Medical Device Link.

Originally Published June 2000

REGULATIONS & LEGAL AFFAIRS

Patent Infringement: The Role of Opinions of Counsel

When the possibility of infringement raises its head, promptly obtaining a competent legal opinion—and following it—can be a company's best defense.

The intellectual property portfolio of a biomedical company is fundamental to its survival. Both a sword and a shield, the portfolio is essential to the growth and long-term viability of the company. Understanding the interrelationship and interdependency between patent prosecution and litigation and the regulatory areas is critical to developing a strong portfolio.

Opinions of counsel play a key role, both offensively and defensively, in guiding management. Offensively, opinions of counsel are important in determining whether a third party may be infringing the claims of a patent. Defensively, properly used opinions provide evidence that an accused infringer acted in good faith in cases where the company is accused of having willfully infringed the claims of a third-party patent.

Such defensive opinions are particularly important, since a finding of willful infringement exposes the infringing party to liability for enhanced damages. Although no statutory standard dictates the circumstances under which a district court may exercise its discretion to enhance damages, the Federal Circuit has approved such awards where the infringer has acted in wanton disregard of the patent owner's rights; that is, where the infringement was found to be "willful."

The Statutory Basis for Enhanced Damages

The statutory basis for enhanced damages provides that "when the damages are not found by a jury, the court shall assess them. In either event, the court may increase the damages up to three times the amount found or assessed."¹

The Federal Circuit has approved such awards where the infringer acted in wanton disregard of the patent owner's rights; where "the infringer acted in disregard of the patent, that is, that the infringer had no reasonable basis for believing it had the right to do the acts"; or where there was "bad faith infringement."^2–5

The statute recognizes the public interest in a stable patent right; enhanced damages are not compensatory, but punitive. Thus, enhanced damages may not be awarded as additional compensatory damages; a court must find that the infringer's conduct was egregious. The language of the statute makes an enhanced damages award discretionary rather than mandatory. Accordingly, an award of enhanced damages for infringement, as well as the extent of the enhancement, is committed to the discretion of the trial court.

The decision to increase damages is a two-step process. The court must first determine whether the infringement was willful. Then, given the totality of the circumstances relevant to the case, it can consider to what extent the damages award should be increased.^6–8 The court determines the amount of an enhanced damages award, which may be based on a jury verdict of willfulness.⁹

Determining Willfulness

Initially, it is the patent owner's burden to prove by clear and convincing evidence that the defendant willfully infringed the patent.¹⁰ The meaning of willfulness has been summarized by the Federal Circuit:

In a determination of willfulness and its consequences, the totality of circumstances are considered. . . . "Willfulness" in infringement, as in life, is not an all-or-nothing trait, but one of degree. It recognizes that infringement may range from unknowing, or accidental, to deliberate, or reckless, disregard of a patentee's legal rights. The role of a finding of "willfulness" in the law of infringement is partly as a deterrent—an economic deterrent to the tort of infringement—and partly as a basis for making economically whole one who has been wronged, for example by assessment of attorney fees under 35 USC sect. 285.

The term "willfulness" thus reflects a threshold of culpability in the act of infringement that, alone or with other considerations of the particular case, contributes to the court's assessment of the consequences of patent infringement. These consequences include the assessments provided by statute for multiplied damages and/or attorney fees. Whether or not "willfulness" is found, the court has authority to consider the degree of culpability of the tortfeasor.¹¹

Thus, a central factor in the court's decision to grant enhancement and in determining the amount of enhancement is the egregiousness of the defendant's conduct based on all the facts and circumstances. To conduct its analysis, the court is therefore required to consider factors that render the infringer's conduct more culpable as well as factors that are mitigating. More recently, the Federal Circuit has described the test for willfulness as follows:

The law of willful infringement does not search for minimally tolerable behavior, but requires prudent, and ethical, legal and commercial actions. Thus precedent displays the consistent theme of whether a prudent person would have had sound reason to believe that the patent was not infringed or was invalid or unenforceable, and would be so held if litigated.²

There are several factors that the court will consider in evaluating the degree of an infringer's culpability and in determining whether to exercise its discretion to award enhanced damages and the amount of such damages. For example, in Read v. Portec (1992), the Federal Circuit listed nine nonexclusive factors that could be considered in determining whether an infringer acted in such bad faith as to merit enhanced damages.³

1. Whether the infringer, after learning of another's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or not infringed.
2. Whether the infringer deliberately copied the ideas or design of another (ideas and design would encompass, for example, copying the commercial embodiment).
3. The infringer's behavior as a party to the litigation.
4. The defendant's size and financial condition.
5. The closeness of the case.
6. The duration of the defendant's misconduct.
7. Remedial action taken by the defendant.
8. The defendant's motivation for harm.
9. Whether the defendant attempted to conceal its misconduct.

