When to Seek Opinion Counsel in Patent Litigation

Your company is vigorously developing new devices and methods in a promising technical area. The head of the development team calls you, as general counsel, for advice. Two U.S. patents were just issued that may impact a device your company is prepared to market and the method your company uses to make the device. You also have received a letter from your most vigorous competitor ' one who has a well-funded technology program and a history of pursuing infringement actions. The letter advises that there is reason to believe that your company is infringing. Your company believes that it has the right to proceed to market, but wants your guidance on what to do.

How you respond may affect the outcome of a later infringement action brought against your company. If you have not done so already, now is the time to assess your alternatives carefully and consult with trial counsel.

According to Underwater Devices Inc. v. Morrison-Knudsen Co. Inc., a 1983 opinion out of the U.S. Court of Appeals for the Federal Circuit, when a potential infringer has notice of the patent rights of another, it has an affirmative duty to exercise due care to determine whether it is infringing. This affirmative duty includes the duty to seek and to obtain competent legal advice from counsel.

The opinion of counsel that a general counsel obtains may be reviewed later in litigation. The court may consider the nature of the advice, the thoroughness and competence of the legal opinion presented, and the objectivity of the opinion, according to SRI International Inc. v. Advanced Technology Laboratories Inc., a 1997 Federal Circuit opinion.

At least in the current state of the law, when an accused infringer does not obtain competent legal advice before infringing conduct begins, the trier of fact can draw an “adverse inference” that a company's infringing conduct was willful. Further, if a general counsel obtains legal advice, but withholds that advice from an opponent in litigation, the company may suffer the adverse inference that it either obtained no advice of counsel or did so and was advised that it would infringe. These adverse inferences are being reviewed by the Federal Circuit en banc in Knorr-Bremse Systeme Fur Nutzfahrzeuge GMBH v. Dana Corp. (2003).

A primary issue involving the advice-of-counsel defense based on an opinion of counsel is the scope of the waiver of the attorney-client privilege and the work product doctrine. The Federal Circuit held in GFI Inc. v. Franklin Corp. (2001) that regional circuit law applies to this procedural issue.

It appears that federal district courts in Texas and the Fifth U.S. Circuit Court of Appeals take a narrow or restricted approach to the waiver issue. Courts in other circuits have reached different conclusions. For example, courts in North Carolina, Delaware and California have concluded that invoking the advice-of-counsel defense waives the attorney-client privilege and work product protections to the broadest extent possible, and includes materials that the opinion counsel did not communicate to the client (here, the company).

Five Considerations

What should an in-house lawyer consider when planning to obtain competent opinion(s) of counsel?

First and foremost, consider opinion counsel as the equivalent of a potential testifying expert. Make decisions on the assumption that everything the opinion counsel reviews, receives, writes, drafts and states will be the subject of discovery in subsequent litigation. If possible, make the engagement decision with anticipated trial counsel. What does this practically mean? The opinion counsel should be outside, not in-house. He or she should be a patent attorney; have knowledge of the technology involved; conduct work independently from the work of the GC's trial counsel; and should not be involved in trial strategy.

Second, a general counsel should seek a written opinion of counsel, not an oral one. An oral opinion opens the door to discovery, including all documents the counsel reviewed, considered or authored, whether or not communicated to the GC, as the client.

Third, consider obtaining separate opinions for each patent in suit and on the issues of infringement, validity and enforceability. The opinions should be discreet and stand alone.

Fourth, consider allowing opinion counsel to engage experts for the purpose of his or her analysis. This may have the positive result of insulating opinion counsel from potentially biased or questionable technical knowledge from company employees.

Fifth, consider seeking bifurcation of the issues of liability and damages in the infringement action. This is particularly important where the opinion of counsel is not wholly exculpatory of a company's conduct. One factor supporting bifurcation is the presence of what is called the “quantum dilemma.” This dilemma exists where an accused infringer faces either asserting the advice-of-counsel defense and risking prejudice on the question of liability or not asserting the defense and risking a finding of willfulness, according to Quantum Corp. v. Tandon Corp., a 1991 Federal Circuit opinion.

The decision to obtain advice of counsel when confronting a possible claim of infringement is not a simple one. Prudence suggests that a general counsel work closely with anticipated trial counsel in choosing suitable separate opinion counsel.

This article originally appeared in the Texas Lawyer, an American Lawyer Media publication.

