Thursday, September 4, 2008

Inducing Patent Infringement by Specifying Interchangeability

Here's an article By Salim Dharssi, a summer student at the firm I work at. I like the idea of getting students (and lawyers!) writing, so I'm really pleased Salim put in the effort to do this. The article is about inducing patent infringement, covering a recent case that centered around the defendant providing an interchangeability list to customers for a component of a patented combination.


INCREASED CHANCE OF BEING FOUND LIABLE FOR INDUCING PATENT INFRINGEMENT FOR MANUFACTURERS OF COMPONENTS

Manufacturers should be aware that the Canadian Federal Court of Appeal recently found that, by simply specifying interchangeability with a component of a patent, a manufacturer may be liable for inducing patent infringement.

In MacLennan v. Produits Gilbert Inc. (2008 FCA 35), the Court of Appeal held that the defendant manufacturer induced end-user forestry operators to infringe the plaintiff’s combination patent. On its price listing, the defendant manufacturer had indicated the product identification numbers for components of the plaintiff’s patented product, thereby specifying interchangeability with the plaintiff’s components. This decision arguably broadened the scope for finding liability for inducing patent infringement because evidence of interchangeability alone was apparently sufficient and because this was the first case where inducing infringement was found where the end-users were commercial consumers and not public consumers. It is unclear the extent to which the court considered the relationship between the defendant manufacturer and the forestry operators when making its decision.


What is the issue?


In Canada, the sale of a component of a combination patent (a patent granted for an invention that unites existing, non-patentable components in a novel way), even if that component cannot be used for anything other than infringing the invention, is not sufficient to establish indirect infringement. Known as “contributory infringement” in the United States and the United Kingdom, this cause of action does not exist in Canada. However, a different cause of action, “induced infringement”, exists in Canada which comprises of the following elements:

1. There must be an act of infringement by the direct infringer;

2. This act must be influenced by the seller to the point where, without this influence, infringement by the buyer would not otherwise take place; and

3. The influence must be knowingly exercised by the seller.

Unfortunately, Canadian courts often use both terms, “induced infringement” and “contributory infringement”, when referring to this cause of action.

Why doesn’t the patentee sue the direct infringer instead of the inducing infringer? If the direct infringer is a good customer of the patentee, it will not want to sue its own customer. Alternatively, it may be impractical for the patentee to sue direct infringers when they may be individual members of the public and could number in the thousands or tens of thousands.

A key issue in cases of induced infringement is the evidence necessary to decide whether a defendant manufacturer had sufficiently induced an end-user to directly infringe. In MacLennan v. Produits Gilbert Inc., the court found the defendant liable for inducing infringement based on arguably less evidence than was relied on in previous cases.


MacLennan v. Produits Gilbert Inc.


In MacLennan v. Produits Gilbert Inc., the Federal Court of Appeal reversed the trial judge’s findings and decided that the defendant was liable for inducing infringement.

In MacLennan, the plaintiff owned a combination patent for an invention used in circular saws for feller heads in the forest industry. The invention consists of a combination of two pieces: a repositionable saw tooth and a detachable tooth holder. This combination attaches to the periphery of a circular saw disc. Since forestry operators cut trees as close as possible to the ground to avoid loss and maximize harvest, this patented combination is advantageous in rocky and snowy terrain because the saw disc remains undamaged when it comes into contact with rocks: only the teeth and teeth holders shear from the disc. Replacing the teeth and holder is less expensive than replacing the disc which would otherwise have been damaged.

The defendant manufactured one of the components of the combination patent, the repositionable saw tooth, and sold it through distributors to end-user forestry operators. The Court of Appeal found that the end-users did in fact directly infringe the patent because they used the defendant’s saw tooth and combined it with the plaintiff’s tooth holder to create the patented invention. After finding direct infringement, the Court of Appeal considered the other two elements necessary to establish induced infringement by the defendant: influence and knowledge.

