“Arguably most important, the company should have a written policy in place stating that any research and development managers and managing executives are not permitted to have a role of any kind in writing the opinion.”
A company must be strategic in any business decision it makes in order to ensure that it takes the necessary measures to avoid liability for its actions. With respect to patent infringement, and specifically willful patent infringement, the different approaches to determining which measures to take and when to take such measures have been repeatedly challenged in light of a number of court decisions in recent years.
How to Avoid Willful Infringement
To set the scene, the Federal Circuit held in Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (1983) that a potential infringer has an affirmative duty to exercise due care to determine whether or not he or she is infringing. This placed the burden on the potential infringer to seek competent counsel and obtain either a non-infringement opinion or invalidity opinion prior to undertaking the possible infringing activities. This would prevent a finding of willful infringement and treble damages.
The decision in Underwater Devices put an extremely heavy emphasis on obtaining non-infringement opinions and/or invalidity opinions in order to ensure that a court could not hold that any infringement was willful. However, in 2007, the Federal Circuit n In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) reversed its previous holding in Underwater Devices and adopted an “objective recklessness” standard. This standard removed the affirmative duty of the infringer to obtain an opinion from counsel. As a result of the decision in In re Seagate, the bar was dramatically lowered for an infringer to demonstrate that the infringement was not willful by allowing any argument of non-infringement or invalidity to be presented well after the infringing activities.
This standard remained in effect until the Supreme Court decided in Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S. Ct. 1923 (2016) that the In re Seagate decision was overly rigid. Thus, the Court shifted the pendulum back in the opposite direction toward Underwater Devices by disregarding the objective standard in In re Seagate and, instead, adopting a “subjective recklessness” standard. This encourages the Court to analyze the “particular circumstances” of each case on a case-by-case basis. While this decision does not put an absolute burden back on the potential infringer to provide an infringement opinion or validity opinion, as provided in Underwater Devices, it breathes life back into the importance of obtaining an infringement opinion at the outset of undertaking any potentially infringing actions instead of waiting to present such arguments at trial.
As a result of the Halo decision in 2016, it is critical that companies seek competent counsel and obtain these types of opinions sooner than later to rebut any claims of willful infringement. Often, companies may seek such an opinion from a competent in-house employee due to his or her familiarity with the potentially infringing product, such as legal counsel, patent attorney or other, patent agents, or engineers. The critical question though is whether such an opinion may be successfully relied upon in court to prove non-willful infringement or whether the opinion may be deemed to be self-serving and unreliable when prepared by an in-house employee, especially one that is not a qualified patent attorney.
With respect to opinions written by in-house non-patent related counsel, it was held in Underwater Devices that obtaining legal advice from a company’s own in-house counsel who is not a patent attorney is only one factor to be weighed when determining lack of good faith. Therefore, just because an attorney is in-house counsel does not mean that the attorney’s opinions are necessarily suspect. The Federal Circuit held in Radio Steel & Mfg. Co. v. MTD Products, Inc., 788 F.2d 1554, 1559 (Fed.Cir.1986) that an oral opinion by non-patent counsel was sufficient to form the basis of a defendant’s good-faith belief. Similarly, the court in Western Electric Co., Inc. v. Stewart–Wagner Corp., 631 F.2d 333, 337 (4th Cir.1980) held that reliance on an opinion prepared by in-house counsel was reasonable. It should be noted, however, that the opinion provided by the in-house counsel in Underwater Devices contained only unsupported conclusions regarding the validity of the patent and infringement without a thorough review of the file histories of the patents at issue. Therefore, it cannot be said that an attorney must be an experienced patent attorney to be considered competent in preparing an infringement or validity opinion. Instead, the attorney is held to the same standard and expected to provide the same level of due diligence that would be expected of any patent attorney.
Opinions by Non-Patent Attorneys
With respect to in-house patent agents, some courts have outright dismissed these types of opinions. For example, the U.S. District Court in the Western District of Texas held in Signatech USA, Ltd. v. Vutek, Inc. that any opinion given by a patent agent not yet licensed to practice law was incompetent. No. CIV.A. SA-95-CA-0226, 1997 WL 745034, at *10 (WD Tex September 30, 1997), aff’d in part, rev’d in part 174 F3d 1352 (Fed Cir 1999). As a result, the Court held that no opinion from competent counsel concerning its potential patent infringement was ever obtained and, therefore, the company did not have a reasonable, good faith belief that it did not infringe the patent in question. This resulted in a finding of willful infringement and warranted an award of treble damages.
Additionally, companies having these types of opinions prepared by in-house patent agents and/or engineers run the risk of the author of the opinion becoming a witness during any litigation concerning the scope of the opinion. This can lead to the author of the opinion being deposed with respect to the opinion, as well as any related subjects such as the company’s technologies, its patent strategies, and litigation concerns. To the contrary, outside patent counsel would not be subject to this same line of questioning due to its attorney-client privilege.
The Federal Circuit addressed a patent-agent privilege when those agents are acting within the agent’s authorized practice of law. However, the Federal Circuit held in In re Queen’s Univ. at Kingston, 820 F3d 1287, 1301 (Fed Cir 2016) that an opinion provided by a patent agent with regard to the validity or infringement of another party’s patent in contemplation of litigation or for the sale or purchase of a patent are not “reasonably necessary and incident to the preparation and prosecution of patent applications or other proceeding before the Patent Office.” Thus, providing these types of opinions likely fall outside the scope of authorized practice of law and would not be subject to any privilege.
Strategies to Follow
Regardless of whether the opinion was prepared by in-house counsel, a patent agent, or an engineer, there are a few strategies that a company should put in place in order to help ensure the author’s impartiality. First and foremost, the author of the opinion should be certain to give an accurate and verifiable accounting of all the facts. Additionally, and arguably most important, the company should have a written policy in place stating that any research and development managers and managing executives are not permitted to have a role of any kind in writing the opinion. Doing so ensures that the author of the opinion was free to think without a supervisor dictating what should be written. This will also help to prove that the opinion was based solely on the author’s own professional judgment without any undue influence.
Therefore, in view of the courts’ decisions and overall attitude toward non-infringement opinions and invalidity opinions prepared by non-patent counsel, patent agents, and engineers, specifically those in-house, it is best practice to have outside patent counsel prepare these types of opinions. Doing so provides the greatest assurance that the author is not persuaded by any corporate influences. Furthermore, obtaining an opinion from outside counsel will avoid any unnecessary risks if litigation were to arise, such as waivers of privilege, as opposed to if the opinion was prepared by an in-house patent agent or engineer.
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