May 22, 2014

Practical Reasons to Obtain an Opinion of Patent Counsel

The Federal Circuit and Congress have in recent years made it more difficult for plaintiffs to recover enhanced damages in patent infringement suits. This may have caused companies to erroneously assume that seeking an opinion of patent counsel prior to launching a new product is less necessary than it was in the past. In reality, securing the opinion of patent counsel is still a smart move for a number of key reasons:

  1. Patent counsel opinions are useful in defeating claims of willfulness.
  2. They can help a potential defendant objectively evaluate its position in future lawsuits.
  3. The opinion of patent counsel often outlines how, in the event of litigation, to combat a patent holder's request for a preliminary injunction.

Evolving Willfulness Infringement Standard

The willfulness infringement standard has evolved during the past 10 years, making it harder for a plaintiff to prove that the accused infringer acted willfully. Prior to 2004, alleged infringers who were aware of another party's patent had a duty to obtain competent legal advice before engaging in any potentially infringing activity. Failure to do so allowed the jury to draw an "adverse inference" against the defendant during trial that assumed that the opinion, if obtained, would have been unfavorable to the defendant. In 2004, the Federal Circuit in Knorr-Bremse Systeme Fuer Nuetzfahrezeuge GMBH v. Dana Corp., et al., eliminated the jury's ability to draw such an "adverse inference." Subsequently, Congress codified the Knorr-Bremse holding by enacting the 2012 American Invents Act (AIA), which states in 35 U.S.C. § 298 that "[t]he failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed the patent or that the infringer intended to induce infringement of the patent." (35 U.S.C. § 298 applies only to patents granted after the date of enactment of the AIA provision.) This section of the AIA was enacted, in part, "to reduce pressure on accused infringers to obtain opinions of counsel for litigation purposes," especially in light of the rise in suits initiated by patent trolls.

In 2007, after deciding Knorr-Bremse, the Federal Circuit decided In re Seagate Tech., LLC, which created a two-pronged "objectively reckless" standard for willfulness. The first prong requires the plaintiff to "show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent." The infringer's state of mind is not relevant here, and thus this prong is often referred to as the objective prong. If the objective prong is satisfied, then the court evaluates the infringer's state of mind and determines whether the infringer either knew or should have known of the objectively-defined risk and proceeded despite such risk.

Defeating a Claim of Willfulness with Opinion of Patent Counsel

In Seagate, the Federal Circuit reiterated that the defendant does not have an affirmative obligation to obtain an opinion of patent counsel to prove that it did not act objectively reckless. As a result of the Knorr-Bremse and Seagate decisions, it may seem that there is little need to obtain an opinion of counsel prior to engaging in potentially infringing behavior. This overlooks the benefits of obtaining an opinion of counsel as laid out by the Federal Circuit itself in a series of decisions.

In deciding Seagate, the Federal Circuit stated that "opinion counsel serves to provide an objective assessment for making informed business decisions." Then, in 2008—one year after its Seagate decision—the Federal Circuit expressly stated in Finisar Corp. v. DirecTV Group, Inc. that "a competent opinion of counsel concluding either that [the accused infringer] did not infringe the [asserted] patent or that it was invalid would provide a sufficient basis for [the accused infringer] to proceed without engaging in objectively reckless behavior." It went on to note in Aspex Eyewear, Inc. v. Clariti Eyewear, Inc. that "timing as well as the content of an opinion of counsel may be relevant to the issue of willful infringement, for timely consultation with counsel may be evidence that an infringer did not engage in objectively reckless behavior." Finally, in 2012, the Federal Circuit held in Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc. that "the ultimate legal question of whether a reasonable person would have considered there to be a high likelihood of infringement of a valid patent should always be decided as a matter of law by the judge."

In short, a defendant's ability to provide the judge with a well-reasoned opinion of counsel continues to provide a potential infringer with the protection and legal tool(s) to refute a charge of willfulness.

Opinion of Patent Counsel Assists in Assessing Litigation Outcome

In a competitive and potentially litigious environment, a company evaluating a new product launch is wise to consider obtaining an opinion of counsel prior to launch or even earlier during the product development process. In highly profitable marketplaces, existing competitors are often armed with patents to protect their products, and accordingly, their market share. New entrants should reasonably anticipate a patent infringement lawsuit by an existing competitor if the new product has a potentially infringing design or a design similar to that of the existing competitor. An opinion of counsel on non-infringement and/or invalidity allows a company to proactively assess its likelihood of defeating an attack by the patent holder.

