United States: Coming Full Circle From Seagate To Halo On Invalidity Opinions

Clients have long sought and obtained opinions of counsel concerning patent validity for a variety of reasons, including (1) evaluating litigation risks and freedom to operate, (2) making R&D investment decisions, (3) evaluating whether to file America Invents Act (IPR/PGR/CBM) or reexamination challenges, and (4) avoiding willful infringement findings and enhanced damages. While obtaining validity analyses in any of these scenarios may significantly benefit clients, invalidity opinions carry additional litigation value for minimizing or eliminating exposure to treble damages under 35 U.S.C. § 284.

In current litigation scenarios, the prospect of treble liability can pose a significant risk in cases where enhancement might be warranted. In Stryker Corp. v. Zimmer, Inc., for instance, the district court trebled the jury's infringement damages award of $70 million to $210 million. No. 1:10-CV-1223, slip op. at 7-11 (W.D. Mich. July 12, 2017). In Carnegie Mellon Univ. v. Marvell Tech. Grp., Ltd., the district court enhanced a $1.24 billion jury verdict of infringement by 23 percent ($290 million) to $1.53 billion. 807 F.3d 1283, 1292 (Fed. Cir. 2015) (reversed under the now##8209;overruled Seagate standard). Failure to properly analyze patent-infringement risks and take appropriate precautions can therefore subject a party to significant enhanced-damages liability.

Changes in the law over time have varied the utility of invalidity opinions for reducing exposure to enhanced damages. For many years, courts followed a duty-of-care standard when analyzing whether a patent infringement verdict warranted enhancement. See, e.g., Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389-90 (Fed. Cir. 1983). Under this standard, once a party became aware of a potentially adverse patent, an obligation existed to investigate the scope of the patent before initiating potentially infringing activities. Id. To discharge their duty of care, parties often found invalidity opinions greatly useful, and courts often expected parties to obtain them. Id.

In 2007, the U.S. Court of Appeals for the Federal Circuit changed the standard for awarding enhanced damages with its Seagate decision, abrogating the duty-of-care standard and adopting a dual-prong test. In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007)(en banc). Seagate's first prong required the patentee to show by clear and convincing evidence that an infringer acted despite an objectively high likelihood that their actions were infringing. Id. Once the objective prong was met, the patentee additionally bore the burden of demonstrating that the risk of infringement was either known or so obvious that the accused infringer should have known about it. Id.

Because of Seagate's objective threshold inquiry, it became no longer necessary for parties to proactively develop invalidity positions before litigation. So long as invalidity arguments were objectively reasonable—even if developed during litigation—parties could avoid a finding of willfulness and enhanced damages. Thus, Seagate marked an apparent low-water mark for the value of invalidity opinions for avoiding enhanced damages under Section 284.

In its 2016 Halo decision, the Supreme Court changed the analytical landscape again, returning the state of the law closer to the pre-Seagate duty-of-care standard. The Court rejected the Seagate dual-prong test as "unduly rigid" and shifted the focus of an enhanced damages analysis to the egregiousness of a party's conduct. Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1932-33 (2016). The primary issue, in the eyes of the Court, was that by analyzing the objective likelihood of infringement as a threshold consideration, a "wanton and malicious pirate" might avoid enhanced damages on that basis alone. Id. at 1932. Focusing its analysis on the egregiousness of a party's conduct, the Court noted that "culpability is generally measured against the knowledge of the actor at the time of the challenged conduct." Id. at 1933 (emphasis added). Thus, under Halo, infringers can no longer rely on a reasonable defense developed during litigation. Instead, culpability is assessed when infringement is occurring, marking a full-circle return to significant aspects of the previous duty-of-care standard. See id.; Underwater Devices, 717 F.2d at 1389-90 (describing the duty to "obtain competent legal advice from counsel before the initiation of any possible infringing activity").

Thus, Halo suggests that parties who evaluate known and potentially adverse patents before litigation begins should generally find themselves in a stronger position for avoiding or minimizing willfulness or enhanced damages. To evaluate this hypothesis, we analyzed recent judicial decisions involving the use of invalidity defenses and opinions to minimize enhanced damages exposure. Thus far, it appears that parties would be well advised to retain counsel and obtain an opinion regarding a validity analysis of competitors' patents before litigation begins.

How Have Courts Addressed Invalidity Defenses After Halo?

Halo emphasizes the importance of a flexible test for willfulness and enhanced damages, stating that no "rigid formula" should govern the award of enhanced damages. Halo, 136 S. Ct. at 1926. But Halo provides little guidance as to how courts should go about evaluating willfulness and enhanced damages, leaving courts to decide these issues on a case-by-case basis.

