A very important CAFC decision for induced infringement: Enplas Display v. Seoul Semiconductor
Today, the Federal Circuit issued an important precedential decision for induced infringement. The case, Enplas Display Device Corp. v. Seoul Semiconductor Co., Ltd., Case No. 2016-2599 (Fed. Cir. Nov. 19, 2018), indicates that defendants that manufacture and sell components abroad cannot so easily evade induced infringement by claiming ignorance that their products end up within the U.S. market.
Companies located in the United States increasingly manufacture components abroad. Those components are then sold abroad and incorporated into end-user products distributed around the world. This scenario has allowed U.S.-based companies to evade patent infringement by claiming that the components are manufactured and sold abroad, and the company has no idea where they eventually end up. As a result, they claim, they lack the requisite specific intent required for induced infringement.
This is the scenario that played out in Enplas Display v. Seoul Semiconductor. Enplas is a Japanese manufacturer of plastic lenses used in “light bars,” which are incorporated into flat-screen televisions. Seoul Semiconductor (SSC) collaborated with Enplas to manufacture lenses for SSC’s light bars. SSC informed Enplas that the end-product light bar, which included Enplas’ lenses, would infringe SSC’s patents.
SSC believed that its collaboration with Enplas over the co-developed lenses was exclusive. Yet, SSC later discovered that Enplas was manufacturing the same lenses developed under collaboration with SSC, and selling them to SSC’s competitors.
Patent infringement liability can arise from anyone who “actively induces” infringement. 35 U.S.C. § 271(b). Yet, inducement requires “a specific intent” to encourage another to infringe a patent.
Enplas did not deny that it was aware that the lenses co-developed with SSC infringed SSC’s patents. Moreover, it was not disputed that Enplas provided SSC’s competitors with instructions for product specifications for the infringing lenses—thus, satisfying the requisite “inducement.”
Instead, the thrust of Enplas’ argument was that it did not know that the infringing lenses would be sold in the United States. Enplas argued there was no evidence that it knew that the lenses sold to SSC’s competitors would be incorporated into light bars that would make their way into televisions sold within the U.S. market. Enplas thus parroted a frequent refrain from companies selling components abroad—we don’t know where our stuff will end up, and thus there cannot be any specific intent to induce infringement within the U.S.
The Federal Circuit disagreed. It rejected Enplas’ argument, in this case, because the evidence showed that Enplas knew it had 50% of the worldwide market. The Court held that this alone “support[ed] an inference that Enplas knew of the likelihood that its lenses would end up in the United States.” (Slip Op. at 15).
This is an important takeaway. Importantly, the Court did not put the burden on SSC to show specific instances of Enplas selling a lens and knowing it would end up within the U.S. Indeed, that approach leads to a moral hazard. Companies are incentivized to turn a blind eye to where their products end up to bolster a non-infringement defense against almost any U.S. patent. Rather, the Court took the tact that knowledge of worldwide market share is fairly strong evidence of sales to the U.S.
The Court indicated that this was a close case. But the takeaway could nevertheless prove material to infringement cases covering patents for components manufactured and sold abroad. When faced with a claim of infringement, manufactures of electronic components have taken recourse to the premise that, because they have no specific knowledge of where their components end up, they can never be liable for induced infringement in the U.S.
Yet, the reality—which is implicit in the Court’s finding in Enplas—is that the United States market is neither a small nor negligible one. Enplas puts some muscle behind the argument that, control of a material portion of the worldwide market means you cannot feasibly claim to be clueless that your products end up in the U.S.
We previously wrote about this issue in connection with whether patent infringement damages can reach foreign sales. Here, Enplas addressed the same underlying problem, but addressed from a different perspective.
The issue, as framed in Enplas, arguably mirrors the competing stream-of-commerce theories for personal jurisdiction. The difference, however, is that within the world-wide market for electronic devices, the United States market is a big one. In Enplas, the Federal Circuit appears to be suggesting that it should not be so easy for companies to evade infringement by claiming ignorance that their products would make it to the States.
In addition, Enplas quelches a defense to induced-infringement of components sold abroad that applies to almost any patent, and is therefore, not patent-specific. For that reason, this case may have far-reaching consequences for patent infringement cases covering electronic and other components manufactured outside of the U.S.