Presto Change-O: Can There be Liability for Pre-Issuance Activity Leading to Post-Issuance Infringement? Pending Legislation Provides a Retrospective Perspective

January 1, 2000 Advisory

"To swallow gudgeons ere they're catch'd,And count their chickens ere they're atch'd." Samuel Butler [1600-1680]

"This moral, I think, may be safely attached;Reckon not on your chickens before they are hatched." Jefferys Taylor [1792-1853]

"But Times do change and move continually." Edmund Spenser [1553-1599]

This article addresses a recent Federal Circuit opinion exploring the question of whether pre-issuance liability is properly imposed for active inducement to infringe a patent, under circumstances where the alleged inducer of infringement has actual knowledge that the patent is about to issue, and knows the scope of the allowed claims. The article also explores pending legislation that, if enacted into law, might provide a retrospective remedy against active inducement to infringe a patent after the application publishes, but before the patent issues.

I. DISCUSSION OF NATIONAL PRESTO INDUSTRIES INC. V. WEST BEND CO. 1

A. Introduction to the Case

National Presto (hereinafter "Presto") brought a patent infringement suit against West Bend based on a Presto patent 2 claiming a device that cuts vegetables into spiral curls. Presto introduced its vegetable slicer into the marketplace in April of 1991 under the name "Tater Twister". In June of 1991, upon hearing rumors that West Bend was developing a similar product, Presto's chairman told the president of West Bend that Presto had a patent pending. Further, Presto offered to disclose its patent claims to West Bend, in exchange for receiving the details of West Bend's vegetable slicer, to enable the parties to determine whether the West Bend's proposed product infringed Presto's claims. West Bend's president declined this offer. In September 1991, West Bend introduced its slicer into the marketplace under the name "Curly Crazy". In July and again in early-November 1991, West Bend entered into indemnification agreements with two customers to protect those customers against infringement suits related to the Curl Crazy product. In mid-November 1991, West Bend's president agreed to receive, and was sent a copy of, the allowed claims of Presto's pending patent application. The Presto patent issued on February 18, 1992, and Presto filed its patent infringement suit against West Bend on that day.

In bringing the suit, Presto argued that West Bend acted in bad faith by "flooding the market" with "imitation" vegetable slicers, knowing that the devices were intended to be used in violation of the Presto patent after the patent issued. The district court 3 found that West Bend infringed the Presto patent under the doctrine of equivalents, and that the infringement was willful, entitling Presto to an enhanced damages award. The district court also found that, as a matter of law, there could be no liability for pre-issuance activity leading to post-issuance infringement, and refused to give this question to the jury.

On appeal to the Federal Circuit, West Bend argued that the issue of willfulness is an "equitable" issue that should not have been given to the jury, and that, since the infringement suit was brought on the day that the patent issued, West Bend had no grace period after patent issuance during which it might have suspended infringing activities. On cross-appeal to the Federal Circuit on the issue of inducement to infringe, Presto argued that by flooding the market with "imitation" vegetable slicers during the months before the Presto patent issued, West Bend actively induced infringement to occur after the patent's issuance.

B. The Federal Circuit's Opinion Regarding Inducement to Infringe

At the outset of its determination with respect to Presto's cross-appeal on the issue of inducement to infringe, the Federal Circuit noted that this court had not directly addressed pre-issuance inducement previously. The federal Circuit also acknowledged that there are "cogent arguments of act, law, and policy" on both sides of the issue.

