CASRIP Newsletter - Summer 2009, Volume 16, Issue 3
Willful Infringement and Counsel’s Opinion
by Elena Torgan
Candidate for Master of Laws in Intellectual Property Law and Policy
Advanced Writing Seminar in Intellectual Property Law and Policy
Submitted to Professor Signe H. Naeve
University of Washington School of Law
Patent Infringement Litigation and Counsel’s Opinion
I. Willful Infringement
A. Statutory Authority
B. Legislative History
C. Willful Infringement Statistics
II. Direct Infringement Cases Development: from Underwater to Seagate
B. Underwater Devices
D. In re Seagate
III. Indirect Infringement and Broadcom Case.
A. Indirect Infringement
B. Broadcom Case
IV. Overview of Willful Infringement Cases Development
V. Pros and Cons in Obtaining Opinion of Counsel
A. Advantages of Obtaining an Opinion
B. Disadvantages of Obtaining an Opinion
VI. Possible Solutions and Recommendations
The United States Court of Appeals for the Federal Circuit has addressed the necessity for an accused infringer to obtain a counsel opinion in patent infringement cases several times and, finally, indicated that opinion letters may still be relevant in inducement cases. The Federal Circuit’s 2007 decision in In Re Seagate Technologies changed the way companies defended patent lawsuits. In that case, the Federal Circuit held that there was no affirmative obligation to obtain opinion of counsel when willful infringement is asserted. After Seagate, companies did not seek counsels’ opinions as often. However, in the 2008 decision Broadcom Corp. v. Qualcomm, Inc., the court suggested that counsel opinions may be considered among other factors in indirect infringement actions.
Part I of this paper discusses the concept of willful infringement, including its statutory authority and legislative history. Part II characterizes the most important direct infringement cases discussing counsel’s opinions, from Underwater Devices to Seagate. Part III deals with counsel’s opinion issues in indirect infringement cases. Part IV summarizes the cases discussed in Part II and Part III. Part V discusses the pros and cons in obtaining a counsel’s opinion. Finally, Part VI provides some recommendations on whether to obtain counsel’s opinion.
Patent Infringement Litigation and Counsel’s Opinion
I. Willful Infringement
Patent remedy statute authorizes the court to “increase the damages up to three times the amount found or assessed.” The decision to increase damages is discretionary with the trial court. But this discretion should usually be exercised only in cases when a plaintiff can prove by clear and convincing evidence willful and wanton infringement or bad faith litigation on the part of the defendant. Courts historically have linked damage enhancement, as well as the power to award a patent owner attorney fees in “exceptional” cases, to a finding that an infringer’s conduct was “willful.”
The Federal Circuit held that the analysis of whether to increase damages is a two-step process. First, the district court must determine whether willful infringement is proven, a finding of fact which appellate court reviews only for clear error. Second, if the court finds such a basis proven, it must still determine whether or not, under the totality of the circumstances, increased damages are warranted. This determination is committed to the sound discretion of the district court, and will not be overturned absent a clear showing of abuse of discretion.
However, “finding of willfulness, though a sufficient basis for awards of enhanced damages, does not compel such an award.” The Federal Circuit articulated a list of factors that the court must consider in determining the enhancement: whether the infringer deliberately copied, whether the infringer investigated the scope of the patent and formed a good faith belief that the patent was invalid or not infringed, the infringer’s behavior during the litigation, the defendant’s size and financial condition, closeness of the case, duration of the defendant’s misconduct, remedial action by the defendant, defendant’s motivation for harm, and whether the defendant attempted to conceal the misconduct. An increase of damages is inappropriate when the infringer mounted a good faith defense and substantial challenge to the validity of the patent or the existence of infringement. “In order to support such an increased, punitive award there must be a finding that the infringement was willful. . . . The existence of honest doubt concerning the validity of a patent precludes a finding of willfulness.”
Although an award of damages might also be increased in case of wanton infringement or bad faith litigation, the most common basis for increased damage awards is still willful infringement. Beginning in 1983, Court of Appeals for the Federal Circuit decisions shaped the law concerning willfulness and emphasized the importance of obtaining advice of counsel to avoid willfulness. Its decisions over the years emphasize that courts should consider the “totality of the circumstances” in determining willfulness. Acting on patent counsel’s timely advice may shield an infringer from a willful infringement charge. However, counsel’s advice does not guarantee this “shield”:
. . . the district court pointed to the opinion of counsel [defendant] sought, saying that opinion “concern[ed] the validity and possible infringements of patents held by Datascope.” . . . That was a clearly erroneous evaluation by the district court. . . .[t]hat opinion said nothing whatever about the validity of the ... patent, and the opinion’s reference to infringement is not only conclusory, but ignores entirely the question of infringement under the doctrine of equivalents. Further, an opinion on equivalents ... would have been impossible, [the infringer’s] attorneys having never ordered, let alone consulted, the [patent’s] prosecution history before rendering their opinion.
In sum, willful infringement is a judicial concept and, although not specifically mentioned in plain language in any statute, is derived from statutory law. The statutory development of willful infringement started in 1790s and is developing even now. This section explains how statutory authority has changed and how courts have applied the concept of willful infringement over time leading to willful infringement statistic study results.
A. Statutory Authority
Willful infringement is an important concept in patent litigation that justifies both enhanced damages and a finding that a case is exceptional as a ground for awarding attorney’s fees for the prevailing party. Because patent infringement is a strict liability offense, the nature of the offense [and “willfullness” of it] is only relevant in determining whether enhanced damages are warranted. The concept of “willful infringement” is a statement that patent infringement, like other civil wrongs, is disfavored and intentional disregard of legal rights warrants deterrence.
