Global-Tech v. SEB: Petitioner’s Merits Brief

By Jason Rantanen

On Monday, Petitioner Global-Tech filed its brief in the inducement of infringement case pending before the Supreme Court.  The complete brief can be downloaded from the American Bar Association's website.  The arguments are summarized below:

35 U.S.C. 271(b) Requires the State of Mind of "Purposeful, Culpable Expression and Conduct" to Encourage an Infringement.

Global-Tech takes the position that inducement of patent infringement under 271(b) requires "'purposeful, culpable expression and conduct' to encourage an infringement."  In other words, the accused party must possess the "purpose" of causing the infringement of a patent - even knowledge of infringement is insufficient.  In support of this position, Global-Tech relies heavily on MGM Studies, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005), a copyright inducement case in which the Court discussed 271(b) and described the inducement rule as premising liability on "purposeful, culpable expression and conduct."  Global-Tech buttresses its argument by asserting that a lower standard would make 271(b) so broad as to render 271(c) (contributory infringement) insignificant and, furthermore, is supported by the legislative history.

Global-Tech also raises two policy considerations.  First, it delves into the issue of causation, suggesting that because 271(b) does not contain a causation requirement, Congress must have intended to for it to apply only to "morally culpable conduct" - which Global-Tech equates with purpose.  Second, it argues that (absent clear Congressional intent) there is a presumption that statutes are meant to only regulate conduct outside the United States to the extent necessary to further important U.S. interests, and that anything less than a "purposeful, culpable expression and conduct" standard is unnecessary to further U.S. interests. 

The "Deliberate Indifference" Standard is Wrong

In addition to advancing its "purposeful, culpable expression and conduct" approach to inducement, Global-Tech also argues that the Federal Circuit's "deliberate indifference to a known risk" standard is lower than knowledge, recklessness, and even negligence.  Global-Tech rests this assertion on the proposition that because the Federal Circuit's articulation of the "deliberate indifference" standard did not specify the degree of risk, it thus encompasses even minimal risks of infringement.  Global-Tech further argues that the risk in this case was of the minimal variety because it did not know about the patent and because of the uncertainties of both claim construction and infringement proceedings.

Global-Tech raises two additional arguments.  After asserting that aiding and abetting, a related tort doctrine, requires knowledge of the actor's participation in an underlying crime or tort, it then contends that the use of "actively," "induces," and "infringement" in 271(b) signals that the standard must be higher than that of aiding and abetting (i.e.: purpose).  From a policy standpoint, Global-Tech criticizes the "deliberate indifference" standard as being quite unclear - and thus placing a burden on competition and innovation.

Global-Tech concludes by asserting that if the Court holds that 271(b) requires not just purposeful, culpable conduct or knowledge, but also recklessness, it should reverse and remand.

40 thoughts on “Global-Tech v. SEB: Petitioner’s Merits Brief

  1. Of course, one also has to wonder why the patentee deserves litigation damages that are any better than what he’s actually out of pocket for the infringement

    Absolutely right and we should just stop there with trying to come up with a remedy in money value when another remedy is so easy and happens to make the patentee whole a whole heck of a lot better.

    Truly made whole – what a concept.

    Let’s do that and then get out of the way and let the market take over.

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  2. If you stop and think about it, why would anyone enter license negotiations with a patentee, if the end result of litigation were simply what turns out to be essentially a compulsory license?

    That’s a very good point. Of course, one also has to wonder why the patentee deserves litigation damages that are any better than what he’s actually out of pocket for the infringement, which is the royalty he could have reasonably negotiated.

    It seems like both problems could be solved by holding infringers liable for the patentee’s litigation costs. That way, the patentee is truly made whole, and BigCo having salaried in-house litigation counsel doesn’t spare them the expense of litigating the losing cases.

    The uncertainty of litigation is a whole other issue, and it may well be worth taking a chance rather than licensing in, but you can’t blame the defendant for that. If the law is such that he has a reasonably arguable case, why shouldn’t he argue it? Then again, if you’re thereby driving up your opponent’s litigation costs, for which you might ultimately be liable, that might change your economic analysis of the whole situation.

