United States: The Use of Exculpatory Opinions in Defending Against A Charge of Willful Infringement

The exercise of intellectual property rights has become a mainstay of business over the last 10 years. Indeed, business models are proliferating where obtaining patents for the purpose of licensing and enforcement are the sole activity of the enterprise. Even among those entities that routinely engage in R&D or the manufacture and sale of products, more and more are investing in the acquisition of IP rights, and many have realized that enforcement of those rights against competitors is an effective tool in protecting markets and/or generating revenue. As a consequence, corporate executives and general counsels are likely to face, at least once in their careers, a charge that their companies are infringing upon another entity’s intellectual property rights.

Especially threatening is the receipt of a notice that your company’s products infringe patents held by another. The threat is worrisome for a variety of reasons. First, the threat is often leveled at a company’s core technology, changes to which are almost never trivial. Second, patent infringement carries with it the very real threat of devastating injunctive relief. Finally, damages in such cases, while nominally calculated in terms of a reasonable royalty or lost profits, may, at the discretion of the court, be enhanced up to three times for so-called willful infringement. In order to navigate this minefield and defend themselves against claims of willfulness, many companies engage counsel in order to obtain advice as to whether their actions violate valid patent rights of some third party and/or how to avoid such violations by design arounds. This article, addresses defenses to a charge of willfulness, and in particular, some of the issues which may arise when relying on opinions of counsel as a defense to a patent owner’s claim of willful infringement.

The "Totality of the Circumstances" Test

When considering whether an infringer acted in bad faith, thereby supporting an increased damage award, courts look at a "totality of the circumstances," including (1) whether the infringer copied the invention of another; (2) whether the infringer, when it knew of the other’s patent, investigated the scope of the patent and formed a good-faith belief that it was either not infringed, invalid or both; (3) whether the infringer mounted a substantial (albeit unsuccessful) challenge in the issues of validity and infringement; (4) the closeness and complexity of the legal and factual issues presented; (5) whether the infringer engaged in good faith efforts to design around the patent; and (6) the infringer’s behavior in the litigation. 1 Because there are few situations where sufficient evidence of actual copying or litigation conduct egregious enough to find willfulness are present, the primary focus for courts when considering willful infringement claims is usually on whether an alleged infringer has formed a good-faith belief that its conduct was justified.

In the seminal case, Underwater Devices, Inc. v. Morrison-Knudsen Co.,2 the U.S. Court of Appeals for the Federal Circuit imposed as affirmative duty on a potential infringer to exercise due care to determine whether or not its activities are infringing. This duty includes obtaining competent legal advice from counsel before initiating possibly infringing activity. The requirements for an opinion of counsel as evidence of good-faith in defense to a charge of willful infringement has led to several problems relating to waiver of the attorney-client privilege with respect to such opinions, and often to matters beyond the scope of the opinions.

Following Underwater Devices, in Kloster Speedsteel AB v. Crucible Inc.,3 the Federal Circuit found that silence by the accused infringer on whether it obtained legal advice relating to infringement could warrant an adverse inference that the accused infringer either had not obtained an opinion (as required by Underwater Devices) or that the opinion was adverse. The Court followed its Kloster Speedsteel decision with its holding that the failure of an infringer to introduce an exculpatory opinion of counsel at trial could lead to an adverse inference instruction to the jury. Fromson v. Western Litho Plate & Supply Co.4 Thus, although the test for determining willful infringement ostensibly requires a multifaceted review of the totality of circumstances, the Federal Circuit jurisprudence has, for many years, imposed an opinion requirement. In the view of many, the opinion of counsel "requirement," coupled with the adverse inference, has led to a serious erosion of attorneyclient privilege.

Waiver of the Attorney-Client Privilege

Under the present state of the law, in addition to the affirmative duty to seek and obtain advice-of-counsel, if a company finds itself in a lawsuit facing a charge of willful infringement it is all but required to disclose the legal advice it received relating to infringement and/or validity. In other words, by merely raising the willful infringement claim, a patent owner presents the accused infringer with the Hobson’s choice of either waiving its attorney- client communications or confronting an adverse inference instruction on the issue of willfulness. Most choose waiver.

