Failure to obtain exculpatory opinion can increase enhanced damages

Willful infringement and enhanced damages

Avoiding willful infringement is important because a court has the discretion to increase damages up to three times and award attorney’s fees if the patent is willfully infringed  Exculpatory opinions of counsel regarding non infringement of a patent reduce the likelihood that a defendant would be found liable for willfully infringing a patent. The exculpatory opinion of counsel affects the state of mind of the defendant so that the defendant could not have had the intent to infringe another’s patent due to the opinion of his/her trusted counsel.

Willfulness presumed without exculpatory opinion

Previously, courts held that infringement is presumed to be willful if the defendant did not obtain an exculpatory opinion of counsel prior to the start of infringing activities. However, in the 2007 case of In re Seagate Technology, LLC (2007), the Federal Circuit held that a failure to exercise due care by obtaining an exculpatory opinion of counsel before commencing infringing activities was not in and of itself probative of whether infringement is willful. The Federal Circuit rejected the presumption of willfulness if the defendant did not obtain an exculpatory opinion of counsel.  Rather, the court held that the defendant’s must have been “objectively reckless” to establish willful infringement.

Background of Spectralytics

In the following case, Spectralytics v. Cordis Corp. (Fed. Cir. 2011), the District Court found willful infringement.  But, the District Court did not grant enhanced damages (i.e. up to treble damages). In denying enhanced damages, the District Court considered the various factors from a prior case (i.e., Read) (see below) in determining the amount of enhanced damages but did to take into consideration the defendant’s failure to obtain an exculpatory opinion of counsel (second Read factor).  It appears that the District Court interpreted the Seagate opinion to hold that the exculpatory opinion of counsel could not be used to determine the level of enhanced damages.

Failure to obtain exculpatory opinion relevant towards enhanced damages

The Federal Circuit clarified that the Seagate opinion went solely towards the determination of willfulness but not the level of enhanced damages.  The determination of how much to enhance damages is set forth in Read Corp v. Portec, Inc. (Fed. Cir. 1992). In Read, the factors relevant to the determination of whether damages should be enhanced are:

1. whether the infringer deliberately copied the ideas and the design of another;
2. whether the infringer, when he knew of the other’s patent, investigated the patent and formed a good-faith belief that it was invalid or that it was not infringed;
3. the infringer’s behavior in the litigation;
4. the infringer’s size and financial condition;
5. the closeness of the case;
6. the duration of the misconduct;
7. the remedial action by the infringer;
8. the infringer’s motivation for harm; and
9. whether the infringer attempted to conceal its misconduct.

Based on the second Read factor, the court should consider whether the defendant obtained an exculpatory opinion of counsel to determine the level of enhanced damages.  The Federal Circuit clarified that once willful infringement is found, it is inappropriate to discount evidence relating to whether there was adequate investigation of adverse patent rights. The Seagate opinion removed the presumption that the infringement is willful due to an infringer’s failure to obtain an exculpatory opinion.  But once willful infringement is found, the absence or existence of an exculpatory opinion of counsel should factor into the enhanced damages decision.

I invite you to contact me with your patent questions at (949) 433-0900 or [email protected]. Please feel free to forward this article to your friends. As an Orange County Patent Attorney, I serve Orange County, Irvine, Los Angeles, San Diego and surrounding cities.