By Dale Campbell

Your client receives a cease-and-desist letter claiming your client’s product infringes a competitor’s newly-issued patent. The competitor advises your client to cease the manufacture and sale of the product. Your client’s response may very well define the scope of potential damages if it is later proved that your client’s product does, in fact, infringe the patent.

Ordinarily, damages recoverable in a patent infringement case are either the patent holder’s lost profits, the infringer’s ill-gotten profits, or a reasonable royalty rate. However, if the infringement is found to be “willful,” damages may be trebled and the infringer may have to pay attorneys’ fees, all in the discretion of the trial court.

Willfulness is a question of fact based upon the extent to which the infringer disregarded the rights of the patentee, the deliberateness of the infringing acts, and other unethical or injurious commercial practices. Circumstantial evidence of willfulness has included intentional copying, reverse engineering, failure to investigate claims of infringement, or an unsupported belief that the invention has been around for years.

The patentee must prove willfulness by clear and convincing evidence. The patentee must first establish a prima facie case of willfulness before the burden of production shifts to the defendant to establish that it acted with due care. (Norton Corp. v. Stryker Corp., 363 F.3d 1321, 1332 (Fed. Cir. 2004).)

How your client reacts to the cease-and-desist letter will directly impact a subsequent trial on willfulness. One defense to a claim of willful infringement is that the accused obtained, and relied upon, a competent opinion of counsel that the accused’s product either did not infringe the patent or that the patent was invalid. Such a competent opinion of counsel supports the accused’s defense that the accused had a true subjective belief that its product did not infringe. Prior to Knorr-Bremse, a trier of fact was allowed to draw an adverse inference of willfulness if the accused failed to present evidence that it had obtained a non-infringement opinion from counsel. In 2004, the Federal Circuit overturned that authority: “[t]he adverse inference that an opinion was or would have been unfavorable, flowing from the infringer’s failure to obtain or produce an exculpatory opinion of counsel is no longer warranted.” (Knorr-Bremse v. Dana Corp., 383 F.3d 1337, 1344 (Fed. Cir. 2004).)

Last week, the Federal Circuit provided further guidance concerning the burden of proof and burden of production with respect to the advice-of-counsel defense to a claim of willfulness. The trial court did not violate the rule of Knorr-Bremse by allowing the patentee, as part of its prima facie case of willfulness, to present evidence that the accused had obtained incompetent legal advice concerning possible infringement after receiving a cease-and-desist letter. (Golden Blount, Inc. v. Robert H. Peterson Co., 2006 WL 335607 (C.A. Fed.).) As established in Knorr-Bremse, the patentee may not carry its threshold burden of production merely by establishing that the accused failed to obtain a legal opinion or that the accused is asserting the attorney-client privilege to withhold its opinion of counsel. The Golden Blount court clarified that, if the accused has waived its attorney-client privileges with respect to the advice of counsel, “the patentee in making its threshold showing of culpable conduct is free to introduce as evidence whatever opinions were obtained and to challenge the competence of those opinions in satisfaction of the patentee’s burden on willfulness. Nothing in Knorr-Bremse precludes a patentee from attempting to make such a showing.” (Golden Blount at p. 11.)

The facts of Golden Blount provide an important cautionary tale to counsel and clients. The court determined that the accused infringer’s opinion of counsel was incompetent and, therefore, properly considered as evidence of willfulness, for the following reasons: The accused never obtained a written opinion from counsel; counsel never examined the patent prosecution history; and counsel never examined the device. The court also considered, as further evidence of willfulness, that the accused infringer made no real effort to determine if its product infringed until suit was filed, that the accused never made an effort to examine the true state of the prior art, choosing instead to rely only upon anecdotal opinions of one of its employees, and that the verbal opinion of counsel was sought to try to avoid a willfulness finding and attorneys’ fees, rather than as a true effort to determine if the accused product infringed the patent. Additional compelling evidence of willfulness included the fact that the accused admitted that it had very little concern about the claims of infringement because the monetary consequences were not very significant “dollar wise.”

The defendant in Golden Blount argued that the district court drew an inference prohibited by Knorr-Bremse from the fact that the accused “failed to obtain a competent opinion of counsel.” (Emphasis added.) The Federal Circuit rejected that argument, finding that the trial court did not infer that, if the accused had obtained a competent opinion regarding the patent, the opinion would have been unfavorable to the accused. That would have been an improper inference upon which to rest a willfulness finding. (Golden Blount, supra, at 12; see also Insituform Techs, Inc. v. CAT Contracting, Inc., 385 F.3d 1360, 1377 (Fed. Cir. 2004).) Instead, the finding of willfulness was based upon the totality of circumstances as to whether the accused acted in reckless disregard of the patentee’s patent rights after receiving the cease-and-desist notice. Because the accused had not asserted the attorney-client privilege during discovery, the patent holder was free to offer up evidence of the infirmities of the legal opinion as prima facie evidence of reckless disregard.

Competent advice of counsel is strong evidence to ward off a finding of willfulness. However, incompetent advice of counsel may be worse than no advice at all. Knorr-Bremse stands for the proposition that an accused’s failure to obtain an infringement opinion or its exercise of the attorney-client privilege concerning that opinion may not be used as an adverse inference of willful infringement. But an incompetent infringement opinion, if the privilege is waived, may be offered by the plaintiff as prima facie evidence as willful disregard of the patent holder’s rights. A client accused of infringement should be advised to seek the advice of competent patent counsel who is allowed to perform a competent infringement and invalidity analysis. If suit ensues, any infringement analysis must be thoroughly reviewed before waiving the attorney-client privilege to ensure the opinion was competent and will not simply add fuel to the plaintiff’s argument that the accused recklessly disregarded the patentee’s rights.

Dale is a partner at Weintraub Genshlea Chediak Tobin & Tobin. He is trial lawyer and serves as the head of the firm’s Litigation Department. Dale is also a member of the firm’s Intellectual Property section. Dale has a broad range of litigation experience in all areas of business, intellectual property and real estate litigation. He has tried over forty jury trials to conclusion and has had numerous court trials and binding arbitrations since his admission to practice law in 1981