers of VCRs were not liable for contributory copyright infringement because VCRs had such a non-infringing use: allowing people to tape shows to watch at a later time. (22)

      Many thought that Grokster would address the same issue--whether file-sharing networks had substantial non-infringing uses, such as sharing files that were not subject to copyright or for which the copyright owner had granted permission. (23) Those expectations were not realized. The Supreme Court in Grokster dodged the "substantial non-infringing uses" question (24) and instead imported active inducement of infringement into copyright law from patent law. (25) The Court held that "one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties." (26)

      In embracing active inducement of infringement for copyright law, the Supreme Court discussed the requisite mental state for an inducer. The Court noted that inducement "premises liability on purposeful, culpable expression and conduct." (27) In the Court's view, Groskter and StreamCast possessed the required, nefarious intent: "Grokster and StreamCast's efforts to supply services to former Napster users, deprived of a mechanism to copy and distribute what were overwhelmingly infringing files, indicate a principal, if not exclusive, intent on the part of each to bring about infringement." (28) Ultimately, the Court concluded that " [t] he unlawful objective is unmistakable." (29)

      Although Grokster was a copyright case, it quickly proved to be influential in patent law. The Federal Circuit relied upon Grokster to resolve a split in its case law regarding the required mental state for a party to be liable for inducing infringement. (30) Federal Circuit decisions had articulated two inconsistent standards for required intent. The first standard required the inducer to have the intent to induce the acts that constitute direct infringement. (31) Under this broad test, an inducer need not know that the induced acts actually did constitute infringement to be liable. The...