KNORR-BREMSE SYSTEME FUER NUTZFAHRZEUGE GMBH v. DANA CORPORATION, (CAFC - 09/13/2004)
Bridge enthusiasts know that the winning bidder's first goal is to collect, if possible, all the outstanding trumps. The saying is: "Get the kids off the street." Forgetting the rule often results in failure to make the bid. Similarly, in litigating patent infringement cases, failure to obtain and produce an opinion of counsel concerning the patent issues has routinely been used like a trump card in a game of Bridge.
Previous to this (En banc) Dana opinion, failure to obtain an opinion of counsel or withholding the opinion of counsel has enabled courts to make an adverse inference that the opinion was or would have been unfavorable--a further finding of willful infringement--and, yet further on the basis of willfulness, a consequent award of treble damages, attorney fees and expenses.
Now in Dana, the CAFC noted that the adverse inference originated in Kloster Speedsteel AB v. Crucible Inc., 793 F.2d 1565 (Fed. Cir. 1986). In that former case, Kloster, the Federal Circuit observed that the infringer "has not even asserted that it sought advice of counsel when notified of the allowed claims and the patentee's warning, or at any time before it began this litigation,"; And, in Kloster, it was held that the infringer's "silence on the subject, in alleged reliance on the attorney-client privilege, would warrant the conclusion that it either obtained no advice of counsel or did so and was advised that its importation and sale of the accused products would be an infringement of valid U.S. patents." Id., at 1580.
The CAFC further noted in Dana, that the adverse inference was reinforced in Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568 (Fed. Cir. 1988), which established the general rule, that "a court must be free to infer that either no opinion was obtained or, if an opinion were obtained, it was contrary to the infringer's desire to initiate or continue its use of the patentee's invention." Id. at 1572-73.
In Dana under discussion, one defendant, (Haldex) obtained an opinion of counsel but declined to produce it asserting attorney-client privilege; and, the second defendant, (Dana), admitted that it did not obtain an opinion of counsel. The Trial Court found: "It is reasonable to conclude that such opinions were unfavorable." That Court found willfulness based on the totality of the circumstances with the conclusion that the case was "exceptional" under 35 U.S.C. §285.
On appeal, the CAFC balanced the former need to enhance regard for patent rights, which has "significantly diminished in force", against the attorney-client privilege and its underlying public purpose to encourage full and frank communication between attorneys and their clients.
The opinion recognized that judicial departure from stare decisis always requires "special justification", but reached the conclusion to depart from precedents by response to these rhetorical questions:
QUESTION 1
When the attorney-client privilege and/or work-product privilege is invoked by a defendant in an infringement suit, is it appropriate for the trier of fact to draw an adverse inference with respect to willful infringement? The CAFC answered, "No."
Further justification for the departure from precedent was the fortification and integration of the privilege in patent litigation with its use in non-patent cases. No negative inference can be drawn from assertion of the attorney-client privilege. "We now hold that this rule applies to the same extent in patent cases as in other areas of the law."
QUESTION 2
When the defendant had not obtained legal advice is it appropriate to draw an adverse inference with respect to willful infringement? The CAFC answered, "no" again. Failure to obtain an exculpatory opinion of counsel no longer gives rise to an adverse inference or presumption that the opinion would have been unfavorable.
QUESTION 3
If the court concludes that the law should be changed, and the adverse inference withdrawn as applied to this case, what are the consequences for this case? Answer: The finding of willfulness can only be determined or supported on the totality of the circumstances; a fresh weighing of the evidence is required to determine whether the infringement was willful.
QUESTION 4
Should the existence of a substantial defense to infringement be sufficient to defeat liability for willful infringement even if no legal advice had been secured? Answer: "no." This is just one factor to be considered in the totality of circumstances.
The CAFC clearly stated the fundamental holding of its Dana decision:
"We now hold that no adverse inference that an opinion of counsel was or would have been unfavorable flows from an alleged infringer's failure to obtain or produce an exculpatory opinion of counsel. Precedent to the contrary is overruled."
From an attorney and Bridge player's point of view, the bottom line is that the attorney-client privilege trumps failure to obtain and/or produce an opinion of counsel on patent issues. The deal is that Dana has rendered the adverse inference of Kloster Speedsteel AB, supra, and Fromson, supra, innocuous like Bridge cards in a book of trumped tricks.