The "choice" mandated by the Federal Circuit authority requires considerations not found in any other area of law. The most obvious is the effect and scope of the privilege waiver resulting from reliance on an opinion of counsel. There is no question that reliance on opinions of counsel as evidence of goodfaith results in a waiver of privileged communications. The thorny question facing accused infringers is just how broad a waiver results. Accused infringers agonize over this question and district courts have found the task of line drawing to be a daunting one. The uncertainty on this issue is well illustrated by the following quote from a court struggling to fairly decide the issue:

"In few, if any, areas of the law has the tail taken to wagging the dog as vigorously as in the privilege waiver disputes endemic to patent infringement cases. Defendants often rely upon an advice-ofcounsel defense when confronting the threat of enhanced damages for willful infringement. The consequent waiver of privileges and protections that the adviceof- counsel defense entails, however, is now the basis of innumerable disputes like the one at bar, distracting the court and the parties from addressing the fundamental questions of infringement and validity. It seems that a whole subspecialty of opinion practice has developed as part of infringement defense strategy. Litigation resources are heavily invested in delaying the moment when an accused infringer must choose between relying on advice-of-counsel or maintaining typical privileges, or in seeking bifurcation on the issue of willfulness, or in trying to control the scope of waiver, once the advice-ofcounsel route is taken." Rhodia Chimie, et al. v. PPG Industries, Inc. 5

Scope of Waiver

It is long settled that if an accused infringer chooses to rely on an advice-of-counsel defense, it waives privilege with respect to the communications transmitting the reliance opinion. Thorn EMI North America, Inc. v. Micron Tech.6 Materials considered by reliance counsel in rendering the opinion, but not communicated to the accused infringer, are typically protected as work product and are not discoverable. EMI No. Am. See also, Dunhall Pharm., Inc. v. Discus Dental, Inc.;7 and Steelcase, Inc. v. Haworth, Inc.;8 Even when a work product waiver occurs it is not unlimited in time but ends once a lawsuit is filed.9

However, some courts have extended the waiver to include all communications between the client and counsel, in some instances including trial counsel. Haney v. Timesavers, Inc.10 (Broad waiver found where "document logs show that a number of documents were sent from the [defendant’s trial counsel] to the [reliance opinion counsel] and to others concerning infringement and validity…as a result, [trial counsel] has provided opinions to advise [defendants]);" FMT Corp. v. Nissei ASB Co.;11 Electro Scientific12 (Trial counsel implied that communications with reliance opinion counsel were substantial.); Matsushita Elec. Corp. v. Loral Corp.13 (Defendant patentowner’s defense of good faith litigation was based on opinion given by trial counsel.); Carl Zeiss Jena GmbH v. Bio-Rad Labs. Inc.14 (Written and oral reliance opinion were given by trial counsel.); Fonar Corporation, et al. v. Johnson and Johnson15 (Various outside lawyers’ authored opinion signed by in-house counsel.).

While the scope of the waiver in any given case cannot be accurately predicted, the cases provide some guidance that will help counsel limit the potential scope of the waiver.

First, where practical, opinion counsel should be separate from trial counsel. Broad waivers, including trial counsel’s work product, have been found where trial counsel also rendered an opinion regarding the infringement or validity matters at issue. While the different counsel can be members of the same law firm, the risk of a broad waiver is mitigated if they are not.

Second, opinion counsel and trial counsel should not communicate on the substance of the opinions lest it be inferred that trial counsel influenced opinion counsel. Broad waivers have resulted where trial counsel and opinion counsel share information and theories. Though opinion counsel may be able to bring trial counsel "up to speed" more quickly, it must be remembered that opinion counsel was engaged to provide objective advice on issues of infringement and validity. Trial counsel’s view on whether opinion counsel was articulate and appropriately analytical is only marginally relevant to trying the substantive defenses of the particular action. In preparing an opinion memo, the opinion writer typically has no more than a commercial validity search report and/or a relatively abbreviated consultation with a person knowledgeable about the accused device or method. When this is compared to the resources typically available to defense counsel, it is no wonder that different prior art and different or additional reasons for asserting non-infringement are likely to percolate up. As long as the opinion was competent as delivered and was relied upon in good faith by the client, the Underwater Devices criteria are met.

