Should You Get an Exculpatory Patent Opinion? Some Neglected Considerations

In general, when confronted with the threat of a patent infringement suit, companies undertake a simple calculation to determine whether to seek an exculpatory opinion of counsel. Specifically, the potential infringer determines the amount of damages likely to be assessed in the event infringement is found, and whether the enhancement of those damages exceeds the (often considerable) cost of a non-infringement opinion. Of course, the necessity of obtaining an opinion is likely to be affected by the pending en banc opinion from the Federal Circuit in Knorr-Bremse v. Dana Corp. However, assuming that exculpatory opinions will continue to have a role in the willfulness calculus, this simple cost-benefit analysis will remain in use.

Unfortunately, this simple calculation fails to incorporate all of the relevant factors in determining whether to obtain the opinion. An exculpatory opinion can provide ancillary benefits that should be considered. These benefits can be substantial, in certain circumstances even mandating the procurement of an opinion where the threat of litigation is remote. In particular, companies faced with the decision of whether to obtain an exculpatory opinion should consider:

• The usefulness of an exculpatory opinion in settlement or licensing negotiations;
• The usefulness of an exculpatory opinion to avoid future infringement or suggest a design-around; and
• The effect of an exculpatory opinion on the jury in a patent infringement trial.

Each of these factors is discussed further below.

Using the Exculpatory Opinion in Settlement or Licensing Negotiations

An exculpatory opinion can be useful prior to litigation, during licensing or settlement negotiations. In general, the in-depth analysis necessary to prepare the opinion will enable the potential infringer to accurately assess his infringement and/or validity positions, and to better understand the risks if the matter is litigated. The potential infringer is then in a better position to understand an appropriate royalty amount, if any.

In addition to being a tool for understanding the risk the patent poses to the alleged infringer, an exculpatory opinion can be used tactically during negotiations in several ways. First, it can, in appropriate circumstances and under appropriate restrictions, be shown to the patent holder. This puts the patent holder on notice that the alleged infringer has a strong exculpatory argument (whether non-infringement or invalidity) and also notifies the patent holder that the potential for enhanced damages is minimal. The opinion may therefore be useful in forcing an aggressive patent holder to take a more reasonable position during negotiations. Furthermore, a strong invalidity opinion can show the patent holder that it faces a substantial risk to its patent if the matter results in litigation. Finally, in the event an accused infringer is a smaller company without an extensive litigation history, the opinion can show the patent holder that the accused infringer is a sophisticated entity that will be a formidable adversary during negotiations and litigation. Thus, the exculpatory opinion can be a valuable tool in reducing the ultimate royalty or other settlement amount.

Of course, showing the exculpatory opinion to the patent holder carries a number of risks, the most important being a waiver of the attorney-client privilege associated with preparation of the exculpatory opinion. In other words, if the patent holder eventually brings suit against the alleged infringer, the patent holder will likely be entitled to discover otherwise privileged communications regarding the subject matter of the opinion. Accordingly, before the exculpatory opinion is revealed to the patent holder, the alleged infringer should carefully review all its communications concerning the opinion to weigh the risk of their exposure. For this reason, too, to minimize the scope of any waiver, it may make sense to prepare separate non-infringement and invalidity opinions, or to prepare separate opinions for each patent and product being evaluated. In addition, since some courts have held that the waiver of the privilege can extend to communications regarding litigation strategy, it may be prudent to have different litigation and opinion counsel.

Disclosure of the opinion carries additional risks, including revealing the alleged infringer's claim construction position. Moreover, the opinion may provide a road map for the patent holder's litigation strategy on validity and non-infringement, in the event that licensing negotiations are unsuccessful. However, if the alleged infringer has determined that taking a license is the appropriate course of action, but wishes to minimize the royalty or other settlement amount, revealing the opinion may be an appropriate strategy. This is especially true in matters involving very complex technology. The opinion can provide a succinct, powerful explication of the alleged infringer's defenses. This can reduce the need for protracted licensing discussions regarding the complex technology.

Alternatively, the exculpatory opinion can be kept confidential, but used as a guide for argument and discussion by the alleged infringer during licensing or settlement discussions. This can be especially helpful where in-house counsel has decided to conduct settlement negotiations himself, but is unable to perform his own in-depth analysis of the patent and the appropriate exculpatory position.

