using NDAs to prevent discovery of a patent violation

[Patentrookie]

Does any case law exist for the scenario where a company decides to sell a product without the rights to the patented invention, but requires customers to sign an NDA, expecting that the NDA will prevent the patent violation from becoming public? 

[lazyexaminer]

Halo v. Pulse. Not directly on point but you're getting at willfulness so that's where to start.

[Patentrookie]

thanks, so perhaps Company A selling an infringing product to a customer under NDA might show willful infringement, but Company A could claim that the NDA was in place to protect their own trade secrets.  An NDA would need to be breached in order for Company B (the patent holder) to have evidence of the infringement.  I'm wondering how the courts would look upon this situation in a patent dispute.

[Tobmapsatonmi]

Sorry I don't know any case law on-topic, but this whole scheme seems not very practicable from my viewpoint.

I guess if the patented article were worth $400,000,000 a pop and the infringer were only planning to sell 3 or so a year... otherwise, no.  Word would get out. 

Generally speaking, companies have NDAs because they feel the prices they charge are confidential business information that they don't want getting out to their competitors.  Also, for larger or industry-famous suppliers, they don't want small-fry customers trying to use their name as free advertising, so the NDA provides coverage there as well.

[Patentrookie]

Thanks, good observation, the products being infringed would be expensive and the yearly volumes likely low and the product is used "behind closed doors", making it plausible to keep the infringement a secret.  What are the most likely decisions by both parties once the word finally gets out?

1.) Company B sues Company A for patent infringement. Is a judgement of willful infringement more likely?

2.) In response to (1.) would company A go ahead and sue their customer and also possibly company B for the NDA violation?

3.) Should Company B sue Company A for unfair business practice on the grounds of using NDA(s) to keep the product design confidential, thereby keeping the patent infringement a secret?  Even if Company A weren't violating any patents, wouldn't it still be considered unfair or unlawful, because the NDA prevents company B from determining if a patent violation exists.

An example of similarity (that maybe has some precedent in the courts) might be if a manufacturer has a patent on a piece of manufacturing equipment.  A competitor sees the patent, decides to use the invention and expects the employee agreements to prevent the violation from ever being discovered by the patent owner.

[Tobmapsatonmi]

1.) Company B sues Company A for patent infringement. Is a judgement of willful infringement more likely?

I'm just thinking out loud here, but doubt the mere fact that the product was supplied under an agreement including an NDA would make a willfulness finding more likely.  You don't imagine the NDA is actually going to recite something like, "Company A agrees to sell this infringing device to Customer and Customer agrees to keep the device confidential because it infringes Co.B's patent", do you?  B will have to find other evidence of A's knowledge of its infringement.

2.) In response to (1.) would company A go ahead and sue their customer and also possibly company B for the NDA violation?

I suppose they could sue the breaching customer, but I wonder what the damages would be.  If found to knowingly having infringed B's patents, I doubt any success at trying to argue such as consequential damages from the NDA breach.  And particularly if a court determines A was using NDAs to try to hide illegal activity, the customer's not likely to be found liable for breach.  Upholding NDAs used to hide illegal activity is considered bad public policy.  To the latter part of your question, I don't see how A sues B for the customer's breach of the NDA.

3.)(a) Should Company B sue Company A for unfair business practice on the grounds of using NDA(s) to keep the product design confidential, thereby keeping the patent infringement a secret?  (b) Even if Company A weren't violating any patents, wouldn't it still be considered unfair or unlawful, because the NDA prevents company B from determining if a patent violation exists.

I inserted (a) and (b) in your question above.  (a) I suppose if A is found to willfully infringe, B could turn that into an UBP case, depending on state law (Calif has oodles of crap companies can sue each other over), based on the notion that the NDA was part of a scheme to hide knowing infringement.  But seeing as willful infringement can get B 3X its damages, what is its damages claim under the unfair practice claim?

(b) If A's hands are clean, how can using standard business practices (NDAs for sale of product) be deemed an unfair business practice?  Try expanding the question a bit - "Hey, engineering companies don't let the entire public walk around in their factories and view their manufacturing processes.  That's unfair because then patentees won't know if they're infringing".

An example of similarity (that maybe has some precedent in the courts) might be if a manufacturer has a patent on a piece of manufacturing equipment.  A competitor sees the patent, decides to use the invention and expects the employee agreements to prevent the violation from ever being discovered by the patent owner.

I suppose it could happen, but it seems foolish and unworkable as I mentioned in my prior post, unless none of the employees know of the infringement (in which case the employee NDA isn't really of any help).  One thing to consider is what I mentioned just above, that we find it to be bad policy to uphold contracts that are intended to hide illegal activities.  Also, consider that patent term is 20 from filing, whereas in many states, employee NDAs encumbering the employee more than "X" years post-employment (2 years, 5 years, etc.) are considered unenforceable.  So in any state with such a doctrine, the employee's going to be able to blab with completely clear conscience at some point, likely ahead of patent expiration.

[Patentrookie]

I really appreciate your comments on the matter.  Thanks!