The Federal Circuit Overrules Its Precedent Holding That Adverse Inferences Can Be Drawn From The Failure To Produce Opinions Of Counsel
On September 13, 2004, the Federal Circuit issued its long awaited en banc holding in Knorr-Bremse Systems Fuer Nutzfahrzeuge GMBH v. Dana Corp., No. 01-1357. In that case, the court addressed the role of opinions of counsel and the “adverse inference” in willful infringement cases. Overruling its long established precedent, the court held that an “adverse inference” is no longer warranted from the failure to seek, or refusal to waive privilege to, advice of counsel concerning a patent.
The Federal Circuit ordered en banc consideration of four questions, and invited submissions by amicus curiae. The APLF was one of several leading professional organizations that submitted amicus briefs advocating for a change in the law. These questions and the court’s response are as follows:
1. When the attorney-client privilege and/or work product privilege is invoked by a defendant in an infringement suit, is it appropriate for the trier of fact to draw an adverse inference with respect to willful infringement?
The answer is “no,” overruling the Federal Circuit’s long standing precedent imposing such an adverse inference when privilege is asserted to advice of counsel. The court explained that this precedent arose during a time of widespread disregard of patent rights and without consideration of its effect on the attorney-client relationship. See e.g. Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983). The court observed “the implementation of this precedent has resulted in inappropriate burdens” on clients and their counsel. The “adverse inference” precedent “can distort the attorney-client relationship” and prevent the full and frank communication between attorney and client that is essential for the proper administration of justice.
2. When the defendant had not obtained legal advice, is it appropriate to draw an adverse inference with respect to willful infringement?
The answer to this question is “no.” Knorr-Bremse confirms the affirmative duty of due care to avoid infringement of the known patent rights of others. The court, however, recognized that requiring a potential defendant to obtain an opinion of counsel for every potentially adverse patent distorted the “conceptual underpinnings” of that duty. Thus, “the failure to obtain an exculpatory opinion of counsel shall no longer provide an adverse inference or evidentiary presumption that such an opinion would have been unfavorable.”
3. If the court concludes that the law should be changed, and the adverse inference withdrawn as applied to this case, what are the consequences for this case?
The case was remanded to the district court for reconsideration of the willfulness finding. While the district court found willfulness based on several factors, an important factor was the overruled authority requiring the adverse inference.
4. Should the existence of a substantial defense to infringement be sufficient to defeat liability for willful infringement even if no legal advice has been secured?
The court answered this question “no.” The existence of such a substantial defense is only one “factor with others to be considered among the totality of circumstances, stressing the ‘theme of whether a prudent person would have sound reason to believe that the patent was not infringed or was invalid or unenforceable, and would be so held if litigated.” The weight given to each factor must be decided on a case by case basis.
The Knorr-Bremse decision resolves a difficult issue for many potential patent infringement defendants, particularly those who routinely encounter the patents of others. The APLF, in its amicus brief, pointed out the inherent unfairness of a willful infringement finding solely due to the failure to obtain, or waive the attorney-client privilege to, advice of counsel. As the APLF observed, an alleged infringer may have many other legitimate reasons for believing in good faith that it avoided infringement of any valid patent claims.
Knorr-Bremse, however, still emphasizes the affirmative duty to avoid patent infringement. Thus, patent owners still can seek redress for the willful disregard of those rights, and, in practice, patent owners routinely were required to establish willfulness in view of the totality of the circumstances. Moreover, the case that Knorr-Bremse cited for the circumstances consider, Read Corp v. Portec, Inc., 970 F.2d 816, 827 (Fed. Cir. 1992), includes whether the infringer properly “investigated the scope of the patent” and counsel was consulted in that case. Thus, an opinion of counsel will often be advisable,and may be necessary, in many patent cases.
The Knorr-Bremse decision, in fact, expressly did not decide “whether the trier of fact, particularly a jury, can or should be told whether or not counsel was consulted (albeit without any inference as to the nature of the advice received) as part of the totality of the circumstances....” This was an issue left for another day. (The APLF advocated that no mention of consulting counsel should be permitted if privilege is asserted to those communications).
To view the full amicus brief written by the APLF visit http://www.aplf.org/news/APLF_Knorr_Amicus_Brief.pdf.
For further information, please contact the author Philip T. Petti, a partner of Fitch, Even, Tabin and Flannery, at firstname.lastname@example.org. Phil focuses on intellectual property trials and appeals, and was one of the authors of the APLF amicus brief in Knorr-Bremse. Nada Ardeleanu also assisted in the preparation of this summary.
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