Morris Manning & Martin, LLP

IP Newsflash March 2010: Navigating Willful Infringement: Three Years After In re Seagate, Patent Opinions are Still Important

03.01.2010

A finding of “willful infringement” of a patent can cripple an infringing company’s business. A willful infringement ruling by a court entitles a patent holder to potential increased damages, up to triple the actual damages award for the infringement, not to mention attorneys’ fees and prejudgment interest on the damages award. The In re Seagate decision, 497 F.3d 1360 (Fed. Cir. 2007), was supposed to usher in a new era of willful infringement law. The case suggested that it might be possible to avoid getting an opinion letter from counsel if there was infringement risk – merely by taking enough actions to show that one is not acting with “objective recklessness” with regard to the possibly-infringed patent.

In practice, the Seagate decision seems to have lulled those in patent infringement risk scenarios into a false sense of security. Recent cases highlight the risk of severe willful infringement findings with certain behaviors, and point up the need for methodical analysis and opinions in order to address the risk.

As discussed in a previous MMM IP Newsflash, the Seagate decision overruled the earlier “due care” standard for willful infringement and replaced it with an “objective recklessness” standard. This article will discuss some of the Federal Circuit decisions interpreting willful infringement that have been decided since that earlier IP Newsflash, the status of the law regarding willful infringement, and the practical implications of obtaining (or not obtaining) a well-reasoned opinion of counsel when faced with an infringement suit.

Prior to the Seagate case, an infringer on actual notice of another’s patent rights arguably had an affirmative duty to seek competent legal advice, and perhaps obtain a legal opinion. A patent “opinion” generally refers to a formalized belief of counsel as to whether a defendant’s actions rise to a level of infringement of a given patent, and/or whether the patent is valid.

In Seagate, the Federal Circuit overruled the “due care” standard and established a two-part test for willfulness. First, 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.” Second, the patent holder must 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.

In many ways, the Seagate standard affected how courts handle willful infringement issues, and made it more difficult for patent holders to establish willfulness. Because the Seagate “recklessness” standard involves more intentionality than a “due care” standard, the previous duty that an alleged patent infringer need obtain an opinion of counsel as to non-infringement or invalidity of the subject patent was believed no longer applicable by many attorneys and companies facing patent infringement risks.

For example, in Cohesive Technologies, Inc. v. Waters Corp., 543 F.3d 1351 (Fed. Cir. 2008), the Federal Circuit held that a defendant could rely on the reasonableness of its claim construction positions that would support a position of non-infringement in a court case in order to avoid willful infringement, even if those positions proved to be ultimately incorrect in the case. A similar holding was reached in Depuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F.3d 1314 (Fed. Cir. 2009), where the court indicated that there was no willfulness due to the defendant’s presentation at trial of a substantial question of infringement.

The Cohesive Technologies and Depuy Spine cases suggest that as long as an alleged infringer can present reasonable defenses to infringement at trial, then those reasonable defenses are likely enough to avoid a finding of willfulness. Accordingly, these cases gave the impression that no opinion of counsel is required. This impression can prove dangerous, if certain behaviors are present.

Other cases since Seagate, however, indicate that although a patent opinion may not be required to avoid willful infringement, the opinion does provide strong evidence that the infringement was not willful. For example, in Innogenetics, N.V. v. Abbot Laboratories, 512 F.3d 1364 (Fed. Cir. 2008), the alleged infringer obtained multiple opinions of counsel. The court pointed to the opinions as powerful evidence that made the court’s finding of no willful infringement an easy one. Money Swirling Away

Further, and perhaps more importantly, patent opinions are still very important for reducing the amount of damages assessed if willful infringement is found. In the recent, well-publicized case of i4i Ltd. Partnership v. Microsoft Corp._ F.3d _ (Fed. Cir. 2009), Microsoft was found to have willfully infringed i4i’s patent relating to an XML editor used in Microsoft’s Word product. In assessing willfulness, the court pointed to several facts that supported its finding. These facts point up behaviors that companies facing infringement risks should keenly seek to avoid:

  • Microsoft employees had attended demonstrations of i4i’s software,
  • Microsoft employees had received i4i’s sales kit, which identified i4i’s technology as “patented” and cited the relevant patent,
  • Microsoft employees had exchanged emails regarding i4i’s software, at least one of which explained that the “heart” of i4i’s product was patented, and
  • Microsoft provided no evidence that it took any remedial action (e.g., investigate potential infringement, design around) to avoid infringement.