The Federal Circuit examined prior district court decisions relating to preissuance activity by alleged infringers resulting in infringement or inducement to infringe the claims of pending patent applications. In one case, the Delaware district court held that "if the Plaintiff could prove that Defendants knew that a patent would issue and that its claims would cover Defendants' products, then there is no reason why a defendant could or should escape liability for inducement on infringement." 4 In another case, the district court for the Eastern District of Pennsylvania looked approvingly on that decision of the Delaware district court, noting that the party "most responsible for the infringement (i.e., the inducer) is held culpable for the inventor's loss in the marketplace, noting that the inventor would otherwise be forced to "scour the marketplace" searching for direct infringers. 5 In yet another case, the Delaware district court held that a party having knowledge of the existence of a pending patent application, and of the claims of the patent application, could be liable for inducement to infringe. 6

In rendering its opinion with respect to inducement, the Federal Circuit reasoned that the act of inducement is prospective, inasmuch as the direct infringement occurs later in time that the inducement. Since no patent existed at the time of the inducement, the court reasoned that there cannot be a violation of Section 271(b) 7 since there is no proper violation of a right that does not yet exist. On this basis, the Federal Circuit held that, as a matter of law, Section 271(b) does not cover active inducement actions taken before a patent has issued. The Federal Circuit noted that it had not previously directly addressed the question of pre-issuance inducement to infringe, although it had previously determined in Water Technologies Corp. v. Calco, Ltd. 8, that the language of Section 271(b) stating that "whoever actively induces infringement of a patent shall be liable as an infringer" provides a remedy against actively and knowingly aiding and abetting another's direct infringement." Thus, the Federal Circuit concluded in Presto that the act of inducing infringement can begin only if, and when, the patent issues.

Nonetheless, the Federal Circuit closely examined pre-issuance acts by the alleged infringer regarding the question of direct infringement of the Presto patent.

C. The Federal Circuit's Holding on Willful Infringement

In examining the district court's jury determination that there was willful infringement by West Bend, entitling Presto to enhanced damages, the Federal Circuit examined the elements of a claim of willful infringement. These elements include considerations of intent, state of mind, and culpability. In affirming the district court's determination of willfulness, the Federal Circuit noted that West Bend did not obtain a written opinion of counsel regarding invalidity or non-infringement of Presto's patent until eleven months after the patent issued, even though West Bend had several months advance notice that the Presto patent was about to issue.

Clearly, active inducers who are also direct infringers can take small comfort from the Federal Circuit's finding that there was no basis for active inducement in the Presto case. The risk of a finding of willfulness is clearly present if a potential infringer has actual knowledge that an apparently-infringed patent is about to issue, but does not take immediate steps to obtain a written opinion of counsel that either (a) there is no infringement, or (b) the about-to-issue patent is invalid or unenforceable. A finding of willfulness subjects the infringer to enhanced liability of up to treble damages.

II. LEGISLATIVE IMPACT

In early 1997, legislation was introduced that, if enacted, would provide another tool in the patentee's arsenal against infringers. HR 400 9, introduced before the 105th Congress on January 9, 1997, would create pre-issuance "provisional rights" upon mandatory publication of the patent application eighteen months after its filing date in compliance with GATT. Title II of HR 400 would permit a patent owner to collect a reasonable royalty for a period of infringing use, beginning after the patent application publishes, and continuing up until the patent issues. This entitlement to provisional royalties would be subject to the requirement 10 that the invention claimed in the published application by "substantially identical" to those of the later-issued patent. This royalty is available only in an action brought within six years after the patent has issued. 11

Clearly this provisional royalty remedy is retrospective since the determination that the claims of the published application are "substantially identical" to those of the issued patent cannot be made until a set of claims is allowed by the Patent Office. By logical extension, the existence of these provisional rights could provide a basis for not only a patentee's assertion of those rights against a direct infringer, but also against one who actively induces infringement of the claims of the patent application embodying those rights. Under these circumstances, the general rule that the Federal Circuit stated in Presto that liability for inducement to infringe under Section 271(b) "does not lie when the acts of inducement occurred before there existed a patent to be infringed" might properly be reconsidered by the this court. The "eighteen month publication" of the application provides the kind of public notice and opportunity for provisional remedies that makes retrospective application of Section 271(b) practical, and perhaps desirable from a public policy standpoint in the face of wrongful inducement of infringement.

