What should you do when you become aware of the existence of a third party patent that claims subject matter possibly related to your company's product? If you take no action to timely investigate the patent, and the product is subsequently held to infringe the patent at trial, the company may be at risk of a court finding that the infringement was willful and assessing enhanced damages. To mitigate this risk, “the law of willful infringement… requires prudent, ethical, legal and commercial actions” on which basis “a prudent person would have had sound reason to believe that the patent was not infringed or was invalid or unenforceable, and would be so held if litigated.” SIR International, Inc. v. Advanced Technology Laboratories, Inc., 127 F.3d 1462 (Fed. Cir. 1997).

Written opinions of counsel are gaining renewed interest as a valuable tool to limit liability for willful patent infringement. A patent opinion that is competently written by a registered patent attorney sets forth the factual and legal basis for finding a patent not infringed, invalid, and/or unenforceable. Although a patent opinion is not required to unequivocally state that the patent is not infringed, invalid, and/or unenforceable, the opinion must be reasonable and prudent. However, to be effective, the timing of the rendered patent opinion may be critical.

In 2016, the U.S. Supreme Court issued a decision in the case of Halo Electronics, Inc. v. Pulse Electronics, Inc. making it easier for courts to find willful infringement in patent cases and award enhanced damages. Prior to Halo, district courts were guided by the so-called Seagate test in which plaintiff patent holders had to “show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” Plaintiff patent holders also had to prove that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.” Thus, under the Seagate test, an infringer could effectively escape a court finding willful infringement by constructing an objectively reasonable infringement defense at the time of trial – even if the infringer was unaware of these defenses upon becoming aware, or being put on notice, of the potential infringement.

In Halo, the Court found that the test's objective prong placed too narrow a restriction on district courts' discretion, and “excludes from discretionary punishment many of the most culpable offenders.” Although implying that enhanced damages “should generally be reserved for egregious cases typified by willful misconduct,” the Court indicated that “subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.” Thus, by directing the inquiry on the subjective culpability of the infringer, Halo focuses attention on the infringer's state of mind at the time the infringing actions occurred with knowledge of the patent—as opposed to the time of trial. As a result, infringement defendants can no longer rely solely on reasonable litigation-inspired defenses to prevent a finding of willfulness and possible treble damages.

Halo does not explicitly impose an obligation to obtain an opinion of counsel to avoid a court finding willful infringement and assessing enhanced damages. However, recent case law suggests obtaining an opinion, or absence thereof, may be a factor in a court's decision. For example, in Dominion Res. Inc. v. Alstom Grid, Inc. (E.D. Pennsylvania 2016), the court held that “Alstom did not have a good faith belief in non-infringement or invalidity because it did not conduct a proper review of Dominion's patents” and “did not have someone with the specific skill in the art of reading patent claims reviewing Dominion's patent.” Thus, it may be prudent to timely investigate any allegation or potential risk of patent infringement and seek assistance of a registered patent attorney to render a patent opinion that memorializes one's good faith basis for believing that the patent is not infringed, invalid, and/or unenforceable.

For example, one should at least consider obtaining a written opinion of counsel upon becoming aware of a third party patent in the following situations:

• Upon receipt of a cease-and-desist letter, complaint, or during license negotiations with a third party patent holder;
• Upon receipt of a request for indemnification for patent infringement;
• During performance of a freedom-to-operate search or other product clearance review in advance of a product launch or investment/acquisition;
• Upon receipt of an external inquiry or notice regarding a third party patent from a customer, third-party supplier or distributor, or any other source in the supply chain of one's products and/or services;
• Upon receipt of an internal inquiry or notice regarding a third party patent from an employee (e.g., sales, engineering, etc.); and
• Upon notice of patent markings on a competitor's product or product literature.

Although there are many situations in which one could obtain a written opinion of counsel, it may not always be economically feasible or necessary to obtain an opinion in each instance. Thus, when deciding whether to obtain a patent opinion is advisable, one should confer with a registered patent attorney with the appropriate background and experience to discuss a number of considerations, including but not limited to:

• Whether the patent arguably covers relevant products or services;
• Whether the claims of the patent are unclear and must be read in view of the specification and/or file history to ascertain their meaning
• Whether a significant amount of revenue is generated from the potentially infringing product/service or whether the product/service is being phased out;
• Whether the product or service may be easily modified to work around the patent; and
• Whether the patent holder is a competitor or otherwise has a reputation for patent litigation.

One cannot prejudge with certainty how the presence or absence of a written opinion of counsel will ultimately impact the decision of a court finding willful patent infringement and awarding enhanced damages. However, a written opinion that is timely obtained and rendered by a registered patent attorney should be considered a valuable tool for mitigating this risk.

Todd A. Gerety is Of Counsel in Nutter's Intellectual Property Department. Drawing on his background in software and electrical engineering, Todd is a seasoned patent attorney advising clients in all aspects of intellectual property matters. Todd's practice focuses on all phases of domestic and international patent portfolio development with particular emphasis on electronic and software innovations in the areas of telecommunications, medical devices, defense systems, malware detection, e-Commerce, and financial services. Clients rely on Todd's counsel in developing worldwide patent strategies that align with their business objectives.

