Thursday, June 17, 2010

"Wordtech Systems": who can be made liable for patent infringement?

The decision in Wordtech Systems v. Integrated Networks is lengthy and touches on several issues, most pointedly about
liability of employees/officers of a company for patent infringement.

The decision begins:

This is a patent infringement case involving technol-
ogy for automated duplication of compact discs. Wordtech
Systems, Inc. (“Wordtech”) sued Integrated Networks
Solutions, Inc. (“INSC”) and its employees Nasser
Khatemi and Hamid Assadian
(collectively “Defendants”)
in the District Court for the Eastern District of California
for infringement of U.S. Patents No. 6,141,298 (“’298
patent”), No. 6,532,198 (“’198 patent”), and No. 6,822,932
(“’932 patent”).

The result was a remand:

Because the jury instructions lacked
legal tests necessary to determine Khatemi and As-
sadian’s individual liability, and because the damages
verdict conflicts with the clear weight of the evidence, we
reverse the district court’s denial of Defendants’ motion for
new trial and remand.

Of individual liability:

According to Khatemi and Assadian, INSC’s corporate
veil shielded them from direct infringement liability
under 35 U.S.C. § 271(a) because they acted as company
employees, and INSC was a valid corporation during all
periods of alleged infringement. They insist that the
validity of “INSC’s corporate status was not an issue at
trial” and that Wordtech introduced insufficient evidence
to justify piercing INSC’s corporate veil. Defs.’ Principal
Br. 38-39. In their motions for JMOL and new trial,
Defendants preserved these arguments by contending
that they were not liable as INSC officers and did not
personally participate in infringement. See Defs.’ Mot. for
JMOL Pre-Verdict 5-7 (“Rule 50(a) motion”); Defs’ Memo.
in Support of JMOL Post-Verdict 8-9, 16-17 (“Rule 50(b)
motion”); Defs.’ Memo. in Support of New Trial 4-7 (“Rule
59(a) motion”).
“Patent infringement is a tort,” Mars, Inc. v. Coin Ac-
ceptors, Inc., 527 F.3d 1359, 1365 (Fed. Cir. 2008), and
“[i]n general, a corporate officer is personally liable for his
tortious acts, just as any individual may be liable for a
civil wrong,” Hoover Group, Inc. v. Custom Metalcraft,
Inc., 84 F.3d 1408, 1411 (Fed. Cir. 1996).

There is an interesting "footnote 2," mentioning law
review articles, which appears
in the following way:

“To determine
whether corporate officers are personally liable for the
direct infringement of the corporation under § 271(a)
requires invocation of those general principles relating to
piercing the corporate veil.” Orthokinetics, Inc. v. Safety
Travel Chairs, Inc., 806 F.2d 1565, 1579 (Fed. Cir. 1986).2

footnote 2:

Commentators have argued that the corporate
veil should apply only to owners, not to officers. See
Lynda J. Oswald, The Personal Liability of Corporate
Officers for Patent Infringement, 44 IDEA 115, 130 (2003)
(“Piercing is a mechanism for reaching the owners (i.e.,
shareholders) of a corporation, not the officers. It has no
application in the context of officer liability.”); see also
Patrick T. Schmidt, Note, The Internalization of Corporate
Patent Infringement, 88 Tex. L. Rev. 217, 233 (2009)
(“[V]eil-piercing is a doctrine by which shareholders are
held liable for obligations of the corporation and is gener-
ally thought to have nothing to do with non-owner liabil-
ity.”). Wordtech does not argue that Khatemi and
Assadian are owners of INSC, nor does it attempt to make
any distinction between officers and owners on the corpo-
rate veil issue. Moreover, until such a challenge is pre-
sented and reconsidered by the full court, “[p]anels of this
court are bound by previous precedential decisions until
overturned by the Supreme Court or by this court en
Barclay v United States, 443 F.3d 1368, 1373 (Fed. Cir. 2006).

**There is a side message to school systems who buy software.

The San Juan Unified School District
(“School District”) of Carmichael, California bought the software
and got to be a co-defendant. They settled.


Anonymous Anonymous said...

They bought a whole system.

8:09 PM  

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