Morris Manning & Martin, LLP

IP Newsflash February 2009: Patent Opinions After In re Seagate Still Make Good Business Sense

02.01.2009

One of the biggest weapons in a patent owner’s arsenal is the threat of “willful infringement” of a patent. A finding of willful infringement may entitle the patent holder to an award of increased damages – up to treble the actual damages for the infringement. Willful infringement can also result in the award of attorneys’ fees to the patent owner, plus prejudgment interest on the damages award. For example, in a worst case scenario, a $1 million actual damages award could be increased to $5 million or more if willful infringement was found. Damage awards in the hundreds of millions of dollars are not uncommon in patent cases, so the potential exposure for being wrong about a patent can be company-life-threatening.

Until just two years ago, the classic strategy for avoiding willful infringement was to obtain an opinion from a qualified patent lawyer that the business activity in question either did not infringe the patent or that the patent was invalid. Patent opinions were viewed as almost mandatory every time a company received a cease-and-desist letter threatening an infringement lawsuit.

In 2007, however, the Court of Appeals for the Federal Circuit (CAFC) lessened the compulsion for businesses to seek patent opinions with its decision of In re Seagate, 497 F. 3d 1360 (Fed. Cir. 2007). The CAFC’s decision in In re Seagateseemed to render the once-critical patent opinion from counsel almost obsolete as a defense against willful infringement, and the number of patent opinions issued by patent lawyers dropped noticeably.

While opinions are useful for other business reasons, in today’s economy business owners may wonder whether obtaining an opinion letter is worth the expense. Post-Seagate decisions from the CAFC suggest that opinion letters are still valuable as a defense against an assertion of willful infringement, and remain an important strategic business tool for companies in patent-intensive industries. For example, recent U.S. District Court decisions show that courts are still finding that defendants are guilty of willful infringement. See, e.g., Golden Hour Data Systems, Inc. v. emsCharts, Inc. et al., 2:06-cv-00381-TJW (E.D.Tx Dec., 2008) and Telcordia Technologies, Inc. v. Cisco Systems, Inc., CA No. 04-876-GMs (E.D.Del. Jan., 2009). Such cases clearly show that willful infringement is still a risk and indicate that businesses should have a strategy for conducting their activities so as to avoid infringement of valid patents. Opinions of counsel can still serve the important function of steering clear of potential legal trouble.

The practice of relying on opinion letters to avoid a finding of willful infringement was based on the CAFC’s ruling inUnderwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 130 (Fed. Cir. 1983). That case held that willfulness is evaluated based on a potential infringer’s affirmative duty of “due care” to determine whether or not he was infringing, which included “the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.” A failure to seek and obtain legal advice, or a refusal to disclose the advice, was grounds for an adverse inference that the advice would have been or was unfavorable to the accused infringer. This “adverse inference” meant that the failure to obtain an opinion could be considered as evidence that infringement, if found, was willful and deliberate.

In addition to serving as a defense against a finding of willful infringement, opinion letters also served businesses in areas such as product development, and litigation risk management and strategy. This additional value, coupled with the substantial assurance that enhanced damages could be avoided, made opinion letters well worth the investment for many businesses.

In the In re Seagate case, the CAFC overruled its decision in Underwater Devices, replacing the duty of due care threshold for willful infringement and setting forth an “objective recklessness” threshold standard. To meet this standard, a patent holder “must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” The Seagate decision thus raised the bar for willful infringement from the “due care” standard threshold to a higher threshold of a showing of “objective recklessness”.

If the patent holder can show that the accused infringer’s actions were objectively reckless, the patent holder must then demonstrate that the accused infringer knew about the objectively defined risk of infringement or that the risk was so obvious that the accused infringer should have known about it to show willful infringement. If willfulness is found, the court must exercise its discretion to determine whether and to what extent the damages should be increased, based on upon the totality of circumstances.

Because “recklessness” involves less intentionality than “willfullness,” the Seagate decision put the practice of obtaining opinion letters into a state of uncertainty. While opinion letters have remained valuable resources for businesses as a guide in product development and litigation risk management and strategy, there is uncertainty as to the value of opinion letters as a defense to accused infringers against a finding of willful infringement. Logically, it seems that an accused infringer could point to a well-reasoned opinion letter to demonstrate that it neither knew or should have known of the objectively defined risk of infringement. Even after a finding of willful infringement, it is likely that an opinion letter could be useful to the infringer in the court’s assessment of the totality of circumstances in determining whether to award enhanced damages.

Post- Seagate court decisions suggest that opinion letters may still have value to accused infringers as a defense against willful infringement in addition to helping develop noninfringing competitive products and mitigating infringement risk.

In Black and Decker, Inc. v. Robert Bosch Tool Corp., No. 2007-1243, 1244, 2008 WL 60501 (Fed. Cir. Jan. 2008) (not for publication), the CAFC stated that legitimate and credible defenses to infringement and invalidity arguments presented during litigation will demonstrate lack of objective recklessness on behalf of the accused infringer and negate a finding of willfulness. Such defenses are often identified and memorialized in patent opinion letters.

In Broadcom Corp. v. Qualcomm inc., 543 F. 3d 783 (Fed. Cir. Sept. 2008), the CAFC held that a patent infringer’s lack of an opinion of counsel was relevant to two separate legal issues: willful infringement and inducement of infringement. Although the court’s decision in Broadcom did not alter the status of opinions of counsel with regard to a finding of willful infringement, the court considered the opinions of counsel to be relevant in determining the intent of an alleged infringer in the inducement context. It is noteworthy that the court was willing to consider the opinion of counsel as evidence, along with other factors, as part of the totality of circumstances in determining whether the accused infringer had the specific intent required to be liable for inducing infringement. Such a willingness on the part of the CAFC is an indication that the opinion of counsel is still important in patent infringement cases and should not be lightly dismissed as unneeded after In re Seagate.

Opinions of counsel continue to be useful for making business decisions, such as risk management, minimizing risks of suit, and determining risks of losing in litigation. In light of recent CAFC decisions that suggest that opinion letters may still be relevant in determining willful infringement, opinions are re-emerging as a valuable tool in defending against claims of infringement and minimizing the financial risk of patent litigation.

If you have questions about the In re Seagate decision, the Broadcom v. Qualcomm decision, patent infringement, patent opinions, patent enforceability, patent application writing, or other issues involved in the patent system, please contact either of the following attorneys:

Jennifer Pearson Medlin, Author and Editor (jmedlin@mmmlaw.com)
John R. Harris, Editor (jharris@mmmlaw.com)

NOTE: This article represents the views of the author and does not necessarily represent the views or positions of the firm or of any of its clients. The information contained herein is of a general nature and is not intended to provide legal advice to or address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that this information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on this information without appropriate professional advice after a thorough examination of the particular situation.