The Effect Of Federal Circuit's En Banc Decision In Knorr-Bremse On The Advisability Of Obtaining Non-Infringement/Invalidity Opinions

Wednesday, December 1, 2004 - 00:00

I. Affirmative Duty To Avoid Infringement Of Patents

The U.S. patent laws impose upon a potential infringer an affirmative duty to avoid infringement of U.S. patents which are known to it. Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389 (Fed. Cir. 1983) (if a potential infringer "has actual notice of another's patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing"). This duty includes a duty "to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity." Id at 1390. The failure to comply with this duty can lead to a finding that the infringement was willful. The finding that infringement was willful, in turn, can lead to an award of increased damages up to three times the amount of actual damages under 35 U.S.C. § 284 and can support an award of attorneys' fees under 35 U.S.C. § 285. The Read Corp. v. Portec Inc., 970 F.2d 816, 826 (Fed. Cir. 1992); SRI Int'l. v. Adv. Technology Labs., 127 F.3d 1462, 1468 (Fed. Cir. 1997); L.A. Gear, Inc. v. Thom McAn Shoe Co., 988 F.2d 1117, 1128 (Fed. Cir. 1993). One way that an infringer can rebut a charge of willful infringement is to produce a timely and well-reasoned exculpatory opinion which the infringer has followed. Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568 (Fed. Cir. 1988).

II. Inference Arising From Failure To Obtain Or Produce Opinion Of Counsel

In the past, three-judge panels of the Federal Circuit have consistently held that a failure to obtain or produce an exculpatory opinion requires the fact finder in a patent litigation to infer that the opinion was or would have been unfavorable. Kloster Speedsteel AB v. Crucible Inc., 793 F.2d 1565 (Fed. Cir. 1986); Stryker Corp. v. Intermedics Orthopedics, Inc., 96 F.3d 1409 (Fed. Cir. 1996) (in-house patent counsel's failure to investigate known patent justified finding of willful infringement); American Med. Systems v. Med. Engineering Corp., 6 F.3d 1523, 1531 (Fed. Cir. 1993).

III. The Recent Knorr-Bremse Decision Has Eliminated The Inference

On September 13, 2004, in an en banc decision, the Federal Circuit overruled its earlier precedents and held that a failure to obtain or produce an exculpatory opinion of counsel does not result in an adverse inference for establishing willful infringement: "An adverse inference that a legal opinion was or would have been unfavorable shall not be drawn from invocation of the attorney-client and/or work product privileges or from failure to consult with counsel. Contrary holdings and suggestions of precedent are overruled." Knorr-Bremse Systeme Fuer Nutzfahrzeuge GMBH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004).

The Federal Circuit answered four specific questions presented for en banc review as follows:

Question 1

When the attorney-client privilege and/or work-product privilege is invoked by a defendant in an infringement suit, is it appropriate for the trier of fact to draw an adverse inference with respect to willful infringement?

The answer is "no." Although the duty to respect the law is undiminished, no adverse inference shall arise from invocation of the attorney-client and/or work product privilege.

Id. at 1344.

Question 2

When the defendant had not obtained legal advice, is it appropriate to draw an adverse inference with respect to willful infringement?

The answer, again, is "no." The issue here is not of privilege, but whether there is 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.

Id. at 1345.

Question 3

If the court concludes that the law should be changed, and the adverse inference withdrawn as applied to this case, what are the consequences for this case?

Id. at 1346.

Because elimination of the adverse inference as drawn by the district court is a material change in the totality of the circumstances, a fresh weighing of the evidence is required to determine whether the defendants committed willful infringement. This determination is the primary responsibility and authority of the district court. We therefore vacate the finding of willful infringement and remand for redetermination of the issue.

Id.

Question 4

Should the existence of a substantial defense to infringement be sufficient to defeat liability for willful infringement even if no legal advice has been secured?

The answer is "no." Precedent includes this factor with others to be considered among the totality of circumstances, stressing the "theme of whether a prudent person would have sound reason to believe that the patent was not infringed or was invalid or unenforceable, and would be so held if litigated," SRI Int'l, Inc. v. Advanced Tech. Labs. Inc., 127 F.3d 1462, 1465 (Fed. Cir. 1997). However, precedent also authorizes the trier of fact to accord each factor the weight warranted by its strength in the particular case. We deem this approach preferable to abstracting any factor for per se treatment, for this greater flexibility enables the trier of fact to fit the decision to all of the circumstances. We thus decline to adopt a per se rule.

