Technical Support Offered in the United States Plus Knowledge of the Patent Could Allow Jury to Find Inducement of Infringement

Case: MEMC Elec. Materials, Inc. v. Mitsubishi Materials, No. 04-1396, 04-1513 (Fed Cir. 8/22/05)

The Two Sentence Summary: Although there was no direct liability for patent infringement for silicon wafers manufactured and sold in Japan, the Federal Circuit reversed summary judgment and remanded for a trial on claims of inducing infringement where the defendant knew of the patent and had provided technical support in the United States for its allegedly infringing silicon wafers. The Federal Circuit also affirmed rulings excluding a vague claim chart in an expert report and finding that the plaintiff had conducted an adequate pre-filing investigation so that it was not liable for attorneys' fees.


What They Were Fighting About: MEMC is the assignee of record of U.S. Patent No. 5,919,302 (the "’302 patent") for preparing silicon wafers without certain defects. Defendant SUMCO manufactured allegedly infringing wafers in Japan, and the wafers were sold to Samsung Japan which then sold the wafers to Samsung in Austin, Texas. There was evidence of direct email contact between SUMCO and Samsung Austin as well as visits by SUMCO personnel to Samsung Austin. Judge Saundra B. Armstrong of the Northern District of California granted summary judgment for defendants on the claims of direct infringment and inducing infringement, holding that there were no infringing actions in the United States.

Federal Circuit Holdings:

• Post-sale emails providing data on the chips were not offers to sell for purposes of direct liability under 35 U.S.C. § 271.
• The sales took place in Japan, and cannot create direct liability: "MEMC’s reliance on North American Philips and Beverly Hills Fan Co. is misplaced. North American Philips simply noted that in some cases the criterion for determining the location of a "sale" under section 271(a) is not necessarily where legal title passes; the "more familiar places of contracting and performance" may take precedence over the passage of legal title. 35 F.3d at 1579. Thus, simply because an article is delivered "free on board" outside of the forum, a "sale" is not necessarily precluded from occurring in the forum. Significantly, MEMC has not presented evidence that, as far as SUMCO is concerned, "contracting and performance" took place in the United States. Similarly, Beverly Hills Fan Co. held that the situs of an injury is the location, or locations, at which the infringing activity directly impacts on the interests of the patentee, and that "[e]conomic loss occurs to the patent holder at the place where the infringing sale is made because the patent owner loses business there." 21 F.3d at 1571 (emphasis added). However, as noted above, MEMC presents no evidence that SUMCO entered into any negotiations with Samsung Austin in the United States concerning the accused wafers and no evidence that title of the wafers passed directly from SUMCO to Samsung Austin. Mere knowledge that a product sold overseas will ultimately be imported into the United States is insufficient to establish liability under section 271(a). See Rotec Indus., 215 F.3d at 1251 (finding that the only activities that are relevant to direct infringement are those activities that take place within the borders of the United States). In short, MEMC has presented no evidence demonstrating that SUMCO sold the accused wafers to Samsung Austin in the United States. Based upon the foregoing, we see no error in the district court’s grant of summary judgment of no direct infringement under 35 U.S.C. § 271(a)."
• With respect to the claim of active inducement of infringement, an indemnity clause in the contract between SUMCO and Samsung Japan did not constitute inducement: "As a preliminary matter, we do not agree with MEMC that the indemnity provision included on Samsung Japan’s purchase order for the accused wafers establishes SUMCO’s intent to induce infringement on the part of Samsung Japan. The provision states as follows: Supplier herein shall indemnify the buyer for all claims of patent infringement whether direct or contributory and for all costs for defending against such claims resulting from the purchase of the above items. As this court explained in Hewlett-Packard Co. v. Bausch & Lomb Inc., “an indemnification agreement will generally not establish an intent to induce infringement, but . . . such intent can be inferred when the primary purpose is to overcome the deterrent effect that the patent laws have on would-be infringers." 909 F.2d 1464, 1470 (Fed. Cir. 1990) (citation omitted). As in Hewlett-Packard, the indemnity provision in this case may have facilitated the sale of the accused wafers, but there is no evidence that the primary purpose of the agreement was to induce Samsung Japan to infringe the ’302 patent. As noted by SUMCO, given that the sale of the wafers from SUMCO to Samsung Japan occurred in Japan, it is more reasonable to conclude that the indemnity clause relates to claims of patent infringement under Japanese law. In other respects, we do not think that a claim of active inducement of Samsung Japan by SUMCO has been properly preserved in the district court. We therefore need not address whether inducing activity in Japan can give rise to liability under United States patent laws. See Crystal Semiconductor Corp. v. Tritech Microelectronics, Int’l Inc., 246 F.3d 1336, 1351 (Fed. Cir. 2001)."
  