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  3. “I can’t see how a ‘reasonable royalty’ from litigation could be substantially different from what you’d get as a reasonable licensor”
    excerpted from IANAE Dec 06, 2010 at 04:58 PM

    This is a fundamental problem, and has been since at least 1964, when SCOTUS decided the Aro case, 377 U.S. 476 (link: link to supreme.justia.com), and interpreted 35 USC 284 as precluding the possibility of disgorging an infringer’s profits attributable to infringement.

    If you stop and think about it, why would anyone enter license negotiations with a patentee, if the end result of litigation were simply what turns out to be essentially a compulsory license? You might say, well, litigation is expensive, but you can counter that by arguing that, given the mess that is claim construction, and the wildcard of inequitable conduct, an infringer has a good chance of avoiding any liability whatsoever, so especially if you are a BIG corporation, you might as well take your chances, because you already have in-house counsel, and you can afford to self-insure for the occasional case you lose, or the rare case where the court imposes exemplary damages.

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  4. priced to be reasonable for the party who is infringing at that stage.”

    cf

    but all the downstream damage should be priced into the royalty you would reasonably have charged him in an arms-length license.”

    W

    T

    F

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  5. For example, if the widget were sold by the manufacturer for one dollar in the retailer were to resell the widget for $10, adding value using packaging and advertising and whatnot, and a reasonable royalty was 25%, there will be significant argument as to whether a $2.50 per widget royalty would be reasonable given the dollar sales price.

    That’s what happens when you pull a percentage out of the air and assert without context that it’s a reasonable royalty rate, as I’m sure many plaintiffs do.

    If the same widget is being sold wholesale for $1 and retail for $10, with the value added being largely due to “packaging and advertising and whatnot”, 25% of the retail price is probably not reasonable even if 25% of the wholesale price is.

    I can’t see how a “reasonable royalty” from litigation could be substantially different from what you’d get as a reasonable licensor, which would be a single royalty at the source of the infringing product, priced to be reasonable for the party who is infringing at that stage.

    Here inducement becomes critically important because otherwise there is no way to sue the party primarily responsible for the infringement. Indeed, the principal merits brief here argues that the foreign seller should be immune from suit and that the patent holder must sue every American reseller.

    Well, maybe the foreign seller is right, to the extent that he’s selling the stuff abroad and someone else is importing it into the US. Unless they’re drop-shipping to the US or advertising to American suppliers or something, can it really be said that they’re inducing the importation that converts non-infringing goods into infringing ones?

    It sounds pretty tenuous to argue, as they do, that the presumption against extraterritoriality requires a higher intent standard for inducement. To me, all it does is change who completes the infringement. If you induce that, you should be liable.

    But then, what can one expect from a lawyer who doesn’t understand the concept of deliberate indifference?

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  6. IANAE, if damages for the downstream infringement were included, then I would have no objection to simply suing the initial seller for his direct infringement. However, this is an iffy proposition at best. For example, if the widget were sold by the manufacturer for one dollar in the retailer were to resell the widget for $10, adding value using packaging and advertising and whatnot, and a reasonable royalty was 25%, there will be significant argument as to whether a $2.50 per widget royalty would be reasonable given the dollar sales price.

    But I also agree with you that the issue becomes important primarily when the original sales are beyond the reach of the law such as when they are foreign sales. Here inducement becomes critically important because otherwise there is no way to sue the party primarily responsible for the infringement. Indeed, the principal merits brief here argues that the foreign seller should be immune from suit and that the patent holder must sue every American reseller.

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  7. The consequences would be that a patent holder would have to sue every single “customer” for infringement in order to collect damages for that customer infringement.

    No, that’s not the consequence at all. The consequence is that the patentee must sue the original seller, collect his damages at that stage by either judgment or settlement, and then his damages are exhausted down the chain of commerce as if he had licensed the original seller in the first place.

    That’s what a licensor would do, right? If you license the manufacturer, you can’t go suing his customers for additional acts of infringement on the same products. You get your royalties once, and then your licensee is selling duly licensed product against which you have no further recourse. The patentee isn’t actually losing anything.

