Academic journal article Missouri Law Review

Imputed Liability: How to Determine When Parent Companies Should Be Held Liable for the Patent Infringements of Their Subsidiary Companies

Academic journal article Missouri Law Review

Imputed Liability: How to Determine When Parent Companies Should Be Held Liable for the Patent Infringements of Their Subsidiary Companies

Article excerpt

I. Introduction

The issuance of a patent allows the patentee the legal right to exclude others from manufacturing, using, selling, or importing the patented invention. (1) This legal right exists for as long as the patentee holds the patent. (2) Although most patents are not owned by their creators, (3) both inventors, who spend years laboring over an idea that comes to fruition, and those who obtain patent rights via other means may wish to profit from their patent. consequently, infringements are not taken lightly. When a company in a subsidiary position infringes upon another company's patent, the victims of patent infringement are frequently not being compensated for harm caused by a subsidiary company's infringements. Subsequently, when a subsidiary company cannot pay the damages arising from its infringement, the liability is traditionally imputed to the parent company. (4)

This Note examines the theory and principles behind three traditional methods used to hold parent companies liable for the infringing actions of their subsidiaries. These methods include traditional agency principles of tort law, piercing of the corporate veil, and inducement principles outlined in [section] 271(b) of the Patent Act. This Note then discusses how these three methods differ in both the underlying theories they employ, and the subsequent outcomes they achieve, when it comes to fundamental issues of inducement liability. This analysis will include what type of conduct is required and what level of knowledge is necessary to impute liability under each theory.

Part II of this Note introduces the historical and legal background of the three traditional methods of imputing liability. Part III then highlights the recent developments with respect to these three methods and how they apply to patent infringement cases. Part IV of this Note examines the similarities and differences between the three traditional methods (paying special attention to inducement under [section] 271(b)) and analyzes them as they apply to both corporate business cases and patent law cases. Finally, this Note concludes in Part V with a brief comment on the future use of these methods and why the judicial system should try to adhere to bright line rules--as opposed to unpredictable balancing tests--whenever possible when determining imputed liability, leaving balancing tests only for the situations that demand increased flexibility and adjustability.

II. LEGAL BACKGROUND

This Part traces the history of the three most common methods of imputing liability to parent companies and shows how and when courts decide which method to use. A common reason for creating a subsidiary company (5) is to limit the parent's potential liability. (6) However, these liability limitations may frustrate the parent company if the subsidiary is unable to remedy its own violations due to underfunding--when the subsidiary does not have enough assets to fulfill a judgment. When a subsidiary company infringes a patent, a plaintiff will often sue the parent company, in addition to the subsidiary company, in hopes of recovering a greater amount, even if the subsidiary is capable of providing relief on its own. (7) To be considered an infringement, a person or organization lacking authority to do so must "make[], use[], offer[] to sell, or sell[] any patented invention." (8) Though there are other ways that liability can be imputed to a parent company, this Note will focus on the three traditional methods of holding parent companies liable for the infringements of their subsidiaries: imputing liability via agency law principles, imputing liability by means of piercing the corporate veil, and imputing liability through standard 271(b) inducement principles.

A. Imputing Liability Through Agency Principles

One way to impute liability is through principles of agency law. As Justice Wiley Rutledge once said in a 1944 Supreme Court case, "Few problems in the law have given greater variety of application and conflict in results than the cases arising in the borderland between what is clearly an employer-employee relationship and what is clearly one of independent entrepreneurial dealing. …

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