Summer 2011

Business in the U.S.



U.S. Supreme Court Raises Standard for Induced Patent Infringement to Require Knowledge of Infringement of “Willful Blindness”

On May 31, 2011, the U.S. Supreme Court issued its decision in Global-Tech Appliances, Inc. v. SEB S.A., holding that inducement of infringement under 35 U.S.C. § 271(b) requires knowledge that the induced acts constitute patent infringement. The Court held that the Federal Circuit’s standard, which required a showing of “deliberate indifference of a known risk” of infringement, was insufficient to meet the knowledge requirement of § 271(b). Instead, the Court held that actual knowledge may be shown under the doctrine of “willful blindness” by showing that a party (i) subjectively believed that there was a high probability of patent infringement and (ii) made a deliberate effort to avoid learning of the infringement. Finding the record sufficient to support a finding of knowledge under the “willful blindness” standard, the Court affirmed the Federal Circuit’s opinion.

Plaintiff SEB owned a patent for a deep fryer. Defendant Pentalpha purchased a foreign SEB deep fryer (unmarked with a U.S. patent number) and, looking to develop a competing product, copied all but the cosmetic features. Pentalpha obtained a right-to-use opinion of counsel but failed to inform the opinion counsel that it had copied SEB’s product and the opinion counsel’s search did not reveal SEB’s patent. Absent knowledge of the SEB product or any patents that may cover the SEB product, the opinion counsel opined that Pentalpha’s product did not infringe any patents he had found. Pentalpha then began selling the accused product in the United States.

Lower Court Proceedings
A jury found that Pentalpha had both directly infringed and induced infringement of SEB’s patent. On appeal, the Federal Circuit affirmed the judgment (despite finding no evidence that Pentalpha had direct knowledge of SEB’s patent) upon finding that Pentalpha was “deliberately indifferent to a known risk” of patent infringement.

The Supreme Court’s Decision
The Court made clear that knowledge that the induced acts constitute patent infringement is required but also held that “willful blindness”—a subjective belief that there is a high probability that a fact exists coupled with deliberate actions to avoid learning of that fact—would be sufficient to establish knowledge. The Court rejected the “deliberate indifference” standard finding that it (i) allowed for liability when there is merely a “known risk” that the induced acts infringe and (ii) did not require effort to avoid learning of the infringement.

The Court held that the evidence—including the novelty of the claimed invention, Pentalpha’s decision to copy a foreign version of SEB’s patented product knowing that foreign products typically are not marked with U.S. patent numbers, and Pentalpha’s decision not to inform its patent counsel that its product was a copy of SEB’s product—satisfied the knowledge element under the “willful blindness” standard. The Court held that a jury could have found that Pentalpha willfully blinded itself to the high risk that its product was infringing SEB’s patent and that it was inducing others to do the same. Therefore, the Court affirmed the Federal Circuit’s opinion.

(Additional details are provided in the A&B Intellectual Property Advisory issued on June 10, 2011.)

For more information:
Michael S. Connor
(704) 444-1022  

John W. Cox, Ph.D.
(404) 881- 7333  

U.S. Export Controls Reform

In 2009, President Obama announced that the United States would review and reform its export control laws. The present U.S. export control system consists of three principal agencies and three sets of laws and regulations:(1) the Bureau of Industry & Security (BIS), which administers the Export Administration Regulations (EAR); (2) the Directorate of Defense Trade Controls (DDTC), which administers the International Traffic in Arms Regulations (ITAR); and (3) the Office of Foreign Assets Control (OFAC), which administers numerous Executive Orders and statutory powers in comprising U.S. economic sanctions policies. The White House recognized that this system is confusing and burdensome on exporters and the burden does not appropriately reduce national security risks. The White House, in connection with its desire to significantly increase U.S. exports, also recognized that present U.S. export controls are often too broad, controlling items that are readily available outside the United States, thereby hindering U.S. exports.

After a study that ended in 2010, the White House proposed to create an entirely new U.S. export control system with “four singularities:”

1. A single list of controlled items with three tiers of control policies.
2. A single licensing agency
3. A single enforcement agency.
4. A single information technology system.

Presently, implementation of the reforms towards the four singularities is underway. At this time, the White House is close to having a single “Information Technology” (IT) system, having decided that the Department of Defense system will be available to DDTC later this year and to BIS within a year. Also, a single Export Enforcement Coordination Center (EECC) will be physically created in August, 2011 to assist and coordinate Immigration & Customs Enforcement (ICE), the BIS Office of Enforcement and the Federal Bureau of Investigation (FBI) in their export control enforcement efforts.

The most ambitious task being undertaken in 2011 (and beyond) is to align the two lists of controlled items–the ITAR’s U.S. Munitions List (USML) and the EAR’s Commerce Control List (CCL). This requires modifying the USML into a positive list structured like the CCL. It also requires harmonizing the definition of terms used in both lists, such as “technology” and “technical data” vs. “specially designed” vs. “specifically designed.” It also requires developing control levels for all items, i.e., putting each item into one of the three tiers of export controls which will determine the level of control applicable, such as license requirements. In addition to controls based on the classification of exported items in one of the three control policy tiers, it is expected that the reformed U.S. export control system will retain so-called “catch-all” controls based on end users and end uses of concern.

Each of these changes will involve proposed and final regulations. The public is encouraged to comment on the proposals.

Full realization of the reform effort will require legislation, specifically, to create a single agency and a single list of controlled items. At this time, there is no time schedule for this action and indeed, legislation to implement these significant changes has not even been proposed by the White House or Congress.

There are some issues that the export control reform will not address or change. Most significantly, it will not change the United States’ exercise of jurisdiction over transactions outside the United States that involved an item or person subject to U.S. jurisdiction. Thus, the EAR’s de minimis rules for determining when items made outside the United States but which have United States content are subject to U.S. reexport controls will remain. Additionally, there are some members of Congress opposed to changing the current levels of control, which may simply mean that the control of items will be set out in two separate but harmonized lists, with a single enforcement “coordination” agency.

Additional details are provided in the following A&B International Trade & Regulatory Advisories:
Export Control Reform: Key Insights and Status Update issued on April 25, 2011
The USML-to-CCL Rule: Export Control Reform Takes Shape issued on July 28, 2011

For more Information:
Kenneth G. Weigel
(202) 239-3431

This publication by Alston & Bird LLP provides a summary of significant developments to our clients and friends. It is intended to be informational and does not constitute legal advice regarding any specific situation. This material may also be considered attorney advertising under court rules of certain jurisdictions.

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