A Patently Good Idea

To executives in the medical device community, the routine was well known: The company learns about a competitor’s patent that might apply to the company’s products and asks its lawyers to investigate. If adequate grounds exist, those lawyers write an opinion that the patent is invalid or does not apply to the product. A few years ago, however, the routine changed. It was no longer necessary to get an opinion. Then, the routine changed again: An opinion might be a good idea in some circumstances. Most recently, it has once again become virtually necessary for the company to get that legal opinion—sometimes. Confused yet?

The changes that produced these new rules arise from the concept of inducement of infringement. Inducement is to patent law what aiding and abetting is to criminal law. In both instances, liability flows from assisting a third party in doing wrong. And in both instances, innocent intent is a defense. If you do not know that the third party is doing wrong, your unwitting assistance may carry no penalty.

Inducement often arises in the medical device world. Many medical patents relate to the actions of the immediate caregiver; i.e., the doctor who directly does whatever the patent covers and, therefore, directly infringes. The company that provides the training or the equipment, knowing that the doctor will thereby infringe the patent, is liable for inducing the infringement. Conversely, a company that provided key assistance to the doctor, but did so without intending to cause infringement, is not liable for inducing, no matter what the doctor actually did.

As an example, in 1984 Tom Mazzocco, M.D., one of the pioneers in cataract surgery, developed a method for implanting an artificial lens in the patient’s eye following extraction of the clouded natural lens. The technique involved folding the lens, sliding it into the eye through a much smaller incision than the unfolded lens would have required, and then unfolding the lens in place behind the pupil. Dr. Mazzocco obtained a patent on this technique, and he started a company, Staar Surgical, to make lenses that could be folded and unfolded in this manner. (The lenses were referred to as “Mazzocco Tacos.”) Others doctors immediately saw the benefit and began practicing Mazzocco’s patented technique. Some lens companies were making lenses in material sufficiently flexible that they could be folded but had no notion that doctors would do that with their particular lens. Those companies did not intend for the doctors to perform the technique covered by the Mazzocco patent with the companies’ lenses, even though many of them did. The companies were therefore not liable for inducement. Other companies, however, specifically made lenses to be folded, trained doctors and nurses in the folding and unfolding steps, and knew and intended that their customers would practice the exact invention of the patent. Those companies that did so without authorization from Staar were liable for inducement of infringement. (The Mazzocco patent expired a number of years ago. More than a million patients per year still benefit from Mazzocco’s innovation.)

It’s in addressing these commercial activities that counsel’s opinion on the applicability or invalidity of the patent can protect a device company from liability for inducing infringement. If the person providing the aid—the accused inducer—does not believe that the doctor’s underlying actions are an infringement, then there is no inducement. What better basis for confirming such a belief than a legal opinion?
 

A Patent Tutorial
 

A brief description of how patents work will help to clarify the concept of inducement. To start, the coverage of a patent is defined by its claims. A claim is a single sentence listing all the elements that make up the invention. Claims generally come in two varieties: product claims and method claims. A product claim covers a thing, while a method claim recites steps to be taken, much like a cookbook recipe or, more relevant here, a medical procedure. Someone who performs each step of a patent claim directly infringes that patent.

Patent infringement is a strict liability wrong. In other words, the state of mind of the infringer does not matter to the question of liability. The infringer does not even have to know the patent exists. Rather, anyone who makes, uses, or sells a product that has all the elements of a product claim directly infringes the claim. Likewise, anyone who performs all the steps described in a method claim directly infringes the method claim.

But the infringer’s state of mind does matter in determining the quantum of damages. Someone who intentionally or recklessly infringed a patent might face a judgment up to three times the size of the judgment granted against the identically situated innocent infringer. In the past, an opinion of counsel was critical to the question of the infringer’s intent. An opinion that the patent was inapplicable or invalid proved the infringer’s innocent intent. The mere fact that the infringed had not obtained an opinion was sufficient evidence of bad intent to support trebling of damages.

In two rulings, however, the U.S. Court of Appeals for the Federal Circuit—the appellate court responsible for patent law—reduced the significance of patent opinions. First, the court ruled in 2004 that the absence of an opinion of counsel implied nothing.¹ Second, the court subsequently established a new standard under which it is very difficult to find any infringement "willful,” and therefore, subject to treble damages.²

The Federal Circuit was not done with patent opinions, however. Again, it took two steps to get where we are now. Before 2006 it was commonly understood that a company could be liable for inducement of infringement if it merely knew of the patent and intended for a third party to take the actions that resulted in infringement.³ But then, in DSU Medical v. JMS Co., the Federal Circuit clarified that a defendant could only be liable for inducement if the defendant meant for the third party actually to commit the tort of patent infringement. In the court's words, the defendant in the DSU Medical ruling “knew or should have known his actions would induce actual infringement.”⁴ A variety of factors, including failure to obtain an opinion of counsel, could be used to demonstrate that intent.