Under current case law, the major thrust of the court's analysis is on the infringer's actions after learning of a relevant patent.

The Duty of Due Care

To determine whether willfulness applies, the court must determine the accused infringer's state of mind. Importantly, one who has actual notice of another's patent rights has an affirmative duty to exercise due care to determine whether or not infringement exists. The Federal Circuit set forth this standard in Underwater Devices v. Morrison-Knudsen (1983) and specified the minimum effort required to meet this duty.¹²

Where, as here, a potential infringer has actual notice of another's patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. . . . Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.

Good-faith reliance on the competent advice of counsel constitutes a defense to willfulness.¹³ A good-faith belief exists where the infringer has an honest doubt about the validity of the patent or whether it has been infringed. When the opinion of counsel defense is raised, the court may consider the nature of the advice, the thoroughness and competence of the legal opinion presented, and the objectivity of the opinion.

The court will determine whether counsel's advice on the issues of noninfringement, invalidity, and unenforceability could have been reasonably relied upon and whether, based on the totality of the circumstances, such factors mitigate a finding of willful infringement. The court should also take into account and give appropriate weight to other potentially mitigating aspects of the case, such as whether there was independent invention, whether the defendant attempted to design around and avoid the patent, or any other factors tending to show that the defendant acted in good faith.²

Competent Legal Advice

An infringer may be able to avoid enhanced damages if it obtains in timely fashion an opinion of counsel that each patent in issue is not infringed, invalid, and/or unenforceable—and relies upon that opinion. It may also be possible for an infringer to rely upon an opinion of counsel obtained in timely fashion by another entity, so long as the factual premise of the opinion applies to the adopting party. For example, a successor in interest to a business may be able to rely upon an opinion prepared by a predecessor company.^{14, 15}

Obtaining an opinion of counsel does not mandate a finding of nonwillfulness, nor does the absence of an opinion of counsel mandate a finding of willfulness.^{12, 16–18} However, failure to obtain or follow such an opinion of counsel often results in a finding of willful infringement.

If a legal opinion does exist, it must be competent before it can be relied upon by an infringer. An analysis of competency should be based on objective evidence with a view to determining whether the opinion is thorough enough to instill in the infringer a belief that a court might hold that the patent is not infringed, invalid, or unenforceable.^{19, 20}

In general, an opinion should be reviewed for its overall tone, its discussion of relevant case law, its analysis of the particular facts, and its references to inequitable conduct.²¹ A competent opinion must be based on the best factual evidence available at the time of preparation. Accordingly, the parties seeking the opinion must not have withheld material information from counsel.^{2, 22}

