Taking Due Care

In each case, you have learned that someone else has a patent that may cover your device. Unless you take the proper next step, you could be subject to double or even treble damages and be required to pay your opponent's attorneys' fees if your opponent prevails in patent infringement litigation against you. What is that proper next step?

Imagine each of the following scenarios:

  • You are in the process of developing a new device. Your competitor hits the market with a similar device before you do, and you obtain a sample of your competitor’s device. It is marked with a patent number.

  • You have filed an application for a patent on a new device, which you spent many months developing. During a prior-art search, your patent attorney discovers a patent that could possibly cover your device.

  • You have just placed your newly developed device on the market and it is selling very well. One day you receive a letter that claims that your device infringes certain claims of a competitor’s patents.

  • You have just been served with a lawsuit, which claims that your highly successful device infringes a patent of which you had no prior knowledge.

In each case, you have learned that someone else has a patent that may cover your device. Unless you take the proper next step, you could be subject to double or even treble damages and be required to pay your opponent’s attorneys’ fees if your opponent prevails in patent infringement litigation against you. What is that proper next step?

What is Willful Infringement?

Under the Patent Act, a court is authorized to “increase the damages up to three times the amount found or assessed” where patent infringement has been willful.1 The determination of whether infringement has been willful is based on the “totality of the circumstances.” Willful infringement is generally found (1) where the infringer deliberately copied the patentee’s ideas or designs; (2) where, after learning of the patent, the infringer failed to investigate the scope of the patent and did not form a good-faith belief that it was invalid or not infringed; or (3) where the infringer engaged in misconduct during the ensuing patent litigation.2 Under current law, where “a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to avoid infringement of the known patent rights of others.”3 This duty of due care to avoid infringement must be satisfied whenever the potential infringer has actual notice of another’s patent, regardless of how that notice was received or obtained.4

The Affirmative Duty of Due Care

How does a potential infringer satisfy its duty of due care to avoid a claim of willful infringement when it obtains knowledge of someone else’s patent? Of course, the potential infringer can immediately cease the allegedly infringing activity. Immediate cessation of the offending activity is the only certain way to avoid a finding of willful infringement in future patent litigation. On the opposite extreme, the duty of due care is clearly not satisfied if the potential infringer simply ignores the patent and continues to engage in the same conduct in the hope that it will not be sued.5 Given these two extremes, how does the potential infringer satisfy its affirmative duty to avoid infringement if it wishes to continue making and selling the allegedly infringing device?

The duty of due care to avoid infringement must be satisfied whenever the potential infringer has actual notice of another’s patent, regardless of how that notice was received or obtained.

According to the United States Court of Appeals for the Federal Circuit, which has exclusive jurisdiction of all appeals from federal district court cases arising under patent law, the potential infringer must “seek and obtain competent legal advice from counsel before the initiation [or continuation] of any possible infringing activity.”6 Although the Federal Circuit has held that an infringer’s failure to obtain an exculpatory opinion of counsel no longer creates an adverse inference that the opinion would have been unfavorable,7 the court has not expressly sanctioned any other way of meeting the duty of due care to avoid infringement. Furthermore, cases in which a defendant was able to avoid a finding of willful infringement without producing an exculpatory opinion are rare. Thus, as a practical matter, a potential infringer who has knowledge of a possibly conflicting patent, but wants to begin or continue his allegedly infringing activities, should obtain an exculpatory opinion of counsel before starting or resuming those activities in order to satisfy its affirmative duty of due care.

The Exculpatory Opinion

What should go into the opinion? When should it be obtained? Who should provide it? These are all questions that have been extensively addressed by the Federal Circuit and the district courts.

