Commil USA, LLC v. Cisco Systems, Inc.

Good-Faith Belief of Invalidity May Negate Intent for Inducement

12-1042

June 25, 2013

Decision

Last Month at the Federal Circuit - July 2013

Judges: Newman (concurring-in-part and dissenting-in-part), Prost (author), O'Malley (concurring-in-part and dissenting-in-part)

[Appealed from: E.D. Tex., Magistrate Judge Everingham]

In Commil USA, LLC v. Cisco Systems, Inc., No. 12-1042 (Fed. Cir. June 25, 2013), the Federal Circuit affirmed the district court’s grant of a new trial, vacated the jury’s verdict on induced infringement, and remanded for a new trial. Specifically, the Court held that as a defense to an induced infringement claim, Cisco Systems, Inc. (“Cisco”) should have been allowed to present evidence showing its good-faith belief of invalidity.

Commil USA, LLC (“Commil”) owns U.S. Patent No. 6,430,395 (“the ’395 patent”), covering a method of providing mobile devices traveling throughout a network area with faster and more reliable transfers from one base station to another. Commil sued Cisco, alleging certain Cisco WiFi access points and controllers infringed the claims of the ’395 patent. Following an initial trial in which the jury found Cisco liable for direct infringement but not for induced infringement, the district court granted Commil’s motion for a partial new trial on the issues of induced infringement and damages. The district court found that Cisco’s counsel’s inflammatory statements during trial may have had a prejudicial effect on the jury, influencing the outcome.

Prior to the second trial, Cisco proffered evidence showing its good-faith belief that the ’395 patent was invalid. The district court excluded the evidence but did not issue a written opinion explaining its reasoning. Based on jury instructions imposing liability for inducers that were at least negligent to the fact that their actions would induce infringement, the jury held Cisco liable and awarded Commil $63.7 million in damages.

On appeal, Cisco raised two main arguments. First, Cisco argued that the jury instruction on inducement was erroneous in light of the Supreme Court’s decision in Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011), because it allowed the jury to find inducement based on mere negligence. Second, Cisco contended that the district court improperly excluded evidence of its good-faith belief of invalidity, which would have shown it lacked the requisite intent for induced infringement. Cisco also challenged the district court’s grant of a partial new trial and its construction of the claimed term “short-range communication protocol.”

The Federal Circuit held that the jury instruction on induced infringement in the second trial was erroneous as a matter of law and prejudiced the outcome. The district court instructed the jury that it could find inducement if “Cisco actually intended to cause the acts that constitute direct infringement and . . . knew or should have known that its actions would induce actual infringement.” Slip op. at 6 (emphasis added) (citation omitted). Although the language used by the district court reflected the proper standard for induced infringement at the time it was given, the Supreme Court subsequently changed the level of culpability required, enabling Cisco’s appeal. Now, under Global-Tech, induced infringement requires knowledge that the induced acts constitute patent infringement. This knowledge requirement is satisfied by a showing of actual knowledge or willful blindness, neither of which can be found on facts supporting only recklessness or negligence on the part of the inducer. Because the jury instruction allowed Cisco to be held liable based on mere negligence where knowledge is required, it could have changed the result. Therefore, the Court vacated the jury’s verdict on induced infringement and remanded for a new trial.

The Federal Circuit next addressed whether the jury should have been allowed to consider the evidence of Cisco’s good-faith belief of invalidity. The Court reasoned that there was “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.” Id. at 10. An invalid patent cannot be infringed, so if accused inducers believe a patent is invalid, they cannot also intend to induce infringement. Therefore, since the Court has found good-faith belief of noninfringement to be relevant evidence, which may show an accused inducer lacked the requisite intent to be held liable, good-faith belief of invalidity should also be considered relevant.

Cisco challenged the district court’s grant of a partial new trial, arguing that there was no basis to grant a new trial and that separating the issue of whether Cisco had a good-faith belief of invalidity from the issue of whether the patent claims are valid violated the Seventh Amendment. Due to the potential jury bias, the Federal Circuit found the district court had not abused its discretion in granting a new trial because of the inflammatory references to ethnicity and religion made by Cisco’s counsel. Additionally, the Court held that patent infringement and invalidity are two distinct issues, and that a jury could decide whether Cisco had a good-faith belief of invalidity without deciding “whether the underlying position was meritorious.” Id. at 17.

Lastly, Cisco argued for a narrower construction of the term “short-range communication protocol.” Cisco contended that the term should be limited to only the specific short-range protocols listed in the ’395 patent. The Federal Circuit dismissed this argument because it lacked merit.

Accordingly, the Federal Circuit affirmed the district court’s original grant of a new trial, vacated the jury’s induced infringement verdict, and remanded for a new trial. Although Cisco also appealed the district court’s findings regarding validity, infringement, and damages, the Court left these issues for the district court to decide on remand.

Judge Newman concurred-in-part, joining the opinion as to vacating and remanding the induced infringement judgment and upholding the grant of a partial new trial, but disagreeing with the change in law regarding good-faith belief of invalidity. Judge Newman expressed that a good-faith belief of invalidity is a defense to willfulness of infringement but is not a defense to the fact of infringement of a valid patent, whether direct or indirect. Likening liability for induced infringement to joint tortfeasance,

Judge Newman stated that “[a] mistake of law, even if made in good faith, does not absolve a tortfeasor.” Newman Concurrence-in-Part and Dissent-in-Part at 3. Thus, according to Judge Newman, “whether there is infringement in fact does not depend on the belief of the accused infringer that it might succeed in invalidating the patent. Such a belief, even if held in good faith, does not negate infringement of a valid and enforceable patent.” Id. at 4.

Judge O’Malley also concurred-in-part, joining the opinion as to vacating the induced infringement judgment and as to the relevance of an accused inducer’s good-faith belief of invalidity. Judge O’Malley further agreed that the district court had not abused its discretion in granting a new trial, but did not believe that the partial retrial comported with the Seventh Amendment. Not only did the issues of validity and induced infringement overlap, causing potential confusion according to Judge O’Malley, but it was also possible that the inappropriate statements by Cisco’s counsel affected the jury’s validity determination as well. Judge O’Malley also dissented from “the majority’s refusal to address . . . whether Commil did or ever could prove the third-party direct infringement which is a necessary predicate to Commil’s induced infringement claim.” O’Malley Concurrence-in-Part and Dissent-in-Part at 3.

Summary authored by Matthew J. Luneack, Summer Associate at Finnegan.