In the event of litigation, the possibility of being a defendant in a preliminary injunction motion, and the risk associated with such an adverse ruling, increases the benefits of having had an opinion of counsel prior to launch of a new product. Typically, the launch of a product is the time period when a company starts recuperating its design and development costs of the new product launched. If a court grants a motion for preliminary injunction, the new entrant would be enjoined from selling the accused product, which may substantially alter the financial success of the newly launched product.

During product development, patent counsel can help devise strategic measures to reduce an existing competitor's ability to prove the four factors required to secure a preliminary injunction:

  1. That the plaintiff is likely to succeed on the merits (e.g., prove infringement and validity).
  2. That he or she is likely to suffer irreparable harm in the absence of preliminary relief.
  3. That the balance of equities tips in his or her favor.
  4. That an injunction is in the public interest.

To avoid a preliminary injunction, the defendant only needs to convince a court that the competitor has failed to prove one of the four factors. Soliciting an opinion by patent counsel is a smart precaution to help avoid preliminary injunctions that can jeopardize the market viability of a newly launched product.

Defeating a Preliminary Injunction Motion with Opinion of Patent Counsel

To better understand how a potential defendant can overcome a patent holder's motion for a preliminary injunction, we reviewed 2012 and 2013 federal district court patent infringement cases that involved such a motion. Out of the 64 preliminary injunction motions decided during the last two years, the district courts denied 48, which equates to a 75 percent denial rate. We analyzed which of the four factors were the most relevant to a defendant in avoiding a preliminary injunction.

Interestingly, in the cases that we reviewed, the most prevalent reason for denying the plaintiff's motion for preliminary injunction was that the plaintiff failed to establish the first factor—a likelihood of success on the merits. The second prevailing reason for denying a preliminary injunction was the lack of irreparable harm to the plaintiff caused by the defendant's activity. The balance of equities and public interest factors were rarely, if at all, stand-alone reasons denying a motion for a preliminary injunction.

Specifically, during the last two years, 83.3 percent of the motions that were denied were due to, either solely or partially, the plaintiff's inability to establish that the accused infringer likely infringed the asserted patent and/or that the patent was not invalid. In comparison, courts denied 16.7 percent of the preliminary injunction motions because the plaintiff was unlikely to suffer irreparable harm if the defendant's product(s) remained on the market during pendency of the litigation. Because roughly five times as many denials hinge on proving likelihood of success on the merits, rather than irreparable harm, the non-infringement and invalidity positions which would be articulated in an opinion of counsel, if it exists, become more important when a defendant is faced with a preliminary injunction. Accordingly, this is an important statistic for a potential defendant considering when and whether to obtain an opinion of counsel.

To prevail on the likelihood of success on the merits factor, a patent owner must show that (1) he or she will likely prove that the accused infringer infringes the asserted patent, and (2) the asserted patent will likely withstand the accused infringer's challenges to validity and enforceability. The patent owner has the burden to prove that the likelihood of success in establishing infringement is "more likely than not." An accused infringer can, therefore, defeat a showing of likelihood of success on the merits by demonstrating a substantial question of validity or infringement.

By proactively obtaining an opinion of counsel during the product development phase, a future defendant can address potential infringement concerns and tweak product design to avoid a competitor's patent from reading on the accused device. A future defendant can also weigh legal argument(s), similar to how a judge would, and informatively predict whether the arguments create a substantial question of validity and/or infringement. If such a substantial question exists, the patent holder will be prevented from establishing a likelihood of success on the merits, and the defendant can thus defeat the patent holder's motion for preliminary injunction.

Launching a new product comes with enough inherent business risks; facing patent litigation and immediately defending a motion for a preliminary injunction can be lethal to a newly launched product's financial forecast. A company armed with an opinion of counsel articulating its non-infringement and invalidity defenses can proactively assess whether it can defeat a preliminary injunction motion, win at trial, and maximize the potential for product success in the marketplace.

For questions about how to protect your new products from patent infringement claims, please contact a member of FaegreBD's patent team.

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