Electronic Design
Mitigating Risk of Liability for Induced Infringement in a Global Economy

Mitigating Risk of Liability for Induced Infringement in a Global Economy

Here’s what you need to know about induced patent infringement when manufacturing/selling products overseas to third parties, and then they import the products back into the U.S.

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Dori Johnson Hines, Partner, Finnegan, Henderson, Farabow, Garrett

U.S. technology companies often design products in the United States and then manufacture and sell those products overseas. In the semiconductor and integrated-circuits arena, in particular, companies frequently design chips and components in technology hubs like Silicon Valley, and then manufacture and sell them overseas to end-product manufacturers who incorporate them into consumer products like phones, tablets, and computers.

One area in which this business model can clash with U.S. law is in the field of patents. As explained in this article, chief technology officers and others on the design and product documentation side can play a key role in mitigating the risk of patent infringement should some of those consumer end products eventually be imported into the United States.

Justin A. Hendrix, Associate, Finnegan, Henderson, Farabow, Garrett

Whether a company may be liable for patent infringement based on products manufactured overseas hinges on what happens post-manufacture. If the company imports the product into the U.S., it could be liable for direct infringement. On the other hand, if the company sells the product overseas and it remains there, there’s no infringement. That’s because, under U.S. patent law, infringement occurs only when someone, without permission from the patent owner, makes, uses, offers to sell, sells, or imports the patented invention within the United States.1

A more difficult scenario arises when, as is frequently the case with ICs and components, the product is sold to an end-product manufacturer overseas and it’s incorporated into a consumer product that’s then imported into the United States. The design company may not be liable for direct infringement because sale of the IC or component occurred overseas. But it could be liable for indirect infringement, namely, inducing the end-product manufacturer to infringe.

Induced Infringement

Under a theory of induced infringement, a tech company that sells products overseas could be liable for U.S. patent infringement where, for example, an end-product manufacturer imports the company’s product into the United States and directly infringes a U.S. patent. To be liable for the end-product manufacturer’s infringement under an induced-infringement theory, the tech company must have known of the patent, known that its actions would result in infringement, and have intended to cause the infringement.2

When litigated in court, the dispute often centers on the intent requirement; namely, whether the tech company intended for the infringement to occur. Rarely will one find a smoking gun that shows a company’s intent to infringe.

Patent owners asserting infringement, therefore, often look to circumstantial evidence of intent that might exist in items such as datasheets, user manuals, and product guides. Even if a tech company believes it did not intend to infringe, if the product documentation suggests otherwise, there may still be a finding of induced infringement. By considering recent examples in which tech companies faced this situation, CTOs and others responsible for product design and documentation can be mindful of ways to mitigate the risk of liability for induced infringement if third parties import the company’s overseas products into the United States.

Technical Documents/Support as Proof of Intent to Induce Infringement

In a case involving LED driver products sold overseas, the court considered whether technical documentation for the products showed intent to induce infringement in the United States.3 The drivers provided functionality for, among other things, LED backlighting in devices such as phones. According to the patent owner, the supplier for the LED drivers, Kinetic Technologies, induced Samsung to infringe by providing Samsung with the LED drivers that were incorporated into phones manufactured overseas and then later sold in the United States.

In evaluating whether Kinetic Technologies intended Samsung to infringe, and was therefore liable for the infringement, the court looked to product datasheets and the technical support Kinetic offered Samsung. The court found that the datasheets did not show intent to induce infringement because, first, they did not show any encouragement or desire for Samsung to import its phones into the United States. Second, the court explained that the datasheets did not contain instructions on how to use the accused products in an infringing manner.

Regarding the technical support that Kinetic had provided to Samsung, the court found that the support was not specifically directed to inducing Samsung to infringe. In other words, neither the datasheets nor the technical support provided a sufficient link between the LED drivers and Samsung’s alleged infringement to conclude that Kinetic intended for Samsung to infringe.   

In a case involving cache management, the court similarly found that product manuals, datasheets, and product instructions did not show intent to induce infringement.4 There, the patent owner had accused Intel of inducing its customers to infringe by selling them processors that were designed with mechanisms for cache coherence. When a product can be used both in an infringing way and a non-infringing way, the court explained, the evidence showing that the accused party teaches the infringing use would show intent.

Although the technical documents described how Intel’s processors worked, the court found those documents did not teach customers how to use the processors in an infringing manner. Further, the court explained, the documents did not recommend, encourage, or promote using the processors in an infringing manner. Simply describing the processor’s functionality, the court concluded, is not enough to demonstrate intent to induce infringement. 

Insight into OEM Supply Chain as Proof of Intent to Induce Infringement

Whether a company intends to induce infringement may also hinge on whether it knew products that it initially sold overseas were later imported into the United States. At issue in one recent case was a global supply chain involving lenses made by Genius Electronic Optical for use in digital cameras in smartphones and tablets.5

As part of the supply chain, Genius sold lenses to module integrators overseas who incorporated the lenses into cameras. The module integrators then sold the cameras to system integrators overseas, who subsequently incorporated the cameras into phones and tablets. Apple and Motorola then sold the final products, including some in the United States.

Genius did not dispute that its lenses infringed the patents at issue, but argued that it had no insight into Apple’s and Motorola’s supply chains, and had no idea whether its lenses were incorporated into products that were later sold in the United States. Because the phones and tablets had more than one supplier for the lenses, for all it knew, none of its lenses ever entered the United States. The court agreed.

As the court explained, because it was plausible that none of Genius’ lenses entered the United States, Genius could not have knowledge of infringement by any Apple and Motorola products in the United States, and thus could not have induced infringement. Further, the court explained, Genius was not willfully blind to whether its lenses entered the U.S., which might have supported a finding of intent.

To show willful blindness, the court explained, Genius must have subjectively believed a high probability existed that its lenses entered the United States and must have taken deliberate actions to avoid learning the truth. But Genius was at best deliberately indifferent to whether its lenses entered the U.S., the court concluded, and such indifference does not rise to the level of intent needed to induce infringement.

Takeaways

These cases provide examples of how to mitigate the risk of liability for induced infringement if you manufacture and sell your products overseas, but third parties eventually import some of those products into the United States. As these examples reveal, merely describing the functionality of a product might not show intent to induce infringement. But if the companies had recommended or encouraged others to use the products in a certain way, or had promoted using the products in a certain way by touting the benefits and results of such use, a different result might have occurred.

If you do not need to recommend or promote using your products in a certain way, describing only the functionality of your product in the datasheets and product guides can help mitigate the risk of liability for induced infringement. In addition, as with the company in the last example, putting products into a supply chain overseas without knowledge of where those products are eventually sold might buffer you from liability for induced infringement.

References:

1. 35 U.S.C. § 271(a).

2. Commil USA, LLC v. Cisco Sys., Inc., 135 S.Ct. 1920, 1928 (2015); Microsoft Corp. v. DataTern, Inc., 755 F.3d 899, 904 (Fed. Cir. 2014).

3. Skyworks Sols., Inc. v. Kinetic Techs., Inc., No. 14-CV-00010-SI, 2015 WL 881670 (N.D. Cal. Mar. 2, 2015).

4. Memory Integrity, LLC v. Intel Corp., 144 F. Supp. 3d 1185 (D. Or. 2015).

5. Largan Precision Co, Ltd v. Genius Elec. Optical Co., 86 F. Supp. 3d 1105 (N.D. Cal. 2015). The U.S. Court of Appeals for the Federal Circuit affirmed the trial court’s decision. Largan Precision Co. v. Genius Elec. Optical Co., 646 F. App’x 946 (Fed. Cir. 2016).


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