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Should You Get An Opinion of Counsel After SEB? Contributed by Stephen Hash and Syed Fareed, Vinson & Elkins LLP

Wednesday, July 27, 2011

By Stephen Hash and Syed Fareed, Vinson & Elkins LLP

On May 31, 2011, the U.S. Supreme Court issued its decision in Global-Tech Appliances, Inc., v. SEB S.A., rejecting the Federal Circuit’s standard of "deliberate indifference to a known risk" as applied in the context of inducement to infringe under 35 U.S.C. §271(b).1 The Court, relying on its decision in Aro Manufacturing Co. v. Convertible Top Replacement Co.,2 held that inducement to infringe requires the plaintiff to prove that defendant possessed knowledge of the fact that induced acts constitute patent infringement.3 The Court, however, went further and held that in the absence of proof of actual knowledge "willful blindness" may constitute knowledge.4 Given that the Federal Circuit has continued to reduce the need to obtain and rely on opinions of counsel in defending allegations of willful infringement,5 and bearing in mind that the high standard of "willful blindness" would make it considerably more difficult for patentees to prove inducement to infringe in the absence of actual knowledge under §271(b), the issue now becomes whether or not potential defendants should bother obtaining opinions of counsel when there is no proof of actual knowledge.

Interestingly, despite the Federal Circuit’s recent decisions reducing the need of opinions of counsel in the context of willful infringement, the court has repeatedly highlighted the need to obtain an opinion of counsel to defend against allegations of inducement to infringe under § 271(b). In DSU Med. Corp. v. JMS Co., the Federal Circuit upheld a finding of no specific intent to induce infringement in large part because the accused infringer had obtained an opinion of non-infringement from counsel.6 In 2008, the Federal Circuit went a bit further and established the need to obtain an opinion of counsel to show a lack of intent to induce infringement under 35 U.S.C. §271(b).7 Even though the court did not go as far as mandating an adverse inference in the absence of an opinion of counsel, it nonetheless allowed patentees to raise, as a jury argument, the absence of an opinion of counsel as circumstantial evidence of inducement to infringe.8 Just as in DSU, the court in Broadcom laid out a two-step inquiry for inducement: (i) the defendant intended to cause the acts that constitute direct infringement; and (ii) defendant must have known or should have known that its actions would cause direct infringement.9 Under this test, the Federal Circuit substituted the second prong of "known or should have known" with "deliberate indifference to a known risk" where proof of actual knowledge of infringement on part of the defendant was not available.

In SEB, the Court rejected the Federal Circuit’s standard of "deliberate indifference to a known risk" and held that in the absence of actual knowledge, a plaintiff may sustain its burden by proving "willful blindness" on the part of the defendant.10 The plaintiff, SEB, had obtained a patent on a deep fryer and had marketed its commercially successful patented apparatus within the United States. The defendant, Pentalpha, purchased a deep fryer manufactured by SEB in Hong Kong, and had its subsidiary, Sunbeam Products, copy several features of the SEB deep fryer in order to manufacture its own deep fryer for sale in the United States. Prior to the launch of the product in the United States, Pentalpha engaged a patent attorney to provide a right-to-use study. Pentalpha did not inform the attorney that it copied SEB’s deep fryer that it purchased in Hong Kong, and the attorney’s prior art search did not locate the SEB patent.

Thereafter, SEB sued Pentalpha for inducing retailers to infringe the SEB patent under §271(b). The jury found in favor of SEB on the inducement charge. On appeal, the Federal Circuit affirmed and held that Pentalpha engaged in "deliberate indifference" by knowingly disregarding a known risk that SEB had obtained a patent on its apparatus.11 The Federal Circuit held that this level of indifference was enough to satisfy the requirement of knowledge under §271(b).12 The Supreme Court rejected the Federal Circuit’s standard of "deliberate indifference to a known risk" and held that in the absence of actual knowledge, a plaintiff may sustain its burden by proving "willful blindness" on the part of the defendant.13 Under the test of "willful blindness," the Court held, knowledge of infringement is established when a person is aware of a high probability of infringement, unless he/she actually believes there is no infringement.14 The "willful blindness" standard requires that the patentee not only prove that the accused infringer subjectively believed that there was a high probability that a patent existed, but that the accused infringer also took deliberate steps to avoid learning of the patent’s existence.15

