Lawyers Stump for End to Tough Patent Policy

Patent lawyers have long chafed under rules that require them to relinquish attorney-client privilege in certain patent cases.

But that may change soon. The U.S. Court of Appeals for the Federal Circuit recently announced it was reviewing its past opinions on the issue and has asked for public comment. Lawyers on Nov. 3 flooded the court with amicus briefs pleading for repeal of the rules.

At issue are two Federal Circuit rulings that created a process to assess whether someone knowingly infringed a valid patent. Willful infringement can result in a trebling of damages in a patent dispute. In a 1983 opinion, Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F2d 1380, the court said a party must seek legal advice before engaging in activity that might infringe someone else's patent.

Three years later, the court went further in Kloster Speedsteel AB v. Crucible Inc., 793 F2d 1565. It ruled that if a party accused of infringing either failed to obtain legal advice that it was acting in good faith or withheld the advice during discovery ' by declining to waive attorney-client privilege ' a judge could instruct the jury to infer that the party had engaged in willful infringement. This policy is known as the “adverse inference rule.”

Apparently without any prodding, the Federal Circuit decided in September to review these opinions en banc. It raised the issue in a pending case ' Knorr-Bremse Systeme Fuer Nutzfahrzeuge GMBH v. Dana Corp., 01-1357 ' in which a district court found that defendants had willfully infringed Knorr-Bremse's air disk brake patent.

Each ruling by the Federal Circuit made sense at the time “but they didn't think about how people would game the system,” said University of California, Berkeley's Boalt Hall School of Law professor Mark Lemley, who is one of several parties on one amicus brief. “I'm hopeful they'll see the practical effect of what they've done.”

In briefs to the court, lawyers argue that the adverse inference rule violates the right to confidential attorney advice. And they say it is based on the false assumption that refusal to release an attorney's opinion letter indicates the attorney's advice was unfavorable to the client.

Lawyers also contend that opinion letters should not be mandatory since they are costly, unnecessary and often meaningless.

“Sophisticated parties aware that there is unusual vulnerability to a particular patent will likely be able to find a competent outside attorney that can write a plausible opinion letter, even if the party believes that, in all likelihood, it infringes,” Weil, Gotshal & Manges partner Matthew Powers and his colleagues wrote in a brief.

Powers filed the brief on behalf of the United States Council for International Business, Applied Materials Inc., Cisco Systems Inc., Oracle Corp., Sony Computer Entertainment America Inc., and others.

A staffer at the Federal Circuit said the court had received about 20 amicus briefs, some of which were initially rejected because they were filed after the Nov. 3 deadline. Lemley said he had seen only one other patent case that created such a stir ' the Festo case, which limited use of the so-called doctrine of equivalents in patent disputes.

Those asking the court to revoke its adverse inference rule include the American Bar Association, Federal Circuit Bar Association, American Intellectual Property Law Association, Semiconductor Industry Association, Biotech Industry Organization, Securities Industry Association and a group including Computer Associates, LSI Logic Corp., Qualcomm Inc. and seven law professors.

While some of the amicus briefs were not immediately available for review, Knorr-Bremse counsel Jeffrey Sanok said he understood that all those filing briefs opposed the current rule. Sanok, a partner at Washington, D.C.'s Crowell & Moring, was apparently the lone voice supporting the status quo.

“The wisdom and policy implications of the court's precedents in this field can fairly be debated,” Sanok wrote in his brief. “But even if this court were to be convinced that its precedents were, on balance, unwise, that conviction would not justify overruling established precedent.”

Other lawyers, however, presented a barrage of arguments for revoking the court's past opinions. The cost of obtaining an opinion letter was cited in several briefs.

“Published estimates range from $20,000 to over $100,000 per patent,” Heller Ehrman White & McAuliffe partner L.J. Chris Martiniak, wrote on behalf of the Computer Associates group. “Notices of infringement often encompass multiple patents, which means that formal opinion letters could easily reach into the hundreds of thousands or even into the $1 million range.”

Citing a study that found 46% of patents litigated to judgment on validity issues are held invalid, Martiniak said opinion letters are likely to have no value anyway. They also could conflict with the trial defense theory, he added, since they are written “without the benefit of the court's later claim construction and without the benefit of discovery and full investigation into such fact-intense inquiries as prior art.”

Martiniak said the adverse inference rule also encourages companies to avoid looking at other patents. If a company learns of a patent that's relevant to its product it then has to decide whether to spend lots of money on an opinion letter for fear of receiving “a damning adverse inference years later.”

Morrison & Foerster of counsel Donald Chisum, author of “Chisum on Patents,” the authoritative treatise on patent law, argued that the inference rule has not been imposed in other areas of the law, including copyright and trademark disputes.

“Imposing a duty to consult patent counsel, then enforcing that duty with negative inferences, does not further the judicial truth-finding process because it motivates accused infringers to obtain only exculpatory, rather than entirely balanced, opinions,” Chisum wrote on behalf of clients Bea Systems Inc. and Novell Inc.

In its call for amicus briefs the Federal Circuit also asked whether putting up a substantial defense to infringement would be sufficient to overcome liability for willful infringement even if legal advice had not been obtained.

Microsoft Corp. focused on this issue, arguing that a good faith defense to infringement should bar a willfulness finding. Microsoft counsel Frank Scherkenbach, a partner in Fish & Richardson's Boston and Silicon Valley offices, said defendants whose first notice of infringement is a lawsuit face an “untenable Hobson's choice”: Don't rely on advice of counsel and face an adverse inference or rely on such advice and “provide your ongoing communications with trial counsel.”