In response to Halo's broad directive, many district courts have turned for guidance to the comprehensive nine-factor test from Read Corp. v. Portec, Inc. 970 F.2d 816, 827 (Fed. Cir. 1992). See, e.g., Barry v. Medtronic, Inc., 250 F. Supp. 3d 107, 115-116 (E.D. Tex. 2017); Georgetown Rail Equip. Co. v. Holland L.P., No. 6:13-CV-366, slip op. at 38 (E.D. Tex. June 16, 2016); PPC Broadband, Inc. v. Corning Optical Commc'ns RF, LLC, No. 5:11-CV-761, slip op. at 20-22 (N.D.N.Y. Nov. 3, 2016). The Read factors, used for many years before Seagate and Halo, have been instructive because they comprehensively cover a wide span of conduct by an adjudged infringer.

Pertinent to our analysis, the second Read factor concerns "whether the infringer investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed." Read, 970 F.2d at 827 (emphasis added). This factor, consistent with Halo, indicates that a good-faith belief of patent invalidity, particularly when developed before litigation, may minimize exposure to enhanced damages. As more and more courts utilize the Read factors, pre-litigation validity analyses are becoming increasingly valuable for managing the risk of enhanced damages.

Recent decisions by the Federal Circuit after Halo have illustrated the value of developing and documenting good-faith beliefs of patent invalidity. For example, in WBIP, LLC v. Kohler Co., the defendant relied on an invalidity defense developed during litigation, aiming to show that its conduct was objectively reasonable under Seagate. 829 F.3d 1317, 1340 (Fed. Cir. 2016). Applying the intervening Halo standard, the Federal Circuit rejected the defendant's litigation-driven invalidity argument for avoiding enhanced damages. For parties developing defenses to patent infringement, the court explained that "timing does matter" and that invalidity positions developed during litigation do little to show the reasonableness of a party's pre-litigation actions. Id.

Subsequently, in Georgetown Rail Equipment Co. v. Holland L.P., the Federal Circuit affirmed a district court's application of the Read factors to an enhancement determination. 867 F.3d 1229, 1245 (Fed. Cir. 2017). The district court analyzed all nine Read factors, finding that the second factor (whether a good faith belief of invalidity existed) and two other factors supported enhancement. Georgetown Rail Equip. Co. v. Holland L.P., No. 6:13-CV-366, slip op. at 45 (E.D. Tex. June 16, 2016). In its Read analysis, the district court found that the defendant had not formed "a good faith belief of noninfringement or invalidity" based on its argument that individual components of the claimed invention were separately known in the art. Id. Because the defendant did not conduct a proper investigation of the known, potentially adverse patent, the Federal Circuit affirmed an additional $1,000,000 in enhanced damages, nearly doubling the jury award. Georgetown Rail, 867 F.3d at 1245; see also Arctic Cat Inc. v. Bombardier Recreational Prod. Inc., 876 F.3d 1350, 1371 (Fed. Cir. 2017) (affirming district court's award of treble damages after applying the Read factors).

The Significant Benefits of Obtaining Invalidity Opinions

Invalidity opinions may have significant value in assisting parties with avoiding findings of willful infringement or enhanced damages. Several district courts have declined to find willful infringement when defendants had pre-litigation knowledge of the asserted patents and took pre-litigation steps to investigate them.

In one such case, Greatbatch Ltd. v. AVX Corp., the defendant became aware of the patent at issue and "sought and obtained invalidity and non-infringement opinions of counsel before litigation." No. CV 13-723, slip op. at 9 (D. Del. Dec. 13, 2016). The Greatbatch court explained that these pre-litigation investigations were pertinent to the defendant's subjective intent at the relevant time—i.e., before litigation—and warranted finding that the defendant's infringement was not willful. Id. at 9. Similarly, in Loggerhead Tools, LLC v. Sears Holding Corp., the court found that the defendant's consultation with a patent attorney before litigation to develop invalidity and non-infringement opinions was "highly probative evidence of good faith," and found no willful infringement. No. 12-CV-9033, slip op. at 4-5 (N.D. Ill. Nov. 15, 2016). By contrast, in Arctic Cat, the Federal Circuit affirmed a district court's willfulness determination because the district court found that the defendant "conducted only a cursory analysis of the patents [and] waited years before seeking advice of qualified and competent counsel." Arctic Cat v. Bombardier, 876 F.3d at 1371.