There is no doubt that in the absence of actual knowledge this heightened standard of "willful blindness" will make it much more difficult for a patentee to prove that the accused infringer actually induced another to infringe the patent. The difficulty associated with this higher standard may lead some to re-consider whether it is worth the costs and risks associated with obtaining and relying on an opinion of counsel in the absence of proof of "actual knowledge." After all, reliance on an opinion of counsel comes with its fair share of problems, such as waiver of attorney-client privileged communications. Notwithstanding the issues associated with the waiver of privilege, relying on an opinion of counsel can sometimes hurt more than it can help—especially if the opinion is not thorough. If the opinion relied upon is found incompetent, it can itself be used as circumstantial evidence of deliberate shielding,16 or even willfulness.17 Moreover, an incompetent opinion necessarily diverts the focus of the trial court, and resultantly the efforts of trial counsel, from the actual merits of the case. And even though the scope of the waiver of privilege is limited after Seagate, evidence surrounding the procurement of an incompetent opinion can lead to the unearthing of damaging evidence that can taint the trier of fact.18 Therefore, in light of the potential perils, it is logical to assume that if the opinion were not relied upon at all and evidence surrounding the procurement of the opinion was not revealed during litigation, the patentee would have a much more difficult task proving the accused infringer deliberately shielded itself from gaining any knowledge of the patent.

Furthermore, it is no secret that opinions of counsel come with a decent price tag. Thus, for companies faced with tough economic circumstances, the heightened standard of "willful blindness" may tempt in-house counsel to take a calculated risk and avoid obtaining an opinion in an attempt to cut costs.

These considerations, however appealing, should not allow in-house counsel to shy away from obtaining opinions of counsel in advance of litigation or a threat of litigation. While the Court’s decision in SEB may lull some in-house counsel into a false sense of security, the heightened standard of "willful blindness" will most likely end up forcing plaintiffs to provide actual notice of the patent to potential defendants in advance of filing suit in an attempt to establish actual knowledge—completely bypassing the need to rely on the "willful blindness" standard. And where the defendant has actual notice of the patent in advance of litigation, a competent and thorough opinion from counsel is one of the very few things that can save the day.

The advantages of obtaining and relying on a competent opinion of counsel still outweigh its costs or disadvantages stemming from the associated waiver of attorney-client privilege. First, relying on a competent opinion of counsel can completely negate the element of "intent" in inducement cases—i.e., a competent opinion of non-infringement can help establish that there was no intent to induce another to directly infringe a patent. The Federal Circuit has indicated that relying on a competent and thorough opinion of non-infringement evidences a lack of intent to induce infringement.19 Second, several courts have relied on the defendant’s failure to obtain an opinion of counsel as a reason to increase damages or award attorneys’ fees after infringement is found.20 Thus, even if the opinion of counsel does not protect a potential defendant from a finding of infringement, or inducement to infringe, it can be indicative of the party’s good faith efforts and provide a basis for the trial court to deny any enhancement of damages.

While it is yet to be seen how district courts and the Federal Circuit will assess the presence, or lack thereof, of an opinion of counsel in cases involving inducement to infringe after SEB, the Court’s decision in SEB should not be understood to be a decree allowing potential defendants to completely abstain from obtaining opinions of counsel prior to a product launch or a potential threat of litigation. Regardless of how courts apply the standard in SEB, the severe disadvantages flowing from the complete absence of an opinion should persuade potential defendants to obtain them in all situations—either inducement or willfulness—even after SEB.

Stephen M. Hash is a Partner in the Austin office of Vinson & Elkins LLP. His practice primarily focuses on patent litigation and patent counseling, with a concentration in the areas of biotechnology, immunology, molecular biology, medical devices, agricultural products and agricultural genetics. He has experience in all phases of complex patent litigations including discovery, pre-trial preparation and strategy, patent Markman hearings and all other phases of patent litigation. Stephen also advises clients on both the acquisition and enforcement of patents. Stephen can be reached at shash@velaw.com.

Syed K. Fareed is an Associate in the Austin office of Vinson & Elkins LLP. Syed's principal area of practice is intellectual property litigation, counseling and valuation. He has represented clients before various federal district courts. He represents clients in a variety of technological fields, including alternative energy, medical and dental devices, and computer software and hardware design. Syed can be reached at sfareed@velaw.com.

© 2011 Vinson & Elkins LLP

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