Patent lawyers have long chafed under rules that require them to relinquish attorney-client privilege in certain patent cases.

But that may change soon. The U.S. Court of Appeals for the Federal Circuit recently announced it was reviewing its past opinions on the issue and has asked for public comment. Lawyers on Nov. 3 flooded the court with amicus briefs pleading for repeal of the rules.

At issue are two Federal Circuit rulings that created a process to assess whether someone knowingly infringed a valid patent. Willful infringement can result in a trebling of damages in a patent dispute. In a 1983 opinion, Underwater Devices Inc. v. Morrison-Knudsen Co. , 717 F2d 1380, the court said a party must seek legal advice before engaging in activity that might infringe someone else's patent.

Three years later, the court went further in Kloster Speedsteel AB v. Crucible Inc., 793 F2d 1565. It ruled that if a party accused of infringing either failed to obtain legal advice that it was acting in good faith or withheld the advice during discovery ' by declining to waive attorney-client privilege ' a judge could instruct the jury to infer that the party had engaged in willful infringement. This policy is known as the “adverse inference rule.”

Apparently without any prodding, the Federal Circuit decided in September to review these opinions en banc. It raised the issue in a pending case ' Knorr-Bremse Systeme Fuer Nutzfahrzeuge GMBH v. Dana Corp., 01-1357 ' in which a district court found that defendants had willfully infringed Knorr-Bremse's air disk brake patent.

Each ruling by the Federal Circuit made sense at the time “but they didn't think about how people would game the system,” said University of California, Berkeley's Boalt Hall School of Law professor Mark Lemley, who is one of several parties on one amicus brief. “I'm hopeful they'll see the practical effect of what they've done.”

In briefs to the court, lawyers argue that the adverse inference rule violates the right to confidential attorney advice. And they say it is based on the false assumption that refusal to release an attorney's opinion letter indicates the attorney's advice was unfavorable to the client.

Lawyers also contend that opinion letters should not be mandatory since they are costly, unnecessary and often meaningless.

“Sophisticated parties aware that there is unusual vulnerability to a particular patent will likely be able to find a competent outside attorney that can write a plausible opinion letter, even if the party believes that, in all likelihood, it infringes,” Weil, Gotshal & Manges partner Matthew Powers and his colleagues wrote in a brief.

Powers filed the brief on behalf of the United States Council for International Business, Applied Materials Inc., Cisco Systems Inc., Oracle Corp., Sony Computer Entertainment America Inc., and others.

A staffer at the Federal Circuit said the court had received about 20 amicus briefs, some of which were initially rejected because they were filed after the Nov. 3 deadline. Lemley said he had seen only one other patent case that created such a stir ' the Festo case, which limited use of the so-called doctrine of equivalents in patent disputes.

Those asking the court to revoke its adverse inference rule include the American Bar Association, Federal Circuit Bar Association, American Intellectual Property Law Association, Semiconductor Industry Association, Biotech Industry Organization, Securities Industry Association and a group including Computer Associates, LSI Logic Corp., Qualcomm Inc. and seven law professors.

While some of the amicus briefs were not immediately available for review, Knorr-Bremse counsel Jeffrey Sanok said he understood that all those filing briefs opposed the current rule. Sanok, a partner at Washington, D.C.'s Crowell & Moring, was apparently the lone voice supporting the status quo.

“The wisdom and policy implications of the court's precedents in this field can fairly be debated,” Sanok wrote in his brief. “But even if this court were to be convinced that its precedents were, on balance, unwise, that conviction would not justify overruling established precedent.”

Other lawyers, however, presented a barrage of arguments for revoking the court's past opinions. The cost of obtaining an opinion letter was cited in several briefs.

“Published estimates range from $20,000 to over $100,000 per patent,” Heller Ehrman White & McAuliffe partner L.J. Chris Martiniak, wrote on behalf of the Computer Associates group. “Notices of infringement often encompass multiple patents, which means that formal opinion letters could easily reach into the hundreds of thousands or even into the $1 million range.”

Citing a study that found 46% of patents litigated to judgment on validity issues are held invalid, Martiniak said opinion letters are likely to have no value anyway. They also could conflict with the trial defense theory, he added, since they are written “without the benefit of the court's later claim construction and without the benefit of discovery and full investigation into such fact-intense inquiries as prior art.”

Martiniak said the adverse inference rule also encourages companies to avoid looking at other patents. If a company learns of a patent that's relevant to its product it then has to decide whether to spend lots of money on an opinion letter for fear of receiving “a damning adverse inference years later.”

Morrison & Foerster of counsel Donald Chisum, author of “Chisum on Patents,” the authoritative treatise on patent law, argued that the inference rule has not been imposed in other areas of the law, including copyright and trademark disputes.

“Imposing a duty to consult patent counsel, then enforcing that duty with negative inferences, does not further the judicial truth-finding process because it motivates accused infringers to obtain only exculpatory, rather than entirely balanced, opinions,” Chisum wrote on behalf of clients Bea Systems Inc. and Novell Inc.

In its call for amicus briefs the Federal Circuit also asked whether putting up a substantial defense to infringement would be sufficient to overcome liability for willful infringement even if legal advice had not been obtained.

Microsoft Corp. focused on this issue, arguing that a good faith defense to infringement should bar a willfulness finding. Microsoft counsel Frank Scherkenbach, a partner in Fish & Richardson's Boston and Silicon Valley offices, said defendants whose first notice of infringement is a lawsuit face an “untenable Hobson's choice”: Don't rely on advice of counsel and face an adverse inference or rely on such advice and “provide your ongoing communications with trial counsel.”