Do Opinions of Counsel Still Matter After Patent Reform? Absolutely!
What This Means to You
- There continue to be important reasons for seeking formal opinions from patent counsel, even after the recently enacted America Invents Act (AIA).
- In cases where a jury returns a verdict of willful infringement, the judge must separately decide whether to increase damages above the patent owner’s “actual” losses, and whether or not the defendant got advice from counsel is a central piece of evidence considered during this process.
- Opinions of counsel can be useful for minimizing the risk of an adverse verdict in the first place.
- They can lead to productive discussions about potential “design arounds.”
When facing potentially problematic patents, prudent companies have traditionally consulted with IP counsel and often gone on to commission some sort of legal “opinion.” Opinions could take many forms, from a simple email – or even a purely oral report – all the way to letters that are hundreds of pages long. Yet the expense of such analysis paled in comparison to the prospect of finding oneself defending a patent infringement charge without having an opinion in hand.
For many years, failing to obtain an opinion and then relying on it in subsequent patent litigation could lead to draconian consequences, including an instruction that jurors should presume that any infringement was “willful.” A jury verdict of such willful infringement allows the patent owner to request that the judge “enhance” actual economic damages up to threefold. A jury verdict of willful infringement also allows the patent owner to request that the judge order the defendant to pay the patent owner’s legal fees, which can run into the millions.
More recently, however, the Court of Appeals for the Federal Circuit (Federal Circuit) – responsible for essentially all patent appeals – shifted the law via several high-profile decisions that rejected the “adverse inference” rule as well as the notion that companies have an “affirmative duty of due care” to avoid infringement. As a result, it became more difficult for patent owners to prove willful infringement.
Last year’s America Invents Act (AIA) codified this change while also closing a loophole relevant to defendants accused of “inducing” customers or other third party to infringe. (The Federal Circuit had previously held that the failure to obtain an opinion of counsel could be relevant as evidence that the defendant had the necessary “intent” to encourage the third party’s infringement). Inducement is one type of “indirect” patent infringement. The law prohibits helping someone else directly infringe a third party’s patent for much the same reason why one can get into trouble for giving someone else a tool to cut through a third person’s fence.
Specifically, section 17 of the AIA provides that an infringer’s failure to present an opinion of counsel “may not be used to prove that the accused infringer willfully infringed the patent or that the infringer intended to induce infringement of the patent.” This law will take effect in September 2012 – long before virtually any patent case filed today would get to trial.
These developments naturally lead decision makers to ask whether legal opinions as to patent infringement risks are a worthwhile investment today. Simply put, the answer is yes. There remain a host of reasons why companies confronting potentially problematic patents should seriously consider investing in a thorough opinion of counsel.
Reducing Risk of Enhanced Damages
Accused infringers that come to court without an opinion in hand will likely continue to face a substantially elevated risk of the “nightmare scenario” for defendants in patent cases: a finding of willful infringement followed by an order enhancing damages and/or awarding attorneys’ fees.
It should be noted that the two issues (i.e., whether a defendant’s infringement was willful, and, if so, whether to award the patent owner additional relief) are entirely separate. A jury typically determines the first. A judge always determines the second. One of the most important factors in deciding whether or not to enhance damages is whether or not the infringer relied on a competent opinion of counsel.
Last June, the Federal Circuit went so far as to vacate a trial court’s decision denying enhanced damages (i.e., the second question) because the lower court had cited the Federal Circuit’s recent decisions on willfulness itself (i.e., the first question) and thus discounted the defendant’s failure to obtain an opinion. The Federal Circuit emphasized that criteria for determining whether infringement is willful are not identical to those for deciding whether to enhance damages after willful infringement is found.
While this decision came before passage of the AIA, the patent reform legislation does not address the standards for enhancing damages or awarding attorneys’ fees. As a result, courts will probably conclude that opinions of counsel remain relevant for these purposes. In other words, opinions will likely remain important “insurance policies” in the event that litigation goes poorly and results in a jury finding of willful infringement.
Reducing Risk of Adverse Verdict
Non-infringement and invalidity opinions also remain valuable as potentially powerful pieces of evidence at trial. In other words, they can reduce the likelihood of an adverse verdict in the first place.
In particular, presenting an opinion opens the door for testimony from the patent attorney who presented it. Such testimony must focus on the advice itself as well as related “state of mind” issues, but nevertheless in practice can complement a defendant’s case on the merits. Several recent decisions confirm this blending, including one case in which the Federal Circuit affirmed a verdict of non-infringement even though the “opinion testimony” presented by the accused infringer’s attorney arguably crossed a line.
Opinions of counsel can be particularly important if defendants find themselves litigating in one of the district courts that have concluded that the absence of an opinion remains a “factor” that the jury may consider when assessing willful infringement. A number of judges – including some in popular forums for patent cases such as Delaware and Texas – have reached this conclusion despite the Federal Circuit cases rejecting the older “adverse inference” and “duty of due care” concepts.
It is still not clear whether passage of patent reform will prompt courts to revisit these holdings. For example, the AIA’s final language – dictating that the lack of an opinion “may not be used to prove” willfulness – is less categorical than earlier proposals, which would have made clear that the lack of an opinion “shall have no relevance to a determination” of willfulness.
Courts may take this distinction as a sign that failing to obtain an opinion remains relevant as a “factor” even though it cannot give rise to a presumption. While this would seem contrary to what legislators intended, one could say much the same about the district courts that adopted the “factor” approach in the first place following the Federal Circuit’s rewriting of the law of willfulness – law that the AIA effectively just codified.
Opinions as Useful Guidance
Finally, it is important to remember that opinions are valuable legal advice – not a mere “fig leaf” for litigation.
For example, patent attorneys can suggest “design around” options for avoiding or minimizing infringement risks. The Federal Circuit itself has endorsed such design around efforts as an important benefit of patent law and a key source of innovation in their own right. They can also serve as a sign of good faith even during litigation itself.
Likewise, an opinion that claims are invalid (whether or not infringed) can highlight the potential value of requesting patent “reexamination.” Reexamination is an alternative to litigation and offers many important benefits, including the lack of any sort of presumption that the patent is valid. Requesting reexamination before being sued (as opposed to after) can make it easier to get a “stay” – putting the litigation on hold until the Patent Office finishes the reexamination process. Such stays can ultimately save millions of dollars in legal fees.
There continue to be important reasons for seeking formal opinions from patent counsel, notwithstanding that the law has shifted to some extent as of several court decisions and more recently the America Invents Act (AIA).
Opinions are particularly significant as a “last line” of defense in patent litigation. In cases where a jury returns a verdict of willful infringement, the judge must separately decide whether to increase the amount that the defendant must pay (i.e., above and beyond the “actual” damages). Whether the defendant got advice from counsel is a central piece of evidence that courts consider during this process. Nothing in the AIA appears to change this long-standing principle, which the Federal Circuit had previously confirmed last year.
Additionally, opinions of counsel can be useful for minimizing the risk of an adverse verdict in the first place. They can also lead to productive discussions about potential “design arounds.”