Title 35 U.S.C. Section 284 provides that a court may increase the damages up to three times the amount found or assessed. In addition, under Section 285 of the same title, the court in exceptional cases may award reasonable attorney’s fees to the prevailing party. Thus, if a party is found to be a willful infringer, it faces treble damages as well as the possibility of an award of attorneys’ fees that could amount to millions of dollars. Patent litigation is an expensive undertaking with median litigation fees of two million dollars per side for a patent case that goes to trial, so the threat of an attorney fee award can be quite an effective deterrent. According to the 2007 AIPLA economic survey, the average total cost of litigation is $2.6 million when there is between $1 million and $25 million dollars at stake.
B. Legislative History
1. Patent Acts of 1790, 1793 and 1800
The Patent Acts of 1793 and 1800 provided for a mandatory trebling of damages. Before 1793, the first United States patent act (1790) provided that an infringer should pay to the patent owner general damages, defining them as “such damages as shall be assessed by a jury, and moreover shall forfeit to the person aggrieved, the thing or things so devised ... contrary to the true intent of this act, which may be recovered in an action on the case founded on this act.” Under the Patent Act of 1793 the treble amount of damages was mandatory: an offender was to pay to the patentee “a sum that shall be at least equal to three times the price, for which the patentee has usually sold or licensed to other persons, the use of the said invention.” The 1793 Act’s exclusive reliance on a license value as a measure for damages proved not practical, as the Supreme Court later explained in Seymour v. McCormick (1854):
Here the price of a license is assumed to be a just measure of single damages, and the forfeiture by way of penalty is fixed at treble that sum. But as experience began to show that some inventions or discoveries had their chief value in a monopoly of use by the inventor, and not in a sale of licenses, the value of a license could not be made a universal rule, as a measure of damages.
Consequently, the Act of 1800 returned to the general damage measure of the 1790 Act, but added to it the trebling feature of the 1793 Act.
2. The Patent Acts of 1836, 1870 and 1922
The Patent Act of 1836 changed the damage increase award from mandatory to discretionary and provided that “it shall be in the power of the court to render judgment for any sum above the amount found by [jury] verdict as the actual damages sustained by the plaintiff, not exceeding three times the amount thereof, according to the circumstances of the case.” In 1854, the Supreme Court noted with approval this statutory change in Seymour v. McCormick:
Experience had shown the very great injustice of a horizontal rule equally affecting all cases, without regard to their peculiar merits. . . . For there is no good reason why taking a man’s property in an invention should be trebly punished, while the measure of damages as to other property is single and actual damages. It is true, where the injury is wanton or malicious, a jury may inflict vindictive or exemplary damages, not to recompense the plaintiff, but to punish the defendant. In order to obviate this injustice, the Patent Act of 1836 confines the jury to the assessment of ‘actual damages.’ The power to inflict vindictive or punitive damages is committed to the discretion and judgment of the court within the limit of trebling the actual damages found by the jury.
The Patent Act of 1870 extended to a court of equity the power to assess damages as well as profits and provided that “the court shall have the same powers to increase the same in its discretion that are given by this act to increase the damages found by verdicts in actions upon the case.” The courts interpreted the increased power as applying only to damages, not to the equitable recovery of infringer profits. The 1922 Act introduced the reasonable royalty measure. After that, the courts held that such a recovery was one of “damages” that could be increased.
3. U.S.C. Section 284 and Purpose of Increased Damages
The increased damages provision is now codified in the second paragraph of Title 35 U.S.C. Section 284: “When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed.”
So, as the Federal Circuit noted in the legislative history of enhanced damages:
The history of enhancement of damages demonstrates a long-standing legislative policy. In the Patent Act of 1793 all patent infringement damages were required to be enhanced at least threefold. The Patent Act of 1836 made increased damages discretionary, recognizing the injustice of treating all infringement damages the same. See Seymour v. McCormick ... (in increasing damages the merits of each case should be considered). Thereafter enhancement of damages was consigned to the court’s discretion, the statutes varying the ceiling between twofold and threefold.
Whether the purpose of an increased damage award should be exemplary or compensatory is a longstanding controversy in the law. Exemplary purpose is to punish and deter flagrant acts of patent infringement while compensatory purpose is to compensate the patent owner for immeasurable expenses and losses. Most likely, increased awards combine both purposes: “When willful infringement or bad faith has been found, the remedy of enhancement of damages not only serves its primary punitive/deterrent role, but in so doing it has the secondary benefit of quantifying the equities as between patentee and infringer.” As the Federal Circuit explained in Rite-Hite Corp. v. Kelley Company, Inc., in a determination of willfulness and its consequences, the totality of circumstances is considered: 
Willfulness’ in infringement, as in life, is not an all-or-nothing trait, but one of degree. It recognizes that infringement may range from unknowing, or accidental, to deliberate, or reckless, disregard of a patentee’s legal rights. The role of a finding of ‘willfulness’ in the law of infringement is partly as a deterrent--an economic deterrent to the tort of infringement--and partly as a basis for making economically whole one who has been wronged, for example by assessment of attorney fees under 35 U.S.C. §285.
The Federal Circuit came to the conclusion that the term ‘willfulness’ reflects a threshold of culpability in the act of infringement that, alone or with other considerations of the particular case, contributes to the court’s assessment of the consequences of patent infringement, including multiple damages and/or attorney fees. Whether or not willfulness is found, the court has authority to consider the degree of culpability of the potential infringer.
The power to increase damages is triggered only when the infringer’s conduct warrants an exemplary award. Good faith challenges to the validity or scope of patent rights should be encouraged rather than punished. Once the power to increase is triggered, its exercise, particularly as to amount, should be tempered by the goals of deterring and punishing the willful infringer and of fully compensating but not unjustly enriching the patent owner.
