By Jason Rantanen (note that you can now follow me on Twitter @PatentlyO_Jason). For the sake of disclosure: while I was in practice I represented Cisco in an unrelated patent infringement litigation involving wireless technology.
Commil USA, LLC v. Cisco Systems, Inc. (Fed. Cir. 2013) Download 12-1042.Opinion.6-21-2013.1
Panel: Newman (concurring-in-part, dissenting-in-part), Prost (author), O'Malley (concurring-in-part, dissenting-in-part)
Cisco appealed from a jury finding that it induced infringement of Commil's patent. The primary issues addressed by the court were a pre-Global-Tech jury instruction and the appropriateness of considering validity when determining whether the accused party posessed the requisite state of mind for inducement of infringement. All three judges on the panel agreed that the jury instruction was both erroneous and prejudicial while Judges Prost and O'Malley agreed that issues of validity may be considered in the intent inquiry.
Jury Instruction for Inducement: During the April 2011 trial, the jury was given the following instructions relating to inducement:
If you find that a third party has directly infringed Claim 1, 4, or 6 of the '395 patent,
then Commil must prove by a preponderance of the evidence that Cisco actively and knowingly aided and abetted that direct infringement.
Furthermore, Commil must show that 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. Inducing third-party infringement cannot occur unintentionally. This is different from direct infringement, which can occur unintentionally. Cisco also cannot be liable for inducing infringement if it was not aware of the existence of the patent.
If you find that a third party has directly infringed Claim 1, 4, or 6 of the '395 patent
and that Cisco knew or should have known that its actions would induce direct infringement, you may find that Cisco induced another to infringe Commil's patent if it provided instructions and directions to perform the infringing act through labels, advertising, or other sales methods.
(Emphasis added). Note that the court's opinion contains only bits and pieces of these instructions. In order to obtain them in their entirety, I pulled the April 8, 2011 trial transcript via Lex Machina.
The jury found in Commil's favor and award it $63,791,153 in damages. Approximately two months later, the Supreme Court issued its opinion in Global-Tech v. SEB, in which it held that induced infringement "requires knowledge that the induced acts constitute patent infringement," a requirement that can be satisfied either through actual knowledge or willful blindness. 131 S.Ct. 2060, 2068, 2072 (2011). Based on Global-Tech, Cisco argued that the "should have known" language in the above jury instruction erroneously permitted the jury to find that it liable based on a negligence standard.
On appeal, the Federal Circuit agreed with Cisco that the instruction was legally erroneous under Global-Tech and that the error was prejudicial to Cisco. "With respect to whether the induced acts constitute patent infringement, it is clear that the jury was permitted to find induced infringement based on mere negligence where knowledge is required. This erroneous instruction certainly could have changed the result. Facts sufficient to support a negligence finding are not necessarily sufficient to support a finding of knowledge." Slip Op. at 8.
Issues of Validity May Negate Intent: Cisco also argued, and the majority agreed, that it should have been allowed to present evidence relating to its good-faith belief that the asserted claims were invalid. Just as a good-faith belief of non-infringement is relevant to the intent inquiry for inducement, so too is a good-faith belief about the invalidity of the claims relevant:
It is axiomatic that one cannot infringe an invalid patent.  Accordingly, one could be aware of a patent and induce another to perform the steps of the patent claim, but have a good-faith belief that the patent is not valid. Under those circumstances, it can hardly be said that the alleged inducer intended to induce infringement. Thus, a good-faith belief of invalidity is evidence that may negate the specific intent to encourage another’s infringement, which is required for induced infringement. Several district courts have considered this question and come to the same conclusion.
We now hold that evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.1 This is, of course, not to say that such evidence precludes a finding of induced infringement. Rather, it is evidence that should be considered by the fact-finder in determining whether an accused party knew “that the induced acts constitute patent infringement.” Global-Tech, 131 S. Ct. at 2068.
Slip Op. at 10-11 (internal citations omitted).
Judge Newman's Dissent: Judge Newman dissented as to the validity component of the court's ruling. In her view, the only intent issue involved in inducement the question of infringement; an infringer's belief as to the validity of the patent plays no rule in the determination of inducement:
A defendant’s ultimate liability for induced infringement, as for direct infringement, is subject to various defenses including patent invalidity and unenforceability. However, 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. This rule applies, whether the infringement is direct or indirect. My colleagues err in holding that “evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.” Maj. op. at 11.
Slip Op. at 22. One difficulty with Judge Newman's position is that she bases it on the principle that "A mistake of law, even if made in good faith, does not absolve a tortfeasor." Slip Op. at 21. This principle, however, would seem to apply as much to mistakes about infringement – which Judge Newman agrees are relevant to the question of inducement – as it would to mistakes about validity. Both can involve mistakes about fundamentally legal questions or the application of law to fact. (I've also argued in the past that this tort principle does not translate well to patent law [p. 1617-1620]).
The New Trial Issue and Judge O'Malley's Dissent: During the initial trial, according to the district court, "Cisco's trial counsel attempted to play upon religious prejudices and other ethnic stereotypes." Slip Op. at 12. After Commil lost on indirect infringement, the district court granted it a partial new trial on the issues of infringement and damages (that's the trial discussed above). All three judges agreed that the district court did not abuse its discretion in granting Commil a new trial. However, the district court also declined to include issues of validity in the new trial, a decision affirmed by Judge Prost joined by Judge Newman.
Writing in dissent, Judge O'Malley disagreed that the district court's decision to grant Commil a new trial on the issue of infringement while not allowing Cisco a new trial on the issue of validity survived Seventh Amendment scrutiny. Judge O'Malley also would have addressed "Cisco's potentially dispositive arguments regarding whether Commil did or ever could prove the third party direct infringement which is a necessary predicate to Commil’s induced infringement claim." Slip Op. at 26.