Contributed by Edmund J. Haughey and Stephen Yam, Fitzpatrick, Cella, Harper & Scinto.
The perceived necessity of patent counsel opinions has plummeted ever since the Federal Circuit's 2004 decision in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp.,1 which held that no adverse inference of willful infringement of a patent may be drawn either from the failure to obtain legal advice or the invocation of the attorney-client privilege concerning the advice sought. The recently-enacted America Invents Act ("AIA") codifies and extends the holding of Knorr-Bremse by prohibiting one's failure to obtain the advice of counsel, or failure to present such advice to the court or jury, from being used to prove not only willful infringement, but induced infringement as well.
For companies faced with shrinking legal budgets, dispensing with opinions of patent counsel may seem like an obvious way to save money. But one should not overlook the difference that having an opinion of patent counsel can make, both in avoiding litigation in the first place and in defeating claims of willful infringement, enhanced damages, and induced infringement should litigation ensue.
One of the less-talked about aspects of the AIA is its creation of new 35 U.S.C. § 298, titled "Advice of Counsel," which states:
The failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed the patent or that the infringer intended to induce infringement of the patent.2
Congress enacted Section 298 for the stated purpose of protecting attorney-client privilege and reducing pressure on accused infringers to obtain opinions of counsel for litigation purposes. The provision reflects a policy choice, by Congress, "that the probative value of this type of evidence is outweighed by the harm that coercing a waiver of attorney-client privilege inflicts on the attorney-client relationship."3
Unlike other litigation-related provisions of the AIA that took effect immediately upon enactment, Section 298 will not take effect until September 16, 2012, and will apply only to patents issued on or after that date.4
To understand Section 298's impact on the issues of willful infringement and enhanced damages, it is useful to first review the current state of the law.
The doctrine of willful infringement exists to deter objectively reckless behavior. If one acts despite an objectively high likelihood that its actions constitute infringement of a valid patent and this objectively-defined risk is either known or so obvious that it should be known to the actor, then the actor may be found liable for willful infringement.5 Upon a finding of willful infringement, a court may, in its discretion, award attorney fees as well as enhanced damages of up to three times the damages amount found or assessed.6 In deciding whether to enhance damages, and if so, by how much, courts employ a nine-factor analysis set forth in Read Corp. v. Portec, Inc.7
Opinions of patent counsel, or lack thereof, have long played a role in the willfulness and enhanced damages analyses. Before the Federal Circuit's In re Seagate decision in 2007, potential infringers with actual notice of another's patent rights had an affirmative duty to obtain competent legal advice before initiating any possible infringing activity.8 Not surprisingly, the failure to obtain legal advice often led to a finding of willful infringement, even without drawing the adverse inference that Knorr-Bremse forbade.9
Seagate abolished the affirmative obligation to obtain the advice of counsel and replaced it with the aforementioned objectively reckless standard. But Seagate left it to future cases to develop the application of that standard, including the issue of whether an accused infringer's failure to obtain the advice of counsel, or failure to present such advice to the court or jury, still had a place in the willfulness analysis. The majority of district courts that have considered the issue post-Seagate have concluded that the lack of an opinion, while not determinative, remains a factor to consider in the totality of the circumstances.10 The Federal Circuit has not explicitly ruled on the issue, although dicta in a recent decision suggested that a district court applied Seagate "in a more rigorous manner than is appropriate" when it excluded evidence that defendants failed to seek an opinion of counsel or that defendants sought an opinion of counsel but did not disclose it.11
Section 298 will preclude patentees from using an accused infringer's failure to obtain the advice of counsel, or failure to present such advice to the court or jury, to prove willful infringement. Presumably, this means that the lack of an opinion will no longer be a factor in the willfulness analysis, contrary to the current majority view. It would seem then that with the enactment of the AIA, the need for opinions of counsel has reached an all-time low. But even after the AIA, there remain several reasons why the presence or absence of an opinion of counsel potentially could be a difference-maker with respect to willfulness and enhanced damages.
First, having a timely and competent opinion from reputable counsel that a patent is not infringed, invalid, or both will continue to be a powerful defense to a charge of willful infringement. Arguably, Seagate elevated the value of such opinions when it abolished the affirmative obligation to obtain the advice of counsel. Those who seek and obtain the advice of counsel, when they are under no obligation to do so, will be well-positioned to argue that they have acted with extraordinary prudence—far from the objectively reckless behavior that warrants a finding of willful infringement.
