Non Infringement Opinions in Patent Cases: Strategic Solutions to a Growing Problem
Non Infringement Opinions in Patent Cases: Strategic Solutions to a Growing Problem
It is a frequent practice for Non-Practicing Entities (NPEs or “patent trolls”) to send letters to targets they either believe infringe a patent or are willing to pay a nuisance settlement to avoid litigation (e.g., “shakedown” money). This strategy has two benefits to the NPE. First, whoever responds to the letter is added to the “warm” target list and has at least implicitly acknowledged a willingness to engage in conversation with the NPE. Second, it potentially creates evidence that the NPE provided the target with notice of the patent infringement claim. This can be used later to support a finding of willful infringement and possibly an exceptional case, which may lead to up to triple damages, attorney’s fees, and costs.
This creates a dilemma for businesses and their in-house counsel. Should you engage in discussion with the patent troll’s attorney or “licensing professional” and risk moving up on the target list? Should in-house counsel immediately obtain an expensive opinion of counsel as to whether the patent is actually infringed, the claims are invalid, and/or the patent unenforceable? A letter bomb campaign to numerous potential infringers creates an asymmetric cost advantage to the troll. Often the initial letter may contain a less than thorough infringement analysis or claim chart, which could be reproduced quickly across numerous businesses in the target pool. However, the cost for each business to obtain a thorough non-infringement, validity, and enforceability opinion could be substantial.
Potential Options for Non-Infringement Opinions — Resolving the Dilemma for In-House Counsel
Delay the Opinion until Suit is Filed
So how to resolve this dilemma? One option to consider is awaiting the filing of suit before obtaining the written opinion or responding to the troll. This comes with the risk that if infringement is shown later in the case, the defendant does not have the benefit of relying on an opinion to defend against a claim for willful infringement—at least until suit was filed and defense commences. In other words, it increases the potential chances of willful infringement, but saves the cost of obtaining the opinion. See below for a discussion of a 2022 case where willful infringement was found, but only apportioned to pre-suit activity due to adequate defense of the lawsuit. This analysis assumes that the NPE letter provides sufficient information and basis for infringement that an opinion is warranted.
Obtain a Full Comprehensive Non-Infringement Opinion
Another option is to hire an experienced private practice lawyer to conduct a comprehensive analysis and opinion. If the opinion is sufficiently competent, the business can rely upon it in its defense against a willful infringement claim later if suit is filed. The opinion acts like an insurance policy with the cost of the opinion as the premium. A few things to keep in mind about infringement/non-infringement opinions. First, they only matter when they are wrong. Put another way, if there is no finding of infringement, the opinion likely does not matter. If there is an infringement finding, the opinion may be sufficient to prevent a finding of willful infringement, which could lead to treble damages. The nature of this situation puts the lawyer rendering the opinion at risk for a malpractice claim, so these opinions tend to be thorough and expensive. A second consideration is that the lawyer that wrote the opinion is likely to be deposed and required to testify at trial. You may want to give careful consideration to hiring a technical lawyer to assist with drafting the opinion and a “testimony friendly” lawyer to be presented as the witness.
Conduct an Early Preliminary Infringement Analysis
A third option is to conduct an early analysis after sufficient notice of infringement has been received. The goal of the preliminary analysis is to see if two to three solid arguments exist why there is no infringement. If a lawsuit is filed, the client can elect to rely on the preliminary opinion to defend the case and/or invest in a comprehensive opinion. In my experience, this tends to be the best approach as it provides an analysis early and at a lower cost. These opinions do come with limitations since they are not comprehensive.
Apportioning Willful Infringement Between Pre-Suit Conduct and Post-Suit Defense
As mentioned above, in a recent case for patent infringement in the Western District of Texas, Jiaxing Super Lighting Electric Appliance Co., Ltd. et al v. CH Lighting Technology Co., Ltd. et al, the jury found CH liable for willful infringement. Jiaxing Super Lighting Electric Appliance Co., Ltd. et al v. CH Lighting Technology Co., Ltd. et al, 6-20-cv-00018 (WDTX Aug. 2, 2022). The Court issued a ruling doubling the damages of the case. The Court’s analysis focused on three of the Read factors to make the determination for enhanced damages. Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992). The Court stated that the factors cut enough towards willful infringement to warrant increased damages, but not so much as to warrant treble damages. The damages window for willful infringement was limited, with the Court stating that defendants’ good-faith argument of non-infringement or invalidity after submitting their answer meant that their infringement was not willful during that time. As such, the damages were only doubled from the start of the infringement up to the time CH filed its answer.
In its analysis the Court focused on the Read factors of copying, good-faith belief, and closeness of the case. The first factor of copying was decided for the defendants with the Court stating that there was no evidence of direct copying. The Court focused on the fact that plaintiffs did not have any evidence that in the product development of the infringing product that defendants copied plaintiffs’ product. Plaintiffs’ evidence that the defendants had performed tests comparing the two products was not held as persuasive as many companies test their products against their competitors’ products. For those reasons the court decided the plaintiffs did not sufficiently show copying.
The second Read factor of good-faith belief of non-infringement was decided for the plaintiffs, but also gave rise to the court’s decision to not enhance damages after the answer was filed. The Court was not convinced the investigation undertaken by CH once they were aware of the asserted patents would have given rise to a good-faith belief that the patents were invalid or that CH’s product did not infringe. The Court also took note of the fact that the defendants’ did not perform an investigation until they retained counsel for the suit filed against them, until they were forced to by sanction from the court. CH alleged that they hired Chinese counsel to investigate validity and infringement before answering the complaint but did not provide any evidence of this investigation or the opinion that it produced to the court. The Court also considered in this factor that the jury was instructed to consider if the defendants had established a good-faith belief in non-infringement or invalidity and the jury still returned a verdict of willful infringement.
The final Read factor that was discussed at length was the factor of closeness of the case. The Court noted that while the jury unanimously found a verdict of willful infringement in only two hours, favoring enhancement, that the fact that defendants’ defenses survived to trial weighed against enhancement. Ultimately, the Court found that the speed and lopsidedness of the jury’s verdict slightly won out and therefore favored enhancement.
The damages were requested at $14 million, meaning the doubled damages could reach as high as $28 million. The parties have been instructed by the court to meet and confer to determine the precise dollar amount based on the doubling of damages.
Key Takeaways on Using Non-Infringement Opinions in Patent Cases
Patent trolls employ broad letter campaigns to trigger responses as well as potentially putting future targets on notice of the alleged infringement;
A comprehensive and competent non-infringement opinion can provide a defense against a claim for willful infringement;
In-house counsel have several options to strategically address this situation;
An early preliminary infringement analysis is often the least expensive and most effective strategy; and,
How a particular attorney is likely to perform as a trial and deposition witness is an important factor for consideration.
For more information about patent litigation see our IP Litigation Services and Industry Focused Legal Solutions pages.
Klemchuk PLLC is a leading intellectual property law firm focusing on litigation, anti-counterfeiting, trademarks, patents, and business law. We help clients protect innovation and increase market share through investments in IP.
This article has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under federal law and the applicable state or local laws that may impose additional obligations on you and your company. © 2024 Klemchuk PLLC