The trial court awarded i4i $200 million in damages for infringement, and tacked on an additional $40 million based on Microsoft’s purported willfulness. The Federal Circuit affirmed the lower court’s ruling, holding that although there is no affirmative duty to obtain an opinion of counsel, the district court did not abuse its discretion in relying on Microsoft’sfailure to obtain an opinion of counsel as a factor that supported enhancing the damages award. In truth, Microsoft appears lucky that the trial court did not assess the maximum treble damages of the infringement award (i.e., $600 million), and only assessed the additional $40 million sum.

In another case, Minks v. Polaris Industries, Inc., 546 F.3d 1364 (Fed. Cir. 2008), Polaris was found to have willfully infringed Minks’ patent for electronic governor systems for internal combustion engines. The Court suggested that because Polaris made a lackluster effort in investigating the alleged infringement, did not obtain an opinion of counsel, and may have deliberately copied Minks’ patent, a finding of willful infringement was warranted. This case raises the important question whether an opinion of counsel obtained beforehand could have identified issues that would have changed Polaris’ actions or litigation strategy to avoid the willful infringement finding altogether, or at least reduced the amount of the willful infringement damages award.

Although the post-Seagate decisions have made it clear that an opinion of counsel is not absolutely necessary to avoid a finding of willful patent infringement, the decisions indicate that a well-reasoned opinion is strong evidence of a lack of willful infringement. As shown in the i4i and Minks cases, there is much danger in simply relying on a defendant’s arguments of non-infringement or invalidity as evidence of non-willfulness. Specifically, i4i teaches that if you become aware of an objectively high likelihood that your product may infringe another’s patent, you may need to take some remedial action, such as attempting to design around the patent or at least investigate the infringement, to avoid a finding of willfulness – and to thoroughly document those efforts and the reasons that the efforts are believed to avoid infringement. An opinion of counsel may provide much help in this regard. By obtaining an opinion upfront, an accused infringer can be more confident that it can show intentionality (i.e., lack of recklessness) to avoid infringement of the patent. Alternatively, if the opinion suggests that infringement of the patent is likely, the defendant can change its litigation strategy, such as by further studying whether the patent is valid, or by making further design changes, or by settling the dispute with the patent owner. 
Courtroom from the Judge’s Perspective

Further, as shown in i4i, should willful infringement be found, failure to obtain an opinion of counsel is a factor that may be considered in establishing the amount of damages associated with such a willful infringement finding. Accordingly, a well-reasoned opinion could significantly reduce a damages award.

Aside from willful infringement, opinions are generally a good litigation tool to help a defendant determine where it stands. An opinion that clearly demonstrates either non-infringement or invalidity can drastically affect a defendant’s strategy and confidence going into litigation. The most conservative approach when faced with a realistic claim of patent infringement is always to seek and obtain an opinion of counsel.

If you have questions regarding patent opinions (non-infringement or invalidity), willful infringement, or steps you or your company can take to prevent a finding of willful infringement, please contact any of the following Morris, Manning & Martin attorneys:

Daniel E. Sineway (Author)
[email protected], 404.364.7421 (Atlanta, GA)

John R. Harris (Editor)
[email protected], 404.504.7720 (Atlanta, GA)

Tim Tingkang Xia, Ph.D.
[email protected], 404.495.3678 (Atlanta, GA)

Christopher Raimund
[email protected], 202.216.4816 (Washington, DC)

Ping Wang, M.D.
[email protected], 202.842.0217 (Washington, DC)

John P. Fry
[email protected], 404.504.7728 (Atlanta, GA)

Bryan G. Harrison
[email protected], 404.504.7619 (Atlanta, GA)

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.