Good-Faith Belief of Invalidity Not a Defense to Inducement

By: Clifford S. Chang

In its recent ruling in Commil USA v. Cisco Systems, 575 U.S. __ (2015), the Supreme Court addressed the knowledge requirement for a claim of inducing patent infringement, holding that defendants in a patent case could not evade liability by asserting a “good-faith belief” that the patent was invalid.

Commil, a patent-holding company filed suit against Cisco in 2007 in the Eastern District of Texas. After two jury trials, Commil won a $3.7 million verdict against Cisco, which was found to infringe its U.S. Patent No. 6,430,395, directed to methods of implementing short-range wireless networks. On appeal, the Federal Circuit affirmed in part, vacated in part, and remanded for further proceedings because it found that it was error for the district court to instruct the jury that Cisco could be liable for induced infringement if it “knew or should have known that its customers infringed,” essentially allowing the jury to find Cisco liable for inducement based on mere negligence. 720 F.3d at 1367. The Federal Circuit also found error in the district court’s exclusion of Cisco’s evidence that it had a good-faith belief that Commil’s patent was invalid, observing that it is “axiomatic that one cannot infringe an invalid patent.” 720 F.3d at 1368. The Supreme Court granted certiorari to address the question of whether a “good-faith belief” in invalidity is a defense to induced infringement.

Reaffirming the Knowledge Requirement
In vacating the Federal Circuit’s judgment, the Supreme Court first clarified the level of knowledge a defendant needed to have to be liable for induced infringement by reaffirming its holding in Global-Tech Appliances, Inc. v. SEB S. A., 131 S. Ct. 2060, 2068 (2011), that “induced infringement under 271(b) requires knowledge that the induced acts constitute patent infringement,” and rejecting Commil's argument that it only had to show the defendant’s knowledge of the patent’s existence.

A Good Faith Belief of Invalidity Is No Defense
The Court then supported its rejection of the “good-faith belief” defense through legal reasoning and analysis of the Patent Act and laws. First, it stated that a belief regarding validity cannot negate the scienter for induced infringement because infringement and validity are separate issues under the Patent Act. “When infringement is the issue, the validity of the patent is not the question to be confronted,” the Court stated, citing to several of its prior holdings to support the “axiom” that infringement and invalidity are separate matters under patent law. See Cardinal Chemical Co. v. Morton Int'l, Inc., 508 U.S. 83, 96 (1993) (“A party seeking a declaratory judgment of invalidity presents a claim independent of the patentee's charge of infringement.”); Id., at 98 (noninfringement and invalidity are “alternative grounds” for dismissing the suit); Deposit Guaranty Nat. Bank v. Roper, 445 U.S. 326, 334 (1980) (explaining that an accused infringer “may prevail either by successfully attacking the validity of the patent or by successfully defending the charge of infringement.”).

Allowing such a defense in the Court’s view would improperly “conflate the issues of infringement and validity.” Although the Court recognized the logic behind the fact that an invalid patent cannot be infringed because there is no patent to be infringed, the Court cautioned that allowing a belief of invalidity as a defense would undermine the presumption that a patent is valid and circumvent the "high bar" of the clear and convincing standard. The Court further emphasized the importance of maintaining the patent system’s allocation of burden to persuade on questions of infringement and validity, and the timing for the presentations of the relevant arguments. The Court explained that “invalidity is not a defense to infringement, it is a defense to liability.” Thus, if an alleged patent infringer desires to rely on invalidity as an affirmative defense to a claim of infringement, he must meet the standards of proving invalidity of the patent; not merely prove that he reasonably believed it to be invalid.

The High Court also backed up its holding with practical reasons to keep the issues of infringement and validity separated. It noted that accused inducers had various methods of properly challenging the validity of an asserted patent, such as through a declaratory judgment action, asserting an affirmative defense, or through inter partes review and ex parte reexamination. The Court also noted that such a defense would also make litigation more burdensome, requiring juries to separate the defendant’s belief regarding validity from the actual issue of validity. The Court acknowledged the power and responsibility of district courts’ to discourage frivolous cases by issuing sanctions or an award of attorney’s fees, and concluded that such safeguards, combined with proper avenues for accused infringers to challenge validity left little justification for upholding a “good-faith believe” defense.

Finally, the Court discussed instances in other well-established areas of law that recognized scienter for civil liability where the actor lacked actual knowledge of his or her improper conduct, citing to tortious interference with contract, trespass, and ignorance of the law or mistake of law in criminal prosecution.

Not Quite a Victory for Non Practicing Entities
In discussing the safeguards provided by district courts in deterring frivolous cases, the opinion’s last page called out non-practicing entities, stating that “such firms” who use patents as swords, sometimes with frivolous claims, can impose a “harmful tax on innovation.” Even though no Rule 11 violation was alleged in this case, the Court felt it “necessary and proper to stress that district courts have the authority and responsibility to ensure frivolous cases are dissuaded.” For the first time the High Court appeared to acknowledge the growing controversy around non-practicing entities.

At the end of the day the Court’s decision is only a half-baked victory for Commil and similarly situated “firms.” Although the Court pushed away an entire set of defenses to inducement, it rejected Commil’s argument for a lower standard of scienter, and reaffirmed that a plaintiff must show that an accused infringer had knowledge that the induced acts constitute infringement of the asserted patent.