The Federal Circuit’s decisions have reinforced the notion that multiple damages are primarily a punitive provision to deter willful infringement of patents. For example, in Read v. Portec, Inc. (1992), it noted:
Under section 284 of Title 35, damages may be enhanced up to three times the compensatory award. An award of enhanced damages for infringement, as well as the extent of the enhancement, is committed to the discretion of the trial court. While no statutory standard dictates the circumstances under which the district court may exercise its discretion, this court has approved such awards where the infringer acted in wanton disregard of the patentee’s patent rights, that is, where the infringement is willful. ... On the other hand, a finding of willful infringement does not mandate that damages be enhanced, much less mandate treble damages. ... The paramount determination in deciding to grant enhancement and the amount thereof is the egregiousness of the defendant’s conduct based on all the facts and circumstances. ... The court must consider factors that render defendant’s conduct more culpable, as well as factors that are mitigating or ameliorating.
In Read, the court listed nine factors that “assist the trial court in evaluating the degree of the infringer’s culpability and in determining whether to exercise its discretion to award enhanced damages and how much the damages should be increased,”  noting that “use of these factors in patent cases is in line with punitive damage considerations in other tort contexts.”
In another case, Jurgens v. CBK, Ltd. (1996), the Federal Circuit held that “The correlation between bad faith, willful infringement and increased damages ... is sometimes misunderstood because the term ‘bad faith’ has numerous patent law applications. Only some of these are relevant in determining the predicate culpability for an increased damages award.” In Jurgens, the court distinguished bad faith in litigation from bad faith infringement; only the latter justifies increased damages.
In conclusion, the current law, 35 U.S.C. Section 284, authorizes the court to increase the damages up to three times and this decision is discretionary with the trial court, but should usually be exercised only in cases of willful and wanton infringement or bad faith litigation. How often do courts exercise this discretion and what are the results? The next section will present some willful infringement statistics. It will show how often willful infringement is alleged in patent infringement litigation.
C. Willful Infringement Statistics
Kimberly Moore, Professor of Law, George Mason University School of Law, conducted a willful infringement study by collecting all patent infringement cases that terminated during litigation from 1999-2000 (1721 patent cases total) and considering every patent case that went to trial in the eighteen-year period from 1983-2000 (1585 patent trials). She reported some interesting results after looking at the frequency with which willfulness is alleged, the instances in which willfulness is found by judge or jury, whether the cases were decided by a judge or jury, whether the cases were brought by the patentee or the infringer, whether willfulness was found, if willfulness was found were damages enhanced, if damages were enhanced, what was the amount of the enhancement, and whether the issue of willfulness was appealed and the appellate result.
For those that complained that willful infringement was alleged in every lawsuit, their concerns were justified: out of the 1721 cases in the dataset, a willfulness charge was alleged in the originally filed complaint in 92.3% of the cases. This high number is not surprising because willfulness is generally alleged by the patentee with regard to all of the patents in suit or none of the patents in suit. Plaintiffs never plead specific facts that give rise to their beliefs regarding the defendant’s willfulness. Their willfulness allegation is usually phrased in the prayer for relief as a demand for increased damages or enhanced damages and attorney fees. Professor Moore suggests, that the practice of claiming every infringer to be most likely a willful infringer without sufficient factual basis to support the charges ought to be strongly discouraged by the Federal Circuit. The reason for this practice is obvious: piercing the attorney-client privilege in order to gain access to the opinions the infringer relied upon provides the patentee significant insight into the infringer’s substantive defenses early in the litigation process.
Willfulness may be found relatively frequently (55.7% cases), and damages were enhanced in 55.7% of the cases where willfulness was found. Accordingly, willfulness trials only resulted in penalties in 32.0% of the cases that resolved the willfulness issue; considering all trials that took place in the two-year period, 1999-2000, willfulness only resulted in damage increases in 8.0% of the total number of trials.
Professor Moore also examined the issue of importance of counsel’s opinion in finding the willfulness. Although the absence of a counsel’s opinion in bench trials equates to a finding of willfulness (84%), the presence of an attorney opinion does not insulate a defendant from willfulness (45%). Judges are more likely to find willfulness when the infringer does not present an attorney opinion as a defense. The empirical results support practitioner claims that the negative inference that arises when a party refuses to waive privilege does impact willfulness determinations. If no attorney opinion is presented in defense of a willfulness charge, the result is usually a finding of willfulness (63.2%); this result is driven by bench trial outcomes, however. The presence of an attorney opinion as a defense to willfulness, however, “does not necessarily get the infringer off the hook.” In “bench trials, an attorney opinion makes it much more likely that an infringer is not a willful infringer, but in jury trials, an opinion does not seem to help much.” “Either juries scrutinize the opinions and the reliance thereon more closely than judges or juries are simply more likely to find willfulness regardless of the circumstances.”
While it is true that willfulness is only found in a small number of cases that get litigated, this is due in large part to the small number of cases that go to trial. So, considering the severe consequences of a willfulness finding, it remains essential to study how the case law developed in this area. The next two Parts of this paper analyze the case development in this area and the courts’ interpretation of significance of counsel opinion in establishing willful infringement in patent cases.
II. Direct Infringement Cases Development: from Underwater to Seagate
Before Seagate, when a potential infringer had actual notice of another’s patent rights, he had an affirmative duty to exercise due care to determine whether or not he was infringing, including the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity, in accordance with Underwater Devices. In light of the duty of due care, the accused infringer commonly asserted an advice of counsel defense and aimed to establish that due to reasonable reliance on advice from counsel, its continued accused activities were done in good faith.
In Knorr-Bremse, the court held that there is not “a legal duty upon a potential infringer to consult with counsel, such that failure to do so will provide an inference or evidentiary presumption that such opinion would have been negative.” In Seagate, the court abandoned the affirmative duty of due care and emphasized that there is no affirmative obligation to obtain opinion of counsel.
B. Underwater Devices
1. Case Overview
In Underwater Devices, Inc. v. Morrison-Knudsen Co., Inc. (1983), and Central Soya Co., Inc. v. Geo. A. Hormel & Co. (1983), the Federal Circuit confirmed that a person with actual notice of another’s patent rights has an affirmative duty to exercise due care to determine whether his acts will be infringing, including the duty to seek and follow competent legal advice before beginning activity that may constitute patent infringement.
