Knowledge That Induces Patent Infringement -- Outsourcers Cannot Hide Under The Rug Of Foreign Law

The Supreme Court announced today its decision in the case of Global-Tech Appliances, Inc. v. SEB S.A., an opinion that speaks to the scienter standard for inducement of patent infringement.

In this case, SEB obtained a U.S. patent on its deep fryer. Sunbean had an interest in marketing a competing fryer and contacted Global-Tech's Hong Kong subsidiary to manufacture a fryer containing Sunbeam's specifications. The Hong Kong firm purchased an SEB fryer made for the foreign market that did not contain any patent marking. It copied the substantive elements of the SEB fryer except for certain cosmetic features. It further retained an attorney to conduct a patent right-to-use analysis, but did not disclose to the attorney that it had copied the SEB product. The attorney did not discover the SEB patent and concluded that the Hong Kong product did not infringe the patents that were discovered. The Hong Kong firm then manufactured and supplied its fryers to Sunbean and other firms (under their own brands) for sale in the U.S.

SEB sued Sunbeam for patent infringement, and Sunbeam notified the Hong Kong firm of the lawsuit. The Hong Kong firm continued to distribute its fryers to other brand owners for sale to the U.S. market. SEB settled with Sunbeam and sued Global-Tech for infringement by inducement under 35 USC §271(b). The issue before the Supreme Court centered on the knowledge standard on the part of Global-Tech for purposes of liability under an inducement theory.

The Federal Circuit held that liability for patent inducement under §271(b) occurs when the purported infringer knew or should have known that its actions would induce actual infringements. The Federal Circuit held that Global-Tech was liable on this basis since it deliberately disregarded a known risk that SEB's fryer was protected by a U.S. patent. As such, the Federal Circuit concluded that "deliberate disregard" is the same as "actual knowledge."

The Supreme Court rejected the Federal Circuit's deliberate disregard standard for knowledge and confirmed that actual knowledge that the induced acts constitute patent infringement remains the standard for infringement by inducement under §271(b). The Supreme Court makes clear that "deliberate indifference" to a known risk does not satisfy the knowledge standard. However, the Supreme Court agreed that the knowledge requirement can be satisfied by proof of "willful blindness." To satisfy the test for willful blindness, two elements must exist: (1) the purported infringer must subjectively believe that there is a high probability that a patent is infringed by its act, and (2) the purported infringer must take deliberate steps to avoid learning of this fact.

The Supreme Court held that, in this case, the following facts satisfy the test for willful blindness: (1) the defendant copied all of the features of SEB's fryer except for certain cosmetic traits, believing that these copied features were valuable, (2) the defendant copied an oversea's model of SEB's fryer aware that it did not contain a patent marking, and (3) the defendant failed to disclose to its attorney that the product under consideration was a knock-off of SEB's product.

Taken together, the Supreme Court affirms that this evidence satisfies the willful blindness test to establish knowing inducement, and the judgment against Global-Tech was affirmed.

This decision should be considered carefully by any U.S. manufacturer who outsources its manufacturing to overseas suppliers. It must also be considered by overseas manufacturers who look solely to their local law and fail to consider the merits of liability under U.S. law. Blindly failing to consider the requirements of U.S. patent law may constitute an element of "willful blindness."

As an aside, it will be interesting to learn whether the "willful blindness" synonym for "knowledge" will be of use to establish liability in the various patent marking claims that are pending around the U.S.