Using the Exculpatory Opinion to Avoid Future Infringement or Suggest a Design-Around

Another potential use for an exculpatory opinion is as an avenue for investigation of methods to design-around or otherwise avoid future infringement. That is, the in-depth analysis required to prepare the opinion (in this case, a non-infringement opinion) may indicate that, while an exculpatory argument exists, a minor change in the accused device or method would ensure (or greatly increase the likelihood) that no infringement could be found. In this way, the opinion can suggest a way to cap potential future damages.

Using an opinion in this way can be especially helpful if the potentially infringing device or process is at an early or immature stage of development. Thus, the opinion can suggest ways of avoiding infringement before substantial sums have been invested in developing, marketing, and selling the device or process.

Moreover, using an opinion to suggest a design-around or otherwise avoid future infringement can be useful for companies that cannot otherwise afford the high costs of patent litigation. In other words, it is common for smaller companies to believe that exculpatory opinions are unnecessary because the company cannot afford to defend a charge of infringement in any event. However, if the opinion can suggest ways of avoiding infringement, the opinion can reduce the likelihood that any suit will be brought, or, if brought, that the company will be shut down by a preliminary injunction. Accordingly, an exculpatory opinion can provide benefits to technology companies of almost any size.

The Effect of an Exculpatory Opinion on a Patent Jury

Another factor that is not often considered when measuring the benefits of an exculpatory opinion is the effect of that opinion on a jury apart from the issue of willfulness. In particular, patent holders often portray accused infringers as thieves, and effectively ask the jury to punish the theft through imposition of damages. Presentation of an exculpatory opinion, apart from the particular merits of that opinion, can be useful to refute the patent holder's argument. The fact that an opinion was secured indicates to the jury that the accused infringer is a responsible company that takes appropriate steps to ensure it is not using another's technology. While somewhat intangible, the sympathy engendered by the presentation of an exculpatory opinion can be an important weapon in high-stakes patent litigation.

Conclusion

Measuring the value of an exculpatory opinion based solely on its ability to mitigate against a finding of willful infringement is an overly simplistic analysis. An exculpatory opinion has many ancillary benefits that should be considered. Indeed, under the right circumstances, these benefits may mandate the procurement of an opinion even when the threat of litigation is remote. Accordingly, when determining whether to obtain an exculpatory opinion, careful consideration of all of the benefits, together with the costs, is advisable.

In general, when confronted with the threat of a patent infringement suit, companies undertake a simple calculation to determine whether to seek an exculpatory opinion of counsel. Specifically, the potential infringer determines the amount of damages likely to be assessed in the event infringement is found, and whether the enhancement of those damages exceeds the (often considerable) cost of a non-infringement opinion. Of course, the necessity of obtaining an opinion is likely to be affected by the pending en banc opinion from the Federal Circuit in Knorr-Bremse v. Dana Corp. However, assuming that exculpatory opinions will continue to have a role in the willfulness calculus, this simple cost-benefit analysis will remain in use.

Unfortunately, this simple calculation fails to incorporate all of the relevant factors in determining whether to obtain the opinion. An exculpatory opinion can provide ancillary benefits that should be considered. These benefits can be substantial, in certain circumstances even mandating the procurement of an opinion where the threat of litigation is remote. In particular, companies faced with the decision of whether to obtain an exculpatory opinion should consider:

• The usefulness of an exculpatory opinion in settlement or licensing negotiations;
• The usefulness of an exculpatory opinion to avoid future infringement or suggest a design-around; and
• The effect of an exculpatory opinion on the jury in a patent infringement trial.

Each of these factors is discussed further below.

Using the Exculpatory Opinion in Settlement or Licensing Negotiations

An exculpatory opinion can be useful prior to litigation, during licensing or settlement negotiations. In general, the in-depth analysis necessary to prepare the opinion will enable the potential infringer to accurately assess his infringement and/or validity positions, and to better understand the risks if the matter is litigated. The potential infringer is then in a better position to understand an appropriate royalty amount, if any.

In addition to being a tool for understanding the risk the patent poses to the alleged infringer, an exculpatory opinion can be used tactically during negotiations in several ways. First, it can, in appropriate circumstances and under appropriate restrictions, be shown to the patent holder. This puts the patent holder on notice that the alleged infringer has a strong exculpatory argument (whether non-infringement or invalidity) and also notifies the patent holder that the potential for enhanced damages is minimal. The opinion may therefore be useful in forcing an aggressive patent holder to take a more reasonable position during negotiations. Furthermore, a strong invalidity opinion can show the patent holder that it faces a substantial risk to its patent if the matter results in litigation. Finally, in the event an accused infringer is a smaller company without an extensive litigation history, the opinion can show the patent holder that the accused infringer is a sophisticated entity that will be a formidable adversary during negotiations and litigation. Thus, the exculpatory opinion can be a valuable tool in reducing the ultimate royalty or other settlement amount.