What should you do when you become aware of the existence of a third party patent that claims subject matter possibly related to your company's product? If you take no action to timely investigate the patent, and the product is subsequently held to infringe the patent at trial, the company may be at risk of a court finding that the infringement was willful and assessing enhanced damages. To mitigate this risk, “the law of willful infringement… requires prudent, ethical, legal and commercial actions” on which basis “a prudent person would have had sound reason to believe that the patent was not infringed or was invalid or unenforceable, and would be so held if litigated.” SIR International, Inc. v. Advanced Technology Laboratories, Inc. , 127 F.3d 1462 (Fed. Cir. 1997).

Written opinions of counsel are gaining renewed interest as a valuable tool to limit liability for willful patent infringement. A patent opinion that is competently written by a registered patent attorney sets forth the factual and legal basis for finding a patent not infringed, invalid, and/or unenforceable. Although a patent opinion is not required to unequivocally state that the patent is not infringed, invalid, and/or unenforceable, the opinion must be reasonable and prudent. However, to be effective, the timing of the rendered patent opinion may be critical.

In 2016, the U.S. Supreme Court issued a decision in the case of Halo Electronics, Inc. v. Pulse Electronics, Inc. making it easier for courts to find willful infringement in patent cases and award enhanced damages. Prior to Halo, district courts were guided by the so-called Seagate test in which plaintiff patent holders had to “show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” Plaintiff patent holders also had to prove that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.” Thus, under the Seagate test, an infringer could effectively escape a court finding willful infringement by constructing an objectively reasonable infringement defense at the time of trial – even if the infringer was unaware of these defenses upon becoming aware, or being put on notice, of the potential infringement.

In Halo, the Court found that the test's objective prong placed too narrow a restriction on district courts' discretion, and “excludes from discretionary punishment many of the most culpable offenders.” Although implying that enhanced damages “should generally be reserved for egregious cases typified by willful misconduct,” the Court indicated that “subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.” Thus, by directing the inquiry on the subjective culpability of the infringer, Halo focuses attention on the infringer's state of mind at the time the infringing actions occurred with knowledge of the patent—as opposed to the time of trial. As a result, infringement defendants can no longer rely solely on reasonable litigation-inspired defenses to prevent a finding of willfulness and possible treble damages.

Halo does not explicitly impose an obligation to obtain an opinion of counsel to avoid a court finding willful infringement and assessing enhanced damages. However, recent case law suggests obtaining an opinion, or absence thereof, may be a factor in a court's decision. For example, in Dominion Res. Inc. v. Alstom Grid, Inc. (E.D. Pennsylvania 2016), the court held that “Alstom did not have a good faith belief in non-infringement or invalidity because it did not conduct a proper review of Dominion's patents” and “did not have someone with the specific skill in the art of reading patent claims reviewing Dominion's patent.” Thus, it may be prudent to timely investigate any allegation or potential risk of patent infringement and seek assistance of a registered patent attorney to render a patent opinion that memorializes one's good faith basis for believing that the patent is not infringed, invalid, and/or unenforceable.

For example, one should at least consider obtaining a written opinion of counsel upon becoming aware of a third party patent in the following situations:

• Upon receipt of a cease-and-desist letter, complaint, or during license negotiations with a third party patent holder;
• Upon receipt of a request for indemnification for patent infringement;
• During performance of a freedom-to-operate search or other product clearance review in advance of a product launch or investment/acquisition;
• Upon receipt of an external inquiry or notice regarding a third party patent from a customer, third-party supplier or distributor, or any other source in the supply chain of one's products and/or services;
• Upon receipt of an internal inquiry or notice regarding a third party patent from an employee (e.g., sales, engineering, etc.); and
• Upon notice of patent markings on a competitor's product or product literature.

Although there are many situations in which one could obtain a written opinion of counsel, it may not always be economically feasible or necessary to obtain an opinion in each instance. Thus, when deciding whether to obtain a patent opinion is advisable, one should confer with a registered patent attorney with the appropriate background and experience to discuss a number of considerations, including but not limited to:

• Whether the patent arguably covers relevant products or services;
• Whether the claims of the patent are unclear and must be read in view of the specification and/or file history to ascertain their meaning
• Whether a significant amount of revenue is generated from the potentially infringing product/service or whether the product/service is being phased out;
• Whether the product or service may be easily modified to work around the patent; and
• Whether the patent holder is a competitor or otherwise has a reputation for patent litigation.

One cannot prejudge with certainty how the presence or absence of a written opinion of counsel will ultimately impact the decision of a court finding willful patent infringement and awarding enhanced damages. However, a written opinion that is timely obtained and rendered by a registered patent attorney should be considered a valuable tool for mitigating this risk.

Todd A. Gerety is Of Counsel in Nutter's Intellectual Property Department. Drawing on his background in software and electrical engineering, Todd is a seasoned patent attorney advising clients in all aspects of intellectual property matters. Todd's practice focuses on all phases of domestic and international patent portfolio development with particular emphasis on electronic and software innovations in the areas of telecommunications, medical devices, defense systems, malware detection, e-Commerce, and financial services. Clients rely on Todd's counsel in developing worldwide patent strategies that align with their business objectives.