New England Biz Law Update
Becoming a defendant in a patent infringement lawsuit can be an expensive and painful introduction to a complex area of law.
Whether your company is a multi-billion dollar corporation or a start-up venture operating on a shoestring, the receipt of a cease-and-desist letter from a soon-to-be plaintiff or a served complaint from an actual one should invoke concern and attention from even the most seasoned of corporate counsel.
The ubiquitous fear of allegations of patent infringement should prompt immediate reaction and response. Often, however, corporate counsel’s response is either delayed or problematically insufficient in fully addressing the alleged infringing company’s responsibilities at this juncture.
Under the federal patent statute, if a court finds the defendant company willfully infringed a patent, the infringer may be liable for treble damages and/or obligated to pay the patent owner’s attorney’s fees. Indeed, the Patent Act is one of the few fee-shifting statutes in the U.S.
Headlines and accounts of counsel’s thwarted efforts to adequately protect or defend a client corporation replay themselves daily without fail. A thorough opinion letter from outside patent counsel, obtained when the defendant corporation first learned of plaintiff’s patent, and showing non-infringement of the plaintiff’s patent, is often the strongest weaponry in a defendant’s arsenal. Yet, too often, that weapon is hastily or belatedly prepared and ill-suited to effectively meet defendant counsel’s target goal.
Many companies delay seeking, or are unaware of, the legal protection offered by a competent non-infringement and/or invalidity opinion of counsel, which leaves trial counsel to grapple with how to avoid debilitating damage exposure.
However, a decision of the Federal Circuit (the federal court which handles patent appeals) provides some welcome relief.
In Knorr-Bremse Systeme Fuer Nutzfahrzeuge Gmbh v. Dana Corporation, 383 F.3d 1337 (Fed. Cir. 2004), the court ruled there would not be an adverse inference of willfulness from a defendant’s failure to obtain or disclose an opinion of counsel.
Despite this decision, however, a company accused of infringement still has an affirmative duty to use due care in avoiding infringement of the patent at issue. The willfulness inquiry will depend on whether the alleged infringer, when it learned of the patent, investigated the patent’s scope and formed a good faith belief the patent was invalid or not infringed.
Notwithstanding the Knorr-Bremse decision, the best way to accomplish this remains obtaining a competent opinion of non-infringement and/or invalidity from competent patent counsel. Simply reading the patent at issue and comparing it to the accused device (the allegedly infringing product) is likely insufficient. Moreover, if the dispute turns into litigation, the defendant will need to demonstrate that a thoughtful and thorough investigation was conducted, in order to avoid willfulness damages.
The cases where willful infringement is found despite the presence of an opinion of counsel generally involve situations where the opinion of counsel was either ignored or found to be incompetent.
What an opinion letter should contain
Several baseline criteria must be met in order to meet the requirement of competent opinion preparation. The competency requirement applies to both the qualifications of the person giving the opinion and to the content of the opinion itself.
The opinion letter should be obtained from outside patent attorney, not in-house counsel, in order to demonstrate objectivity, and should be based on the best information available to the alleged infringer.
Corporate counsel must be mindful that the focus of the burden is on the defendant company to drive the generation and substance of the information contained in the opinion letter.
The opinion letter should unfailingly include a detailed analysis of the prosecution file history at the U.S. Patent Office for the asserted patent. This analysis also should encompass a thorough review of the prior art cited by both the patentee and the patent examiner during the prosecution of the plaintiff’s patent.
All of the patent’s claims should be separately analyzed. An authoritative and objective opinion is the goal.
Corporate counsel should be on the lookout for conclusory or sweeping statements – since an honest and competent opinion will focus on analysis of the facts, not just the desired conclusions. A competent non-infringement opinion should also consider the doctrine of equivalents, i.e., whether the accused device, even if it does not literally come within the scope of any of the patent’s claims, nonetheless is equivalent to the claimed invention.
Corporate counsel should be aware that even if, at the end of the day, a court determines the opinion is not legally correct, if it is thorough and competent and was reasonably relied upon by the defendant company, it may still protect against willfulness damages.
When to wield an opinion letter in litigation?
How and when does a defendant company wield an opinion letter during litigation? An opinion letter of counsel is an attorney-client privileged communication. Corporate counsel must be aware of the complex discovery issues that may arise if the opinion letter is produced.
Once an accused infringer decides to rely on an opinion of counsel in a defense to a claim of willful patent infringement, the impact on the attorney-client privilege must be carefully considered. The sigh of relief generated by the Federal Circuit’s Knorr-Bremse holding was transformed into a gasp of concern by a table-turning opinion by the same court earlier this year.
In In re EchoStar Communications Corp., 448 F.3d 1294 (Fed. Cir. 2006), the Federal Circuit held that in the event an accused infringer relies on the advice of counsel as a defense to willful patent infringement, it waives the attorney-client privilege with regard to all attorney-client communications relating to the subject matter of the opinion. The court reasoned that all such communications could be relevant to determining whether the defendant gimp.
If the opinion, for example, states the accused device does not infringe, any communications between the attorney and client concerning infringement may be relevant to the client’s belief there is no infringement and is therefore discoverable. While the work product of the attorney is not discoverable, documents referencing a communication between attorney and client are discoverable, even if these documents themselves were never given to the client. Corporate counsel must therefore exercise great care in generating memos to the file and letters with outside counsel.
One possible solution to this discovery quandary is to seek trial bifurcation, i.e., separating the case into liability and damages phases, since willfulness only becomes relevant after a company has been found to infringe. Indeed, the Federal Circuit has long stated an accused infringer should not be normally forced to choose between waiving the privilege in order to protect itself from a willfulness finding – and thus potentially prejudicing itself on the question of liability by exposing so much of its attorney-client communications on infringement issues – and maintaining the privilege by not disclosing an opinion of counsel, in which case it may risk being found to be a willful infringer. The advantage of bifurcation is that defense counsel can shield itself from some of these discovery concerns during the liability stage. Bifurcation is discretionary, not automatically granted, however, and the holding of separate trials may impose significant legal costs.
In addition to these concerns, corporate counsel should also be aware that if the attorney providing the opinion counsel later acts as trial counsel, a conflict could arise requiring disqualification if that attorney is called as a witness regarding the opinion letter.
State law will govern disqualification. Most states provide that a lawyer cannot act as an advocate at trial for a client if the lawyer is a necessary witness. In addition, trying to limit the extent of the waiver of attorney-client privilege can become more difficult, if the opining attorney is also trial counsel, communicating frequently with the client.
While in many cases disqualification (from serving as trial counsel) has been limited to the individual opining attorney(s), one cannot guarantee that result. In response to this potential outcome, the burgeoning practice of law firms is to serve as opinion counsel or trial counsel, but not both.
Moreover, Echostar teaches that what a defendant considered in determining it did not infringe the patent in suit, and that the patent in suit was invalid is fair game for discovery on the issue of willfulness. This means corporate counsel needs to carefully consider its lines of communication on those issues.
Burns & Levinson LLP is a Boston-based law firm with 130 attorneys in Massachusetts, Rhode Island and the District of Columbia. For more information visit us at www.burnslev.com.
Laura Carroll is a partner in the firm’s intellectual property/sci-tech group, Canada, business litigation and life sciences groups and can be reached at [email protected].
Kimberly Whitehead is an associate in the firm’s intellectual property/sci-tech group and can be reached at [email protected].