III. PUBLIC POLICY CONSIDERATIONS

Derived from the common law, the concept of active inducement to infringe a patent places a shared burden of liability of the wrong-doer (i.e., the infringer) and the inducer whose actions will inevitably lead to a wrongful act (i.e., infringement) by the wrong-doer. Under the existing patent system in the United States, patent applications are maintained in secrecy until the patent issues. Oftentimes, potential infringers have no way of knowing that a competitor's U.S. patent application exists, much less how the claims of the application read. Enactment of the above-discussed legislation would provide certainty regarding the existence of a competitor's patent application eighteen months after its filing date. However, there is no certainty that the claims of the published application will be identical to those of the later-issued patent upon which the application is based, or that the application will ultimately issue as a patent. Nonetheless, this legislation, if enacted, might cause the Federal Circuit to consider anew its decision that, as a matter of law, Section 271(b) does not reach actions taken with respect to inducement to infringe before issuance of a patent, particularly where those actions wrongfully "aid or abet" infringement in the face of actual or constructive knowledge by the inducer of the infringed published application.

IV. CONCLUSION AND OUTLOOK

The Presto decision provides certainty that Section 271(b) does not cover inducement to infringe actions taken before issuance of a patent. A party cannot actively induce infringement of a patent that does not yet exist, even in the face of actual knowledge that a patent is about to issue with a certain claim scope. To avoid the risk of liability for willful infringement, however, a competent, written opinion of counsel is essential to show that the patent is invalid, unenforceable, or not infringed.

Pending legislation offers hope that a remedy will become available against those who actively induce infringement of the claims of an application published under the "eighteen month publication" rule. Enactment of this proposed legislation, in light of the requisites of good patent practice, will necessitate that such competent opinion of counsel be obtained at an early date after publication of the application.

ENDNOTES

1. 76 F.3d 185; 37 USPQ2d 1685 (Fed. Cir. 1996).

2. United States Patent No. 5,089,286 (herein "the Presto patent"). Claim 1 of the Presto patent reads as follows:

    1. A vegetable cutter, comprising:

      a frame having an open end and defining a retention compartment,
      a container defining a retention chamber which is configured for reception within the retention compartment,
      a means for rotating a vegetable retained within the retention compartment,
      a blade assembly operably coupled to the container for slicing a vegetable retained within the retention compartment as the vegetable is rotated by the rotating means,
      wherein the sliced vegetable passes into the retention chamber defined by the container.

3. National Presto Industries Inc. v. The West Bend Co., 28 USPQ2d 1040 (D.C.W.D. Wisconsin, 1993).

4. Procter & Gamble Co. v. Nabisco Brands, Inc., 604 F. Supp. 1485, 225 USPQ 929 (D. Del. 1985).

5.Mixing Equipment Co. v. Innova-Tech, Inc., 2 USPQ2d 1212, at 1214 (E.D. Pa., 1986).

6.Upjohn Co. v. Syntro Corp., 14 USPQ2d 1469 (D. Del., 1990). See also Jones v. Radio Corp. of Am., 131 F. Supp. 82, 106 USPQ 170 (S.D.N.Y. 1955) wherein it is stated that "even though Union Carbide's acts were all performed prior to issuance of the patent, if they were performed with intent to infringe the patent when issued or with intent that the infringing conduct continue after the patent was issued, they constitute infringement".

7.35 U.S.C. 271(b).

8.850 F.2d 660, 7 USPQ2d 1097 (Fed. Cir. 1988).

9.HR 400, the so-called "The Twenty-First Century Patent System Improvement Act", introduced into the 105th Congress on January 9, 1997 by Rep. Coble, is an updated version of HR 3460, approved by the House Judiciary Committee during the 104th Congress. A new 35 U.S.C. 154(d) provision of HR 400 would create pre-issuance "provisional rights", entitling a patent owner to reasonable royalties for infringing uses during the period from publication of the application until the patent issues.

10.See HR 400, Title II, proposed new 35 U.S.C. 154(d)(2) requiring that the claims of the patent be "substantially identical to the invention as claimed in the published patent application" for the right to reasonable royalties to accrue.

11.See generally HR 400, Title II, proposed 35 U.S.C. 154(d)(3).