Patent Law Alert - The Duty of Care to Avoid Infringement of Known Patent Rights of Others
What can a company do in the face of a charge of patent infringement? The options are:
- Continue the allegedly infringing activity, maintaining that either the conduct does not infringe the asserted patent(s) or that the patent is invalid;
- Discontinue the activity; or
- Obtain a license.
If the company chooses the first option, conventional wisdom mandates that it obtain a well-reasoned, written legal opinion that its actions do not violate the patent or that the patent is invalid. Otherwise, the company could be liable for willful infringement, which would likely subject it to the additional remedies of treble damages and attorney fees.1
But a legal opinion is protected by the attorney-client privilege, so the client is not obligated to produce it in an infringement litigation. Until recently, if a party refused to produce a legal opinion, then well-established precedent allowed a district court to draw a negative inference that the legal opinion was or would have been unfavorable. A finding of willful infringement almost always followed.
The law has changed due to a decision by the Court of Appeals for the Federal Circuit in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp.2 The district court had found the defendants liable for willful patent infringement since the defendants had failed to produce a legal opinion. Defendant Haldex, a Swedish manufacturer of disk brakes for commercial vehicles, had consulted with lawyers about the charge of infringement, but had refused to produce the advice it had received. Defendant Dana Corp., which had used the Haldex disc brakes on its vehicles, had not obtained a legal opinion and instead had relied on advice from Haldex.
The Federal Circuit reversed, overruling earlier cases, and held that courts may no longer draw a negative inference if a legal opinion is not produced, whether or not one was obtained. The Federal Circuit found that the inference distorts the attorney-client relationship, and that a party should not bear risk of liability for communications between lawyers and clients in patent cases. The totality of the circumstances test,3 used to determine willfulness, must be considered 'without the evidentiary contribution or presumptive weight of an adverse inference that any opinion of counsel was or would have been unfavorable.'
The Knorr-Bremse decision should be regarded cautiously, and should not be viewed as an endorsement that it is acceptable to disregard an assertion of patent infringement or that a legal opinion is no longer needed to avoid a finding of willful infringement. On the contrary, most companies will continue to rely primarily upon a well-reasoned legal opinion in the face of a charge of infringement. Moreover, while the absence of, or the refusal to produce, a legal opinion will no longer be determinative of willful infringement, it will remain an important element in a district court's analysis. Hence, we continue to recommend that our clients work with counsel to assess whether a legal opinion is desirable.
For more information, please contact:
| Mark Montague | (212) 790-9252 | |
Footnotes
1 35 U.S.C. §§ 284, 285. With or without willful infringement, damages for patent infringement include injunctive relief and compensatory damages. 35 U.S.C. §§ 283, 284.
2 383 F.3d 1337 (Fed. Cir. 2004).
3 See Gustafson, Inc. v. Intersystems Indus. Prods., Inc., 897 F.2d 508, 510 (Fed. Cir. 1990).