Patent Baristas

As a direct consequence of overruling the affirmative duty of due care to avoid infringement upon learning of a patent, the Federal Circuit expressly instructed in Seagate that “there is no affirmative obligation to obtain [an] opinion of counsel.”  In re Seagate Technology, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc), cert. denied, 128 S. Ct. 1445 (Feb. 25, 2008).  See also Knorr-Bremse Systeme Fuer Nutzfahrseuge GmbH v. Dana Corp., 383 F.3d 1337, 1345 (Fed. Cir. 2004) (en banc) (“In tandem with our holding that it is inappropriate to draw an adverse inference that undisclosed legal advice for which attorney-client privilege is claimed was unfavorable, we also hold that it is inappropriate to draw a similar adverse inference from failure to consult counsel.”).

Taking the Federal Circuit at its literal word, some counsel have concluded that a client no longer needs to obtain a formal opinion of counsel upon learning of a patent that raises infringement concerns.  Recent cases show, however, that the failure to obtain an opinion of counsel, while no longer providing a de facto automatic ground for finding willful infringement, still weighs in the analysis of whether infringement was willful, and may heavily influence a trial court’s decision on whether to enhance damages should a jury find willful infringement.

(a) Impact of the Failure to Obtain an Opinion of Counsel on Determining if the Infringement was Willful

Enhancing damages for willful infringement involves a two-step process.  First, the fact finder, either the jury or the district court, must find that the infringing conduct rose to the level of being “willful infringement.”  Second, after considering the totality of the circumstances, the district court must determine whether, in its discretion, the damages should be enhanced, and if so to what degree.

In analyzing the first prong, i.e., was the infringement willful, the fact-finder applies the standard of willful infringement set forth in Seagate. Under this standard, the “patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.”  Second, “the patentee must also demonstrate that this objectively-defined risk . . . was either known or so obvious that it should have been known to the accused infringer.”

Post-Seagate, some district courts have held that the presence or absence of an opinion of counsel has little relevance to whether there was an “objectively high likelihood” of infringement.  While the presence or absence of an opinion of counsel may not bear on whether there was or was not an objectively high risk of infringement, the reasoning contained in an opinion of counsel can be evidence to show there was no objectively high risk of infringement.  Seagate, 497 F.3d at 1374.  The absence of an opinion of counsel, however, has relevance to the second prong of Seagate’s standard, i.e., whether the accused infringer should have known of the high risk of infringement.  For example, denying an accused infringer’s motion in limine seeking to preclude the patentee from telling the jury that the accused infringer had not obtained an opinion of counsel, one court stated “that nothing in Seagate forbids a jury to consider whether a defendant obtained advice of counsel as part of the totality of the circumstances in determining willfulness[.]”

The Eastern District of Texas has denied an accused infringer’s JMOL motion seeking to overturn the jury’s finding of willful infringement, in part, “because it was undisputed at trial that Defendant chose not to obtain an opinion of counsel, aside from the informal investigation conducted by [its in-house counsel], [and] the jury could have taken this fact into account in determining that Defendant willfully infringed.”  The district court expressly stated that “the lack of opinion of counsel is one factor of many that the jury could have taken into account in determining whether Defendant willfully infringed.”

Even in Seagate, the Federal Circuit instructed that “[a]lthough an infringer’s reliance on favorable advice of counsel, or conversely his failure to proffer any favorable advice, is not dispositive of the willfulness inquiry, it is crucial to the analysis.”  Additionally, the Seagate court’s instruction that “standards of commerce” are factors that the district courts must consider in the willfulness analysis, allows for the possibility of finding willful infringement where an infringer fails to obtain an opinion of counsel under circumstances where a reasonable prudent business person would have sought an opinion of counsel.

The foregoing shows that failing to obtain an opinion of counsel creates evidence that a patentee can present to the jury to support a claim of willful infringement.  On the flip side, the Federal Circuit has instructed that “a competent opinion of counsel concluding either that [the accused infringer] did not infringe the [asserted] patent or that it was invalid would provide a sufficient basis for [the accused infringer] to proceed without engaging in objectively reckless behavior with respect to the [asserted]  patent.” Thus, where an accused infringer presents evidence that it obtained and relied in good faith on a competent opinion of counsel that evidence can defeat a patentee’s efforts to prove willful infringement.  Should an accused infringer obtain an opinion of counsel but choose not to waive privilege and produce the opinion, district courts have held that neither party may argue any aspects of opinions of counsel to the jury and the jury will not be instructed on any aspects of an opinion of counsel.  Spectralytics, Inc. v. Cordis Corp., 2009 WL 3851314, *4 (D. Minn. Jan. 13, 2009).

