In this month's article, we return to the topic of "avoiding willful infringement" because the issue is an important one to risk managers. In other words, getting hit with a finding of willful infringement may expose an intellectual property infringer to treble damages and attorney fees. Considering the magnitude of damages and attorney fees in intellectual property litigation, willful infringement definitely constitutes a risk that must be managed.
In Part 1, of this series, we asked "What is willful infringement and how do I avoid it?" We found that defining willful infringement is difficult but that avoiding it is less complicated provided one obtains a "non-infringement" opinion from a patent lawyer. In Part 2, of this series, we then addressed "What constitutes an effective "non-infringement" opinion?" Then, along came Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v Dana Corp., 72 USPQ2d 1560 (Fed Cir 2004) (which we will simply refer to, thank goodness, as Knorr-Bremse). This case has created quite a stir among intellectual property practitioners because it changes the law on willful infringement. But has it changed anything for the risk management community? Not really. Read below to find out why the more things change, the more they remain the same.
The intellectual property (IP) community is in a stir over Knorr-Bremse because it overturned willful infringement precedent. More specifically, precedent dictated that an adverse inference may be drawn by a judge if an organization that has been found to be infringing (1) had not obtained legal advice (e.g., a non-infringement opinion) when confronted with the possibility of infringement, or (2) elected not to produce the legal advice for the judge's scrutiny due to attorney-client privilege.
For example, say you were sued for patent infringement, tried the case, and lost. When given the chance to produce the non-infringement opinion you had obtained, you chose not to do so while invoking attorney-client privilege. Precedent dictated that the judge could then surmise that the content of your opinion was likely bad (i.e., that you infringe) and that is why you did not want the judge to examine it. Knorr-Bremse changed that precedent in that no such adverse opinion should now be drawn. Pretty heady stuff for patent lawyers.
While Knorr-Bremse is interesting to patent lawyers, it may not be such a big deal for risk managers. While the case was overturning adverse opinion precedent, it was solidifying precedent on how "willful infringement" is defined. Namely, the court confirmed that the overarching theme for willfulness is whether the infringer acted as a reasonably prudent businessperson to avoid infringing another's patent rights. A party that satisfies this test is said to have fulfilled his "duty of due care."
The court then reaffirmed classic factors for judges to consider in determining whether one has fulfilled his duty of due care. Those factors are now addressed.
The willfulness factors set out by the court actually concern how to avoid enhanced damages more than they define willful infringement itself. For example, several of the factors concern conduct occurring during litigation—litigation that might occur after a defendant has already switched to a non-infringing product (i.e., the defendant no longer infringes or willfully infringes). Regardless, the factors are provided below using the point-of-view that you, the reader, are a risk manager for a company accused of patent infringement. The factors are as follows.
Did you deliberately copy the idea or design of another?
Having knowledge of another's idea and then blatantly copying it is a risky venture. Still, some may choose to go this route but hopefully after having sought formal, written advice of counsel wherein the patent at issue is determined to be unenforceable or invalid.
Did you investigate the scope of the patent?
This factor asks whether you investigated the patent and subsequently formed a good-faith belief that the patent was invalid or that it was not infringed. This factor is usually satisfied when one obtains a competent non-infringement opinion.
Did you behave appropriately during the lawsuit concerning your infringement?
As is the case in non-intellectual property cases, litigation misconduct is a sure way to get hit with enhanced damages. For example, wrongful failure to produce key documents during the suit is not going to be looked at favorably by a judge.
Are you a large and financially strong institution?
If you are an industry giant and the patentee is an inventor tucked away in his garage somewhere, courts often feel that enhanced damages are the best way to ensure the financially strong do not run rough-shod over the weak. Much of the patent system is set up to protect the interests of the small, solo inventor.
Was the issue of willfulness a close one?
Certainly, a finding of willfulness may be less likely if the court considers the willfulness question to be a close one.
How long have you infringed?
For example, did you quickly switch to a non-infringing product line once you were made aware of the patent? Or did you wait until after you were sued to make the change or even worse, continue to infringe up until the day you lost at trial? The longer and more brash your infringement, the greater chance you have for being found to have willfully infringed the patent at issue.
Did you engage in remedial action?
A court may stop short of treble damages and attorney fees if you voluntarily ceased selling infringing products during the pendency of the litigation or once you were made aware of the asserted patent. This factor may strongly relate to factor 6.
Did you have any motivation to harm the patent owner?
If, for example, the court determines you tried to "run off" a would-be competitor by infringing his patent, hoping he was too weak to engage in related litigation, the court is more likely to award enhanced damages.
Did you attempt to conceal your misconduct?
Did you, for example, fail to preserve your pertinent records such as email and memoranda that discuss the patent? If so, enhanced damages are more likely.
In the end, if your organization is ever on trial for patent infringement, the patentee will undoubtedly assert many of the above willfulness factors against you in his pursuit of treble damages and attorney fees. In the past, your failure to obtain or produce a non-infringement opinion, for whatever reason, allowed a court to infer that any opinion you would have obtained or produced for inspection would have been a negative one—one stating you infringed. A court may no longer formally make such an inference. Still, a court will continue to evaluate the same willfulness factors as dictated by precedent regardless of whether it may make a formal adverse inference concerning willfulness. And to ensure that those traditional factors tilt in your favor, a well-reasoned opinion, presented by an expert, may still be the best option.
For example, the second willfulness factor asks whether the infringer investigated the scope of the patent? What better way to "win" this factor than to have obtained, and later produced to the judge, a formal non-infringement opinion?
So, in conclusion, when it comes to risk managers and Knorr-Bremse, obtaining and producing a formal noninfringement opinion may still be the best route to manage risk. In other words, the more things change the more they remain the same.
E.E. ("Jack") Richards II is an associate with Winstead Sechrest Minick in Austin, Texas, where he specializes in intellectual property, technology, litigation, dispute resolution, and nanotechnology. He received his BS degree from Texas A&M and his JD degree, cum laude, from the University of Houston Law Center. Before entering law school, he worked as an engineer for a start-up company in the medical device industry, focusing on electronics and software related to cardiac data (electrophysiology and hemodynamics).
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