Second, Section 298 applies only to patents issued on or after September 16, 2012. If one has actual knowledge of a potentially applicable patent issued before that date and does not seek the advice of counsel, Section 298 will not preclude a court from holding this fact against the accused infringer in the willful infringement analysis. Indeed, one could argue that by not making Section 298 effective immediately, Congress signaled its intention that courts should continue to consider evidence concerning the lack of an opinion in cases involving patents issued before September 16, 2012.
Third, Section 298 does not purport to change any of the nine Read factors that courts consider when determining whether to award enhanced damages once willful infringement is found. The second Read factor is "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."12 Under this factor, the presence of a timely and competent opinion of counsel generally weighs against a significant enhancement of damages, while the absence of such an opinion can weigh in favor of a significant enhancement. Unlike the issue of willfulness, where the Federal Circuit has not definitively ruled whether the lack of an opinion remains a proper consideration after Seagate, the Federal Circuit has expressly held that an infringer's failure to obtain an opinion of counsel remains relevant to the enhanced damages analysis.13 At least one district court, in fact, has held that the second Read factor is "the single most important factor" in determining enhanced damages.14 Thus, should one find itself in the unfortunate position of having been found a willful infringer, not having an opinion of counsel could make matters even worse.
Impact of Section 298 on Induced Infringement
Induced infringement is one of two indirect infringement theories, with contributory infringement being the other.15 To prove induced infringement, a patentee must establish first that there has been direct infringement by another, and second that the alleged infringer induced the direct infringement by another with knowledge that the induced acts constitute patent infringement.16
In its 2008 decision in Broadcom Corp. v. Qualcomm Inc.,17 the Federal Circuit addressed the relevance of opinions of counsel, or lack thereof, to the state-of-mind prong of the inducement standard. Qualcomm argued that after Seagate, opinion-of-counsel evidence is no longer relevant in determining the intent of an alleged infringer in the inducement context. The Federal Circuit rejected Qualcomm's argument, holding:
Because opinion-of-counsel evidence, along with other factors, may reflect whether the accused infringer "knew or should have known" that its actions would cause another to directly infringe, we hold that such evidence remains relevant to the second prong of the intent analysis. Moreover, we disagree with Qualcomm's argument and further hold that the failure to procure such an opinion may be probative of intent in this context. It would be manifestly unfair to allow opinion-of-counsel evidence to serve an exculpatory function . . . and yet not permit patentees to identify failures to procure such advice as circumstantial evidence of intent to infringe.18
In enacting Section 298, Congress made clear its intention to legislatively abrogate the holding of Broadcom.19 Thus, Section 298 prohibits patentees from using an accused infringer's failure to obtain the advice of counsel, or failure to present such advice to the court or jury, to prove induced infringement.
By no means, however, does Section 298's enactment render opinions of counsel irrelevant to the issue of inducement. Notably, Section 298 does nothing to diminish the exculpatory value that a timely and competent opinion of counsel can have in rebutting a charge of induced infringement.20 Nor does Section 298 apply to patents issued prior to September 16, 2012. In cases involving such patents, courts will be bound to follow Broadcom and give probative weight to the absence of an opinion until if and when Broadcom is overruled or Congress amends the effective date of Section 298. Of course, there is no guarantee that either of these things will happen.
Even after the AIA, companies with knowledge of potentially applicable patents should not automatically assume that a decision to forego seeking legal advice will not come back to haunt them in litigation. The failure to obtain the advice of counsel, or the failure to present such advice to the court or jury, may still be considered for purposes of enhanced damages, and also for purposes of willful infringement and induced infringement if the patent in question is one that issued prior to September 16, 2012. Conversely, obtaining a timely and competent opinion of counsel can provide invaluable peace of mind and will continue to be a powerful defense against claims of willful infringement, enhanced damages, and induced infringement. Edmund J. Haughey, a partner at Fitzpatrick, has extensive experience litigating patent matters in U.S. district and appellate courts and before the U.S. International Trade Commission. Stephen Yam is an associate at the firm whose practice focuses on patent prosecution and counseling in the mechanical, electrical, computer, and business method arts.
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