In Underwater Devices Inc. v. Morrison-Knudsen Co. (1983), the plaintiff’s two patents related to a method and an apparatus for laying underwater pipes such as sewer lines. The defendant submitted a bid for an underwater sewer project for Sand Island, Hawaii. The plaintiff advised the defendant in a letter that its patented method would be the optimum method of installation of pipe and offered a license fee of $200,000 for the project. After the project was awarded to the defendant, the defendant’s in-house counsel conducted a prior art search and wrote a memorandum advising that the defendant not pay a royalty to the plaintiff.
In Underwater Devices, Inc. v. Morrison-Knudsen, Inc., in-house counsel noted that in the few years preceding the creation of the Federal Circuit, courts had “found the patents claimed to be infringed upon invalid in approximately 80% of the cases.” Further, the same in-house counsel recommended that “we continue to refuse to even discuss the payment of a royalty with Underwater Devices. Underwater Devices must recognize that if they sue us, they might kill the goose that lays the golden eggs.”
The Federal Circuit found this advice, especially from a non-patent attorney, particularly galling in light of the presumption of patent validity and an accused infringer’s “affirmative duty to exercise due care to determine whether or not he is infringing.” In Underwater Devices, the Federal Circuit held that “[s]uch an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.” The Federal Circuit also noted that the fact that the accused infringer obtained advice of counsel from a non-patent attorney is something that a fact-finder could take into consideration in determining the accused infringer’s good faith in obtaining advice of counsel.
After Underwater Devices, the Federal Court ruled that “a duty exists to obtain competent legal advice before initiating possibly infringing action. . . . This court has also held that willfulness may include a determination that the infringer had no reasonable basis for believing it had a right to do the acts. . . . . There was no evidence at trial that Beckman had sought and obtained competent legal advice, and the district court’s findings establish that it made the “no reasonable basis” determination required by Stickle.”
Underwater Devices resulted in the “advice of counsel defense” to a charge of willful infringement. “Under this defense, an accused willful infringer aims to establish that due to reasonable reliance on advice from counsel, its continued accused activities were done in good faith. Typically, counsel’s opinion concludes that the patent is invalid, unenforceable, and/or not infringed.” However, the court did not specifically address the effect of failing to obtain opinion of counsel.
2. After Underwater Devices
In decisions subsequent to Underwater Devices, the Federal Circuit has affirmed a number of district court awards of multiple damages based on findings of willful infringement and failure to obtain opinion of counsel. For example, in Power Lift, Inc. v. Lang Tools, Inc. (1985) , it held that a jury properly found willful infringement even though the infringement suit was filed just nine days after the patent issued. The infringer knew of the patent on the day of its issuance because he refused the patentee’s offer of a license, stating that “before he would pay a nickel, he’d see [the patentee] in the courthouse.” The infringer later saw the patentee in a courthouse and paid considerably more than a nickel ($229,655.00 and attorney’s fees).
However, in other 1980s cases “absence of an opinion of counsel, however, does not in every case require a finding of bad faith.”  For example, in its 1988 case, Ryco, Inc. v. Ag-Bag Corp., the Federal Circuit held absence of counsel’s advice suggests, but does not mandate, a willfulness finding. In another 1988 case, Studiengesellschaft Kohle, the Federal Circuit held that the district court correctly reversed a special master’s willfulness finding. The master discounted the infringer’s reliance on counsel’s noninfringement opinion because:
(a) the opinion was by in-house counsel;
(b) the opinion consisted of “mere conclusionary statements without analytic backup;
(c) the opinion was based on conclusions “mostly irrelevant to infringement; and
(d) the infringer “deviated from its usual practice of getting opinions from competent counsel not employed by it.
Studiengesellschaft Kohle court “has not issued any edict ‘requiring’ a potential infringer to obtain advice of counsel, [but noted that there is] the affirmative duty to exercise due care.” In this case the court also noted: •
- The district court did not apply a “clean heart, empty head” standard. •
- The infringer’s management acted reasonably in electing to rely on its in-house attorney, a qualified patent attorney who had been monitoring the relevant field for three years. The attorney’s opinion “although later shown to be incorrect, contained significant, scientifically based objective factors to justify [his] conclusion of no infringement.” •
- The opinion was contrasted to “those in other cases which lacked any appearance of competence, authoritativeness, or internal indicia of credibility.”
So, after Underwater Devices the question remains whether failure to obtain opinion of counsel creates an adverse interference.
3. Kloster Speedsteel
Although Underwater Devices created a duty to seek competent advice of counsel “before the initiation of any possible infringing activity,” it did not clearly address the effect of failing to do so. The Federal Circuit addressed that issue in Kloster Speedsteel AB v. Crucible Inc., holding that an accused infringer’s silence on the issue of whether it sought advice of counsel “in alleged reliance on the attorney-client privilege, would warrant the conclusion that it either obtained no advice of counsel or did so and was advised that its [activities] would be an infringement of valid U.S. patents.” In addition, “[a]n “aggressive strategy” unsupported by any competent advice of counsel, thorough investigation of validity and infringement, discovery of more pertinent uncited prior art, or similar factors, is the type of activity the reference in the patent law to increased damages seeks to prevent. 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 his infringement is found to have been willful.”
After these two decisions, the patent cases were litigated as follows:
1. The patent owner opens with a claim for willful infringement.
2. The alleged infringer answers by denying willful infringement and asserts good faith reliance on advice of counsel as an affirmative defense.
3. The patent owner serves contention interrogatories and document requests seeking the factual basis for that good faith reliance defense and the production of documents relating to counsel’s opinion.
4. The alleged infringer responds by seeking to defer responses and a decision on disclosure of the opinion.
5. The owner counters by moving to compel.
6. The alleged infringer moves to stay discovery and for separate trials.
7. “In this case, the parties have played out their moves. Now it is the court’s turn to join in.”