    The only way you should be suing the customer is if the customer was the first point in the chain where a direct infringement took place, and it doesn’t sound like that’s factually plausible without the customer altering the product in some material way. And even then, you’d rather sue his supplier for inducement if you can make out the case.

    It seems to me that one should be able to sue the original seller for all downstream damage.

    I agree in principle, but all the downstream damage should be priced into the royalty you would reasonably have charged him in an arms-length license.

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  8. IANAE, I hope you would agree that there is no contributory infringement involved if the device sold is a direct infringement.

    I understand the point you are making above to be this: the seller of a device that is a direct infringement cannot be sued for subsequent infringement by his customers – without more, and that more would be whenever knowledge of the patent and encouragement of his customer that would constitute “inducement.”

    But this does not make very much sense does it? The consequences would be that a patent holder would have to sue every single “customer” for infringement in order to collect damages for that customer infringement. He can never sue the original seller because he could not collect damages from the original seller for the downstream infringement and by obtaining damages from the original seller one implicitly “licenses” the downstream sales so they are now immune.

    All-in-all, this does not make much sense.

    It seems to me that one should be able to sue the original seller for all downstream damage. Do you agree? And if you do agree, what is the legal theory?

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  9. Ned: The question on the table is simple. Is he liable for the infringement of his constomer?

    And if not, why not?

    The device he sells the customer is a direct infringement.

    If the original device was a direct infringement, the original seller is liable only for his own sales of the infringing device. If he had been licensed for his own infringement, there would have been no contributory infringement in the first place because his customers would have been free to use the device however they wanted. Therefore, liability and damages for his own direct infringement is sufficient to compensate the patentee.

    If the original device was not a direct infringement (or if there was no liability on the original device for some other reason), we need to look at what fact turned the device into an actionable infringement and whose “fault” that was, before we can talk about indirect infringement.

    I’m having a particularly hard time with “re-selling” as a direct infringement in this case, where the original sale of the very same device is somehow not an infringement. If it’s importation that makes the difference, we need to focus on the act of importation and decide whether the original seller induced it.

    Paul: The decision below would unnecessarily expand the scope of patent infringement litigation and liability to someone who, without being put on notice of a patent, merely requests that a product be made abroad to compete with an existing product, where the existing product was not marked with any patent numbers.

    I don’t know about “unnecessarily”. I still have very little sympathy for someone who is “inspired” by another’s product to create a competing product, and doesn’t look into the IP issues involved. Then again, I have more sympathy than the law requires for someone who independently develops a product that infringes a patent marked on a competing product he’s never seen.

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  10. Paulie, ya be right – Making something against the law does tend to ruin that “defense”, doesn’t it.

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  11. If I were representing the Petitioner in this case, one argument that could be made is this:
    The now extremely common importation of foreign made products for U.S. consumers already subjects the importers to suits for direct infringement for importation under 35 USC 271(a) per its amendment of January 1, 1996. Furthermore, the importation of an infringing product may be blocked via a rapid ITC proceeding. The unlicensed resale of the imported infringing product in the U.S. is also subject to a direct infringement suit. The decision below would unnecessarily expand the scope of patent infringement litigation and liability to someone who, without being put on notice of a patent, merely requests that a product be made abroad to compete with an existing product, where the existing product was not marked with any patent numbers. It would also deprive such accused infringement “inducers” of key defenses which the law provides for accused actual (direct) infringers.

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  12. Well, a new light, there is another major difference. Section B imposes liability for the infringement of another — vicarious liability. Section C imposes liability for one’s own infringement.

    Take this case. The device sold was a direct infringement. There is no issue of contributory infringement in this case, nor should there be. The only question is should the seller of an infringing device to a customer who then resells that device be fully responsible for the downstream damage. I would hope so, as it is the universal law that such a buyer has indemnity against the seller — and all this regardless of any knowledge of the patent by the seller.

    Actually, direct infringement is a strict liability tort. There should be no requirement of knowledge of the patent for the seller to also be responsible for the further infringement of his customers.

    The Supremes got something wrong to the extent it required that knowledge in order to impose liablity for actively inducing. What should be required is that the seller actively cause the buyer to infringe. That does not require knowledge of the patent.

