July/August 2014
IP Litigator
Authored by Jeffrey A. Freeman and Jason E. Stach
In recent years, written opinions of counsel have simultaneously become less necessary and more valuable. Gone is the adverse inference for failing to obtain or disclose a competent opinion, but recent decisions make a well-reasoned opinion a powerful weapon in defending against claims of enhanced damages, attorney fees, and induced infringement.
The Supreme Court's recent decisions in Octane Fitness LLC v. ICON Health & Fitness LLC,1 and Highmark Inc. v. Allcare Health Management System Inc.,2 continue a line of cases that could make opinions of counsel more valuable than ever. The Court relaxed the standard required to establish an exceptional case for attorney fees under 35 U.S.C. § 285, and limited appellate review of exceptional case determinations. While most commentators have focused on the impact Octane Fitness and Highmark will have on inadequate patent assertions by plaintiffs, the decisions also may aid plaintiffs in seeking exceptional case findings against defendants. Litigants exploiting the lowered threshold likely will lead to a rise in exceptional-case claims, highlighting the importance of taking preemptive actions to defend against those claims in litigation, such as by obtaining written opinions of counsel.
Courts in patent cases may award attorney fees to the prevailing party "in exceptional cases."3 The Federal Circuit deemed cases exceptional in two limited circumstances: (1) "when there has been some material inappropriate conduct," or (2) when the litigation is both "brought in subjective bad faith" and "objectively baseless."4
In Octane Fitness, the Supreme Court rejected this standard as too "demanding," "unduly rigid," and as impermissibly encumbering the discretion of district courts.5 Instead, the Supreme Court set forth the more flexible standard that "an 'exceptional' case is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated."6 Courts must evaluate each case based on "the totality of the circumstances," and may find a case exceptional based on a "preponderance of the evidence" as opposed to the more rigid "clear and convincing evidence" standard the Federal Circuit had applied.7
In the companion Highmark case, the Supreme Court overturned the Federal Circuit's de novo review of certain aspects of exceptional case findings and held that "an appellate court should review all aspects of a district court's Section 285 determination for abuse of discretion."8 Taken together, Octane Fitness and Highmark lower the standard for establishing an exceptional case and a related attorney fee award, while also lowering the likelihood that a determination will be reversed on appeal. Because it is now easier to find a case exceptional, plaintiffs and defendants are likely to see a rise in exceptional case claims against them.
In this environment of rising claims, where courts are to consider the "totality of the circumstances," a well-reasoned opinion of counsel should be a powerful tool for accused infringers. In particular, in Octane Fitness the Supreme Court identified a variety of factors courts may consider in determining whether a case is exceptional, including "frivolousness," motivation of the litigant, and "objective unreasonableness."9 The Court also stated that, in certain cases, a finding of either objective baselessness or bad faith litigation alone may be sufficient to merit an exceptional case finding.10 The Federal Circuit has found well-reasoned opinions of counsel to be significant factors in defending against precisely these types of findings.11 Opinions also may help defend against exceptional case findings based on willful infringement, as discussed below.
In patent cases, courts may enhance damages "up to three times the amount found or assessed."12 Willful infringement is one context for enhanced damages, and courts apply a two-stage inquiry. First, a court must determine whether there has been willful infringement under the Seagate standard, which requires a patentee to show that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent and that this objectively-defined risk was either known or so obvious that it should have been known to the accused infringer.13 Second, in cases for which willful infringement has been found, the court must still decide whether to enhance damages by applying a variety of factors, including "whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed."14
Based on these principles, courts have long found that well-reasoned opinions of counsel weigh against a finding of willfulness and enhanced damages at both stages. That tradition continues after Seagate, as the en banc Federal Circuit has stated that a favorable opinion may still be "crucial to the analysis."15
Under 35 U.S.C. § 271(b), "[w]hoever actively induces infringement of a patent shall be liable as an infringer." Unlike direct infringement under Section 271(a), induced infringement is not a strict liability tort; it requires that the accused inducer act with knowledge that the induced acts constitute patent infringement.16 In Broadcom Corp. v. Qualcomm Inc.,17 the Federal Circuit found that a noninfringement opinion of counsel is relevant to intent and undermines a finding that the accused infringer "knew or should have known" that its actions would cause another to directly infringe.18
In Commil USA, LLC v. Cisco Systems,19 the Federal Circuit extended the doctrine to invalidity opinions, finding that an invalidity opinion may likewise undermine a finding of intent to induce infringement.20
Based on these cases, as in the exceptional case and enhanced damages contexts, both noninfringement and invalidity opinions of counsel may prove valuable in defending against a claim of indirect infringement.