Thus, in Underwater Devices and Kloster Speedsteel the Federal Circuit created a very strong presumption that an accused infringer must obtain opinion of counsel in advance and must rely on it in order to defend against infringement charges. This duty was confirmed again in Knorr-Bremse case but with modifications regarding the adverse presumption.
The burden on accused infringers created by Underwater Devices was enhanced by subsequent decision in Knorr-Bremse that held that “an exculpatory opinion of counsel must fully address all potential infringement and validity issues.” In this later decision the Federal Circuit recognized that the Kloster Speedsteel presumption had “resulted in inappropriate burdens on the attorney-client relationship” and that its precedence had “occasioned extensive satellite litigation, distorting the ‘conceptual underpinnings’ of Underwater Devices and Kloster Speedsteel.”
The Knorr-Bremse en banc decision addressed the Kloster Speedsteel presumption. In particular, the court held that “no adverse inference shall arise from invocation of the attorney-client and/or work product privilege.” The Federal Circuit also concluded “that a special rule affecting attorney-client relationships in patent cases is not warranted.” In particular, although an accused infringer may choose to waive attorney-client privilege and work product privilege by producing an advice of counsel, “the assertion of attorney-client and/or work-product privilege and the withholding of advice of counsel shall no longer entail an adverse inference as to the nature of the advice.”
The Federal Circuit also held that it was not appropriate to draw an adverse inference with respect to willful infringement simply because the accused infringer failed to obtain advice of counsel. In particular, the Federal Circuit explained that “[a]lthough there continues to be ‘an affirmative duty of due care to avoid infringement of the known patent rights of others,’ the failure to obtain an exculpatory opinion of counsel shall no longer provide an adverse inference or evidentiary presumption that such an opinion would have been unfavorable.” At the same time, the Federal Circuit explained that “the existence of a substantial defense to infringement” was not by itself “sufficient to defeat liability for willful infringement even if no legal advice has been secured.” Instead, the existence of such a defense is simply one of the factors “to be considered among the totality of circumstances, stressing the theme of whether a prudent person would have a sound reason to believe that the patent was not infringed or was invalid or unenforceable, and would be so held if litigated.”
It is interesting that the court requested briefing on the issue of what should happen when no opinion was sought as that question is not at all pertinent to the facts of the Knorr-Bremse case. Accordingly, the court’s opinion on this point is actually dicta since the issue was not directly before the court in this case because there was an opinion in Knorr-Bremse case - it was simply withheld as privilege. While the decision of the court is an advisory opinion and certainly useful (especially as here the court unanimously agreed that no adverse inference should be drawn from failure to obtain a legal opinion), it should not be construed as binding precedent.
After Knorr-Bremse, therefore, “a person accused of willful infringement could (a) elect not to obtain advice of counsel, or (b) could elect not to disclose advice of counsel without any negative inference from either of those choices.” However, Knorr-Bremse did not overrule the due care standard of Underwater Devices. It only “got rid of any adverse inference to be drawn from failure to obtain advice of counsel.” It was not until the 2007 In re Seagate decision that the Federal Circuit overruled Underwater Devices’ affirmative duty of care.
D. In re Seagate
In Seagate the court expressly abandoned any “affirmative duty of due care,” including any “affirmative obligation to obtain opinion of counsel.”
A patent owner, Convolve, filed suit charging an accused infringer (Seagate) with infringing three patents. The patent owner alleged that the infringement was willful. Prior to the filing of the suit, the accused infringer had engaged counsel (“opinion counsel”) to provide a written opinion. In three written opinions, the opinion counsel evaluated the patents and concluded that many of the patent claims were invalid or unenforceable and that the accused infringer’s products did not infringe. The opinion counsel “operated separately and independently of trial counsel at all times.” The accused infringer notified the patent owner of its intent to rely on the opinions in defending against willful infringement. It disclosed the opinion counsel’s “work product and made him available for deposition.” The trial court concluded that Seagate had waived its attorney-client privilege for “all communications between it and any counsel, including its trial attorneys and in-house counsel, concerning the subject matter of . . . opinions, i.e., infringement, invalidity, and enforceability.” The “waiver began when Seagate first gained knowledge of the patents and would last until the alleged infringement ceased.” The trial court also determined that protection of work product communicated to Seagate was waived. The patent owner sought production from the accused infringer of “trial counsel opinions relating to infringement, invalidity, and enforceability of the patents,” and “also noticed depositions of Seagate’s trial counsel.” Seagate petitioned for a writ of mandamus.
The Federal Circuit en banc granted the accused infringer’s petition for a writ of mandamus directing the district court “to vacate its orders compelling disclosure of materials and testimony that [the accused infringer] claims is covered by the attorney-client privilege and work product protection.” It directed that the district court “reconsider its orders in light of this opinion.”
The Seagate decision has two important points:
First, to establish willful infringement sufficient to permit enhanced damages, a patent owner must show that an accused infringer’s theory for escaping infringement liability was “objectively reckless.” Objective recklessness is a threshold requirement that must be established without regard to the accused infringer’s state of mind. In so holding, the court expressly abandoned any “affirmative duty of due care,” including any “affirmative obligation to obtain opinion of counsel.”
Secondly, the Federal Circuit changed the scope of waiver for attorney-client privilege and work product protection. “[A]sserting the advice of counsel defense and disclosing opinions of opinion counsel do not constitute waiver of the attorney-client privilege for communications with trial counsel.” Relying on opinion counsel’s work product does not waive work product immunity with respect to trial counsel.
After Seagate, the unresolved issue remained as to what is the strength of an advice-of-counsel defense to a willful infringement charge. Prior law recognized the defense, provided counsel’s opinion was competent, timely and followed. But this law developed under the Underwater Devices during which there was an affirmative duty of care, including, generally, a duty to consult patent counsel. Seagate abandoned the affirmative duty of due care and reemphasized that there is no affirmative obligation to obtain an opinion of counsel. However, Seagate court seems to support the continuing viability of the defense. It describes advice-of-counsel as “crucial” though not “dispositive,” but it does so in the course of describing law and practice under Underwater Devices. It also describes opinions of counsel in the present case as of “marginal value” because they were “received after suit was commenced.” The reasoning in the opinions might preclude a conclusion of recklessness, but “reliance on the opinions after litigation was commenced will likely be of little significance.”