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  13. I am not sure that I quite comprehend the argument that, if read broadly, section b) swallows section c).

    My first reaction is – “so what?”.

    Is it that hard to think plainly here and see that this is entirely logically possible and not inconsistent with the law?

    My second reaction is to then see if a true “full swallowing” has occurred, or even if that matters. I think not. Section c) is obviously aimed at a supplier of components, uses the term “contributory infringer” and has a “knowing” element. In contrast, section b) does not have such a limited aim, does not require an explicit “knowing” element and uses the term “infringer” rather than “contributory infringer”. These differences, to me at least, indicate a nuanced difference:

    Can someone by a “contributing infringer” and not be an “infringer”?

    Looking at this last sentence on its own, it looks to me that we are making a mountain out of a molehill. The “swallows” argument appears to be pendantic and nothing more. Further, the law as written has an onion layering effect – logically it follows in the construction of the law itself, organized from a more global to more particular content structure – almost akin to an independent claim and dependent claims. To use the analogy, does not an independent claim “swallow” a dependent claim? Isn’t this logically and legally consistent?

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  14. Guys, stop ignoring the issues. Whether the initial sell is liable at all for his own infringement is not the question on the table. Stop it.

    The question on the table is simple. Is he liable for the infringement of his constomer?

    And if not, why not?

    The device he sells the customer is a direct infringement. Do we need anything more? After all, the law requires such a seller to indemify his customer. Why not allow a suit against the seller directly to collect damages caused by his customer on resale?

    Do we need more to impose libility? For example, assume he KNOWS that the device is an infringement of the patent. Is this sufficient?

    Then we get the case at bar, what if he really “knows” but is deliberately indifferent?

    The defendant in this case would add even a further requirement: that he actively encouraged his customer to infringe. But, isn’t that totally implied by selling him a device which is a direct infringement which he knows the customer will resell?

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  15. ThisLord of the flies episode happened around 2004 and 2005 Ping. Sorry Ping, but I don’t take purple pills.

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  16. sarah – love the reference to Bilbo, but are you implicating the leader of the four horsemen, or exonerating him (as is obvious that he lacks the proper knowledge of Middle Earth)?

    And what about the perfessor and the fields of rye? Have you forgotten about the little purple pill?

    I have faith in you.

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  17. I really am in a hole,It’s all the same you see.
    Am I Alice, or am I Bilbo, it matters not too me.
    But then I might be Humpty, upon a great big wall.
    Or old king Cole with a merry old soul,
    Or Gulliver when he’s small.
    And i’m sure with all my questions,
    to those that do disguise.
    I’m really on the island of Lord of the Flies.

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  18. I met a girl named G—, as kooky as could be.
    Sometimes She’d come in where I worked, and then would talk to me.
    She told me that her Husbandwas in Law enforcement, you see.
    And who’d have thunk if ever, that he’d cross paths with me.
    So now I’ve made the connection, how deep does it go?
    I need to find now why he’s gone, enquiring minds need to know.
    Another strange thing happened and now I’m almost sure,
    That She’s the one that did it so she could make a Score.
    I think I have that letter, that said I must pay tax.
    And if I didn’t do just that, I would get the AXE.
    The Letter looked all valid, including the Stae Seal.
    But I was just a vendor.Not an owner, for real.
    So now i get the Picture. the Kook did that to me.
    And married to a man in Law enforcement… I’m wondering if He?
    So my husband went to Lexington to ask them what the HAY.
    They told Him this must be a Joke, we never sent that your way.
    We would never do that. that’s Jackson’s Job you see.
    Where ever you got that Letter she said, it surely wasn’t from me.

    Reply
  19. Allright then. Here’s another one:

    (e) brilliant hacker develops a new protocol that cleverly exploits a core vulnerability common to several protocols, including the new protocol, and he distributes it as freeware.

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  20. I see it more as an issue regarding whether a separable feature can be viewed as a different “product” than other features of the same apparatus.

    Okay, well, that’s a different way of looking at it.