Criteria for Opinions of Counsel

A number of cases have held that certain factors—such as consideration of the doctrine of equivalents or the use of in-house counsel—are not in themselves sufficient grounds for holding an opinion to be incompetent. Conversely, no case has listed the minimum criteria that would automatically grant the status of "competent" to an opinion. However, a survey of the case law cited above indicates that an opinion that meets all of the following criteria will be less subject to successful attack and more likely to be held competent, and therefore could be relied upon in good faith:
01. The opinion should be written. "Oral opinions are not favored. . . . Such opinions carry less weight, for example, because they have to be proved perhaps years after the event, based only on testimony which may be affected by faded memories and the forces of contemporaneous litigation."²³
02. The opinion should be prepared by an outside, independent U.S. patent attorney. This does not mean that the courts feel that in-house counsel is less competent than outside counsel. If the party rendering the advice is closely tied to the company, however, he or she may feel undue pressure to recommend in favor or against any particular patent.
03. The opinion should discuss pertinent case law.
04. The opinion should set forth an adequate foundation based on a review of all available facts; the opinion should not be conclusive on its face. The foundation should include a meaningful review of the prosecution history of the patents in issue, and a review and discussion of the pertinent prior art.
05. A noninfringement opinion should set forth a detailed description of the accused composition, device, or process.
06. The opinion should set forth an analysis of the claims of the patents in issue, including analysis of specific claims (i.e., the claims should not be discussed as a group), an interpretation of the claim language, and discussion of any means plus function claim limitation.
07. A noninfringement opinion should address the doctrine of equivalents.
08. An invalidity opinion should discuss objective indications of nonobviousness.²⁴
09. The issue of possible inequitable conduct in obtaining the patent should be addressed.
10. If the opinion addresses invalidity, a prior art search should have been promptly conducted.
11. The opinion should explain what issues were considered but not fully addressed (e.g., other grounds for invalidity, defects in title, and so on).
12. The opinion should reach an unequivocal conclusion at least of probable noninfringement, invalidity, or unenforceability for each patent in issue. "Counsel's opinion must be thorough enough, as combined with other factors, to instill a belief in the infringer that a court might reasonably hold the patent is invalid, not infringed, or unenforceable."²⁵

Because of the complexities of patent law, as a practical matter it may be good practice for clients to obtain a second opinion regarding any opinion of counsel in a patent case. This second opinion can be directed to the question of whether the first opinion meets all or most of the above criteria.

Diligence in Obtaining an Opinion

The legal standard for avoiding willful infringement requires that competent legal opinion of counsel be obtained before the initiation of any possible infringing activity, if a relevant patent is known, or promptly after learning of a relevant patent. Failure to promptly obtain an opinion of counsel after notice of a relevant patent frequently results in a finding of willful infringement.^{12, 24, 26}

Reliance on Opinions of Counsel

An infringer is unlikely to avoid the charge of willful infringement if it has not relied upon the legal opinion it has received.^{16, 19} An infringer must also pay attention to what an opinion covers. In Amsted Indus. v. Buckeye Steel Castings (1994), the infringer asserted that it copied the patented invention only after forming a good-faith belief that the patent was invalid, based on a written opinion of outside counsel.²⁷ However, the Federal Circuit found that the attorney's first opinion clearly was not directed to validity, but to infringement, and moreover was characterized by the drafting attorney as preliminary and not meant to be a final opinion on which the infringer could rely. The attorney's second opinion did discuss validity, but was also found not to be a final and thorough invalidity opinion. Finally, the infringer failed to correct an erroneous factual assumption made by the attorney, and thus the opinions, "such as they were, were based on less than full knowledge."

Actual Notice of Relevant Patent Rights

The case law does not clearly define what constitutes "actual notice of another's patent rights." It has been suggested that actual notice requires both explicit knowledge of a patent and explicit knowledge of the possibility of infringement. The Federal Circuit appears to have implicitly accepted this two-part test.¹⁰ Thus, if it is applicable, mere routine review of patents would not constitute actual notice of another's patent rights—there must also be self-awareness of the possibility of infringement or a suggestion of infringement from the patent owner or a third party.

The quantum of notice of a patent required to trigger the due care standard is not great. The quantum of notice can include the following:
1. Notification by the patent owner amounting to notice of infringement under 35 USC sect. 287(a): the affirmative communication of a specific charge of infringement of a specific patent by a specific accused product or device. The "specific charge of infringement" may be a threat of suit, a demand for cessation of infringement, or an offer for a license under the patent in issue.²
2. Notification by the patent owner of the patent's existence or ownership insufficient to amount to notice under 35 USC sect. 287(a).
3. Discovery of a relevant patent during routine product clearance searches. But note the arguments of Shatterproof Glass v. Libbey Owens Ford (1985), where the infringer argued that "its awareness of the patents was only 'technical,' that its patent staff routinely monitors patent activity in all areas of glass technology, but that its key people on the [infringing] project were not aware of the patents until this litigation arose."²⁸
4. Mention by a third party of the existence of a patent covering a similar product.²⁹

Regardless of how notice of a patent is obtained, notice cannot commence before issuance of a patent. Awareness by an infringer of a pending patent application does not trigger a due care inquiry.³⁰

References

1. 35 USC sect. 284.