III. Indirect Infringement and Broadcom Case.
A. Indirect Infringement
Most recently, Broadcom Corp. v. Qualcomm, addressed the relevance of a counsel opinion in inducement cases. Under patent law, “whoever actively induces infringement of a patent shall be liable as an infringer.” Like willfulness, inducing infringement requires proof of culpability. In order to prevail on an inducement claim, the patentee must establish that there has been direct infringement, and the alleged infringer knowingly induced infringement and possessed specific intent to encourage another’s infringement.
The standard for establishing the intent element of inducement was clarified by the Federal Circuit in Broadcom as: “[t]he defendant must have intended to cause the acts that constitute the direct infringement and must have known or should have known that its action would cause the direct infringement.” In an earlier case, DSU Med. Corp. v. JMS Co., the Federal Circuit held that the accused infringer had no specific intent to infringe the patent because it had obtained opinions from its counsel that its product did not infringe the patent.
B. Broadcom Case
Broadcom Corporation, an owner of several patents relating to wireless voice and data communications on cellular telephone networks found in third-generation baseband processor chips, brought an infringement action against a competitor, Qualcomm Incorporated. A jury found infringement of Broadcom’s three patents, and the United States District Court for the Central District of California entered a permanent injunction against Qualcomm. Qualcomm appealed to the Federal Circuit. The Federal Circuit invalidated one of the patents, but affirmed the judgment and the injunction pertaining to the other two patents, finding Qualcomm liable for direct infringement and inducement.
In Broadcom, Qualcomm argued that:•
- The pre-Seagate jury instructions prompted the district court to set aside the willfulness verdict based essentially on Qualcomm’s not having obtained non-infringement opinion letters; •
- The jury instructions also required the Federal Circuit to overturn the indirect infringement verdicts predicated on specific intent necessary to find inducement; •
- The indirect infringement verdicts are unsupported by substantial evidence.
Qualcomm argued that it did not obtain non-infringement opinions because it had procured invalidity opinions for each relevant patent, although it elected not to waive attorney-client privilege and rely on those opinions. However, the Federal Circuit rejected Qualcomm’s arguments and upheld the jury instructions in Broadcom, stating that when considering whether an accused infringer knew or should have known that the induced actions would constitute infringement, in the totality of the circumstances, a jury may consider all of the circumstances, including whether or not the defendant obtained the advice of a competent lawyer. In addition, in considering whether Qualcomm acted in good faith, a jury should consider all the circumstances, including whether or not a defendant obtained and followed the advice of a competent lawyer with regard to infringement.
The absence of a lawyer’s opinion, by itself, is insufficient to support a finding of willfulness, and a jury may not assume that merely because a party did not obtain an opinion of counsel, the opinion would have been unfavorable; however, a jury may consider whether a defendant sought a legal opinion as one factor in assessing whether, under the totality of the circumstances, any infringement was willful. 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, and such evidence remains relevant to the second prong of the intent analysis. As a result, the failure to procure such an opinion may be probative of intent in the inducement context.
Thus, the court in Broadcom did not specifically return to the adverse inference standard established in Kloster Speedsteel, and abandoned in Knorr-Bremse. Nevertheless, by naming opinion of counsel as one of the intent factors in inducement cases, the Federal Circuit took a step back and left to the discretion of trial courts the decision to weigh presence or absence of counsel opinion. By doing so, the Federal Circuit implicitly authorized adverse inference into patent infringement cases when a party failed to obtain such opinion.
IV. Overview of Willful Infringement Cases Development
In summary, Underwater Devices established that when a potential infringer had actual notice of another’s patent rights, he had an affirmative duty to exercise due care to determine whether or not he was infringing, including the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity. Later, the Kloster Speedsteel court held that an accused infringer’s silence on the issue of whether it sought advice of counsel and reliance on the attorney-client privilege warrants the conclusion that it either obtained no advice of counsel or did so and was advised that its activities would be an infringement of valid patents. In light of these two decisions, the accused infringer commonly asserted an advice of counsel defense and aimed to establish that due to reasonable reliance on advice from counsel, its continued accused activities were done in good faith.
In Knorr-Bremse, the court held that no legal duty exists to consult with counsel, and failure to do so will not provide an inference or evidentiary presumption that such opinion would have been negative. In Seagate, the court abandoned the affirmative duty of due care and emphasized that there is no affirmative obligation to obtain opinion of counsel in direct infringement cases. However, Broadcom case seems to suggest that opinion of counsel is still relevant in patent litigation because a jury may consider whether a defendant sought a legal opinion as one factor in assessing whether, under the totality of the circumstances, any infringement was willful. As practitioners suggest, while an opinion of counsel is no longer mandated by the courts, obtaining an opinion will remain as the most sensible option for a party to pursue, from both a business and legal perspective, a majority of the time; it may still be a party’s best course of action to insulate itself from enhanced damages. So, obtaining opinion of counsel might be a smart choice, however, it also has a negative side. The next part addresses advantages and disadvantages of obtaining opinion of counsel.
V. Pros and Cons in Obtaining Opinion of Counsel
A. Advantages of Obtaining an Opinion
1. Defense to Willful Infringement
Under the new Seagate standard the role that an opinion of counsel plays is not clear. While the new willfulness standard under Seagate undoubtedly makes it harder to prove willful infringement, until the courts specify exactly what type of conduct is “objectively reckless,” it will still be prudent, at least in certain situations, to obtain opinions of counsel. An example of such situation is when a patentee sends a cease-and-desist letter with in-depth analysis. A favorable opinion will likely help establish whether the infringer knew or should have known of the high likelihood of infringement. However, the importance of an opinion letter in analyzing the willfulness is less certain.