    I would think you’d need a substantial non-infringing utility for the part that infringes. Otherwise, you could put a clock in it (as phones tend to have) and escape any charge of indirect infringement because you’re really selling a fancy-but-legitimate pocketwatch. I would say the knife-with-phone indirectly infringes whatever the phone indirectly infringes.

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  21. TINLA,

    Ya forgot one:

    (d) swiss army knife with a BIG COMPUTER BRAIN.

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  22. The real question implicit in your first post, I think, is whether the modification is tantamount to an instruction or invitation to use the article for the infringing use.

    I see it more as an issue regarding whether a separable feature can be viewed as a different “product” than other features of the same apparatus.

    For example, presume the patent has a claim to a method of causing a cellular base station to do x, y, and z. If somebody makes a phone that uses the new network protocol that causes the base station to do x, y, and z, then the customer using that phone will infringe the claim. In what cases is, or should there be, inducement:

    (a) new phone uses only the new protocol;

    (b) old phone is modified to use the new protocol in addition to old protocols;

    (c) swiss army knife includes a phone using the new protocol in addition to old protocols, and it can can also chop, slice, dice, drill, router, pick locks, cook dinner, and spay your cat.

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  23. LOLz at Ned, still trying to understand patent law after all these years.

    OT – but O so delicious – Ned – do ya happen to read the Patent Trademark & Copyright Journal by BNA?

    Get a load of what they be talking about – only yours truly brilliant observations that Iza kept rubbing your no(i)se into awhile back – that’s right – the words from 56(b)(2) – ya know the words ya just could never seem to grasp.

    What a could way to start the weekend – the return of NAL and chucklin at all the chuckleheads.

    Reply
  24. the infringement caused is the customer infringement based on customer use or resale.

    Just to be clear, we’re assuming arguendo that the sale to the customer does not directly infringe the product claim, but the use or sale by the customer does directly infringe the product claim?

    Assuming the product doesn’t change, I can’t see this happening unless there’s an intervening importation, and the importer is the guy (other than the customer) you want to go after for direct infringement. Unless the original seller induced the act of importation somehow, I’d say the importation is a novus actus and he’s in the clear.

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  25. “Why do I have to sue the customer for this infringement? Why can’t I simply sue the seller as an inducer?”

    Because it da lawl?

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  26. Guys, don’t be too obtuse, the infringement caused is the customer infringement based on customer use or resale. There is no issue of contributory infringement involved here at all. The device sold to the customer is a direct infringement.

    Why do I have to sue the customer for this infringement? Why can’t I simply sue the seller as an inducer?

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  27. I think it does stand to reason that if the product has a substantial non-infringing use, and the defendant did nothing to instruct or encourage users to use it in an infringing manner, then there is a problem with finding inducement.

    Who is saying otherwise?

    The real question implicit in your first post, I think, is whether the modification is tantamount to an instruction or invitation to use the article for the infringing use.

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  28. Really? Can you name one of these people and show me a quote?

    I’m not naming my colleagues, Mr. McCarthy, but please allow me to quote you some statute.

    “(b) Whoever actively induces infringement of a patent shall be liable as an infringer.

    (c) Whoever offers to sell or sells within the United States or imports into the United States a component of a patented machine, manufacture, combination, or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.”

    Here, the defendant can’t be liable for contributory infringement if the product has a substantial non-infringing use. That’s an explicit exception to contributory infringement carved out by Congress. Do you think Congress intended to essentially obliterate its explicit exception with the inducement category? I think it does stand to reason that if the product has a substantial non-infringing use, and the defendant did nothing to instruct or encourage users to use it in an infringing manner, then there is a problem with finding inducement.

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  29. would you consider it inducement if a seller of a product that is a direct infringement sells the product to a customer knowing that he will induce the customer to infringe, without more?

    Ned, the only way I can imagine that happening (disregarding importation as infringement) would be if the product is claimed and its method of operation or use is separately claimed. In that case, the fact that the product is patented is completely irrelevant to whether the seller is inducing the infringement of a separate method claim.

    You’d do the conventional inducement analysis, considering only the method claim. Can the product be used according to a non-infringing method? Does the product come with instructions?

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  30. It could be important if the frit sale is offshore.

    Well, now you’re changing the facts. If the sale is offshore, then that first sale is not “a direct infringement.”