In the right circumstances, the value of an opinion of counsel is beyond question. However, not all opinions are created equal. One must ensure that the opinion is well-reasoned and was reasonably relied on, as incompetent opinions and opinions that were not relied on have been given little to no weight.21 Every opinion should have a solid factual and legal foundation, and be detailed and comprehensive enough to address all possible claims and activities by the potential infringer. The opinion should be obtained from an attorney experienced in patent law, and that attorney should be provided with the most relevant evidence, both helpful and harmful. The original opinion also should be updated if circumstances materially change. Finally, some cases find post-litigation opinions to be entitled to less weight, so obtaining an opinion before litigation, such as before market entry, is the best practice.22
Obtaining opinions of counsel before market entry has several other benefits outside the litigation context. For example, a chief concern of in-house counsel is the unknown risk and potential exposure that may result from introducing a new product, particularly one that is expected to generate significant sales. Engaging counsel early in this process can allow the company to more accurately assess its risk and then mitigate it, such as by obtaining opinions of counsel or by designing around patents causing the most concern. An early understanding of these issues also can give counsel an upper hand in negotiations with patent holders, and can allow one to strike early against a patent through inter partes review or covered business method review at the United States Patent & Trademark Office.
Although opinions of counsel are less necessary than they used to be, their value is perhaps greater today than ever before. Waiving privilege to rely on an opinion can be a difficult decision to make, but in the right circumstances, it can make a significant difference in defending against claims of enhanced damages, attorney fees, and induced infringement. Even if an opinion never sees the light of day, it may still have strategic value in managing risk and developing early positions. Opinions of counsel continue to play a significant role in today's marketplace, and parties should continue to evaluate their strategic value in each case.
Endnotes
1 Octane Fitness LLC v. ICON Health & Fitness LLC, No. 12–1184 (April 29, 2014).
2 Highmark Inc. v. Allcare Health Management System Inc., No. 12–1163 (April 29, 2014).
3 35 U.S.C. § 285.
4 Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F. 3d 1378, 1381 (Fed. Cir. 2005).
5 Octane Fitness, slip op. at 7-11.
6 Id. at 7-8.
7 Id. at 7-8, 11.
8 Highmark, slip op. at 1.
9 Octane Fitness, slip op. at 8 n.6.
10 Id. at 9.
11 See e.g., Ortho Pharmaceutical Corp. v. Smith, 959 F.2d 936, 944-945 (Fed. Cir. 1992); Bic Leisure Prods., Inc. v. Windsurfing Int'l, Inc., 1 F.3d 1214, 1223 (Fed. Cir. 1993); Brooks Furniture, 393 F.3d at 1381.
12 35 U.S.C. § 284.
13 i4i Ltd. P'ship v. Microsoft Corp., 598 F.3d 831, 858-859 (Fed. Cir. 2010) (discussing In re Seagate Technology, LLC., 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc)).
14 Read Corp. v. Portec, Inc., 970 F.2d 816, 826-827 (Fed. Cir. 1992).
15 Seagate, 497 F.3d at 1369; see also Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1339 (Fed. Cir. 2008) (stating that a competent opinion of counsel "would provide a sufficient basis for [a potential infringer] to proceed without engaging in objectively reckless behavior . . . ."); Spectralytics, Inc. v. Cordis Corp., 649 F.3d 1336, 1348 (Fed. Cir. 2011) (recognizing that the Read Corp. v. Portec factors continue to apply after Seagate in the enhancement stage, including whether advice of counsel was sought and infringement investigated).
16 Global–Tech Appliances, Inc. v. SEB S.A., 131 S.Ct. 2060, 2068 (2011).
17 Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 699 (Fed. Cir. 2008).
18 See also Bettcher Indus., Inc. v. Bunzl USA, Inc., 661 F.3d 629, 649 (Fed. Cir. 2011) (noninfringement opinion of counsel "admissible, at least with respect to [defendant]'s state of mind and its bearing on indirect infringement").
19 Commil USA, LLC v. Cisco Systems, 720 F.3d 1361 (Fed. Cir. 2013)
20 Id. at 1368 ("one could be aware of a patent and induce another to perform the steps of the patent claim, but have a good-faith belief that the patent is not valid. Under those circumstances, it can hardly be said that the alleged inducer intended to induce infringement."). The Supreme Court is considering a petition for certiorari on this issue and has asked for the Solicitor General's views.
21 See, e.g., Bard Peripheral Vascular Inc. v. W.L. Gore & Assoc. Inc., 670 F3d 1171, 1190 (Fed. Cir. 2012); Read Corp. v. Portec, 970 F.2d at 829.
22 See, e.g., Seagate, 497 F.3d at 1374.
Reprinted with permission from the IP Litigator, published by Aspen Law and Business. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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