The Federal Circuit recently recognised a controversial defence to allegations of
inducing infringement. In June 2013, the court announced for the first time that
defendants could counter the specific intent to induce infringement of a patent by
demonstrating their good faith belief that the patent is invalid. This decision in Commil v Cisco issued from a divided panel, and then five judges of the Federal Circuit nearly took the matter en banc in November 2013. Barring any intervention from the Supreme Court, this newly recognised defence to inducement is taking hold, with the first district court cases now issuing to apply the rule. Important lessons are emerging on how to best present this defence.
Belief of invalidity may beat inducement
First, a brief refresher on the Commil decision. Cisco was sued in the Eastern District of Texas by a non-practicing entity, Commil. In the initial trial, the jury found the patent valid and awarded the plaintiff $3.7 million. Due to irregularities in the trial,the court allowed a retrial limited to the issues of induced infringement and damages. Cisco sought to introduce evidence of the patent’s invalidity, arguing that this invalidityevidence is relevant to counter allegations that it had specific intent to induce infringement. The court barred the evidence of invalidity, pointing out that the patent’s validity had already been sustained. The jury thereafter found against Cisco, reaching a $63.7 million verdict. On appeal, the Federal Circuit vacated this ruling and remanded for a new trial, holding for the first time that a party accused of inducing infringement may defend by presenting evidence of its good faith belief of invalidity. That is,“evidence of an accused infringer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.”
Commil built on a string of decisions that recognise that an infringer’s good faith
belief of non-infringement can negate the specific intent for inducement. That is, if a party believes in good faith that its technology does not infringe a patent, then it stands to reason that it does not have the specific intent to induce others to infringe the patent. Cases such as Ecolab, Kinetic Concepts, and Bettcher uphold this defence. And presenting the defence at trial is relatively straightforward – an executive or engineer can explain how the accused technology works, and why it is different than what the patent claims. Properly presented, no privilege waiver is necessary, and the story can be compelling.
Who’s the witness?
Invalidity is more complicated. In the typical case, the invalidity challenge to a patent will be based on prior art references that allegedly anticipate or render obvious the patent claims in suit, or perhaps there may be arguments that the claims are invalid for technical defects under 35 USC s112. Identifying the appropriate witness to testify to these bases of invalidity may be a difficult call. In all likelihood, no one beyond the inhouse counsel will have knowledge of these invalidity positions. And putting up the inhouse counsel could risk a broad and unravelling scope of privilege waiver. That is, were the in-house counsel to proffer his or her good faith belief of invalidity, opposing counsel will likely obtain unfettered into the reasonableness of that position – and cabining the scope of this discovery can be difficult and unpredictable.
Recent case law confirms that some witness is necessary to present the subjective
good faith belief of the company, and that it is not enough to present an
expert who testifies to invalidity. On December 31 2013, in the case of Toshiba v Imation et al, the Western District of Wisconsin considered the defendants’ Commil-based defence, and rejected it. The defendants had proffered invalidity arguments that were ultimately unsuccessful, and argued nonetheless in post-trial briefing that its positions were made in good faith, which should negate liability for induced infringement. The court disagreed, noting that although the defendants had proffered evidence of objectively reasonable invalidity defences, there was no evidence of their subjective good faith. The court summarised the deficiency in defendants’ argument as follows: “Here, defendants are not pointing to evidence indicating that they relied on the advice of counsel or even that they subjectively believed they had a good faith defence to infringement: instead, they are asking for a judicial determination that defendants could not have formed the specific intent
to infringe because they had objectively reasonable defences to infringement.” Thus, it was not enough for the defendant to merely rest on its expert’s opinions. Rather, some kind of evidence of subjective good faith, such as an opinion of counsel,
would be needed.
Toshiba reinforces the need for an opinion of counsel in order to present a defence under Commil. Thus, these cases are likely to give rise to a rebirth of opinions of counsel to defend against patent infringement liability. Opinions of counsel have faded in recent years as strategic options in patent cases, whereas they had been much more common in prior decades. In evaluating whether it might be wise to obtain an opinion of counsel, it is valuable to consider the rise and fall of opinion practice, particular in regards to mitigating the risk of willful patent infringement,and understand how the Commil defence fits in this broader practice of obtaining opinion letters.
Lessons from the heyday of wilfulness
Relying in court on an opinion of counsel was a common practice in the 1980s and 1990s, in the heyday of wilful patent infringement. Highly criticised legal standards (stemming from Underwater Devices v Morrison-Knudsen) had imposed on companies an affirmative duty to investigate their liability from patent infringement once they were under threat. Failure to obtain an opinion once this “affirmative duty” was triggered could be taken as evidence of wilfulness. Thus it was common for companies to obtain an opinion letter, and rely on it in litigation, to show that the company was acting in good faith, either because the patent was not infringed, or invalid, or both. However, once such a defendant proffered its evidence of good faith, the plaintiff was entitled to probe the reasonableness of the defendant’s beliefs. This triggered a waiver of the attorney-client privilege, allowing the plaintiff to have discovery into typically all documents relating to the defendants’ opinion. This waiver would sometimes extend into the litigation counsel’s own files. This case law put defendants in an awful bind, between the risks of incurring treble damages for wilfulness, and waiving its attorney-client privilege.