Of course, showing the exculpatory opinion to the patent holder carries a number of risks, the most important being a waiver of the attorney-client privilege associated with preparation of the exculpatory opinion. In other words, if the patent holder eventually brings suit against the alleged infringer, the patent holder will likely be entitled to discover otherwise privileged communications regarding the subject matter of the opinion. Accordingly, before the exculpatory opinion is revealed to the patent holder, the alleged infringer should carefully review all its communications concerning the opinion to weigh the risk of their exposure. For this reason, too, to minimize the scope of any waiver, it may make sense to prepare separate non-infringement and invalidity opinions, or to prepare separate opinions for each patent and product being evaluated. In addition, since some courts have held that the waiver of the privilege can extend to communications regarding litigation strategy, it may be prudent to have different litigation and opinion counsel.

Disclosure of the opinion carries additional risks, including revealing the alleged infringer's claim construction position. Moreover, the opinion may provide a road map for the patent holder's litigation strategy on validity and non-infringement, in the event that licensing negotiations are unsuccessful. However, if the alleged infringer has determined that taking a license is the appropriate course of action, but wishes to minimize the royalty or other settlement amount, revealing the opinion may be an appropriate strategy. This is especially true in matters involving very complex technology. The opinion can provide a succinct, powerful explication of the alleged infringer's defenses. This can reduce the need for protracted licensing discussions regarding the complex technology.

Alternatively, the exculpatory opinion can be kept confidential, but used as a guide for argument and discussion by the alleged infringer during licensing or settlement discussions. This can be especially helpful where in-house counsel has decided to conduct settlement negotiations himself, but is unable to perform his own in-depth analysis of the patent and the appropriate exculpatory position.

Using the Exculpatory Opinion to Avoid Future Infringement or Suggest a Design-Around

Another potential use for an exculpatory opinion is as an avenue for investigation of methods to design-around or otherwise avoid future infringement. That is, the in-depth analysis required to prepare the opinion (in this case, a non-infringement opinion) may indicate that, while an exculpatory argument exists, a minor change in the accused device or method would ensure (or greatly increase the likelihood) that no infringement could be found. In this way, the opinion can suggest a way to cap potential future damages.

Using an opinion in this way can be especially helpful if the potentially infringing device or process is at an early or immature stage of development. Thus, the opinion can suggest ways of avoiding infringement before substantial sums have been invested in developing, marketing, and selling the device or process.

Moreover, using an opinion to suggest a design-around or otherwise avoid future infringement can be useful for companies that cannot otherwise afford the high costs of patent litigation. In other words, it is common for smaller companies to believe that exculpatory opinions are unnecessary because the company cannot afford to defend a charge of infringement in any event. However, if the opinion can suggest ways of avoiding infringement, the opinion can reduce the likelihood that any suit will be brought, or, if brought, that the company will be shut down by a preliminary injunction. Accordingly, an exculpatory opinion can provide benefits to technology companies of almost any size.

The Effect of an Exculpatory Opinion on a Patent Jury

Another factor that is not often considered when measuring the benefits of an exculpatory opinion is the effect of that opinion on a jury apart from the issue of willfulness. In particular, patent holders often portray accused infringers as thieves, and effectively ask the jury to punish the theft through imposition of damages. Presentation of an exculpatory opinion, apart from the particular merits of that opinion, can be useful to refute the patent holder's argument. The fact that an opinion was secured indicates to the jury that the accused infringer is a responsible company that takes appropriate steps to ensure it is not using another's technology. While somewhat intangible, the sympathy engendered by the presentation of an exculpatory opinion can be an important weapon in high-stakes patent litigation.

Conclusion

Measuring the value of an exculpatory opinion based solely on its ability to mitigate against a finding of willful infringement is an overly simplistic analysis. An exculpatory opinion has many ancillary benefits that should be considered. Indeed, under the right circumstances, these benefits may mandate the procurement of an opinion even when the threat of litigation is remote. Accordingly, when determining whether to obtain an exculpatory opinion, careful consideration of all of the benefits, together with the costs, is advisable.