What Does It Mean to be Willful? Opinion Letters in the Wake of the Willful Infringement Standard of Halo v. Pulse.

• Author: Hingtgen, Megan E.

1. INTRODUCTION II. BACKGROUND A. Duty of Care in Underwater Devices Creates the Opinion Letter Industry B. The Seagate "Objective Recklessness" Standard Essentially Obviates the Need for Opinion Letters C. The Halo Decision Leaves the Standard for Willful Infringement Unclear III. ANALYSIS A. The Opinion Letter's Perceived Purposes and Actual Effect on Willfulness Outcomes in the Context of the Underwater Devices and Seagate Frameworks 1. The Perceived Purposes of Opinion Letters Under Underwater Devices and Seagate a. The Opinion Letter is Perceived as a Mechanism for Incentivizing Good Faith Inquiry into Relevant Prior Art b. The Opinion Letter is Perceived as a Defensive Tool for Infringers, Incentivizing the Distortion of an Honest Opinion Letter into a Letter for Advocacy c. The Opinion Letter is Perceived as an Offensive Tool for the Patentee as it Creates High Costs for the Infringer and can Derail Infringer's Defense d. The Opinion Letter is Perceived as a Way for Law Firms to Profit Off of Their Clients 2. The Actual Effect of Opinion Letters on Willfulness Outcomes Under Underwater Devices and Seagate a. Empirical Data Support the Perception that Opinion Letters are Good Offensive Tools in Litigation b. Empirical Data Show that while Opinion Letters were Effective Defensive Tools in Bench Trials Prior to the Seagate Decision, the Data do not Otherwise Support the Perception that Opinion Letters are Good Defensive Tools in Litigation c. Although Empirical Evidence Calls into Question the Usefulness of Letters in Litigation, Opinion Letters May Still be Beneficial for Non-litigation Purposes B. The Role of the Opinion Letter in the Halo Era 1. Binding Authority Remaining Intact after Halo Will Restrain the Effectiveness of Opinion Letters 2. The Federal Circuit's Reluctance to Abandon the "Objective Reasonableness" Standard May Decrease the Effectiveness of an Infringer's Opinion Letter 3. Justice Breyer's Concurrence in Halo Strongly Suggests that Opinion Letters Should Carry Less Weight in Willfulness Considerations IV. RECOMMENDATION V. CONCLUSION I. INTRODUCTION

   In patent infringement cases, a willfulness finding can result in an award of treble damages. (1) Historically, a party had to seek and rely, in good faith, on the opinion of counsel as to whether or not their activity constituted infringement to preserve the party's ability to rebut the presumption of willfulness in a patent infringement case. (2) The requirement resulted in the creation of a robust industry of "freedom to operate" (3) opinion letter writers, and the industry has continued to evolve since its inception. As the standard for proving willfulness has changed over the years, so has the weight carried by a letter stating the opinion of counsel. (4) In 2007, the Seagate standard for willfulness, which held that proof of willfulness required the patentee to show that the infringer had knowledge of an "objectively high likelihood that its actions constituted infringement," essentially obviated the need for a letter from counsel. (5) However, in June 2016, the Supreme Court decision in Halo Electronics, Inc. v. Pulse Electronics, Inc. once again changed the standard for willful infringement when it rejected the Seagate framework and instead held that "subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages." (6)

   This Note argues that under the willful infringement standard set forth in Halo, companies will need to reassess their risk appetite when determining whether or not to seek an opinion letter from outside counsel. It will begin by exploring the history of the standard for willful infringement and the way the court envisioned the use of opinion letters under each standard. The next Part will analyze the actual impact of the Underwater Devices and Seagate decisions on the role of the opinion letter and extrapolate from these conclusions to predict how the Halo decision will continue to change how the opinion letter impacts the court's willfulness calculus. Finally, this Note will recommend a strategy for corporations deciding whether or not to obtain an opinion letter prior to engaging in activities with infringement potential.