Recognising the Catch-22 that its case law was creating, the Federal Circuit has since rolled back many of the procedural and substantive hazards of defending against wilfulness allegations. In Seagate, the Federal Circuit abolished the “affirmative duty” to obtain an opinion of counsel, and ruled that the failure to get an opinion of counsel could not be relied on as evidence of wilfulness. Congress has since codified this rule as 35 USC s298. Furthermore, in Bard Peripheral Vascular v WL Gore, the Federal Circuit further reduced the need to get an opinion of counsel to rebut willfulness, holding that an objectively reasonable defence was sufficient to allow the court, as a matter of law, to find no wilfulness. Thus, companies can defend against allegations of wilfulness simply by relying on an expert at trial, with no need to present its own subjective good faith, thus avoiding the conundrum of privilege waiver. Understandably, relying on opinions of counsel has become disfavoured in recent years.
Commil may have reversed that trend. The reasons for the decline of opinion practice to defeat wilfulness do not likewise extend to inducement liability. Most importantly, wilfulness can be defeated with an objectively reasonable invalidity defence, without regard to the company’s subjective belief. By contrast, inducement liability can be defeated under Commil only with evidence of subjective good faith. And due to the specialised legal nature of invalidity defences, the only witnesses who are likely to be competent to present that invalidity defence are probably lawyers – either in-house counsel or outside opinion counsel. Thus, in order to take advantage of a Commil-based defence,companies must strongly consider obtaining an opinion of counsel and relying on it at trial.
Hard lessons were learned in the 1980s and 1990s on the right and wrong way to obtain and rely on opinions of counsel. These lessons may have faded from view in recent years, but are again rising in importance under Commil. Following is a review of certain principles and pitfalls to keep in mind to successfully rely on opinions of counsel.
Mechanics of litigating opinion letters
First, there are two key people involved in the opinion letter. Typically one will be an outside lawyer, who must be viewed as independent to the company. Remember that just as important as the piece of paper that this lawyer will provide, he or she will be a trial witness. In selecting opinion counsel, you are selecting a stand-up witness. This attorney should be articulate, comfortable under pressure, and at all times remain independent and unbeholden to the company.
It is the subjective belief of the defendant, not the belief of the outside counsel, that is at issue. Thus, there must be someone within the company identified as the “reliance witness” – so a person within the company of sufficiently high ranking that he or she can act on the attorney’s advice, and if necessary make product changes in case the patent risks are too high. This reliance witness will be the person who receives the opinion letter, and will assess whether the company should rely on that outside advice. If the opinion letter states a belief that the patent is invalid and/or not infringed, it is this reliance witness who will
testify to the company’s decision to proceed with its allegedly infringing technologies.
Privilege waiver must remain closely in mind when selecting the outside counsel, the reliance witness, and the manner in which their communications are conducted. It is a safe bet that opinion counsel’s own files will be fully discoverable as to all
documents that relate to the subject matter of the opinion. Therefore, that counsel should be “black boxed” from litigationcounsel, and remain separate and apart from all litigation communications.
Likewise, the reliance witness will be the focus of privilege waiver. Because the reasonableness of the witness’s reliance on the opinion will be tested, it should be expected that the privilege waiver will extend to the files of the reliance witness that relate to the subject matter of the opinion. This can be a particularly
tricky challenge for a defendant, that is, to keep the reliance witness “in the loop” on the opinion letter, but “out of the loop” on communications with litigation counsel. Navigating this challenge is a matter of advance planning.
Timing is important. Courts will be sensitive to how long a company delayed before getting an opinion of counsel – obtaining one on the eve of trial may look disingenuous. More practically, there may be few people in the company who are qualified to serve as a reliance witness, and if they have been pulled into communications with litigation counsel during the course of the case, the
privilege waiver may extend to those communications. And depending on the content of
those communications, it may be best to keep them under wraps. Thus, early planning as to who the reliance witness will be is important to ensure that appropriate walls are erected and respected throughout the case.
One of the hardest aspects of opinion practice is how to maintain consistency between the litigation and opinion positions. A potentially awkward outcome is having inconsistencies between the opinion and litigation positions. Achieving a harmonious position between litigation and opinion counsel may be difficult to ensure, particularly when opinion counsel is to arrive at its positions independently of litigation counsel. Companies must understand that obtaining an opinion letter should be a delicate, deliberate process, and that a rushed job may be worse than not doing it at all.
It is these difficulties that made opinion practice challenging in earlier periods of patent law, particular when wilfulness liability was at its zenith. Likewise, these difficulties are what hastened the decline of opinion practice after the Federal Circuit’s rulings in Seagate and Bard, among others. Thus, companies
should not rush headlong and embrace Commil without considering the ramifications.
The situations most suitable to obtaining an opinion under Commil are relatively narrow. First, Commil is only relevant to combating allegations of induced infringement. Where a company is faced with allegations of direct infringement, the company’s “specific intent” is irrelevant and thus an opinion letter would
not absolve liability.
Furthermore, if there are strong non-infringement defences, an invalidity opinion may be unwise. That is, a company may be able to present its non-infringement defences to combat charges of inducement without running afoul of privilege waiver. As noted above, this has already been done with success in EcoLab, Kinetic Concepts, and Bettcher. It may be unwise to “pile on” with an invalidity opinion when the company can present its good faith basis of non-infringement without triggering a privilege waiver.
Every case is different, and the pros and cons of obtaining and relying on an opinion letter must be assessed on a case-by-case basis. However, there will be situations where Commil raises valuable and potentially dispositive defences. Planning for a Commil-based defence should be an important part of the
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