Your company is vigorously developing new devices and methods in a promising technical area. The head of the development team calls you, as general counsel, for advice. Two U.S. patents were just issued that may impact a device your company is prepared to market and the method your company uses to make the device. You also have received a letter from your most vigorous competitor ' one who has a well-funded technology program and a history of pursuing infringement actions. The letter advises that there is reason to believe that your company is infringing. Your company believes that it has the right to proceed to market, but wants your guidance on what to do.

How you respond may affect the outcome of a later infringement action brought against your company. If you have not done so already, now is the time to assess your alternatives carefully and consult with trial counsel.

According to Underwater Devices Inc. v. Morrison-Knudsen Co. Inc., a 1983 opinion out of the U.S. Court of Appeals for the Federal Circuit, when a potential infringer has notice of the patent rights of another, it has an affirmative duty to exercise due care to determine whether it is infringing. This affirmative duty includes the duty to seek and to obtain competent legal advice from counsel.

The opinion of counsel that a general counsel obtains may be reviewed later in litigation. The court may consider the nature of the advice, the thoroughness and competence of the legal opinion presented, and the objectivity of the opinion, according to SRI International Inc. v. Advanced Technology Laboratories Inc., a 1997 Federal Circuit opinion.

At least in the current state of the law, when an accused infringer does not obtain competent legal advice before infringing conduct begins, the trier of fact can draw an “adverse inference” that a company's infringing conduct was willful. Further, if a general counsel obtains legal advice, but withholds that advice from an opponent in litigation, the company may suffer the adverse inference that it either obtained no advice of counsel or did so and was advised that it would infringe. These adverse inferences are being reviewed by the Federal Circuit en banc in Knorr-Bremse Systeme Fur Nutzfahrzeuge GMBH v. Dana Corp. (2003).

A primary issue involving the advice-of-counsel defense based on an opinion of counsel is the scope of the waiver of the attorney-client privilege and the work product doctrine. The Federal Circuit held in GFI Inc. v. Franklin Corp. (2001) that regional circuit law applies to this procedural issue.

It appears that federal district courts in Texas and the Fifth U.S. Circuit Court of Appeals take a narrow or restricted approach to the waiver issue. Courts in other circuits have reached different conclusions. For example, courts in North Carolina, Delaware and California have concluded that invoking the advice-of-counsel defense waives the attorney-client privilege and work product protections to the broadest extent possible, and includes materials that the opinion counsel did not communicate to the client (here, the company).

Five Considerations

What should an in-house lawyer consider when planning to obtain competent opinion(s) of counsel?

First and foremost, consider opinion counsel as the equivalent of a potential testifying expert. Make decisions on the assumption that everything the opinion counsel reviews, receives, writes, drafts and states will be the subject of discovery in subsequent litigation. If possible, make the engagement decision with anticipated trial counsel. What does this practically mean? The opinion counsel should be outside, not in-house. He or she should be a patent attorney; have knowledge of the technology involved; conduct work independently from the work of the GC's trial counsel; and should not be involved in trial strategy.

Second, a general counsel should seek a written opinion of counsel, not an oral one. An oral opinion opens the door to discovery, including all documents the counsel reviewed, considered or authored, whether or not communicated to the GC, as the client.

Third, consider obtaining separate opinions for each patent in suit and on the issues of infringement, validity and enforceability. The opinions should be discreet and stand alone.

Fourth, consider allowing opinion counsel to engage experts for the purpose of his or her analysis. This may have the positive result of insulating opinion counsel from potentially biased or questionable technical knowledge from company employees.

Fifth, consider seeking bifurcation of the issues of liability and damages in the infringement action. This is particularly important where the opinion of counsel is not wholly exculpatory of a company's conduct. One factor supporting bifurcation is the presence of what is called the “quantum dilemma.” This dilemma exists where an accused infringer faces either asserting the advice-of-counsel defense and risking prejudice on the question of liability or not asserting the defense and risking a finding of willfulness, according to Quantum Corp. v. Tandon Corp., a 1991 Federal Circuit opinion.

The decision to obtain advice of counsel when confronting a possible claim of infringement is not a simple one. Prudence suggests that a general counsel work closely with anticipated trial counsel in choosing suitable separate opinion counsel.

This article originally appeared in the Texas Lawyer, an American Lawyer Media publication.