The defendant had distributed a price list that identified the part number of the plaintiff’s manufactured patent component corresponding to the defendant’s manufactured component, thereby specifying interchangeability. The end-users created the patented combination and directly infringed the patent by purchasing the defendant’s saw tooth and assembling it with the plaintiff’s detachable tooth holder. The Court of Appeal found that, by having the patented part number included in their price list, the respondent knowingly influenced the buyer to the point where, without this influence, infringement by the end-user would not have otherwise taken place.

Specifying interchangeability on its price list was the only evidence explicitly relied on by the Court of Appeal to support its finding that the defendant was inducing infringement. Additional evidence, such as advertisements promoting interchangeability used by the defendant, was provided at trial but was not cited by the Court of Appeal.

Extension of prior case law?

In the past, Canadian courts have required more evidence than explicitly cited in MacLennan to demonstrate that an alleged infringer sufficiently induced an end-user to infringe a patent. In particular, courts have considered whether the alleged inducing infringer was in fact in a position of control or power, sufficient enough to induce the direct infringer to infringe the patent.

For example, in Slater Steel Industries Ltd. v. R. Payer Co. Ltd. et al. (1968) , the Exchequer Court made a finding that the alleged inducing infringer could not have induced a large power company to directly infringe the patent, because the latter was “a giant” compared to the former.

In Windsurfing International Inc. v. Bic Sports Inc. , the Federal Court of Appeal made a finding that the end-users – individual members of the public - who were directly infringing were influenced to the point of being induced. As noted by Fran├žois Grenier in his 1987 article “Contributory and/or Induced Patent Infringement” , the Court of Appeal in Windsurfing likely came to their conclusion because: the purchasers were innocent consumers, unknowingly infringing a patent; the vendor provided an instruction sheet directing the consumer to assemble the parts into the infringing whole; and all the parts of the combination patent were supplied by the alleged inducing infringer.

Before MacLennan, Canadian courts explicitly considered the control, power and relationship between an alleged inducing infringer and the directly infringing end-users. A small entity would not be able to induce a sophisticated entity; however, a sophisticated entity would be able to induce a small entity. This leaves many questions unexplained. What happens when the relationship between the entities is not so clear-cut? Furthermore, can a large, sophisticated entity ever be induced?

The Federal Court of Appeal in MacLennan cited the issue of control, power and the relationship between the parties, but did not explicitly consider and analyze the power, size and relationship between the defendant and the forestry operators, in contrast to previous case-law such as Slater Steel and Windsurfing. Also, in the previous judgments in this case there were no considerations given to the relationship between the defendant and forestry operators. Was the defendant on equal footing with the end-users, or was one more sophisticated and powerful than the other? Generally forestry operators are relatively small operators who run one or two machines so it is conceivable that the court had considered the relationship between the parties and found that inducement was feasible, but the judgments and facts contained therein provide no insight on the matter.

How does the Federal Court of Appeal’s decision in MacLennan impact future litigants involved in cases where induced infringement is alleged? All litigants should still no doubt address the issue of control, power and relationship between the parties when dealing with induced infringement. However, the court may place less weight on these factors unless one entity is clearly large and sophisticated and the other is clearly small and powerless.

More pragmatically, MacLennan was an extension of previous case-law because the court found induced infringement on a new, smaller set of facts: the direct infringers were not individual members of the public and the alleged inducing infringers specified interchangeability on their price lists with components of a combination patent.

Conclusion

The Federal Court of Appeal’s decision in MacLennan arguably extended the law of inducing infringement and may will result in some uncertainty as to the extent to which the relationship between a manufacturer and end-users is considered. Either way, it is clearly a possibility that manufacturers of components which comprise part of a combination patent will be held liable for inducing infringement by simply specifying interchangeability on product lists.

What if interchangeability was conveyed orally and not on paper? Do companies have knowledge of direct infringement sufficient to find induced infringement if they receive a legal opinion stating that the end-users are not directly infringing? Can a large, sophisticated end-user ever be induced by a company of any size? How should liability be apportioned between directly infringing end-users and inducing manufacturers? Canadian manufacturers and their counsel must await clarification from the courts in future decisions before these questions can be answered.

Salim Dharssi
Summer Student
Gilbert’s LLP

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