January 2004

By: Richard A. Kaplan

Chicago Lawyer


Court considers major change to inference in patent law

Reprinted with permission from Chicago Lawyer, Law Bulletin Publishing Company© January 2004

Case in Point
Court considers major change to inference in patent law

By Richard A. Kaplan
Brinks Hofer Gilson & Lione

The Court of Appeals for the Federal Circuit in Washington, D.C., has signaled it may be about to make some dramatic changes in the way willful infringement allegations are handled—and defended against – in patent cases. A company that learns about another’s patent rights has an affirmative duty to exercise due care to determine whether it is infringing.

Sometimes the defendant doesn’t learn about a patent until it is sued. But regardless of when or how the defendant learns about the patent, the affirmative duty applies.

If a company does not exercise due care, it leaves itself open to a charge of willful infringement. This can be an expensive proposition.

If the defendant wins the liability part of the patent case on the merits, the question of willfulness disappears. But if the defendant loses, and the patent is deemed valid and infringed, the trier of fact is then asked to decide if the infringement was willful.

If it was, damages can be trebled. So willfulness is something to be avoided.

In general, the most effective way to comply with the affirmative duty to exercise due care – and the best way to steer clear of a willfulness determination – is to obtain competent legal opinion that the patent is invalid or not infringed.

Under current law, when an accused infringer charged with willful infringement fails to produce an exculpatory opinion of counsel, an inference may be drawn that either no opinion was obtained or, if an opinion was obtained, it was unfavorable.

This “negative inference” rule means that a defendant who obtains an opinion but chooses not to disclose it might as well not have bothered to get the opinion at all.

One district court stated that the combination of the affirmative duty and the negative inference “all but force” a defendant to respond to a willfulness charge by relying on advice of counsel and producing the written opinion.

The threat of the negative inference puts the defendant in a tough spot. A decision to rely on the written opinion comes at a heavy price, and is fraught with practical difficulty.

By injecting the legal opinion from the counsel into the case, the accused infringer waives the attorney-client privilege as to the subject matter of that advice. With the negative inference hanging over its head on one side of the coin, and with the waiver of privilege on the other side, the accused infringer is left to sacrifice the privilege or sacrifice the defense, and there is not much room left for a middle ground.

The problem is exacerbated by the fact that it can be difficult to know in advance where the waiver will lead, and where it will stop.

Unfortunately, the courts have been all over the map in drawing lines on the scope of the waiver.

Not surprisingly, patent owners try to take advantage of this. Even in close cases, patent owners routinely charge the defendant with willful infringement. They have a lot of incentive to do so, since it can be the ticket to treble damages.

But they also have tactical reasons. Regardless of the merits, the allegation creates havoc for the defense.

Recently, some in the patent community have called for elimination of the negative inference. In Knorr-Bremse Systeme v. Dana Corp., No. 01-1357, the Federal Circuit decided sua sponte to undertake en banc review “to reconsider its precedent concerning the drawing of adverse inferences, with respect to willful patent infringement, based on the actions of the party charged with infringement in obtaining legal advice, and withholding that advice from discovery.”

The circuit asked the parties to submit briefs addressing four questions:
1) When the attorney-client privilege is invoked by a defendant in an infringement suit, is it appropriate for the trier of fact to draw an adverse inference with respect to willful infringement?

2) When the defendant has not obtained legal advice, is it appropriate to draw an adverse inference with respect to willful infringement?

3) If the court concludes that the adverse inference should be withdrawn as applied to this case, what are the consequences for this case?

4) Should the existence of a substantial defense to infringement be sufficient to defeat liability for willful infringement even if no legal advice has been secured?

The circuit has invited amicus curiae briefs from bar associations, trade or industry associations and government agencies.

This case may be an important turning point if it brings about the end of the negative inference. Stay tuned.