The second step was a logical progression of the first. In Broadcom Corp. v. Qualcomm Inc., Broadcom accused Qualcomm of inducing Qualcomm’s customers to infringe.⁵ Qualcomm argued that it had no such intent. The court, however, cited the fact that Qualcomm had not commissioned an opinion of counsel as evidence that it knowingly caused its customers to infringe and was therefore liable as an inducer. It therefore seems that if inducement is the issue, an opinion of counsel is required not merely to minimize damages but to avoid liability in the first place.
 

Identifying Inducement

As this summary suggests, patent opinions are unnecessary some of the time, but if inducement is in play, they become almost mandatory. Medical device companies are particularly subject to charges of inducing infringement. Sometimes, it is not the device that is new, but the procedure. As a result, while the equipment is not patented, the process of using that equipment in the procedure is. A company manufacturing that equipment and promoting or encouraging its use in the patented medical procedure could be liable for inducing infringement.⁶

Other times, as in DSU Medical, the patent may be directed to an assemblage of parts that only come together at the patient’s bedside. Consider, for example, the many medical machines that include a single-use-only component. Although the supplier of that disposable component may be providing a unit of comparatively small value, it may be what completes the machine and thereby creates the infringing combination. Inducement liability could follow.

The trick, therefore, is recognizing when the question is one of direct infringement and when the question is one of inducement. The cases in question provide some guidance.

In DSU Medical, the DSU patent covered a needle with a specific needle guard. The defendant manufactured the Platypus, a needle guard. The defendant sold the Platypus by itself, without a needle, but clearly with the expectation that it would be combined with one.

DSU demonstrated that the defendant knew of the DSU patent and that it further had encouraged the end user to combine the Platypus with a generic needle to create an infringing combination. Therefore, DSU argued, the defendant induced infringement. On the other hand, the defendant provided evidence that it believed that the combination of the Platypus with a needle would not infringe DSU’s patent because the Platypus employed a different design than the guard described in the DSU patent. Hence, even if it was wrong about whether the combination infringed, it had no intent to induce and should not be found liable. As evidence of its lack of intent, the defendant showed that it had contacted patent counsel, both in its native Australia and in the United States, and had been advised, in writing, that the Platypus could not be combined with any needle in a way that resulted in infringement.

Based on this evidence, the Federal Circuit concluded that the defendant did not intend for anyone to infringe the patent, and therefore did not induce the infringement.

Lack Of Counsel Implies Intent

Broadcom v. Qualcomm presented these facts in reverse. Broadcom owns a number of patents relating to specific features or functions of a cell phone. Qualcomm sells chips for cell phones that enable those phones to have the patented capabilities. But because Qualcomm does not make the actual phone, Broadcom accused Qualcomm of inducing infringement.

Under the DSU Medical standard, Broadcom took on the burden of proving that Qualcomm had intended—i.e., “knew or should have known”—that its customers would commit actual infringement. Broadcom cited Qualcomm's failure to offer an opinion of counsel as evidence of its intent. The Federal Circuit agreed. “Because opinion-of-counsel evidence, along with other factors, may reflect whether the accused infringer ‘knew or should have known’ that its actions would cause another to directly infringe, we hold that such evidence remains relevant” to the question of intent, the court wrote.

Moreover, the court went further and held “that the failure to procure such an opinion may be probative of intent in this context. It would be manifestly unfair to allow opinion-of-counsel evidence to serve an exculpatory function, as was the case in DSU itself . . . and yet not permit patentees to identify failures to procure such advice as circumstantial evidence of intent to infringe.”

Applying the lessons of DSU Medical and Broadcom suggests the following approach. For those patents the company does know about, executives should ask:

If the answers to these questions are “yes,” “yes,” and “not much,” respectively, the company should consider commissioning an investigation leading, possibly, to an opinion of counsel.
 

Take Patents Seriously

It is not news that medical device companies must pay attention to the patents in their field. However, the change in the law described here adds one more reason for medical device company executives to take any relevant patent seriously. If an argument exists that the company is assisting or encouraging a third party to use the invention described in the patent, the company should consider the possibility that it is subject to a charge of inducing infringement and that an investigation by patent counsel is required. If the investigation warrants, a written opinion of patent counsel explaining why the patent is not infringed or invalid will protect the company against charges of inducing infringement.

References

Jamie Isbester and Russ Petersen are lawyers with Townsend and Townsend and Crew (San Francisco), specializing in IP-related litigation on behalf of medical device and high technology companies. Isbester can be reached at [email protected] or 415/273-4335. Petersen can be reached at [email protected] or 415/273-7531.