In addition, when enhanced damages are warranted, treble damages are not always awarded. See, e.g., Georgetown Rail, 867 F.3d at 1245. Exercising the judicial discretion accorded by Halo, district courts have often found that in view of all the Read factors or based on a totality of the circumstances, damages should be enhanced by a factor of less than three. See e.g., Georgetown Rail, slip op. at 45 (enhancing damages by a factor of 1.5); PPC Broadband, slip op. at 28-29 (doubling damages after recognizing that the litigation was "not a polar case at the most egregious end of the spectrum") (internal quotations omitted). Because the award of enhanced damages is based on a flexible inquiry as to the degree of willfulness, a proactive party that conducts a timely investigation of adverse patents and obtains an opinion of counsel, but is nonetheless found liable, may be in a comparatively advantageous position for a lower damages multiplier if enhancement is warranted.

These recent decisions from the Federal Circuit and various district courts appear to validate our hypothesis that post-Halo alleged infringers will be in a stronger position at trial when they have investigated the scope of potentially adverse patents before litigation begins. By investigating the scope of adverse patents and obtaining opinions of counsel as to their validity, an alleged infringer may avoid a finding of willfulness altogether and minimize enhanced damages exposure.

Best Practices for Obtaining and Using Invalidity Opinions

As Halo suggests and recent Federal Circuit decisions confirm, obtaining pre-litigation validity analyses may be a cost-effective option that can directly affect a company's bottom line by reducing enhanced damages exposure. Parties should, however, proceed with care when obtaining and using invalidity opinions in view of certain risks.

A primary consideration for effectively wielding a defensive invalidity opinion is timing. Once on notice of a potentially adverse patent, a party should investigate both non-infringement and invalidity positions and document them before litigation. Failure to take timely action may result in not only a finding of willful infringement, but also enhanced damages, as illustrated in Barry v. Medtronic, Inc. 250 F. Supp. 3d at 115. Medtronic knew of Barry's patents before trial, but failed to investigate their scope or validity. The court expressed its surprise at the absence of any opinion of counsel letter "given the size and scope of Medtronic's intellectual property portfolio." Id. Medtronic's failure to investigate the scope of the patents and develop a good-faith belief that the patents were invalid therefore favored enhancement. Id. at 115-116. The result in Barry stands in contrast with Greatbatch described above, where AVX obtained a finding of no willfulness because it quickly retained counsel for invalidity and non-infringement opinions after learning of the adverse patent. Greatbatch, slip op. at 9.

A second consideration for effectively using invalidity opinions is the attorney-client privilege. When a party announces that it will rely on advice of counsel to negate willfulness, for example, the privilege may be waived. In re EchoStar Commc'ns Corp., 448 F.3d 1294, 1299 (2006). The scope of waiver may be broad in some circumstances, applying to all communications relating to the subject matter of the opinion. Id. When obtaining invalidity opinions, however, parties can take steps to limit the negative effects of any later privilege waiver during litigation.

First, because communications regarding the subject matter of an invalidity opinion may later become discoverable, both the client and its counsel should take care to avoid unnecessary disclosure of privileged or confidential information concerning collateral issues. Communications concerning a validity analysis should be kept concise, and remain limited to the validity issues presented. If the client and counsel must discuss other legal issues in parallel, keeping the validity investigation sequestered in separate communications may help avoid the unwanted disclosure of other sensitive communications during discovery.

Second, both the client and its counsel should avoid characterizing positions before the validity analysis is complete. Off-hand initial remarks documented in early communications at the outset of an invalidity investigation, even if ultimately incorrect, could cast doubt on the reasonableness of a final invalidity opinion letter during litigation. By keeping communications factual without preliminary commentary, a party may be able to reduce the likelihood that its opponent will find useful statements in any post-waiver document production.

Third, the client may prefer to use the services of an outside prior art searching firm, rather than using in-house searching capabilities. Although using outside vendors may increase costs in the short-term, the use of a search firm may significantly reduce the creation of in-house privileged communications related to the searching efforts. During litigation, this reduction in client-created documentation may generate significant cost savings when privilege logs are prepared, when the scope of any privilege waiver is litigated, and when any post-waiver document production occurs. Moreover, because the client has no reason to provide any privileged or confidential business information to the outside search firm, both communications to and from the search firm, as well as any documentation generated by the search firm itself, are likely to be limited to the invalidity investigation.

Fourth, clients should be cognizant of the risk that the author of any invalidity opinion letter relied upon in litigation could potentially be deposed. Clients should therefore carefully consider their options for potential opinion counsel, and select experienced counsel in whom they trust to conduct a comprehensive analysis that can be strongly defended under aggressive questioning during litigation.


As demonstrated in post-Halo judicial decisions, invalidity opinions prepared before litigation once again appear to have significant value for accused infringers, protecting them from findings of willful infringement and potentially treble damages. Using invalidity opinions can be a particularly cost-effective tool for clients anticipating patent litigation and seeking to limit possible exposure to enhanced damages.

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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