In a landmark decision, the Court of Appeals for the Federal Circuit overruled a long-standing precedent relating to willful patent infringement. In Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmBH v. Dana Corp., 383 F.3d 1337, 1341 (Fed. Cir. 2004) ("Knorr-Bremse"), the Federal Circuit abolished the negative inference that an opinion of counsel was or would have been unfavorable if an alleged infringer fails to produce or obtain an exculpatory opinion of counsel in response to a charge of willful patent infringement.
Willful patent infringement is a statutory remedy that allows the trial court to award treble damages and attorneys' fees. Determining willfulness involves considering multiple factors, including whether the alleged infringer exercised due care to determine whether or not it was infringing. Prior to Knorr-Bremse, the alleged infringer also had the duty to "seek and obtain competent advice from counsel before the initiation of any possible infringing activity." Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389-90 (Fed. Cir. 1983). Thus, to counter an allegation of willful patent infringement, the accused infringer had to attempt to obtain and produce an exculpatory opinion from counsel. If the alleged infringer did not obtain advice of counsel – or obtained counsel's advice but refused to disclose it based on the attorney-client or work product privilege – the trier of fact could infer that the legal opinion was or would have been unfavorable, i.e., a "negative inference."
Knorr-Bremse: Background
Knorr-Bremse, a manufacturer of brakes for commercial trucks, alleged that a Swedish manufacturer (Haldex) and a US importer (Dana) willfully infringed its patent for air disk brakes. In response to the charge of willful infringement, Haldex claimed that it had consulted counsel concerning Knorr-Bremse's patent, but asserted the attorney-client privilege and refused to disclose the advice it had received. Dana, the other defendant, did not consult counsel, but instead claimed that it had relied on the advice provided by Haldex's counsel. The trial court applied Federal Circuit precedent regarding the negative inference and held that "[i]t is reasonable to conclude that such opinions [from counsel] were unfavorable." Based on this negative inference, along with several other factors, the trial court held that Haldex and Dana willfully infringed Knorr-Bremse's patent.
Knorr-BremsePart I: No Adverse Inference for Refusing to Disclose Opinion of Counsel
The Federal Circuit first addressed the question of whether an adverse inference can be drawn if the defendant refuses to disclose the opinion of counsel by invoking the attorney-client privilege or work product privilege. Here, Haldex asserted the attorney-client privilege in refusing to disclose the opinion it had obtained from counsel regarding willful infringement.
In overruling its previous decisions, the en banc court stressed the historic importance of maintaining the attorney-client privilege and observed that only in the field of patent law did an unfavorable presumption arise when the attorney-client privilege was invoked. The Federal Circuit concluded that the negative inference for refusing to disclose the opinion of counsel regarding willfulness should be abolished because "there should be no risk of liability in disclosures to and from counsel in patent matters."
Knorr-BremsePart II: No Adverse Inference for Not Obtaining Legal Advice
The court then addressed the related question of whether an adverse inference is created when the defendant fails to obtain any legal advice regarding willful patent infringement. Here, Dana did not consult counsel concerning willful infringement, but instead relied on the advice Haldex received from its counsel. In tandem with its ruling regarding undisclosed legal advice, the court also overruled its prior precedent and held that it is "inappropriate to draw a similar adverse inference from failure to consult counsel." Specifically, the Federal Circuit noted that the obligation to have counsel study every potentially adverse patent created excessive "burdens and costs" for accused infringers. Although the failure to obtain an exculpatory opinion from counsel no longer creates an inference that such an opinion would have been unfavorable, the court nevertheless reaffirmed the accused infringer's "affirmative duty of due care to avoid infringement of the known patent rights of others."
What Does Knorr-Bremse Mean?
The immediate impact of Knorr-Bremse is that it eliminates the effective legal obligation for accused patent infringers to obtain exculpatory opinions of counsel to defend against allegations of willful infringement. It also allows potential infringers to obtain opinions from counsel without fearing negative inferences if the opinions are withheld based on the attorney-client or work product privilege. One key question that emerges from Knorr-Bremse is whether it is still effectively necessary to obtain counsel's advice after learning that another's patent is similar to what your company is doing. Unfortunately, a clear answer to this question has yet to emerge. While potential infringement could be assessed by skilled personnel – such as an engineer or a scientist – counsel may be in the best position to provide a well-reasoned opinion that accurately addresses the complexities and nuances of patent law. Moreover, the legal opinion could be used to rebut a charge of willful patent infringement. This is especially true in light of Knorr-Bremse reasserting the duty of due care to take reasonably prudent steps to avoid infringement, while failing to provide any guidelines as to what steps would be sufficient in the absence of counsel's exculpatory advice. Until the court provides further instructions as to how an accused infringer can satisfy this duty of due care, it will often be appropriate to obtain counsel's advice when learning of a potential patent infringement action. Knorr-Bremse's impact, however, bears close watching.