Corporate Director Liability for Inducement: Must have Specific Intent to Aid and Abet the Infringement

Weschler v. Macke (Fed. Cir. 2007)

Anthony O’Rourke was the owner and only employee of Macke Int’l. Weschler successfully sued Macke and its owner O’Rourke for patent infringement.  O’Rourke appeals his personal liability.

Rule on personal liability for inducing a corporate infringement:

“Unless the corporate structure is a sham, … personal liability for inducement must be supported by personal culpability. Hoover Group, 84 F.3d 1408 (Fed. Cir. 1996). This requires the officer to have possessed a specific intent to "aid and abet" the infringement. Water Techs, 850 F.2d 660(Fed. Cir. 1988).”

A director’s action may lead to a finding of willful infringement against the company without creating personal liability. “For example, a corporate officer could negligently believe that a patent was invalid and/or not infringed. This might support a finding of willful infringement by the corporation, see Biotec Biologische, 249 F.3d 1341 (Fed. Cir. 2001), but not a finding of personal liability for the officer. Accordingly, the district court's statement that finding Macke liable for willful infringement while exonerating O'Rourke would be "inconsistent and unreasonable" because Macke could not act independently of O'Rourke is clearly incorrect.”

Finally, the court refused to pierce the corporate veil because Weschler failed to prove that Macke’s setup was “just a sham.” (holding that the lack of patent infringement insurance does not imply a sham corporation).

Notes:

• Post-History: Macke only had $10,000 to pay the $600,000 damages. Weschler filed an involuntary bankruptcy proceeding. In a tough twist, the bankruptcy court then forced Weschler to pay Macke’s attorney fees after failing to settle. [LINK]
• Late Homework: This is an important precedential case from 2007 that I missed in the shuffle. (As an excuse, It issued on the same day that we started our trek from Boston to Missouri).
• See Sheppard Mullin Blog

Comments

[MM from just-n-examiner]

Ok lawyers, help me out here... If the guy is the only person in the company, how can the company's willful actions be anything but his own willful actions? I understand there's the corporate veil and all, but the rule said that the person can be liable if he possessed a specific intent to "aid and abet" the infringement... If all the company's decisions were his own, how could he NOT have a specific intent to "aid and abet" infringement performed knowingly by his company?

I haven't started law school yet, so I'm genuinely seeking some education from you guys here...

[metoo]

"Willful" infringement is not the same thing as "intentional" infringement - at least according to the relevant caselaw. In other words, one can be liable for willful infringement even though there is no "specific intent" to infringe.

[MM]

Ok, that brings up the question of what constitutes "willful" infringement then...

But still my original question stands, albeit with corrected vocabulary... If the company committed willful infringement, and this guy is the owner and only employee, the only person in the company, how can he be found to not "aid and abet" the willful infringement? How can he not "aid and abet" his own actions?

[curious]

trying to guage the degree of "tough twist" - does o'rourke have big money?

[metoo]

Sorry my last answer was a bit obtuse, MM. There are really two separate issues here. First, the person could be liable for the company's infringement if the corporation is basically a sham - this is, more or less, the same standard used in most any "piercing the corporate veil" case.

Second, even if the corporation is not a sham or not the alter ego of the person, he still could be liable for intentionally aiding and abetting the infringement by the company. This second one, though, requires a "specific intent" to aid and abet the infringement - and this is a high standard (i.e., harder to prove) than mere willful infringement. A company can be liable for willful infringement even if they did not have a specific intent to infringe. In particular, "objective recklessness" can be sufficient to establish willful infringement, but that would not be sufficient to show a "specific intent" to "aid and abet" infringement by the officer/owner of the company.

Here's what the CAFC said in this case: "[Personal liability] requires the officer to have possessed a specific intent to “aid and abet” the infringement. A primary consideration for willful infringement, on the other hand, is whether the infringer had a good faith belief that the patent was invalid and/or not infringed. The two standards are not the same. For example, a corporate officer could negligently believe that a patent was invalid and/or not infringed. This might support a finding of willful infringement by the corporation, but not a finding of personal liability for the officer." (citations omitted).

Note: The last sentence quoted above seems inconsistent with the Seagate decision in that "objective recklessness, not mere negligence, is the new standard for willful infringement. However, this particular decision came out before Seagate. Besides, Seagate would not change the outcome of this case with respect to personal liability.

[MM]

ok, so one can be found to "willfully" infringe by just kind of saying "I don't know there's a patent out there and I don't want to know" and going ahead with his infringing activity, but he can't "aid and abet" the infringement because he didn't know about it, even if his ignorance was intentional? Is that what we're getting at?

[Raoul]

Or he could have honestly believed that the patent was invalid or that he didn't infringe the patent even though someone in his situation should have known better.

[Mike]

I find it interesting that the CAFC did not cite the en banc portion of its DSU Medical (Dec. 2006) decision where it convened to hold that “inducement” requires specific intent, which requires knowledge of the patent, and thus closed the split created by the Water Techs and Hewlett-Packard panels in the late '80s. By the way, the citation to Water Techs in the decision is wrong. Water Techs was decided before Hoover, in 1988, not 1998.

[Kim Cauthorn]

The mention of patent infringement liability insurance caught my eye. This type of insurance has experienced some stops and starts in the US, although it has been available to non-US companies for close to 20 years. It is sometimes offered as an add-on to technology errors & omissions coverage and sometimes policy holders have successfully argued that it is available under the advertising injury clause of general liablity coverage. There are now at least two providers offering the coverage on a stand-alone basis to US companies, one backed by Lloyd's of London and one based in Kentucky.

[Chuck Baxter]

Following the comment from Ms. Cauthorn on IP insurers: the "one based in Kentucky" (www.ipisc.com) has been offering dedicated patent enforcement insurance to US-based companies continuously for 19 years, and patent defense insurance for 11 years, and welcomes her company on its recent entry into the marketplace. Although the Wechsler court did not penalize O'Rourke for the company’s lack of coverage, growing acceptance of IP insurance will increasingly raise questions about whether managers have specific obligations to insure their intellectual property risks.

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