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Opinion letters still an asset to companies' bottom line

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The Court of Appeals for the Federal Circuit recently issued a decision in In re Seagate Technology LLC that will profoundly impact the ability of a patent owner to establish that an infringer willfully infringed its patent.

Such willful infringement, if found, can lead to an award of enhanced (up to three times) damages and attorney fees. The court’s decision also makes it easier for accused infringers to avoid liability for willful infringement.

Prior to the Seagate case, the standard for determining willful infringement as established in Underwater Devices Inc. v. Morrison-Knusdsen Co. provided that upon receiving notice of another’s patent rights, an accused infringer had an affirmative duty to exercise “due care” to determine whether or not it was infringing.

The affirmative duty included obtaining competent legal advice in the form of an opinion of counsel regarding whether or not the patent was actually valid, enforceable, or not infringed before initiating any possible infringing activity such as making, using, or selling a product or method.

Under the due care standard, the accused infringer’s subjective good faith reliance on opinion of counsel was an important factor in avoiding a willfulness determination.

In the Seagate opinion, the Federal Circuit stated that the threshold for establishing willful infringement under Underwater Devices was lower than and inconsistent with the meaning of “willful” conduct as set forth by the Supreme Court in other contexts, and expressly overruled the Underwater Devices standard.

The new, more stringent standard for proving willful infringement articulated by the Federal Circuit in Seagate is a two-prong test that requires that “a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.”

If the patentee succeeds in establishing the first prong, the patentee must then demonstrate that the accused infringer either knew, or should have known, about the risk in order to recover treble damages. In contrast to the subjective due care standard, under the Federal Circuit’s new standard, the state of mind of the infringer is irrelevant to the determination of the objective risk.

The court emphasized that since there is no longer an affirmative duty of care on the part of the accused infringer, the accused infringer also no longer has an affirmative obligation to obtain opinion of counsel before initiating any possible infringing activity.

Nevertheless, the Seagate decision does not hold that relying on an opinion of counsel is irrelevant to the determination of willful infringement. Rather, opinion of counsel maybe useful to a company charged with willful infringement. The opinion can help prove that the company was not reckless because there was not an objectively high likelihood of infringement. Thus, the Seagate decision should not be interpreted as a reason for companies to stop seeking opinions of counsel with respect to the patent rights of others. It is important to recognize that the court’s Seagate decision, while rendering it more difficult for patentees to obtain enhanced damages, does not constitute a change in the standard for proving infringement. It is prudent for companies to continue to obtain opinions from counsel assessing whether they are free to make, use and sell products without risking an infringement allegation before launching a product line, or after becoming aware of a potentially problematic patent.

Companies should reasonably investigate such patent issues with competent legal counsel before engaging in significant commercial investments and efforts relating to proposed goods and services.

Accordingly, a company that contemplates a proposed product or service may well wish to take a conservative approach by identifying relevant patents and satisfying itself that there is no “objectively high likelihood that its actions [will constitute] infringement of a valid patent.” To do so, the company may decide to do a design around and/or obtain competent legal advice from counsel as to patent(s) identified as being the most relevant.

A company may also wish to obtain legal advice upon receipt of notice of a particular patent from a patentee, or if it has been threatened with an infringement suit regarding a proposed or existing product or service.

Thiessen is a Partner and Mekjian is an Associate at Knobbe Martens' San Diego Office.

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