Knorr-Bremse, 383 F.3d at 1347.

IV. Effects Of The Knorr-Bremse Decision

It is important to note that the Federal Circuit did not overrule the holding of Underwater Devices that a potential infringer who has an actual notice of patent rights of another has an affirmative duty to exercise due care to determine whether or not he is infringing. Knorr-Bremse, 383 F.3d at 1344 ("the duty to respect the law remains undiminished"). The en banc decision merely makes the absence of an exculpatory opinion a neutral factor for determining willful infringement. Therefore, the Knorr-Bremse decision does not alter the advisability of obtaining an opinion of counsel for the purpose of rebutting a charge of willfulness.

Assume, for example, that the patentee proves at trial that the defendant knew of the patent-in-suit and proceeded with its infringing activity. The determination of whether the infringement was willful is made by the trial of fact based on a totality of circumstances considering numerous factors, such as deliberate copying, investigation and good faith belief of no liability, litigation conduct, infringer's size and financial condition, closeness of the case, duration of the infringement, remedial action, intent to harm, and concealment of the infringement. Read, 970 F.2d at 827.

It is up to the patentee to prove by clear and convincing evidence that based on a totality of circumstances infringement was willful. Pall Corp. v. Micron Separations, Inc., 66 F.3d 1211, 1221 (Fed. Cir. 1995). However, evidence that the infringer had relied on and followed a well reasoned and timely opinion of a competent patent counsel is likely to be the best evidence to rebut the charge by establishing a prudent belief that the infringer's actions were lawful and that the infringer had a good faith belief that he had no liability. In most cases, other evidence that the infringer had a prudent belief that what he was doing did not violate patent rights is not nearly as persuasive. Accordingly, reliance on an opinion of counsel remains the most effective way of rebutting the charge of willfulness.

One effect of Knorr-Bremse is that it will make it easier for trial counsel to make a decision to keep flawed or inadequate prior opinions of counsel out of the litigation. For example, in the absence of an adverse inference resulting from the failure to produce an opinion, the trial counsel in Johns Hopkins may have decided not to produce and rely upon a seriously flawed opinion. Johns Hopkins University v. Cellpro, Inc., 152 F.3d 1342, 1363-1364 (Fed. Cir. 1998).

An open question left by the Knorr-Bremse decision is whether the patentee can refer to the infringer's failure to produce or obtain an opinion of counsel, albeit without the benefit of an inference. Another open question is whether the infringer should be allowed to introduce evidence that he had consulted an attorney regarding infringement without producing the opinion. These issues were not before the Court in Knorr-Bremse and were expressly reserved by the Court for future determination. Knorr-Bremse, 383 F.3d at 1347 ("That aspect is not raised by this case, was not before the district court and has not been briefed on this appeal.").

V. Conclusion

Knorr-Bremse should not change the corporate best practices in dealing with a known patent which presents a potential infringement problem, i.e., to timely obtain a well reasoned opinion from a competent patent counsel, preferably from an outside counsel. Read , 970 F.2d at 829; Ortho Pharmaceutical Corp. v. Smith, 959 F.2d 936, 944-945 (Fed. Cir. 1992) (allegation of willfulness refuted by reasonable reliance on opinion letters from experienced patent counsel); American Med. Systems, 6 F.3d at 1531 (in-house counsel's opinion not credible and infringer obtained outside opinions too late; finding of willful infringement justified). If the opinion is exculpatory, it can be relied upon for refuting willful infringement. Read, 970 F.2d at 829 (willfulness reversed where defendant obtained "at least two independent written detailed opinions of unrelated patent counsel" and the defenses in the opinions tracked those presented at trial). If, on the other hand, the opinion is unfavorable, it will provide an early recognition of the infringement problem. The recognition of the problem can lead to redesign to avoid infringement. A successful redesign to produce a non-infringing product can avoid patent litigation altogether or, combined with a favorable non-infringement opinion, can significantly reduce the risks of finding of willfulness. If attempts to produce a non-infringing product are not successful, obtaining a license from the patentee may eliminate the risks and costs of litigation. If a license is not available, the client can make an informed decision whether aborting the project or withdrawing an existing infringing product may be preferable to incurring the risks of litigation.

Steve Z. Szczepanski, Partner of Kelley Drye & Warren LLP, Chicago.

Please email the author at sszczepanski@kelleydrye.com with questions about this article.