    There might be inducement under your facts. It depends. Is that helpful?

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  31. Malcolm and Cy,

    It’s the facts in this Case.

    It could be important for damages.

    It could be important if the frit sale is offshore.

    So, don’t dodge the issue.

    Is it inducement?

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  32. For the sake of argument, what IS the “deliberate indifference to a known risk” here? How can a patent infringement risk be “known” if there is no knowledge by the of any patents covering the product and the product had no patent marking? Isn’t this de facto judicially imposing an affirmative burden to pay for a patent infringement search on anyone ordering a copy of any commerical product, even a quite ordinary low-tech product as here? Is this based on an assumption that almost all commercial products are covered by unexpired patents? [If that were really true, how is is we now have a growing flood of false-marking suits on products marked only with expired patents?]

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  33. Malcolm, would you consider it inducement if a seller of a product that is a direct infringement sells the product to a customer knowing that he will induce the customer to infringe

    Uh, Ned, that’s called “direct infringement,” whether or not the seller knows it is infringing. You don’t need vicarious liability where you already have direct infringement.

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  34. Malcolm, would you consider it inducement if a seller of a product that is a direct infringement sells the product to a customer knowing that he will induce the customer to infringe

    I don’t understand the question. “Seller of a product that is a direct infringement”?

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  35. Malcolm, would you consider it inducement if a seller of a product that is a direct infringement sells the product to a customer knowing that he will induce the customer to infringe, without more?

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  36. Cy If the claim reads on the modified product, then the accused inducer is a direct infringer, not an inducer. If not, but the “additional use option” is obvious to buyers of the modified product and is actually exploited by those buyers to infringe, then I would think the modification is pretty good evidence of “purposeful, culpable expression and conduct,” which would meet even Global-Tech’s standard.

    Again: if a product is unpatented and you sell the product without instructions to practice a patented method, there is no way that such such a sale can be found to be inducement under any theory — at least no theory that serves justice. The only possible exceptions I can think of arise in the context of component parts without any other use except for their assembly into a patented product (like a shrimp deveiner).

    Global-Tech takes the position that inducement of patent infringement under 271(b) requires “‘purposeful, culpable expression and conduct’ to encourage an infringement.” In other words, the accused party must possess the “purpose” of causing the infringement of a patent – even knowledge of infringement is insufficient.

    This is ridiculous.

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  37. As a general rule, it seems most people think there can be no inducement if the product has a substantially non-infringing use.

    Really? Can you name one of these people and show me a quote?

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  38. Global-Tech also argues that the Federal Circuit’s “deliberate indifference to a known risk” standard is lower than knowledge, recklessness, and even negligence.

    That didn’t fly before the Federal Circuit, who knew very well that deliberate indifference is tantamount to knowledge. It certainly won’t fly before the Supreme Court, who are even more familiar with criminal law precedent, and who are even less amenable to “I made sure not to know” as a defense against specific intent.

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  39. As a general rule, it seems most people think there can be no inducement if the product has a substantially non-infringing use.

    Then most people are wrong. But what does what “most people think” have to do with anything, anyway?

    I’ve always wondered what should be the outcome if the accused inducer modified an existing product so that, while it can continue to be used for an old, non-infringing use, it can now also be used for an infringing use, and the infringing use is the only additional use option created by the modification.

    If the claim reads on the modified product, then the accused inducer is a direct infringer, not an inducer. If not, but the “additional use option” is obvious to buyers of the modified product and is actually exploited by those buyers to infringe, then I would think the modification is pretty good evidence of “purposeful, culpable expression and conduct,” which would meet even Global-Tech’s standard. You could try to rebut that evidence with another explanation of why you went to the effort of adding an otherwise useless additional use option, I suppose, but a successful explanation would depend on it being otherwise useful, which violates the premise of your hypo.

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  40. As a general rule, it seems most people think there can be no inducement if the product has a substantially non-infringing use.

    I’ve always wondered what should be the outcome if the accused inducer modified an existing product so that, while it can continue to be used for an old, non-infringing use, it can now also be used for an infringing use, and the infringing use is the only additional use option created by the modification.

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