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Patent Case Draws Concern

3/21/2011 --

Ross professor co-authors amicus brief in a Supreme Court case she hopes will settle a patent law issue.

ANN ARBOR, Mich. — A case now before the U.S. Supreme Court could have a profound impact for business on patent infringement liability, legal costs, and innovation, says Ross professor Lynda Oswald.

The Court is set to decide whether to uphold a standard set by lower federal courts for inducing patent infringement in Global Tech Appliances Inc. vs. SEB S.A. Oswald — who co-authored an amicus brief in the case with professors Timothy Holbrook of Emory Law School and Mark Lemley of Stanford Law School — and other academics think the standard is at odds with precedent. It could stifle innovation and lead to more litigation, they predict.

Inducing infringement is a form of secondary liability — a situation where one party incurs legal responsibility for the actions of another. U.S. law allows patent holders to sue both those who directly infringe on a patent and those who actively induce infringement.

At issue is the state of mind of a company accused of inducing infringement. The courts in this case so far have ruled that deliberate indifference is enough to have induced a patent infringement.

But Oswald and other professors think such a low standard creates a slippery slope.

"That kind of standard can open up all kinds of cases, which we really don't want to see," says Oswald, Michael R. and Mary Kay Hallman Fellow and professor of business law. "For example, you could do a patent search and a court could rule your patent search wasn't thorough enough, not realizing that it's not easy to do patent searches. It's very difficult, in fact. So if we stick with this indifference test, it's leading us down that path, which is concerning."

The case involves an affiliate of Global Tech Appliances, Pentalpha, which was asked by Sunbeam to develop a deep fryer. Pentalpha studied several models on the market, including SEB's, before designing and building one in China. Pentalpha hired an attorney to do a patent search but did not advise him of the fryers it looked at before developing its own. The attorney didn't locate SEB's patent and told Pentalpha that its design didn't appear to violate any patents.

Sunbeam eventually sold the fryers in the United States and SEB sued for patent infringement. Sunbeam settled a direct patent infringement case with SEB. The issue of intent doesn't apply in a direct infringement case.

But Global Tech argued that Pentalpha shouldn't be held responsible for inducing infringement since it didn't have actual knowledge of SEB's patent. Global Tech argues that the district court and the appeals court used the wrong standard to determine inducement of infringement.

Oswald says the statute on patent inducement isn't clear on the issue of intent. Courts have used precedent in patent law cases in copyright cases and that precedent has found its way back to patent cases.

But Oswald and the other professors say the lower courts' rulings in this case run counter to the Supreme Court's last word on the issue in a case known as MGM Studios Inc. vs. Grokster Ltd. There the Supreme Court drew upon patent law to rule in a copyright case, saying that active steps are required to be held liable for inducement.

"It would be peculiar if this Court, having drawn the specific intent requirement from patent law into copyright law, then concluded that patent law didn't have any such requirement after all," states the amicus brief signed by Oswald and about 40 other professors.

Oswald says the worry is that if the Supreme Court upholds the lower courts' standard, it will discourage innovative companies from developing new products because what was once acceptable behavior could then lead to liability. It also could widen the burden of liability, which would impact companies with global supply chains.

But the good news is that whichever way the Supreme Court rules, businesses will at least have a clear standard to follow.

"We'll get a resolution one way or the other, even if it's not the one business wants," Oswald says. "They at least need a rule so they can structure their behavior and know what to look out for."

—Terry Kosdrosky

For more information, contact:
Terry Kosdrosky, (734) 936-2502,