2. Defense to Inducement
As stated in Broadcom case, a jury may consider whether a defendant sought a legal opinion as one factor in assessing whether, under the totality of the circumstances, any infringement was willful. 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; the court held that such evidence remains relevant to the intent analysis in inducement cases.
B. Disadvantages of Obtaining an Opinion
1. Waiver of attorney-client privilege
In Seagate, the Federal Circuit stated a general proposition that relying on opinion counsel’s work product does not waive attorney-client privilege and work product immunity with respect to trial counsel. However, “situations may arise in which waiver may be extended to trial counsel, such as if a patentee or his counsel engages in chicanery.” The court did not define this term, so further case development is required to draw a line when a counsel opinion is needed.
There are two problems with disclosing attorney opinions during discovery:
1. It gives the patentee a detailed blueprint as to likely defenses early in the litigation process.
2. The patentee can use the opinion against the defendant if at any point the defendant pursues a litigation strategy that differs from the opinion.
In either case, the opinion letter could be used against the defendant at trial to show inconsistent or inaccurate positions taken.
2. Cost of Opinion
Obtaining opinion of counsel is expensive: under current practice the price could range from perhaps $10,000 to $150,000 each. Kimberly Moore noted that counsel opinions routinely cost $5,000-$100,000. Abandoning this defense can further reduce legal costs by allowing at least some inventors to commercialize their inventions without first obtaining elaborate clearance opinions from patent counsel. In addition, by reducing the expected return on inventions, the defense mitigates the bias in research and development toward patentable technology. Thus, opinions of counsel are very expensive, and this cost can be an obstacle in innovation process.
3. Necessity to Update Opinions
Generally, opinion of counsel discusses prior art and patents available as of the date of the opinion and do not cover so called “submarine patents”. Submarine patents are obtained after the product they are intended to cover has been put on the market by a competitor. They are based on a continuation application drafted specifically to cover the targeted product. Submarine patents have been much criticized, and they are particularly problematic precisely because of the current willfulness doctrine. Having been drafted to cover the particular device in question, they present an expensive challenge for even the most creative opinion counsel. Moreover, because the accused infringer necessarily has invested the costs to develop the product without being aware of the patent because the patent did not exist during the product’s development, the accused company will be faced with the particularly sharp dilemma of either risking a likely willfulness finding or walking away from its prior investment. So, the accused infringer ideally should update the previously received counsel opinion to make sure that submarine patents are included in the analysis. Obviously, this increases the cost of the opinion.
4. “Window-Dressing Opinions”
Another unappealing result of the application of the duty of due care standard was the rise of so-called “window-dressing” opinions. Companies obtained such opinions not for the purpose of making informed business decisions, but solely for protection from a willful infringement claim in any litigation concerning the patents in question. In one decision a court stated that the opinions in question were so obviously deficient, one might expect a juror to conclude the only value they had to an infringer “in the world outside the courtroom would have been to file them in a drawer until they could be used in a cynical effort to try to confuse or mislead . . . an unsophisticated jury.” In Knorr-Bremse Judge Dyk, concurring-in-part and dissenting-in-part, noted that the duty of due care standard has resulted in “a cottage industry of window-dressing legal opinions by third party counsel designed to protect the real decision-making process between litigating counsel and the company’s executives.” Window-dressing opinions also unnecessarily added to the already expensive cost of patent litigation.
VI. Possible Solutions and Recommendations
What is the next step? Some commentators propose a reform of the willfulness doctrine, under which a patent owner can get treble damages “merely by telling them about the patent and which has the perverse effect of causing people to try to avoid learning of patents.” It in itself will eliminate a debate of whether or not to obtain an opinion of counsel in most cases.
Another opinion is to take a closer look at what constitutes willfulness and redefine it. Mark A. Lemley, Elizabeth Josslyn Boalt Chair in Law, University of California at Berkeley (Boalt Hall), of counsel, Keker & Van Nest LLP, and Ragesh K. Tangri, partner at Keker & Van Nest LLP, propose that “willfulness be redefined to focus only on the accused infringer’s state of mind at the time she adopts the product in question.” In authors’ opinion, this narrower definition of willfulness would not only comport with the core purposes behind the willfulness requirement, but would solve a significant number of problems with the willfulness game. First, and “most obviously, limiting the inquiry into state of mind to the time of the adoption decision would render all subsequent legal advice irrelevant.” Courts would have no basis for compelling litigation counsel to waive the attorney-client or work product privileges. As a result, the problem of polluting litigation advice and settlement negotiations would be eliminated. Second, because accused infringers would not have to disclose the later opinions of trial counsel, clients would be free to choose opinion counsel as trial counsel without fear of losing the attorney-client or work product privileges for litigation advice. Third, redefining willfulness in this way would eliminate the costs associated with obtaining additional opinions of counsel as new facts or submarine patents come to light. In addition, Lemley and Tangri believe that the new willfulness doctrine “would have one significant collateral benefit - it should reduce the utility of “submarine patents.”
This narrower definition of willfulness would not eliminate the need for written opinions of counsel altogether. A company that sought to make a new product would have to obtain such an opinion if it were aware of a patent that arguably read on that product. As a result, alleged infringers “would still be faced with the problem of skewed pre-litigation advice and would still risk being trapped into a willfulness finding if they fail to obtain an opinion of counsel.” Importantly, however, the number of circumstances in which an accused infringer would need to obtain such an opinion “should decline sharply.” Alleged infringers “would only need an opinion of counsel if they were actually aware of a patent at the time they decided to adopt a product potentially covered by the claims of that patent.” Companies that developed a product independently would, by definition, not be willful infringers, even if they later learned of the patent. Similarly, “those that copied a product in the marketplace without knowledge that it was covered by a patent would not be willful infringers, though the common practice of marking products with patent numbers would make this a smaller set of cases.”
One more suggestion is to amend current law by enacting Patent Reform Act of 2009 to provide a clear guidance to courts in finding the infringement to be willful:
. . .
