When it issued its decision last month changing a key rule of patent litigation, the U.S. Court of Appeals for the Federal Circuit overturned more than 20 years of its own precedents.
But that wasn’t all. Many expect that the court’s en banc ruling in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmBH v. Dana Corp. will simplify patent infringement suits, improve the relationship between patent counsel and their clients, and give boutique patent law firms a leg up in their competition with large general-practice firms.
Knorr-Bremse, issued Sept. 13, does away with a key adverse inference in patent litigation: A company is presumed to have willfully infringed on a patent if it declines to produce an exculpatory opinion from its attorneys. A finding of willful infringement makes a defendant liable for up to treble damages, as well as payment of the plaintiff’s attorney fees.
Now, in the wake of Knorr-Bremse, a company will suffer no sanctions if it fails to seek an opinion letter prior to marketing a product, or if the company refuses to disclose the contents of the opinion letter it obtained.
In addition, advocates say, the ruling restores attorney-client privilege to patent litigation, a position advocated by the ABA in its amicus brief, one of 23 submitted to the appeals court.
“There is almost no greater principle that the ABA stands for than the sanctity of the attorney-client privilege,” says Chicago attorney Richard Beem, who co-authored the ABA’s amicus brief. “The ABA wanted the attorney-client privilege to be respected in patent law as it is in all other areas of law.”
The decision, written by Judge Pauline Newman, allows patent counsel to be more truthful with clients. “Opinions were frequently not written for clients, but for courts, and now that you don’t have to disclose these opinions, they can be written for clients,” says Stamford, Conn., attorney Wesley W. Whitmyer Jr., who represents Haldex Brake Products, one of two defendants. “You can give your client advice which is unvarnished advice. They can rely on it, warts and all.”
The case involves a German company, Knorr-Bremse, which sued Haldex and Dana for violating its patent on truck air brakes. A district court found infringement but no damages. Nevertheless, the court awarded the plaintiff about $700,000 for attorney fees and court costs, ruling that its patent had been willfully infringed because one of the defendants failed to get an opinion letter and the other refused to produce its letter at trial.
The adverse inference rule was created during the early days of the Federal Circuit, when there was a “widespread disregard of patent rights,” according to the court. To provide greater protection for such rights, the court, in Underwater Device Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (1983), said 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,” including “the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.”
The adverse inference rule was established to ensure that potential infringers obtained such exculpatory opinions before going forward with any possible infringing activities.