2. BACKGROUND

   Interestingly, the statutory language of the Patent Act does not require a showing of willful infringement to obtain enhanced damages, but instead merely states that "the court may increase the damages up to three times the amount found or assessed." (7) Despite the absence of statutory language assigning a standard of conduct worthy of treble damages, courts have held that enhanced damages must be premised on a showing of willful infringement. (8) This standard is in accordance with Supreme Court precedent for enhanced damages. (9)

   Historically, good faith reliance on counsel's opinion that an activity does not constitute infringement was a relevant factor for rebutting the presumption of willfulness when a patent infringement case arose. (10) However, as the standard for willfulness has evolved, so has the evidentiary weight and critical nature of opinion letters. This Part will first explore how the Underwater Devices decision created an industry of letter writers. Next, it will consider how the court decisions in Knorr-Bremse, Seagate, and their progeny changed the framework under which the opinion letter operated. Finally, this Part will identify the standard for willful infringement set forth by the Halo Court and contrast the standard with previous willfulness frameworks.

   1. Duty of Care in Underwater Devices Creates the Opinion Letter Industry

      The opinion letter industry first took off following the Federal Circuit's opinion in Underwater Devices. (11) The case reached the Federal Circuit after the defendant, Morrison-Knudsen Co. (M-K), appealed from a district court a decision finding, among other things, willful infringement. (12) The initial suit arose when Underwater Devices, Inc. (UDI) brought an infringement suit against M-K for failing to pay royalties on technology used in an underwater construction project. (13) M-K, who was at the time bidding on an underwater piping project in Hawaii, received a letter from UDI informing M-K that it owned patent rights in the project technology and offering to license the technology to M-K. M-K ignored the licensing offer, and after beginning the project sought the advice of its in-house counsel, a non-patent attorney, who stated in a series of two memos that he believed UDI's patents were invalid and encouraged M-K to proceed without paying the royalties. (14) The district court found that M-K had infringed UDI's patents and awarded $200,000 in damages. (15) Additionally, the district court held that the infringement had been willful, and thus trebled the damages accordingly. (16)

      On appeal, the Federal Circuit affirmed that M-K had indeed engaged in willful infringement. (17) Most notably, it concluded that 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." (18) This duty included the duty to seek competent counsel, typically by obtaining an opinion letter. (19) Further, the duty could not be met with just any opinion letter. The Federal Circuit concluded that because M-K sought counsel's opinion only after beginning the infringing activities, and even then only sought the advice of its own non-patent trained in-house counsel, who provided "bald, conclusory, and unsupported remarks," M-K's actions created an inference of willful infringement. (20) The Federal Circuit further listed two forms of analysis that would have been sufficient to rebut the inference if they had been included in the opinion letter: (1) a patent validity analysis predicated on a review of the patented invention's file history; and (2) an infringement analysis comparing and contrasting the potentially infringing use with the patented invention. (21)

      Over time, the duty of care standard set forth in Underwater Devices evolved into a totality of the circumstances consideration that drew on a variety of factors. (22) According to the courts, a defendant's reliance on favorable advice of counsel, though not dispositive, had become a crucial part of the inquiry. (23) Failing to produce an opinion letter from counsel resulted in a rebuttable inference that the defendant had either neglected to seek advice or had received an adverse opinion. (24) Accordingly, companies relied heavily on opinion letters from outside counsel during the Underwater Devices era.

   2. The Seagate "Objective Recklessness" Standard Essentially Obviates the Need for Opinion Letters

      With the passage of time, the courts began to recognize that the duty of care and the inference of willfulness resulting from the failure to produce an opinion letter placed "inappropriate burdens on the attorney-client relationship." (25) The inappropriate burdens stemmed from what one court called "a 'Hobson's choice' for many accused infringers: (1) mount an advice of counsel defense against willfulness but be compelled to disclose ... privileged communications containing sensitive information; or (2) maintain privilege and receive a harmful adverse-inference instruction." (26) While past case law tended to emphasize punishing legal disobedience over protecting attorney-client privilege, (27) the court in Knorr-Bremse determined that the time "when widespread disregard of patent rights was undermining national innovation incentive" was over and held that the adverse inference associated with a failure to provide an opinion letter was no longer warranted. (28)

      While the Knorr-Bremse opinion addressed the adverse inference arising from failure to present an opinion letter from outside counsel, (29) the case did not fully resolve the waiver dilemma because opinion letters remained arguably the best way to show that the infringer met its affirmative...