CAFC Raises the Bar Higher Against Patentees Asserting Induced Infringement Claims: Enabling Defendants to Introduce “Good Faith” Invalidity Arguments

Stephen Parker | July 3, 2013

Commil USA, LLC v. Cisco Systems, Inc.

June 25, 2013

Panel:  Prost, Newman and O’Malley.  Opinion by Prost.  Concurrences-in-part by Newman and O’Malley.

Summary

In this case, Commil USA, LLC (Commil) sued Cisco Systems, Inc. (Cisco) for infringement of U.S. Patent No. 6,430,395 directed to a wireless system.  In separate trials, the district court held that Cisco directly infringed the ‘395 patent and that Cisco infringed the patent by virtue of “inducement” of infringement.   Commil was awarded damages of $3.7 million for the direct infringement and of about $74.0 million for the induced infringement.   On appeal, the CAFC vacated the induced infringement award and ordered a new trial for the inducement claims on the basis that both 1) the trial court erred in instructing the jury as to the specific intent required for finding inducement – i.e., requiring an actual knowledge of infringement or a willful blindness (standards higher than mere negligence or recklessness) – and 2) the trial court erred in not considering evidence pertaining to Cisco’s good faith belief that the ‘395 patent was invalid as evidence that Cisco did not have the specific intent required for finding inducement.  While the CAFC had previously held that a good faith belief of non-infringement was evidence weighing against the specific intent for finding inducement, this case is the first instance in which the CAFC has held that a good faith belief of invalidity was similar evidence.  In a concurring-in-part opinion, Judge Newman criticizes the majority’s position that a good faith belief of invalidity weighs against the specific intent for finding inducement.     

Details

Background

Commil USA, an Israel-based company, sued Cisco in the Eastern District of Texas alleging that Cisco’s WiFi access points infringed U.S. Patent No. 6,430,395.  The ‘395 patent is directed to a wireless system in which mobile devices, such as, e.g., phones and laptop computers communicate with fixed base stations according to standardized procedures that govern how data is exchanged – i.e., protocols providing improved handoffs of mobile devices from one base station to another.

In a first jury trial for direct infringement, Cisco was found liable for direct infringement, and Commil was awarded $3.7 million in damages, and Cisco was found not-liable for induced infringement.  During this first trial, Cisco’s counsel made a number of anti-Semitic comments against plaintiff seeking to create prejudice against the foreign-based Plaintiff.  Although not objected to by Defendant during trial, after sending the jury to deliberate (i.e., before a verdict was returned), the Judge expressed that he would consider a motion for new trial by Plaintiff.  Commil filed a motion for a new trial on induced infringement, and was awarded a new trial.  In this new trial, Cisco was found liable for induced infringement, Commil was awarded $63.7 million in damages and about $10.3 million in prejudgment interest and costs (i.e., a total of $74.0 million).

The present case is an appeal by Cisco from the district court’s decision in this second trial for induced infringement.

Issues

Issues Related to Specific Intent Requirement for Inducement of Infringement:

First, Cisco argued that the Court gave erroneous jury instructions in relation to inducement of infringement requiring an entirely new trial related to the finding of induced infringement.

Under the law, the CAFC reviews a denial of a motion for a new trial under the law of the regional circuit (here, the 5th Circuit).  In the 5th Circuit, the denial of a motion for a new trial is not disturbed absent an abuse of discretion or a misapprehension of the law.   Whether a jury instruction is erroneous is a matter of law that is reviewed de novo.  Moreover, a jury verdict is set aside only if both 1) the movant can establish that the instructions were legally erroneous and 2) that the errors had prejudicial effect.

Here, the District Court had instructed the jury that it could find inducement if “Cisco actually intended to cause the acts that constitute direct infringement and that Cisco knew or should have known that its actions would induce actual infringement.”  However, the CAFC expressed that these instructions were erroneously based on old law and did not follow the Supreme Court’s decision in Global-Tech Appliances, Inv. v. SEB S.A., 131 S.Ct. 2060 (2011) in which the court held that induced infringement “requires knowledge that the induced acts constitute patent infringement,” and that such knowledge is satisfied by showing “actual” knowledge or “willful blindness.”   Here, the CAFC explained that the Global-Tech court had expressed that “willful blindness” is more extreme than negligence and even recklessness, explaining that “a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts” and that the requisite “knowledge” cannot be found based on a “mere known risk that the induced acts are infringing.”