First, the opinion must be a competent one. An opinion is competent if it is “thorough enough, as combined with other factors, to instill a belief in the infringer that a court might reasonably hold the patent is invalid, not infringed, or unenforceable.”8 Broad and conclusory statements with little to no support are not sufficient.9 Rather, the opinion must contain a detailed and well-reasoned analysis of the facts and the law. In addition, the opinion must be based on complete facts about the accused device. The potential infringer cannot withhold any information from the person providing the opinion.10

Second, the opinion should be in writing. Although the courts have occasionally found no willful infringement based on an oral opinion, oral opinions are not favored in patent infringement cases.11

Third, the opinion should be promptly obtained after the potential infringer obtains notice of a potentially conflicting patent. The law requires that he obtain the opinion before beginning or resuming the allegedly infringing activities. Therefore, delaying for any substantial period can lead to a finding of willful infringement.12

Fourth, to be considered competent, the opinion should be provided by an experienced U.S. patent lawyer.13 In addition, because in-house patent counsel is not likely to be considered as objective as an outside lawyer,14 the opinion should be provided by outside counsel. Finally, as will be discussed below, the opinion should not be provided by trial counsel, and opinion counsel should not be involved in trial preparation or trial strategy at all.15

Use of the Opinion in Infringement Litigation

In a typical infringement case, the defendant produces the exculpatory opinion during discovery, the opinion writer and the opinion reader(s) are deposed and may testify at trial, and the factfinder determines whether the opinion provided the defendant with a sufficient basis to form a good-faith belief as to the lack of infringement, invalidity or unenforceability. If the factfinder determines that the opinion was competent, and there are no other adverse facts in evidence (such as evidence of copying or litigation misconduct by the defendant), then the defendant’s infringement was not willful, and the court will not award enhanced damages.16 On the other hand, if the factfinder finds that the opinion was not competent, the court usually determines that the infringement was willful and awards double or treble damages, as well as attorneys’ fees, to the patentee.17 Thus, the exculpatory opinion is often the critical piece of evidence upon which the extent of an infringer’s liability turns, and the monetary risk associated with not producing an exculpatory opinion in defense of willful infringement is substantial.

However, disclosure of the exculpatory opinion in patent litigation comes with a price: waiver of the attorney-client privilege. As a result, if a defendant elects to rely upon an opinion to defend against a claim of willful infringement, the defendant is required to produce not only the opinion, but also certain other attorney-client communications and work product.

The scope of the waiver of privilege that occurs when a defendant elects to rely upon an opinion of counsel has been the subject of numerous conflicting decisions. The Federal Circuit attempted to resolve this conflict in its decision in In re Echostar Communications Corp.,18 but still left many questions unanswered.

The Federal Circuit held in Echostar that “when an alleged infringer asserts its advice-of-counsel defense regarding willful infringement of a particular patent, it waives immunity for any document or opinion that embodies or discusses a communication to or from it concerning whether that patent is valid, enforceable, and infringed by the accused.” Such waiver encompasses “any attorney-client communications relating to the same subject matter, including communications with counsel other than in-house counsel.” The court also stated in a footnote that the privilege waiver extends to attorney-client advice given throughout the entire period of alleged infringement, including attorney-client advice given after litigation has begun, as long as ongoing willful infringement is still at issue.19

The rationale behind the Echostar decision is to “prevent a party from using the advice he received as both a sword, by waiving privilege to favorable advice, and a shield, by asserting privilege to unfavorable advice.”20 An accused infringer cannot have it both ways.

The Echostar court also held that reliance upon advice of counsel waives certain types of work product. Such waiver “includes not only letters, memorandum, conversation, or the like between the attorney and his or her client, but also includes, when appropriate, any documents referencing a communication between attorney and client.” However, the scope of the waiver does not extend to attorney mental impressions and analyses that were never communicated to the client, and the court expressly held that by asserting a reliance upon advice-of-counsel defense, “the accused infringer and his or her attorney do not give their opponent unfettered discretion to rummage through all of their files and pillage all of their litigation strategies.”

Since Echostar was decided, the district courts have struggled with the scope of the privilege waiver in willful infringement cases, particularly with regard to how the waiver applies to client communications with trial counsel. While a handful of courts have refused to extend the waiver to include trial counsel communications and work product,21 most courts have determined that assertion of the reliance upon advice-of-counsel defense waives not only communications between the client and its opinion counsel, but also communications between the client and its trial counsel.22 Because the Federal Circuit held that the waiver continues for as long as the infringement is continuing, even during pending litigation, it is inevitable that the Echostar decision will have a chilling effect on communications between accused infringers and their trial counsel during trial preparation.