Third, avoid any appearance of "opinion shopping." Don’t engage counsel to prepare an opinion and then stop the process in favor of a new counsel without good cause to do so.

Are the Winds of Change Blowing?

Based upon recent actions, the Federal Circuit appears to be keenly aware that these scopes of waiver issues—sequela to the duty to obtain an opinion and the negative inference imposed if the opinion is not produced to the plaintiff—need to be reviewed and addressed. Recently, the Court sua sponte decided to review en banc certain issues regarding exculpatory opinions, waiver and the adverse inferences. In Knorr-Bremse Systeme Fuer Nutzfahrzeuge GMBH v. Dana Corp., et al.,16 the Court asked for amicus submissions on the following questions: (1) Is the adverse inference appropriate when an accused infringer invokes the attorney-client privilege and/or work-product doctrine with regard to willful infringement? (2) Is it appropriate to draw an adverse inference with respect to willful infringement when the accused infringer has not obtained legal advice? (3) Should the existence of a substantial defense to infringement be sufficient to defeat liability for willful infringement even where no legal advice has been obtained?

At least 14 amicus briefs were submitted. With near unanimity, the amici answered the Court’s questions as follows: (1) The adverse inference is inappropriate when a defendant invokes the attorney-client privilege and/or work-product doctrine with regard to willful infringement. (2) It is not appropriate to draw an adverse inference even when a defendant has not secured legal advice. (3) The existence of a substantial defense to infringement should be sufficient to defeat a willfulness claim regardless of whether legal advice was sought and obtained. Some parties went even further, asking the Court to simply abolish the Underwater Device rule. As of this writing, oral argument has been completed and the patent bar eagerly awaits guidance from the en banc Federal Circuit.

Given the Court’s request and the overwhelming call for change, it appears that some Federal Circuit guidance on these issues may soon be forthcoming. However, until that happens, it is important to understand the opinion "requirement" and the attendant attorney-client privilege waiver virtually inherent in presenting a defense to a charge of willful infringement.

Paul Devinsky Stephen J. Akerley Paul Devinsky, a Washington, D.C. based-partner, concentrates his practice on patent, trademark and copyright litigation, counseling and prosecution and on trade secret litigation. Stephen J. Akerley, a partner in Silicon Valley, focuses his practice on high-profile patent, trade secret, trademark and copyright cases as well as technology-related commercial disputes.


1 See, e.g., Anjimoto Co. v. Archer-Daniels-Midland Co., 228 F.3d 1338 (Fed. Cir. 2000); SRI Int’l Inc. v. Advanced Tech. Labs. Inc., 127 F.3d 1462 (Fed. Cir. 1997); Gustafson, Inc. v. Intersystems Indus. Prods., Inc. 897 F.2d 508, 510 (Fed. Cir. 1990) ("Willfulness is determined from the totality of the circumstances...."); and Bott v. Four Star Corp., 807 F.2d 1567, 1572 (Fed. Cir. 1985).

2 717 F.2d 1380, 1389-90 (Fed. Cir. 1983).

3 793 F.2d 1565, 1580 (Fed. Cir. 1986).

4 853 F.2d 1568, 1572-73 (Fed. Cir. 1988).

5 Civil Action No. 01-389-KAJ, Memorandum Opinion, October 8, 2003.

6 837 F. Supp. 616 (D. Del. 1993).

7 994 F. Supp. 1202, 1205-06 (C.D. Cal. 1998).

8 954 F.Supp. 1195 (W.D. Mich. 1997).

9 Dunhall, supra.

101995 U.S. Dist. LEXIS 15222, *8-9 (D. Ore. 1995).

111992 U.S. Dist. LEXIS 21500, *7, 24 U.S.P.Q.2D (BNA) 1073 (N.D. Ga. 1992)

12175 at F.R.D. 539, 540 (N.D. Cal. 1997).

131995 U.S. Dist. LEXIS 12880, *1-4 (S.D.N.Y. 1996).

142000 U.S. Dist. LEXIS 10044 *1.

15227 U.S.P.Q. (BNA) 886, 887 (D. Mass. 1985).

16Case Nos. 01-1357, - 1376, 02-1221, - 1256 (Fed. Cir.); on appeal from the U.S. District Ct for the Eastern District of Virginia (Case No. 00-CV-803).

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