After a decade of atrophy, opinions of counsel may again be an essential part of any defensive patent strategy due to recent changes in the law. The Supreme Court in Halo overruled the Federal Circuit’s Seagate test for enhanced damages. [1] By eliminating Seagate’s requirement for objectively reckless conduct on the part of the accused infringer and lowering the patent owner’s burden of proof, Halo has undoubtedly made it easier for patent owners to seek enhanced damage awards, i.e. up to treble damages. In contrast to enhanced damages, opinions of counsel could again prove to be a very cost effective tool for avoiding these damages when patent infringement is found by a court.
Technically, Halo may not have completely rewound time to the pre-Seagate era, but it has significantly impacted current business practices. Although Halo does not impose an “affirmative duty” to seek and obtain a legal opinion, savvy defendants seem to have saved millions in enhanced damages by relying on opinions of counsel. Review of district court decisions since Halo clearly demonstrates that investigating a patent and forming a good faith belief of invalidity or non-infringement are crucial when deciding whether enhanced damages are awarded.
For example, enhanced damages were awarded in Imperium IP Holdings. [2] According to the opinion, defendants were found to have known of plaintiff’s patents since at least 2011, but never undertook any serious investigation to form a good-faith belief as to non-infringement or invalidity. Instead, defendants engaged a patent broker in an attempt to purchase the asserted patents without revealing their identity. In turn, the jury found that defendants were willful infringers. In deciding whether to enhance damages, the court considered the non-exclusive Read factors. [3] The court further clarified that while the Read factors remain helpful to the court’s execution of its discretion, “an analysis focused on “‘egregious infringement behavior’ is the touchstone for determining an award of enhanced damages rather than a more rigid, mechanical assessment.” [4] Upon a finding of egregious infringement behavior, the court trebled the $7 million jury verdict.
Enhanced damages were also awarded in SRI International. [5] The court interpreted the decisions in Halo as not disturbing the second prong of Seagate, but emphasized that “subjective willfulness alone, i.e., proof that the defendant acted despite a risk of infringement that was either known or so obvious that it should have been known to the accused infringer—can support an award of enhanced damages.” [6] In view of the fact that defendant’s key employees did not read the patents-in-suit until their depositions, the court doubled the jury’s $24 million verdict.
In contrast, no enhanced damages were awarded in Greatbatch Ltd. [7] At the conclusion of trial, the jury returned a verdict in favor of Greatbatch, finding that the patents-in-suit were not invalid and awarding damages of $37.5 million. Greatbatch sought enhanced damage for willful infringement. However, unlike the previous cases, the court looked to AVX’s good faith efforts to avoid infringement of any valid patents. AVX sought and obtained invalidity and non-infringement opinions before litigation and developed designs and processes to avoid infringement. Because no evidence showed that AVX’s infringement could support a finding of willful infringement, there was no basis for awarding enhanced damages under Halo. [8]
Similarly, no willful infringement was found in Loggerhead Tools. [9] There, the court concluded that “there was simply no evidence that either of [d]efendants’ conduct was egregious or willful misconduct.” [10] For example, defendants attempted redesigns to avoid infringing patents and consulted with a patent attorney on several occasions throughout the design process. In addition, defendants obtained a non-infringement opinion before the litigation began. According to the court, “[o]ngoing consultation with a patent lawyer remains a consideration and is ‘highly probative evidence of good faith.’” [11]
Although Halo does not impose a duty to seek opinions of counsel, a manufacturer can save millions by seeking timely advice from patent counsel. A good-faith belief as to non-infringement or invalidity of the asserted patent not only serves as a defense to patent infringement, but also may reduce the damages awarded when infringement is found by a court.
Thus, an opinion of counsel can be a very sound investment.
[1] Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S.Ct. 1923, 1931 (2016).
[2] Imperium IP Holdings (Cayman), Ltd. v. Samsung Electronics Co., Ltd. et al, No. 4:2014cv00371 - Document 329 (E.D. Tex. 2016).
[3] Id., citing Read Corp. v. Portec Inc., 970 F.2d 816 (Fed. Cir. 1992). Read factors include the following: (1) whether the infringer deliberately copied the ideas of another; (2) whether the infringer investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed; (3) the infringer’s behavior as a party to the litigation; (4) the defendant’s size and financial condition; (5) the closeness of the case; (6) the duration of the defendant’s misconduct; (7) remedial action by the defendant; (8) the defendant’s motivation for harm; and (9) whether the defendant attempted to conceal its misconduct.
[4] Id.
[5] SRI International, Inc. v. Cisco Systems, Inc., No 13-1534-SLR, at 57, (2017)
[6] Id., citing WesternGeco L.L.C. v. JON Geophysical Corp., 837 F.3d 1358, 1362 (Fed. Cir. 2016).
[7] Greatbatch Ltd. v. AVX Corp., Case No. 13-723-LPS, 2016 WL 7217625 (D. Del. Dec. 13, 2016).
[8] Id.
[9] Loggerhead Tools, LLC v. Sears Holding Corp., Case No. 12-cv-9033 (N.D. Ill. Nov. 15, 2016).
[10] Id.
[11] Id.
Ajay Jagtiani contributed to this blog post.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Accessing this blog and reading its content does not create an attorney-client relationship with the author or with Miles & Stockbridge. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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