In an attempt to prevent the chilling effect on litigation strategy that the required disclosure of client communications with trial counsel will have, several courts have adopted a “middle ground” approach with regard to trial counsel communications and have found that the privilege waiver applies only to trial counsel advice and communicated work product materials that “contradict or cast doubt on the earlier opinions” of opinion counsel.23 Other courts have adopted an approach that limits the disclosure to trial counsel “documents and communications that are most akin to that which opinion counsel normally renders — i.e., documents and communications that contain opinions (formal or informal) and advice central and highly material to the ultimate questions of infringement and invalidity.”24 Still other courts have found that the accused infringer is only required to produce attorney-client communications and communicated work product that relate to the subject matter contained in the opinion letter on which the accused infringer relies, as opposed to communications and work product that relate to every potential infringement defense.25 As an additional protection to prevent the disclosure of litigation strategy to the patentee, some courts have allowed the accused infringer to submit to the court materials which it believes reveal trial strategy for in camera review before they are required to be produced to the patentee.26

In any event, because it appears that certain communications between an accused infringer and its trial counsel must be disclosed when the accused infringer decides to rely upon advice of counsel to defend against a claim of willful infringement, it is very important for trial counsel and opinion counsel to be distinct from one another. In fact, if trial counsel and opinion counsel are the same person, there is a risk that trial counsel will be disqualified from serving as counsel in the case.27 In addition, due to the current uncertainties regarding the scope of the waiver as it relates to trial counsel communications, trial counsel and the client should exercise extreme caution in documenting any of their discussions relating to infringement, validity, and enforceability of an asserted patent or comments on the work of opinion counsel.

Reform on the Horizon?

As it now stands, accused infringers are faced with a catch-22: they can refuse to produce an exculpatory opinion and risk a judgment of willful infringement and enhanced damages against them, or they can disclose an exculpatory opinion and be forced to disclose communications with trial counsel that may reveal litigation strategy to their opponents.28 There may soon be resolution to this dilemma, however.

There has been a bipartisan effort in Congress to dramatically reform U.S. patent law, and, during the 109th Congress, patent reform bills were introduced in both the House and Senate. All of the bills included major changes to the law on willful infringement.29

Under all of the proposals, a patentee would be able to establish that an infringer willfully infringed a patent only if the patentee proves by clear and convincing evidence that (1) the patentee sent notice to the infringer identifying the patent, the claims infringed, and the product or process that infringes those claims; (2) the infringer intentionally copied the patented invention with knowledge that it was patented; or (3) the infringer engaged in similar infringing conduct after being found by a court to have infringed. Moreover, under each proposal, a patentee would not be permitted to plead a claim of willful infringement until after a court has made a determination that the patent in suit is not invalid, is enforceable and has been infringed by the infringer.30

These proposed changes will do much to relieve the current problems facing accused infringers today. They would not be required, as under current law, to obtain an exculpatory opinion whenever they obtain knowledge of someone else’s potentially conflicting patent, but only if the patentee sends them a detailed infringement notice prior to the filing of a suit. In addition, because a plaintiff would not be able even to plead willful infringement until after the plaintiff has prevailed at trial, courts likely would not require an accused infringer to produce any discovery relating to willful infringement until after trial, thus eliminating the possibility of disclosing litigation strategy to the patentee prior to trial.31

Because there appears to be a consensus regarding how the law of willful infringement should be changed, it is very likely that the above changes will be adopted sometime in the future. However, this process may take significant time because other areas of patent reform under consideration are much more controversial and will likely require much debate and compromise. Thus, whether changes to the law of willful infringement occur during the next Congress, or years from now, remains to be seen.

Conclusion

Under current law, obtaining an exculpatory opinion after obtaining knowledge of a potentially conflicting patent is extremely important if a potential infringer wants to begin or resume potentially infringing activities, but also avoid a finding of willful infringement. Although failure to produce an opinion in defense of a claim of willful infringement no longer creates an adverse inference against an infringer, the Federal Circuit has not, as of yet, endorsed any other means of defending against such claim. Thus, an accused infringer acts at its peril if it opts not to obtain and disclose an exculpatory opinion. However, due to recent decisions relating to waiver of attorney-client privilege, disclosure of the exculpatory opinion comes at a significant price and may hamper the ability of trial counsel to communicate honestly and effectively with their clients in defending against infringement claims.

