Failure to Obtain a Noninfringement Opinion May Result in Willful Infringement, Enhanced Damages

A Federal Circuit panel decision in Spectralytics v. Cordis held that the failure to obtain an exculpatory opinion of counsel before engaging in infringing activity may be considered in determining both the existence of willful infringement and whether to award enhanced damages.[1] Judge Newman, writing for the court, distinguished the earlier en banc holding in In re Seagate, which proclaimed that there is “no affirmative obligation to obtain opinion of counsel.”[2]

Background

Under 35 U.S.C. § 234, courts have discretion to enhance damages up to three times the compensatory amount. While no statutory standard dictates the circumstances under which a court may exercise its discretion, the Federal Circuit has approved such awards where the infringement was willful.[3] The Federal Circuit’s historical approach to willful infringement was articulated in Underwater Devices.[4] In that case, the court held that willful infringement followed a duty of care standard, which placed an affirmative duty on businesses and individuals to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.[5] Later cases elaborated on this standard. In Read Corp., the court set forth a nine-factor approach for determining whether damages should be enhanced.[6] One of the factors was “whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed.”[7]

A strict reading of Underwater Devices developed into a per se rule that every possibly related patent must be exhaustively studied by expensive legal talent, which created disproportionate burdens on commerce.[8] Thus, the Federal Circuit met en banc in Seagate and explicitly overruled Underwater Devices, holding there was “no affirmative obligation to obtain opinion of counsel,” and rejecting the due care standard for an “objective recklessness” standard.[9]

Appellant Spectralytics, Inc. sued appellees Cordis Corp. and Norman Noble, Inc. for patent infringement in the District Court for the District of Minnesota.[10] The jury sustained the validity of the patent, found that the defendants willfully infringed the patent, and awarded damages.[11]

However, the district court denied Spectralytics’ motion for enhanced damages based on the verdict of willful infringement.[12] Applying the Read Corp. factors, the district court found that Cordis did not carefully investigate the patent until trial, but it discounted that factor in light of Seagate.[13] Spectralytics appealed.[14]

Opinion

The Federal Circuit panel held that the district court abused its discretion by applying Seagate to the determination of whether to enhance damages.[15] Recent precedent had held that the willful infringement and damage enhancement remain two different inquiries.[16] Thus, Seagate, along with itsdiscussion about the effect of a noninfringement opinion on the issue of willfulness, is inapplicable to the damage enhancement inquiry under Read.[17]

The court described Seagate as holding that failure to exercise due care by obtaining a noninfringement opinion before commencing infringing activity is not of itselfprobative of willful infringement.[18] It went on to stress that Seagate did not hold that after willful infringement is established, it is improper to consider whether the infringer exercised an adequate investigation.[19] More sweepingly, the court averred (in dicta) that under Seagate a failure to obtain a noninfringement opinion may still be considered, in the totality of the circumstances, in the willful infringement analysis.[20] The court went on to suggest that a district court could and should consider whether infringement had been investigated in determining whether it was willful.[21]

In light of its holding, the court vacated the district courts refusal to grant enhanced damages, and remanded for findings consistent with the opinion.[22]

Analysis

Spectralytics illustrates that the usefulness of obtaining a noninfringement opinion to help avoid enhanced damages was not abolished by Seagate. Failure to obtain such an opinion may reflect negatively on the infringer with regards to both the finding of willful infringement and the determination of how much damages should be enhanced. In summary, if an entity has reason to know it may be infringing a patent, the best practice would be to obtain an opinion of counsel to protect against a later finding of willful infringement and enhanced damages.

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[1] Id.

[2] Id. at 21.

[3] Id. at 2.

[4] Id. at 19.

[5] Id. (citing i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 859 (Fed. Cir. 2010), cert. granted on other grounds, 131 S. Ct. 647 (2010) (“[T]he test for willfulness is distinct and separate from the factors guiding a district court’s discretion regarding enhanced damages.”))

[6] Id.

[7] Id.

[8] Id.

[9] Id. at 20 (citing, see Aspex Eyewear, Inc. v. Clariti Eyewear, Inc., 605 F.3d 1305, 1313 (Fed. Cir. 2010) (“the timing as well as the content of an opinion of counsel may be relevant to the issue of willful infringement, for timely consultation with counsel may be evidence that an infringer did not engage in objectively reckless behavior”) (citing Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1339 (Fed. Cir. 2008))).

[10] Id.

[11] Id. at 21.

[12] Spectralytics, Inc. v. Cordis Corp., No. 2009-1564, slip op. at 19-22 (Fed. Cir. June 13, 2011) (renumbered No. 2010-1004) (panel opinion by Newman, J., before Bryson and Clevenger, J.J.).

[13] In re Seagate Tech., 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc).

[14] Read Corp. v. Portec, Inc., 970 F.2d 816, 826 (Fed. Cir. 1992).

[15] Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983).

[16] See id. at 1389-90 (“Where . . . a potential infringer has actual notice of another's patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.” (citations omitted)).

[17] Read Corp., 970 F.2d at 826-27.

[18] Id. at 827.

[19] Seagate, 497 F.3d at 1385 (Newman, J., concurring).

[20] Id. at 1371.

[21] Spectralytics, slip op. at 2. The patented device was designed for cutting coronary stents (U.S. Pat. No. 5,852,277).

[22] Id.