Accordingly, the CAFC held that the jury instruction was akin to a negligence standard and, hence, erroneous as a matter of law.  Moreover, the CAFC expressed that these instructions “certainly could have changed the result,” and are, thus, prejudicial.   According, the CAFC remanded for a new trial.

Second, Cisco also argued that the district court erred by preventing Cisco from presenting evidence during trial of Cisco’s “good faith” belief of “invalidity” to rebut allegations of induced infringement.

Prior to this case, the CAFC had not previously determined whether a good faith belief of “invalidity” may negate requisite intent for induced infringement.   As such, the district court did not allow this evidence.   However, in this case, the CAFC now holds that a good faith belief of invalidity may, in fact, negate such requisite intent for induced infringement.  Previously, the CAFC had established only that a good faith belief of non-infringement may negate such a requisite intent.

In this case, Judge Prost, writing for the majority, states “[w]e see no principled distinction between a good-faith belief of invalidity and a good faith belief of non-infringement for the purpose of whether a defendant possessed the specific intent to induce infringement of a patent.”

Judge Newman’s Concurrence:   In Judge Newman’s concurrence, she argues that “[a] mistake of law, even if made in good faith, does not absolve a tortfeasor.”  She explains that the majority erred in holding that “evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement,” and argues that inducement of infringement under the statute requires knowledge that the induced acts constitute patent infringement, and that the Court cannot include a belief in patent validity as a criterion because validity and infringement are distinct issues, bearing different burdens, with different presumptions, and different evidence.  Judge Newman further emphasizes that such belief is particularly inappropriate where, as in this case, the validity is sustained by the district and appellate courts.

Issue Related to Prejudicial Conduct Against Foreign Entity:

Cisco also appealed the District Court’s granting to Commil of the second trial pertaining to the inducement of infringement.

In this case, counsel for Defendant, Cisco, had engaged in various prejudicial statements during trial which created prejudice against the Israel-based Plaintiff, Commil.  For example, during cross-examination “Cisco’s counsel attempted to perpetuate the stereotype of Jewish people as greedy opportunists by asking [if an owner of Commil’s cousin] was a ‘bottom-feeder who swims around on the bottom buying people’s houses that they got kicked out of for next to nothing,” and by making an anti-Jewish reference to the owner of Commil not likely eating “pork” at a local barbeque restaurant.  During trial, the court issued a corrective statement to the jury stating “[s]ometimes when a lawyer injects irrelevant information into a case it’s because he perceives a weakness in the merits of his case.”

Later, during closing arguments, Cisco’s counsel made further prejudicial remarks by comparing this case with the trial of Jesus Christ.  While Commil’s counsel did not object, after discharging the jury, the court informed Commil that should they file a motion for a new trial, such would be entertained.

Under the law, a new trial is not granted, even if counsel’s remarks are improper, unless after considering the record, the court concludes that manifest injustice would result from letting the verdict stand.  Moreover, when no objection is raised by opposing counsel, improper argument may be the basis for a new trial “only where the interest of substantial justice is at stake.”

Here, the CAFC deferred heavily to the district court stating “Cisco asks us to review the cold record—substituting our judgment for the district court’s—and find that there was no manifest injustice in this case.  We decline.”

Take away

First, this case highlights that induced infringement claims have a rather high bar to achieve success in the proving of infringement, as a high level of specific intent is required to succeed.  Moreover, this case provides further ammunition for defendants to argue against inducement of infringement by allowing evidence of a good faith belief in invalidity to weigh against the specific intent required.   Even in circumstances where activities will plainly infringe, now arguments regarding invalidity will likely be made whenever inducement of infringement might be asserted.  Among other things, this will increase the desirability of obtaining opinions of counsel encompassing both invalidity and non-infringement arguments to support such good faith arguments in litigation.

Second, this case also highlights that U.S. Courts generally seek to treat foreign entities fairly and without prejudice.   Here, the district court went to substantial lengths to address perceived prejudices, first, by making strong corrective statements during trial and, second, by recommending to Plaintiff that they file a motion for a new trial (even without the Plaintiff’s objection).   Furthermore, the CAFC was very deferential with respect to the district court’s granting of a new trial in this context.   Thus, foreign entities should appreciate that 1) prejudicial treatment is often limited by the courts in the U.S., and that 2) if such treatment is experienced at trial, it is helpful to raise objections at trial and to appreciate that such objections will likely be seriously considered.

Full Opinion

Patent At Issue

 

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