Endnotes

  1. 35 U.S.C. § 284. 

  2. E.g., Bott v. Four Star Corp., 807 F.2d 1567 (Fed. Cir. 1986). 

  3. Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp, 383 F.3d 1337, 1345-46 (Fed. Cir. 2004) (quoting L.A. Gear Inc. v. Thom McAn Shoe Co., 988 F.2d 1117, 1127 (Fed. Cir. 1993)). 

  4. See Imonex Servs., Inc. v. W.H. Munzprufer Dietmar Trenner GmbH, 408 F.3d 1374 (Fed. Cir. 2005) (finding that defendants had actual notice of patents where patentee had displayed products marked with the patents at trade shows attended by defendants, patentee had widely distributed literature identifying the products as patented, and the patentee had corresponded with defendants about the use of the patented products in defendants’ products);* Stryker Corp. v. Intermedics Orthopedics, Inc.*, 96 F.3d 1409 (Fed. Cir. 1996) (finding that defendant obtained actual knowledge that triggered affirmative duty of due care when in-house attorney saw patent in the PTO’s Official Gazette); Honeywell Int’l, Inc. v. Hamilton Sundstrand Corp., 166 F. Supp. 2d 1008 (D. Del. 2001) (finding that infringer had actual knowledge of patent when it was cited as prior art during prosecution of infringer’s own application). 

  5. Kloster Speedstel AB v. Crucible Inc., 793 F.2d 1565, 1580 n.11 (Fed. Cir. 1986) (“An alleged infringer who intentionally blinds himself to the facts and law, continues to infringe, and employs the judicial process with no solidly-based expectation of success, can hardly be surprised when infringement is found to have been willful.”). 

  6. Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389 (Fed. Cir. 1983) (emphasis in original) (cited with approval in Knorr-Bremse, 383 F.3d at 1343). 

  7. Prior to the Knorr-Bremse decision, a defendant’s failure to produce an exculpatory opinion in defense of an allegation of willful infringement created an adverse inference that such opinion would have been unfavorable to the defendant. Id

  8. Ortho Pharm. Corp. v. Smith, 959 F.2d 936, 944 (Fed. Cir. 1992). 

  9. Kori Corp. v. Wilco Marsh Buggies & Draglines, Inc., 761 F.2d 649 (Fed. Cir. 1985); Read Corp. v. Portec, Inc., 970 F.2d 816, 829 (Fed. Cir. 1992) (“A written opinion may be incompetent on its face by reason of its containing merely conclusory statements without discussion of facts or obviously presenting only a superficial or off-the-cuff analysis.”). 

  10. E.g., Liquid Dynamics Corp. v. Vaughn, 449 F.3d 1209 (Fed. Cir. 2006) (discounting non-infringement opinion because defendant failed to give complete information about infringing product to opinion counsel); Golden Blount, Inc. v. Robert H. Peterson Co., 438 F.3d 1354 (Fed. Cir. 2006) (discounting oral opinion because it was superficial and had been given before attorney had reviewed prosecution history or the accused device). 

  11. Minnesota Mining & Mfg. Co. v. Johnson & Johnson Orthopaedics, Inc., 976 F.2d 1559, 1580 (Fed. Cir. 1992) (“Such opinions carry less weight, for example, because they have to be proved perhaps years after the event, based only on testimony which may be affected by faded memories and the forces of contemporaneous litigation.”). 

  12. See Imonex Servs., Inc. v. W.H. Munprufer Trenner GmbH, 408 F.3d 1374 (Fed. Cir. 2005) (finding willful infringement where defendant’s failure to obtain an opinion until after it was sued for infringement was only factor supporting willful infringement discussed in opinion). 

  13. See McDermott v. Omid Int’l, 723 F. Supp. 1228 (S.D. Ohio 1998) (finding that German patent attorney not competent to express opinion based on U.S. patent law); Metabolite Labs., Inc. v. Lab. Corp., 370 F.3d 1354 (Fed. Cir. 2004) (finding that opinion was not competent where “Discipline Director” untrained in patent law was person who provided it). 

