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At the Supreme Court oral argument Feb. 23 in Global-Tech Appliances v. SEB, a key player was missing: the U.S. government. The solicitor general’s office often participates in important patent cases like Global-Tech, but it sat this one out. The story behind the government’s conspicuous absence includes a hastily scheduled meeting last December in the White House situation room, of all places. That is where in-house counsel and outside lawyers for high-tech and automotive companies and retailers tried to dissuade the Obama administration from taking a stance in the case that would expose them to what they view as nuisance patent infringement suits. After the meeting, the government did not file a brief on either side of the dispute, which also meant it would not have argument time in the case. “We’re very gratified with what happened,” said Lee Cheng, general counsel of Newegg, a major online retailer, who attended the meeting and confirmed reports of its location. “It was a very open conversation and they got it.” Lawyers for Apple Inc. and Cisco Systems were among those at the meeting, Cheng said. It is rare but not unheard of for the White House to become involved in deciding whether the government should or should not enter a Supreme Court case. It is also unusual for the government to hear directly from non-parties on the pros and cons of a specific case. The effort mounted to sway the administration in Global-Tech also illustrates the clout and concern that businesses, especially Silicon Valley companies, have in patent cases. At stake in the Global-Tech case is how easy or hard it should be for a patent holder to prove that someone else induced illegal infringement of the patent. SEB, a French company that makes kitchen appliances, sued a Global-Tech subsidiary for infringing on its patents for a deep fat fryer. In designing its own fryer, Global-Tech had reverse-engineered a SEB product, but claimed it was unaware that the design features it adopted were patented. The U.S. Court of Appeals for the Federal Circuit ruled, as it often does, in favor of the patent-holder – in this case SEB — finding that even if Global-Tech was unaware of its infringement, it should be held liable for its “deliberate indifference” toward finding out about the patents. Global-Tech appealed to the high court and the justices granted review last Oct. 12. Both sides asked the solicitor general’s office for its coveted support, which can make a big difference in the outcome of a case. R. Ted Cruz of Morgan, Lewis & Bockius, who represents SEB, said “both sides got a fair hearing” in meetings with the SG’s office in November. William Dunnegan of Dunnegan LLC in New York, who represents Global-Tech, declined comment on any discussions he had with the office. But soon after the meeting, word circulated among amicus curiae groups and companies on his side that the government seemed poised to file a brief supporting SEB that favored a very low standard of scienter or knowledge – one that would lead to findings of illegal inducement even when the alleged infringer had no knowledge of the infringing activity. Groups on Global-Tech’s side of the case hit the panic button. Representing companies ranging from Google to Comcast to General Motors, they were concerned that if the government – and the Court – adopted such a position they, and almost anyone who had anything to do with a patented product, would be vulnerable to costly infringement suits without any proof that they knew they were doing anything wrong. Especially in the computer industry, which is built on thousands of patent-heavy components, such a standard would be an open invitation to patent trolls to sue, they worried. In patent parlance, trolls are those who buy up and enforce patents, not so they can make products from the inventions, but to sue purported infringers and extract big settlements. “This is certainly a case that the patent industry and the semiconductor industry and anyone involved in patents is paying close attention to,” said Jeremy Oczek, a Proskauer Rose partner who has been following the case. Contrary to the government’s leaning, the Global-Tech faction wanted a higher scienter standard that would require proof of knowledge, or an “unlawful purpose” on the part of the infringer, akin to what the Court adopted in a 2005 copyright case, MGM Studios Inc. v. Grokster, Ltd. “We were very alarmed,” said Newegg’s Cheng, echoing the view of other lawyers in the case who did not want to be quoted. “If you don’t have to prove specific knowledge of inducement, then you make it too easy for frivolous litigation by those who use extortion as their business model.” Lawyers for these amicus groups joined to send a letter to Acting Solicitor General Neal Katyal on Nov. 24 urging him not to take the position that they understood “you may be contemplating.” They asserted, “Elimination of the scienter requirement for induced infringement liability would represent a radical and deeply unsettling change in intellectual property law. For well more than a century … it has been understood that contributory infringement liability (of which ‘active inducement’ is one type) can only be imposed when the alleged contributor knew that its acts would result in the infringement of a patent.” The 28 lawyers who sent the letter represented companies including Intel, Microsoft, General Electric, Symantec and Toyota. They asked Katyal for a meeting to discuss the issue, and named veteran Supreme Court advocate Thomas Hungar of Gibson, Dunn & Crutcher – who filed a brief in the case for Comcast – as a possible facilitator for the meeting. Hungar declined to comment, but soon the meeting was scheduled for Dec. 1 at the White House, not the solicitor general’s office. Cheng confirmed that White House Deputy Counsel Donald Verrilli, who last month was nominated to become solicitor general, was at the meeting. According to Cheng, he and others made the case at the meeting that the low scienter standard would be “a job-killer, an innovation-killer” because the ensuing litigation would drain resources and benefit mainly patent attorneys. Following the meeting, the Jan. 6 deadline for filing amicus curiae briefs on the side of SEB came and went. The government had backed off its apparent earlier view of the case and stayed out of the case. The Global-Tech amici were pleased. SEB’s lawyer Cruz said, “We no doubt would have welcomed their participation on our side, but we were obviously glad they did not participate on the other side.” Asked about the meeting, White House spokesman Reid Cherlin said in an email, “The White House routinely holds meetings with outside groups on policy matters, including legal policy matters. This particular meeting was convened by White House policy staff at the request of amici in the case, and members of the White House counsel’s office were invited to attend.” At the oral argument, several of the justices appeared sympathetic toward SEB, voicing doubt that Global-Tech could have been unintentionally ignorant of the patents it allegedly violated. Justice Antonin Scalia was especially annoyed that in ordering a patent search to protect its new fryer, Global-Tech did not tell its patent attorney that it had reverse-engineered an existing product. That, Scalia told Dunnegan, “seems to me really trying to keep yourself in the dark.” But Justice Stephen Breyer and others also expressed concern about setting the knowledge threshold so low that innocent actors would be held liable. “I am worried about what kind of burden we are supposed to impose,” Breyer said. By the end of the hour, it appeared possible the Court would seek a compromise that would penalize Global-Tech for turning an intentional blind eye toward infringement, while not exposing genuinely innocent parties in other cases to liability. Chief Justice John Roberts Jr. said at one point, “We might decide that it’s more important to consider what’s going to happen to the semiconductor industry in articulating our standard than what’s going to happen to the deep-fryer industry.” Tony Mauro can be contacted at [email protected].

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