(1) INCREASED DAMAGES. — A court that has determined that an infringer has willfully infringed a patent or patents may increase damages up to 3 times the amount of the damages found or assessed under subsection (a), except that increased damages under this paragraph shall not apply to provisional rights under section 154(d).
(2) PERMITTED GROUNDS FOR WILLFULNESS. — A court may find that an infringer has willfully infringed a patent only if the patent owner proves by clear and convincing evidence that acting with objective recklessness—
(A) after receiving written notice from the patentee—
(i) alleging acts of infringement in a manner sufficient to give the infringer an objectively reasonable apprehension of suit on such patent, and
(ii) identifying with particularity each claim of the patent, each product or process that the patent owner alleges infringes the patent, and the relationship of such product or process to such claim,
the infringer, after a reasonable opportunity to investigate, thereafter performed 1 or more of the alleged acts of infringement;
(B) the infringer intentionally copied the patented invention with knowledge that it was patented; or
(C) after having been found by a court to have infringed that patent, the infringer engaged in conduct that was not colorably different from the conduct previously found to have infringed the patent, and which resulted in a separate finding of infringement of the same patent.
(3) LIMITATIONS ON WILLFULNESS. —
(A) IN GENERAL. — Notwithstanding paragraph (2), an infringer may not be found to have acted with objective recklessness where for any period of time during which the infringer had an informed good faith belief that the patent was invalid or unenforceable, or would not be infringed by the conduct later shown to constitute infringement of the patent, and—
(i) there was reasonable reliance on advice of counsel;
(ii) the infringer sought to modify its conduct to avoid infringement once it had discovered the patent; or
(iii) there is sufficient evidence that the infringer had a good faith belief that the patent was invalid or unenforceable, or would not be infringed by conduct later shown to constitute infringement of the patent.
(B) RELEVANCE OF NOT PRESENTING CERTAIN EVIDENCE. — The decision of the infringer not to present evidence of advice of counsel is not relevant to a determination of willful infringement under paragraph (2).
(4) LIMITATION ON PLEADING. — Before the date on which a court determines that the patent in suit is not invalid, is enforceable, and has been infringed by the infringer, a patentee may not plead and a court may not determine that an infringer has willfully infringed a patent.
This Patent Reform Act of 2009 appears to be the best course of action to establish once and for all the definition of willfulness and relevance of counsel opinions in patent infringement litigation. First, it clearly states that the damages may be increased up to three times after a court finds that the infringement was willful. Second, it eliminates other grounds for enhancement of damages, namely wanton infringement or bad faith litigation. Third, it provides the definition of willfulness by clearly naming grounds and limitations for willfulness finding. Fourth, it utilized “objective recklessness standard” established by Seagate as a part of willfulness definition. Fifth, the Patent Reform Act of 2009 says that reliance on advice of counsel shows that the infringer was not objectively reckless and precludes finding of willfulness. Finally, it eliminates adverse inference by saying that the decision of infringer not to present evidence of advice of counsel is not relevant to a determination of willful infringement.
However, the Patent Reform Act of 2009 as proposed seems to place a great burden on the patentees and appears to be quite lenient towards alleged infringers. First, it states that the patentee can prove only by clear and convincing evidence that the infringer acted with objective recklessness in any of three instances: (1) the infringer, after receiving a written notice from the patentee and a reasonable opportunity to investigate, thereafter performed at least one of the alleged acts of infringement (2) the infringer intentionally copied the patented invention with knowledge that it was patented; or (3) after having been found by a court to have infringed that patent, the infringer engaged in conduct that was not colorably different from the conduct previously found to have infringed the patent, and which resulted in a separate finding of infringement of the same patent. Second, the written notice to an infringer alleging acts of infringement must be provided in a manner sufficient to give the infringer an objectively reasonable apprehension of suit on such patent, and identify with particularity each claim of the patent, each product or process that the patent owner alleges infringes the patent, and the relationship of such product or process to such claim. So, the patentee should perform a very thorough investigation before sending this notice to a potential infringer. Third, an alleged infringer has a very good chance to establish that it acted in good faith belief not only by relying on advice of counsel, but also by showing that it sought to modify its conduct to avoid infringement once it had discovered the patent; or that there is sufficient evidence that the infringer had a good faith belief that the patent was invalid or unenforceable, or would not be infringed. Finally, a patentee may not plead and a court may not determine that an infringer has willfully infringed a patent before the date on which a court determines that the patent in suit is not invalid, is enforceable, and has been infringed by the infringer.
Thus, the Patent Reform Act of 2009 makes it very difficult for a patentee to prove the willful conduct by an alleged infringer and to receive enhanced damages. The solution is to redraft the proposed Act by at least lowering the requirements for a written notice the patentee sends to an infringer and by limiting the grounds by which the defendant can prove that it acted in good faith belief. However, until this or similar Act becomes law, obtaining an opinion of counsel will remain the most reasonable option for a party to pursue to protect itself from enhanced damages under the current law derived from Federal Circuit cases.
Opinion letters from an outside counsel assuring a client it has not infringed a patent are expensive for the client and complicated for the attorneys when privilege may be waived to introduce these letters in court. In addition, the duty to obtain an opinion of counsel imposed in Underwater Devices created the huge number of “window-dressing” opinions, solely for protection from a willful infringement claim in any litigation concerning the patents. The Federal Circuit Court of Appeals has lessened the need for such opinions in In re Seagate under willful infringement. However, in Broadcom, the court explicitly noted that opinion-of-counsel evidence is still relevant in determining the intent of an alleged infringer in the inducement context. This means that, as a practical matter, opinion of counsel may still be relevant in patent infringement disputes, especially in inducement cases. Unless Federal Circuit elucidates its recent decisions or the Congress adopts new law clarifying willfulness doctrine in patent litigation, the best way to defend against willful infringement is still to obtain an opinion of counsel.
Top of Page