United States: Opinions Of Counsel Once Again Key To Avoiding Enhanced Damages

Last year's Supreme Court decision in Halo lowered the bar for plaintiffs to establish willful patent infringement and obtain enhanced damages.1 Returning the focus to the infringer's state of mind at the time of infringing conduct, Halo eliminated the ability of an accused infringer to rely solely on defenses developed during litigation as a means to avoid a ruling of willfulness. Now, after years of insignificance, opinions of counsel obtained at the time of potential infringement are once again becoming a vital part of an overall strategy for defending against allegations of willful infringement and enhanced damages. 

Prior Seagate Standard. In 2007, the Federal Circuit ruled in Seagate that, to establish willful infringement, a predicate for enhanced damages, a patentee had to establish (i) that the infringer acted despite an objectively high likelihood that its conduct constituted infringement of a valid patent (objective prong), and (ii) that this objective risk was known or so obvious that it should have been known to the accused infringer (subjective prong).2 Seagate had overruled prior law establishing an affirmative duty of care to obtain the advice of counsel before embarking on potentially infringing conduct; after Seagate, opinions of counsel were no longer required, and an infringer could defend against charges of willful infringement by presenting a reasonable defense at trial.

Halo: A Game-Changer. Halo substantially changed the standard for determining whether to award enhanced damages under §284 of the patent statute. Under the Federal Circuit's prior Seagate test, to obtain enhanced damages a patentee had to prove that the infringer acted not only with subjective bad faith but also objective recklessness. But the Supreme Court in Halo rejected this two-part test as "unduly rigid" because it required a finding of objective recklessness in every case before enhanced damages could be awarded. This was of prime concern to the Supreme Court because, by constructing an objectively reasonable infringement defense at the time of trial, an infringer could escape willful infringement (and enhanced damages)—which would have the effect of excluding from punishment some of the most culpable offenders. Rather, under Halo an infringer's subjective willfulness alone may support an award of enhanced damages. By directing the inquiry to subjective culpability, Halo places the focus squarely on the infringer's state of mind at the time infringing conduct occurs.

Post-Halo Decisions Highlight Importance of Obtaining Advice of Counsel. Although Halo did not explicitly impose an obligation to obtain the advice of counsel, recent cases show that advice of counsel (or absence thereof) is a crucial factor in awarding enhanced damages. In the ten months since the Supreme Court decided Halo, a number of district courts have confronted the issues of willful infringement and enhanced damages after a verdict of infringement. Review of those cases where an accused infringer has notice of the asserted patent (whether from patent owner or otherwise) reveals a clear trend:

  • If an accused infringer timely investigates a claim of patent infringement and/or relies on timely advice of counsel, courts are highly likely to reject enhancement of damages, even if a jury finds infringement was willful.
  • But if an infringer fails to reasonably investigate claims of patent infringement or to otherwise rely on timely advice of counsel, courts are virtually certain to find willful infringement and very likely to award enhanced damages.

Because courts are given wide discretion, under the totality of the circumstances, to award enhanced damages, it is important to view these results in context. Courts typically evaluate factors, such as the Read factors,3 in making the determination. Among these factors is whether the infringer, upon knowing about the asserted patent, investigated the patent and formed a good faith belief that it was invalid or that it was not infringed. Other factors include such items as copying, litigation behavior, concealment and remedial action.

Post-Halo, the case results show that investigating the patent and forming a good faith belief of invalidity or non-infringement is a key factor—perhaps the key factor—courts rely on in deciding whether to award enhanced damages. In four cases where the infringer obtained timely advice of counsel (or at least timely investigated the patent), the court declined to award enhanced damages; in each case, the court cited an investigation or opinion as a factor (among others) weighing against enhancement. But in three cases where the infringer waited until litigation to obtain an opinion of counsel, or did not rely on the opinion at trial, or the opinion was clearly not a competent one, the court awarded enhanced damages. Not surprisingly, in such circumstances the opinion did not provide evidence of good faith at the time of infringement.

Further, in nine cases where the infringer failed to investigate the patent or timely seek advice of counsel, the jury found willful infringement in all nine, and the court awarded enhanced damages in seven of those nine cases. In six of the seven cases with enhanced damages, the court cited the lack of investigation/opinion as a factor favoring enhancement. In the seventh case, the court awarded enhanced damages even though the defendant presented a non-infringement position during license negotiations—at least suggesting the possibility of a rudimentary investigation (though the court made no mention of any such investigation). But other factors weighed in favor of enhancement, and there was no opinion of counsel for the defendant to rely upon to establish good faith.

To be sure, failure to investigate or obtain an opinion of counsel does not automatically mean a court will find a case sufficiently egregious to warrant an award of enhanced damages. Courts have substantial discretion to consider a variety of factors, and the cases are clear that there is no absolute requirement to seek advice of counsel. Thus, in the two exceptions where enhanced damages were not awarded despite lack of a patent investigation or reliance on advice of counsel, the courts found several factors weighed against enhancement, including closeness of the issues and reasonable litigation positions. Given the discretion placed with the district courts and the variety of factors courts may consider, one cannot prejudge with certainty how the presence or absence of an opinion of counsel will ultimately impact the decision for awarding enhanced damages.

Nevertheless, parties facing allegations of patent infringement would be prudent to proactively investigate the asserted patent and determine if there is a good-faith basis to believe the patent is invalid or not infringed. Such an investigation should include consulting with patent counsel. No longer can the accused sit back and wait for litigation before attempting to develop a reasonable-sounding non-infringement or invalidity defense. As the case results to date show, there is a strong correlation between early investigation or consultation with patent counsel and avoiding enhanced damages, and a similarly strong correlation between failure to investigate/obtain opinion and awarding of enhanced damages.

Footnotes

1. Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923 (2016).

2. In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007).

3. Read Corp. v. Portec, Inc., 970 F.2d 816, 827 (Fed. Cir. 1992).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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