  14. E.g., Minnesota Mining, 976 F.2d at 1581. 

  15. But see Informatica Corp. v. Business Objects Data Integration, Inc., 2006 WL 2038461, at *8 (N.D. Cal. July 14, 2006) (“Under the analysis in Echostar, it is immaterial whether [defendant’s] opinion and trial counsel are from the same firm, different firms or are even the same person.”) 

  16. E.g., Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992). 

  17. E.g., Datascope Corp. v. SMEC, Inc., 879 F.2d 820 (Fed. Cir. 1989). 

  18. 448 F.3d 1294 (Fed. Cir. 2006). 

  19. Id. at 1303 n.4; see also Informatica Corp., 2006 WL 2038461, at *7. 

  20. Echostar, 448 F.3d at 1303. 

  21. Ampex Corp. v. Eastman Kodak Co., 2006 WL 1995140, at *4 (D. Del. July 17, 2006). 

  22. E.g., Beck Sys. v. Managesoft Corp., 2006 WL 2037356, at 5 (N.D. Ill. July 14, 2006); *Informatica Corp., 2006 WL 2038461, at 8; *Affinion Net Patents, Inc. v. Maritz, Inc., 440 F. Supp. 2d 254 (D. Del. 2006); Outside the Box Innovations, LLC v. Travel Caddy, Inc., 2006 WL 2861191, at 3 (N.D. Ga. Oct. 6, 2006); *Computer Assocs. Int’l, Inc. v. Simple.com, Inc., 2006 WL 3050883, at *4 (E.D.N.Y. Oct. 23, 2006). 

  23. E.g., Intex Recreation Group v. Team Worldwide Corp., 439 F. Supp. 2d 46, 52 (D.D.C. July 14, 2006). 

  24. E.g., Genentech, Inc. v. Insmed Inc., 442 F. Supp. 2d 838, 847 (N.D. Cal. 2006). 

  25. E.g., Autobytel, Inc. v. Dealix Corp., 2006 WL 2850324, at *5 (E.D. Tex. Oct. 3, 2006); Beck Sys., 2006 WL 2037356, at *7. 

  26. Convolve, Inc. v. Compaq Computer Corp., 2006 WL 2792687, at *3 (S.D.N.Y. Sept. 27, 2006). 

  27. E.g., Rohm and Haas Co. v. Lonza, Inc., 1999 WL 718114, at 1 (E.D. Pa. Sept. 7, 1999) (disqualifying opinion counsel as trial counsel under Model Rule 3.7 because opinion counsel were likely to be trial witnesses). Furthermore, one court has disqualified a whole firm from serving as trial counsel where other lawyers in the firm were to be called as witnesses relating to an exculpatory opinion. *Crossroads Sys., Inc. v. Dot Hill Sys. Corp., 2006 WL 1544621, at *11 (W.D. Tex. May 31, 2006). 

  28. Interestingly, the Federal Circuit articulated this dilemma in Quantum Corp. v. Tandon Corp., 940 F.2d 642, 643-44 (Fed. Cir. 1991), in stating, “An accused infringer, therefore, should not, without the trial court’s careful consideration, be forced to choose between waiving the privilege in order to protect itself from a willfulness finding, in which case it may risk prejudicing itself on the question of liability, and maintaining the privilege, in which case it may risk being found to be a willful infringer if liability is found.” 

  29. See The Patents Depend on Quality Act of 2006, H.R. 5096, 109th Congress (2006); The Patent Reform Act of 2005, H.R. 2795, 109th Congress (2005); Proposed Substitute for H.R. 2795, 109th Congress (2006); The Patent Reform Act of 2006, S. 3818, 109th Congress (2006). 

  30. See H.R. 5096, § 6; S. 3818, § 5; H.R. 2795, § 7. 

  31. This aspect of the proposed changes is similar to cases in which the district courts have bifurcated the issue of willfulness from liability. E.g., Kos Pharms., Inc. v. Barr Labs., Inc., 218 F.R.D. 387, 394 (S.D.N.Y. 2003). 

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