• The Federal Circuit noted a split in authority regarding the knowledge requirement for inducing infringement, but held that it need not resolve the split here where SUMCO knew of the '302 patent:
  "It should be noted that “there is a lack of clarity concerning whether the required intent must be merely to induce the specific acts [of infringement] or additionally to cause an infringement.” MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1323, 1332 (Fed. Cir. 2005) (citing Insituform Techs., Inc. v. CAT Contracting, Inc., 385 F.3d 1360, 1378 (Fed. Cir. 2004)); see Manville Sales Corp. v. Paramount Sys., Inc., 917 F.2d 544, 553 (Fed. Cir. 1990) (“The plaintiff has the burden of showing that the alleged infringer’s actions induced infringing acts and that he knew or should have known his actions would induce actual infringements.”); but see Hewlett-Packard Co. v. Bausch & Lomb, Inc., 909 F.2d 1464, 1469 (Fed. Cir. 1990) (“Proof of actual intent to cause the acts which constitute the infringement is a necessary prerequisite to finding active inducement.”). We need not resolve that ambiguity in this case, however, because it is undisputed that SUMCO had knowledge of the ’302 patent. Thus, assuming that MEMC is able to demonstrate that SUMCO had intent to induce the specific acts constituting infringement, intent additionally to cause an infringement can be presumed."


• The district court erred in granting summary judgment on inducing infringement because a reasonable jury could find that SUMCO actively induced infringement: "Evidence of active steps taken to encourage direct infringement, such as advertising an infringing use or instructing how to engage in an infringing use, show an affirmative intent that the product be used to infringe." Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., No. 04-480, slip op. at 18 (U.S. June 27, 2005) (internal citations and alternations omitted). First, a reasonable jury could conclude that the e-mail communications between SUMCO and Samsung Austin in the United States represent product support which enabled Samsung Austin to purchase and use the accused wafers. See Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, 370 F.3d 1354 (Fed. Cir. 2004) (finding active inducement of infringement based on defendant’s publications describing and promoting use of patented method). As for the requirement of specific intent to encourage infringement, it is undisputed that SUMCO knew of the existence of the ’302 patent because it received a letter concerning it. This type of evidence is relevant for supporting proof of intent for inducement (though not by itself sufficient). See Fuji Photo Film Co., Ltd. v. Jazz Photo Corp., 394 F.3d 1368, 1378 (Fed. Cir. 2005); Mentor H/S, Inc. v. Med. Device Alliance, Inc., 244 F.3d 1365, 1379 (Fed. Cir. 2001). Moreover, the series of e-mails between SUMCO and Samsung Austin provide sufficient circumstantial evidence for a reasonable jury to conclude that SUMCO was not only aware of the potentially infringing activities in the United States by Samsung Austin, but also that SUMCO intended to encourage those activities. See Fuji Photo Film Co., 394 F.3d at 1378 ("A patentee may prove intent through circumstantial evidence."); Water Techs., 850 F.2d at 669 ("The requisite intent to induce infringement may be inferred from all of the circumstances."). For the foregoing reasons, we reverse the district court’s grant of summary judgment of non-infringement based on inducement of infringement under section 271(b) and remand the case to the district court for further proceedings on that issue. Those proceedings will, of course, involve (i) construing the claims of the ’302 patent; (ii) determining whether Samsung Austin directly infringes; and (iii) determining whether, if there is direct infringement on the part of Samsung Austin, SUMCO induces that infringement."
• The district court did not abuse its discretion in excluding a claim chart in an expert report that consisted of "check marks next to each of the claims of the ’302 patent each tested wafer allegedly infringes" and "vague" narrative.
• The district court properly denied SUMCO's claim for attorneys' fees and expenses. The case was not exceptional under 35 U.S.C. § 285 because MEMC conducted an adequate prefiling investigation. Sanctions under Fed. R. Civ. P. 11 and 28 U.S.C. § 1927 were not justified because MEMC did not multiply the proceedings in recklessness or bad faith.