(b)     Impact of the Failure to Obtain an Opinion of Counsel on District Court’s Decision to Enhance the Damage Award

Post-Seagate opinions show that if a jury finds willful infringement, the failure of an accused infringer to have obtained an opinion of counsel can heavily influence the district court’s decision to enhance the damages.  Recently, the Federal Circuit instructed in i4i Ltd. Partnership v. Microsoft Corp., 589 F.3d 1246, 1273-75 (Fed. Cir. Dec. 22, 2009), that the factors a district court must consider in determining whether to enhance damages are “distinct and separate” from the factors the jury, or the district court if acting as the fact finder, considers in determining if the infringing conduct meets Seagate’s standard of willful infringement.  For enhancing damages, a district court considers the nine factors set forth in Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992).  See i4i, 589 F.3d at 1274 (“the standard for deciding whether-and by how much-to enhance damages is set forth in Read, not Seagate”). The second Read factor addresses “whether the infringer, when he knew of the other’s patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed.”  An accused infringer’s failure to obtain an opinion of counsel may show that the accused infringer failed to adequately investigate the patent.  In i4i, for example, the Federal Circuit affirmed a 20% enhancement (amounting to $40 million) by the Eastern District of Texas court in the damage award where the district court found that the accused infringer, after learning of the patent, failed to obtain an opinion of counsel before continuing with its accused activity.  Id. at 1274-75.

More recently, the district court in I-Flow Corp. v. Apex Med. Tech., Inc., 2010 WL 114005, *2 (S.D. Cal. Jan. 6, 2010), enhanced a six million dollar damage award by one million dollars predominantly because the accused infringer failed to timely seek an opinion of counsel.  The district court found that when attempting to design around the asserted patent, the accused infringer did not obtain a formal opinion of counsel, but instead relied on conclusions from its technical employees that the redesigned version of the accused product would not infringe. While the attempt to design around the patentee’s product favored not enhancing damages, the district court found that the failure to obtain an opinion of counsel until after the patentee had filed its infringement suit supported enhancing the damages.  In considering the other Read factors, the district court found that only one other factor, the closeness of the case, favored enhancing damages.  Despite that only two of the nine factors favored enhancement, the district court opted to enhance the damage award, albeit only by about 16%.

Other cases show that post-Seagate district courts give weight to an accused infringer’s failure to have obtained an opinion of counsel when deciding whether to enhance damages.  For example in Finjan Software, Ltd. v. Secure Computing Corp., 2009 WL 2524495, *15 (D. Del. Aug. 18, 2009), the court enhanced the damage award by 50% based on the accused infringer copying the patented product and failing to obtain an opinion of counsel.  In Wordtech Systems, Inc. v. Integrated Network Solutions, Inc., 2009 WL 113771, *2-*3 (E.D. Cal. Jan. 15, 2009), the court trebled the damage award based on the accused infringer’s copying of the patentee’s product and its failure to seek an opinion of counsel after being notified by the patentee of the alleged infringement.  In Minks v. Polaris Indus., Inc., 2007 WL 788418, *1-*2 (M.D. Fla. March 14, 2007), aff’d, 546 F.3d 1364, 1380-81 (Fed. Cir. 2008), the court doubled the damage award because the accused infringer “waited until it had actually been accused of infringement before investigating the issue.”

(c)      Conclusion

Today’s poor economic climate, coupled with the Federal Circuit’s pronouncement that an accused infringer does not have an affirmative obligation to obtain an opinion of counsel, may entice some corporate counsel to forego obtaining opinions of counsel as a cost-savings measure.  But relying on the Federal Circuit’s pronouncement as justification for such action may give counsel a false sense of security.

The post-Seagate cases show that a patentee can strategically use an accused infringer’s failure to obtain an opinion of counsel as evidence presented to the jury to support the patentee’s claim for willful infringement.  Furthermore, the cases show that where a jury finds willful infringement, district courts give significant weight to the accused infringer’s failure to have timely obtained an opinion of counsel in deciding whether to enhance damages.  Conversely, if the accused infringer has obtained a competent opinion of counsel, and elects to waive privilege and rely on the opinion, the opinion provides evidence to refute the claim of willful infringement.  Relying on an opinion of counsel can also provide a defense to a charge of inducing infringement by negating the element of intent.  DSU Med. Corp. v. JMS Co., Ltd., 471 F.3d 1293, 1307 (Fed. Cir. 2006).

Further, even if the jury finds willful infringement, under the Read factors, the district court should be able to consider the opinion of counsel as a factor that supports refusing to enhance damages.  Where an accused infringer obtains an opinion of counsel, but opts not to waive privilege and refuses to disclose the opinion, that decision may effectively nullify the ability of both parties to use aspects of opinions of counsel in the willful infringement analysis.  (Should a patentee also assert claims of inducing infringement, however, other considerations should be assessed in view of Broadcom.)

Thus, in today’s patent litigation opinions of counsel still serve a valuable function in defending against claims of willful infringement.  Being penny-wise and pound-foolish, potential accused infringers act at their peril in opting not to seek an opinion of counsel upon learning of a patent that raises substantial infringement concerns for a significant accused product or process.

Today’s post is by Guest Barista Robert A. Matthews, Jr., Matthews Patent-Law Consulting.and was first published in his Patent Happenings® newsletter.