By J. Mark Bledsoe
This article first appeared in the November 2004 edition of the newsletter of the Intellectual Property Section of the Alabama State Bar Association.
Background
Like most things in life, patent infringement comes in a variety of different shapes and sizes. Patent infringement can range from "unknowing, or accidental, to deliberate, or reckless, disregard of a patentee's legal rights." Knorr-Bremse v. Dana Corp., 2004 WL 2049342 [383 F.3d 1337] (Fed. Cir. 2004), quoting Rite-Hite Corp. v. Kelley Co., 819 F.2d 1120, 1125-26 (Fed. Cir. 1987). While captivating in and of itself, from a client's perspective, this fact is relevant only for its ability to impact damages and its subsequent affect on the bottom line. The amount of damages at stake depends, in part, upon where the purported infringer falls along the patent infringement continuum, with the more reprehensible types of infringement donning the largest price tags. The reason for this lies in the enhanced damages which are available under 35 U.S.C. §§ 284-85. Section 284 authorizes an "increase in damages up to three times the amount found or assessed," while section 285 authorizes an award of reasonable attorneys fees "in exceptional cases."
Courts interpreting these two sections have drawn the proverbial line in the sand at the type of infringement termed "willful." Consequently, those infringers who are liable for "willful" infringement are subject to enhanced damages. To determine willfulness, courts examine the "totality of the circumstances," including factors such as: (1) whether the infringer deliberately copied the ideas or design of another, (2) whether the infringer, after receiving notice of another'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, (3) the infringer's behavior as a party to the litigation, (4) the size and financial condition of the infringer's commercial operations, (5) the closeness of the case, (6) the duration of the infringer's misconduct, (7) any remedial action taken by the infringer, (8) whether the infringer was driven by a motivation to harm the patentee, and (9) whether the infringer attempted to conceal its misconduct. Read Corp. v. Portec, Inc., 970 F.2d 816, 826-27 (Fed. Cir. 1992).
The fundamental distinction between willful and innocent infringement, however, lies in an infringer's affirmative duty of due care which arises upon the receipt of actual notice of another's patent rights. And until the recent landmark decision by the Federal Circuit in Knorr-Bremse v. Dana Corp., this affirmative duty of care arguably included the duty of the purported infringer to determine whether or not he is infringing by seeking and obtaining competent legal advice from counsel.
Before Knorr-Bremse, failure to obtain or produce an exculpatory opinion of counsel gave rise to an adverse inference with respect to willful infringement and an increased probability that damages arising from the infringement would be enhanced. Henceforth, however, although infringers still have the affirmative duty of due care, they need not feel obligated to obtain an infringement analysis, or, even if they choose to do so, need not divulge the results of the infringement analysis to the trier of fact.
The Case
Knorr-Bremse, a German company, is the owner of United States Patent No. 5,927,445 (the 445 patent) which claims air disc brakes used in heavy commercial vehicles. Dana Corporation ("Dana"), an American company, agreed to sell air disk brakes, designated the Mark II model, manufactured by Haldex, a Swedish Company. Shortly after the agreement between Dana and Haldex, Knorr-Bremse notified Dana of infringement litigation against Haldex which was currently pending in Europe involving the same Mark II design. Despite the warning, Dana continued to use and test the Mark II model in the United States.
Shortly thereafter, Knorr-Bremse filed suit in the United States against both Dana and Haldex and moved for summary judgment of literal infringement by the Mark II brake of the 445 patent. In response, Dana and Haldex presented to the district court a modified design, designated the Mark III model, and moved for a summary declaration of non-infringement by the Mark III. The district court granted Knorr-Bremse's motion for summary judgement of literal infringement by the Mark II brake, and following a bench trial, found literal infringement by the Mark III brake.
On the issue of willful infringement, Haldex, citing attorney-client privilege, declined to produce the legal opinion it had obtained from both European and United States counsel concerning the 445 patent. Further, Dana stated that it had not consulted its own counsel, and instead relied upon Haldex's opinions. Based upon Haldex's failure to produce these infringement opinions, the district court, applying Federal Circuit precedent, evoked the adverse inference and concluded that the opinions must have been unfavorable and held Dana and Haldex liable for willful infringement. As a result, the court awarded attorney fees for the portion of the litigation related to the Mark II brake.
In an en banc decision, the Federal Circuit reversed the district court's ruling and held, "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." Knorr-Bremse at *1. The Court explained that the "conceptual underpinnings" of the adverse inference had been significantly diminished, that both the adverse inference and the affirmative duty of care arose out of the same environment that created the Federal Circuit itself at a time when "widespread disregard of patent rights was undermining the national innovation incentive." Id. at *3. Now that balance had been restored, the Court found its "special justification" for departing from stare decisis in the attorney- client privilege.
Noting that the purpose of the attorney-client privilege is "to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and the administration of justice," the Court held that there "should be no risk of liability in the disclosures to and from counsel in patent matters." Id. at *4. The Court suggested that, the inference that withheld opinions are adverse to the client's actions, could distort the attorney-client relationship because of the increased risk of liability in disclosures to and from counsel in patent matters. Furthermore, the Court held that failure to consult with counsel upon notice of another's patent rights does not provide an inference or evidentiary presumption that the consultation would have been negative.
Practical Effect
The Federal Circuit's holding in Knorr-Bremse removes the absolute need of purported infringers to seek exculpatory infringement opinions from their attorneys. However, infringement opinions will still remain invaluable for those trying to design around existing patent claims, and will be helpful in determining a case's settlement value and litigation strategy. Furthermore, purported infringers must keep in mind that the affirmative duty of due care still arises when they receive notice of another's patent rights. Unfortunately, the Court in Knorr-Bremse failed to offer any guidance as to what actions could or should be taken to satisfy this duty. Therefore, obtaining an infringement opinion probably remains the most effective way of fulfilling this duty, and the practical effect of Knorr-Bremse is to allow these opinions to be kept secret and to prevent plaintiffs from asserting willful infringement solely because an opinion was neither obtained nor revealed.
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Copyright 2004 J. Mark Bledsoe