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No Adverse Inferences from Refusal to Produce Opinions

01-1357
September 13, 2004

Decision icon Decision, en banc

Last Month at the Federal Circuit - October 2004

In Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., No. 01- 1357 (Fed. Cir. Sept. 13, 2004), the Federal Circuit, en banc, reconsidered its precedent with respect to adverse inferences drawn from withholding an opinion of counsel concerning patent-infringement issues. Expressly overruling any precedent to the contrary, the Federal Circuit held that no adverse inference that an opinion of counsel was or would have been unfavorable flows from an alleged infringer’s failure to obtain or produce an exculpatory opinion of counsel. Accordingly, the Court vacated a judgment of willful infringement and remanded for redetermination on that issue based on the totality of the circumstances.

Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH (“Knorr-Bremse”) manufactures air-disk brakes for use in heavy commercial vehicles. Dana Corporation (“Dana”) and the Swedish company Haldex Brake Products AB, and its U.S. affiliate (collectively “Haldex”), agreed to collaborate to sell in the United States an air brake manufactured by Haldex in Sweden. Dana and Haldex advertised these brakes at trade shows and in industry media in the United States.

In December 1998, Knorr-Bremse notified Dana of patent disputes with Haldex in Europe involving one brake design (“Mark II”) and explained that patent applications were pending in the United States. After further correspondence on the issue, Knorr- Bremse filed suit on May 15, 2000. Later that year, the district court granted Knorr- Bremse’s motion for SJ of literal infringement by Mark II and set for trial the issue with respect to a redesigned brake (“Mark III”). After a bench trial, the district court found literal infringement by the Mark III brake.

On the issue of willful infringement, Haldex had consulted with European and U.S. counsel concerning Knorr-Bremse’s patents, but refused to produce any legal opinions or disclose the advice received based on the attorney-client privilege. Dana stated that it relied on the Haldex consultations. The district court concluded that the opinions must have been unfavorable since neither Haldex nor Dana produced them and concluded that the Defendants’ use of the Mark II air brake before and after the judgment of infringement amounted to willful infringement.

The Federal Circuit observed that its precedent concluding that an adverse inference arises for undisclosed opinions focused on an accused infringer’s disrespect for the law, not on the attorney-client relationship, and in doing so, it had resulted in inappropriate burdens on the attorney-client relationship. The Court expressly ruled that the adverse inference that an opinion was or would have been unfavorable, flowing from an infringer’s failure to obtain or produce an exculpatory opinion of counsel, is no longer warranted.

The Court then went on to answer the four questions presented for en banc review. First, the Federal Circuit held that although the duty to respect the law is undiminished, no adverse inference shall arise from invocation of the attorney-client and/or workproduct privilege. Second, the Court ruled that although there continues to be an affirmative duty of due care to avoid infringement of known patent rights of others, the failure to obtain an exculpatory opinion of counsel shall no longer provide an adverse inference or evidentiary presumption that such an opinion would have been unfavorable. Third, as these rulings are applied to the facts of this case, the Federal Circuit concluded that because the elimination of the adverse inference is a material change in the totality of the circumstances, a fresh weighing of the evidence is required to determine whether the Defendants committed willful infringement. Accordingly, the Court vacated the finding of willful infringement and remanded for redetermination of the issue. The Court also vacated the award of attorney fees.

Finally, the Federal Circuit ruled that the existence of a substantial defense to infringement is not sufficient to defeat liability for willful infringement, even if no legal advice has been secured. Rather than adopting a per se rule, the Court preferred to include this factor with others in considering the totality of circumstances.