TX District Court Grants Honeywell’s Discovery Motion Against CPT, Inc.

Holding:

The U.S. District Court for the Eastern District of Texas has granted Honeywell International, Inc.’s and Honeywell Intellectual Properties, Inc.’s (collectively “Honeywell”) motion to compel discovery in connection with its infringement suit against CPT, Inc. (CPT). In its motion, Honeywell argued that CPT actively induced infringement of its ‘823 patent, which relates to a flicker free LCD driver system, by knowingly selling its modules to foreign companies which incorporate those modules into infringing products sold in the U.S. Thus, Honeywell sought discovery of CPT’s sales and communications with non-U.S. companies. In response, CPT claimed that it was not liable for these actions under 35 U.S.C. § 271(b) because the scope of section 271(b) does not extend to acts of inducement committed outside the U.S. In resolving the parties’ contentions in favor of Honeywell, the district court concluded that, under the current state of the law, the scope of section 271(b) can extend to extra-territorial activities. Because Honeywell has alleged that CPT sold potentially infringing modules to foreign companies knowing that those modules would be incorporated into products sold in the United States, Honeywell is entitled to discovery regarding CPT’s extraterritorial activities.

Detailed Summary:

In this case, the district court resolved plaintiff Honeywell’s Motion to Compel Discovery from defendant CPT.  Opinion, p.1. Honeywell maintains that the ‘823 patent covers some systems that employ dot and/or column inversion schemes.

In its complaint, Honeywell asserted that CPT’s products infringe its ‘823 patent, which relates to a flicker free LCD driver system.  CPT is a Taiwan-based company with offices in Taiwan, China, and Malaysia. It produces “modules,” which are essentially LCD screens that are not yet finished products ready for retail sale.  CPT purchases Driver Integrated Circuits (“Driver ICs”) from various driver manufacturers, and incorporates these Driver ICs into its modules. CPT then sells its modules to third parties who finish the products so they are ready for sale to an end user. Many of CPT’s products employ dot and/or column inversion.

Around 2002, Honeywell reverse engineered several Driver ICs and concluded that these Driver ICs could be included in infringing LCD products. On March 20, 2007, Honeywell filed the present suit specifically accusing three CPT products. CPT answered on October 17, 2007.

In August 2008, Honeywell served its Notice of 30(b)(6) Deposition and its First Combined Interrogatories on CPT. Essentially, Honeywell requested a list of all CPT products which perform dot and/or column inversion and the model numbers of the Driver ICs incorporated therein, the technical specifications and sales information for the Driver ICs used in those products, and information regarding sales and marketing to foreign entities.

In its motion, Honeywell argued that CPT actively induced infringement of the ‘823 patent by knowingly selling its modules to foreign companies which incorporate those modules into infringing products sold in the U.S. Thus, Honeywell sought discovery of CPT’s sales and communications with non-U.S. companies. CPT argued that this information is not discoverable because these activities cannot constitute infringement under U.S. patent law.

In resolving the contentions of the parties, the district court applied 35 U.S.C. § 271(b) which provides: “Whoever actively induces infringement of a patent shall be liable as an infringer.” “A person induces infringement under § 271(b) by actively and knowingly aiding and abetting another’s direct infringement.” Id., p. 13, citing CR. Bard, Inc. v. Advanced Cardiovascular Sys. Inc., 911 F.2d 670, 675 (Fed. Cir. 1990).

The district court wrote that CPT did not dispute Honeywell’s assertion that CPT sold potentially infringing modules to foreign companies with knowledge that those modules would be incorporated into consumer products sold in the U.S. Thus, at least for purposes of this motion, CPT did not dispute that direct infringement may have occurred, and that CPT knowingly induced this infringement by selling its modules to potential direct infringers. Nonetheless, CPT claimed that it was not liable for these actions under section 271(b) because the scope of section 271(b) does not extend to acts of inducement committed outside the U.S.

In granting Honeywell’s motion, the district court held that Honeywell has not alleged simply that CPT manufactures and sells its products abroad without regard to U.S. markets. Rather, Honeywell alleged that CPT sells potentially infringing modules to foreign manufacturers with the intent that those modules be incorporated into consumer products sold in the United States. CPT will not be exposed to liability simply because of potentially innocent conduct on foreign soil. Rather, liability will extend to CPT only if it actively induced infringement in the United States by purposely availing itself of U.S. markets.  Id., p. 17, citing Wing Shing Products (BVI), Ltd. v. Simatelex Manufactory Co., 479 F. Supp. 2d 388, 410 (S.D.N.Y. 2007).

The district court added that unless Honeywell can demonstrate active inducement, as in the case of Microsoft Corp. v. AT&T Corp. 550 U.S. 437, 127 S. Ct. 1746 (2007), it must seek redress by obtaining and enforcing foreign patents.  In Microsoft, the Supreme Court found that accused Microsoft could be held liable for copies made from the master disk, even if the manufacture, sale, and use of the infringing product—the computer running Microsoft Windows—all occurred abroad, without Microsoft’s knowledge. It found that this result would expose Microsoft to limitless liability for foreign conduct which could have been protected under foreign patent laws, and that patentee AT&T’s rights would be more appropriately protected by acquiring and enforcing foreign patents against the manufacturer itself.

The district court concluded that, under the current state of the law, the scope of section 271(b) can extend to extra-territorial activities. Because Honeywell has alleged that CPT sold potentially infringing modules to foreign companies knowing that those modules would be incorporated into products sold in the United States, Honeywell is entitled to discovery regarding CPT’s extraterritorial activities.

On the basis of the foregoing, the district court granted Honeywell’s motion to compel discovery.

Also See:

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