Appeals Court Could Clarify ‘Advice-Of-Counsel’ Defense In Patent Infringement Cases

Willful patent infringement arises upon deliberate disregard for the property rights of the patent owner, and turns on whether the infringer exercised due care to avoid infringement.

Companies concerned over potential or actual charges of patent infringement, and the threat of increased damages if willfulness is found, routinely rely upon exculpatory opinions of outside patent counsel to demonstrate a good faith belief in non-infringement, or that the patent is invalid, or both.

A large body of patent law has evolved concerning this advice-of-counsel defense, and the impact, timing and scope of the decision to rely on such an opinion, which necessarily waives attorney-client privilege.

The full Court of Appeals for the Federal Circuit – the exclusive federal appellate court for patent cases – is now considering, in Knorr-Bremse v. Dana Corporation (Docket Nos. 01-1357, -1376, 02-1221, -1256), several questions regarding the advice-of-counsel defense, such as whether a legal adverse inference may be drawn if a party with knowledge of a patent elects not to obtain an opinion at all, or chooses not to rely on and disclose an opinion it did get, in order to preserve the attorney-client privilege.

What Knorr-Bremse may not directly address, however, is how far the privilege waiver reaches when a party does elect to rely on an opinion of counsel – a subject not uniformly treated in the federal courts, but of manifest concern to in-house and trial counsel confronted with making the election in the first place.

Since willfulness of the alleged infringer rests upon a determination of the infringer’s state of mind, it has long been settled that when an opinion of counsel is relied upon, and the attorney-client privilege is waived, all communications between counsel and client concerning the same subject matter become discoverable as part of the waiver, so the entirety of the client’s state of mind can be assessed.

Other Case Law

Many courts have been disinclined to extend the waiver to the counsel’s ordinarily protected attorney work-product not communicated to the client, since, ostensibly, this would not reflect the client’s state of mind. This disparate treatment finds some support in the different policies served by the attorney-client privilege on the one hand, which protects and encourages free communication between counsel and client, and the attorney work-product doctrine, on the other, which protects and encourages thorough attorney preparation. While both protections are designed to shield information from an adversary, the latter protection belongs more to the attorney, rather than the alleged infringer client.

Some opinions, including several from Massachusetts, have gone a step further by opening the discovery door to uncommunicated attorney work-product only where such work-product is inconsistent with, or casts doubt upon, the formal opinion delivered to the client. Still other opinions draw work-product discovery lines based on temporal concerns, such as when the opinion was rendered, or when the lawsuit was filed.

Naturally, each of these avenues that limit attorney work-product discovery entrust the opining patent counsel to properly (that is, honestly) disclose material in the counsel’s files that was communicated to the client, or information not communicated that could contradict the opinion in some way.

Some federal court opinions, however, have suggested that the foregoing approaches go too far in letting the fox guard the henhouse. Under a liberal "relevance" standard, these opinions allow broad discovery into all of the opinion-giving law firm’s (purportedly uncommunicated) client files since the exercise could reveal inculpatory evidence suggesting the client received different or conflicting information or opinions than are reflected in the formal written opinion.

Consider, for example, Irwin Industrial Tool Co. v. Orosz, a patent infringement case in Chicago, where the court recently allowed discovery into a law firm’s drafts of opinions, notes, memoranda and even internal e-mails, relating to the subject matter of the firm’s non-infringement opinion, even though none of these documents or information were allegedly shared with the client.

The court held such discovery relevant to the issue of the client’s state of mind since it could show that the client was given prior inconsistent oral opinions, notwithstanding counsel’s representations to the contrary.

This case, and several others like it in California and elsewhere, reveals that some judges no longer trust the opining fox at all.

The split of authority on this issue is no more apparent than in the Delaware federal district court. Recently, in Rhodia Chimie v. PPG Industries, Inc., one judge protected attorney work-product and limited discovery to communicated documents, while conceding that contrary precedent is also found in the same courthouse and other federal courts.

In the case involving contrary precedent, the judge said that ordering disclosure of uncommunicated attorney work-product "rest[s] on the assumption of mendacity in lawyers or clients or both," by presuming that opinion-givers will "falsely assert that he or she has turned over all communications between counsel and client bearing on the issues," or that "the system of obtaining opinion letters … has become so corrupt that clients and attorneys both know … that what the client really wants is a false or misleading opinion that hides the true findings and opinions of the attorney."

The judge in Rhodia Chimie declined to follow that reasoning since "the fundamental dishonesty which is assumed" would only cause lawyers to "drive the ‘real’ information … deeper into the shadows" if discovery was unlimited. In other words, distrust for counsel is no reason to vitiate the work-product protections, which are deeply rooted in our system of jurisprudence, if the fox still guards the henhouse anyway.

More recently, one less cynical judge in Washington, D.C., in Simmons, Inc. v. Bombardier, Inc., also adopted the "narrow waiver" approach, and stated that the "court refuses to presume dishonesty" in counsel as the basis for denying a motion to compel production of uncommunicated opinion drafts.

The Federal Circuit in Knorr-Bremse should soon clarify the legal effect of a decision not to waive privilege and whether, and to what extent, an adverse inference will be drawn.

However, the lack of uniformity in the federal courts regarding the scope of that waiver will continue to haunt litigants accused of willful infringement who wish to rely on the advice-of-counsel defense, without knowing what may actually be lurking in their outside counsel’s files. In the absence of a uniform standard, in-house counsel should assume that invocation of the advice-of-counsel defense could subject their outside counsel to probing and invasive discovery.

Howard J. Susser is a member of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo in the firm’s Boston office, practicing in the intellectual property section. He has extensive experience in litigation, transactional matters and client counseling with respect to patents, trademarks, copyrights, trade secrets, and unfair competition. Ian R. Marinoff is an associate in the firm’s Boston office, practicing litigation in the intellectual property section. Prior to joining the firm, Ian served as a special assistant district attorney at the Suffolk County, Mass. District Attorney’s Office.