2. SRI Int'l. v. Advanced Tech. Lab., 127 F.3d 1462 (Fed. Cir. 1997).

3. Read Corp. v. Portec Inc., 970 F.2d 816, 826 (Fed. Cir. 1992).

4. Stickle v. Heublein Inc., 716 F.2d 1550, 1565 (Fed. Cir. 1983).

5. Jurgens v. CBK Ltd., 80 F.3d 1566, 1570–1571 (Fed. Cir. 1996).

6. State Industries Inc. v. Mor-Flo Industries Inc., 948 F.2d 1573, 1576 (Fed. Cir. 1991).

7. Jurgens v. CBK Ltd., 80 F.3d 1566 (Fed. Cir. 1996).

8. Code-Alarm Inc. v. Electromotive Techs. Corp., 114 F.3d 1206 (Fed. Cir. 1997).

9. Shiley Inc. v. Bentley Laboratories Inc., 794 F. 2d 1561, 1567–1568 (Fed. Cir. 1986), cert. denied, 479 U.S. 1087, 94 L.Ed.2d 148, 107 S.Ct. 1291 (1987).

10. Stryker Corp. v. Intermedics Orthopedics, 96 F.3d 1409, 1413 (Fed. Cir. 1996).

11. Rite-Hite Corp. v. Kelly Co., 819 F.2d 1120, 1125–1126 (Fed. Cir. 1987).

12. Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389–1390 (Fed. Cir. 1983).

13. Mahurkar v. C.R. Bard Inc., 79 F.3d 1572, 1579 (Fed. Cir. 1996).

14. Uniroyal Inc. v. Rudkin-Wiley Corp., 939 F.2d 1540 (Fed. Cir. 1991).

15. Hall v. Aqua Queen Mfg., 93 F.3d 1548, 1555 (Fed. Cir. 1996).

16. Central Soya Co. v. Geo. A. Hormel & Co., 723 F.2d 1573, 1576–1577 (Fed. Cir. 1983).

17. Datascope Corp. v. SMEC Inc., 879 F.2d 820, 828–829 (Fed. Cir. 1989), cert. denied, 493 U.S. 1024, 107 L.Ed.2d 747, 110 S.Ct. 729 (1990).

18. Kloster Speedsteel AB v. Crucible Inc., 793 F.2d 1565, 1579 (Fed. Cir. 1986) cert. denied, 479 U.S. 103, 493 L.E.2d 836, 107 S.Ct. 882 (1987).

19. Read Corp. v. Portec Inc., 970 F.2d 816, 829 (Fed. Cir. 1992), reh'g. en banc, denied.

20. Westvaco Corp. v. International Paper Co., 991 F.2d 735, 743 (Fed. Cir. 1993).

21. Ortho Pharmaceutical Corp. v. Smith, 959 F.2d 936, 945 (Fed. Cir. 1992).

22. Amsted Indus. v. National Castings, 16 USPQ2d 1507, 1742 (N.D. Ill. 1990).

23. Minnesota Mining & Mfg. Co. v. Johnson & Johnson Orthopaedics Inc., 976 F.2d 1559 (Fed. Cir. 1992).

24. Sensonics Inc. v. Aerosonic Corp., 812 F.3d 1566, 1571 (Fed. Cir. 1996).

25. Ortho Pharmaceutical Corp. v. Smith, 959 F.2d 936, 944 (Fed. Cir. 1992).

26. Power Lift Inc. v. Lang Tools Inc., 774 F.2d 478, 482 (Fed. Cir. 1985).

27. Amsted Indus. v. Buckeye Steel Castings Co., 24 F.3d 178, 182 (Fed. Cir. 1994).

28. Shatterproof Glass Corp. v. Libbey Owens Ford Co., 758 F.2d 613, 628 (Fed. Cir. 1985).

29. Great Northern Corp. v. Davis Core & Pad Co. Inc., 782 F.2d 159, 166–1567 (Fed. Cir. 1986).

30. Conopco Inc. v. May Dept. Stores Co., 46 F.3d 1556 (Fed. Cir. 1994) cert. denied, 514 U.S. 1078, 131 L.Ed.2d 582, 115 S.Ct. 1724 (1995).

John R. Wetherell Jr., PhD, JD, is a principal of Fish & Richardson (San Diego). His practice emphasizes biomedical patents and strategic counseling.

Illustration by James Schlesinger

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