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At first glance, Knorr-Bremse v. Dana Corp. seems like many other cases that come before the U.S. Court of Appeals for the Federal Circuit — one manufacturer suing another for the infringement of a patent. But the case, scheduled to be heard by the full court on Thursday, could be the catalyst for overturning 20 years of case law. The question at issue: May judges infer that a company willfully infringed a patent, if the company fails to produce a legal opinion showing it is not in violation of the patent? The court’s decision is critical because a finding of willful infringement against a defendant can carry with it treble damages and an award for attorney fees for the patent owner — a potential penalty totaling millions of dollars for infringers of valuable patents. The case also raises tricky questions about whether corporations should be penalized for invoking attorney-client privilege. The stakes in this battle — for the parties at hand, as well as for future patent litigants — have spurred tremendous interest. “This rule that is being reviewed has really been a festering sore in the patent profession for a long time,” says Donald Dunner, a partner with D.C.’s Finnegan, Henderson, Farabow, Garrett & Dunner and counsel for the American Intellectual Property Lawyers Association, which filed an amicus brief with the court. The Federal Circuit, taking the issue up on its own, solicited feedback from the bar. Lawyers filed 24 amicus briefs representing more than 40 private and public organizations, bar associations and individuals in, and out of, the IP community. Most urged full reversal of the current case law. The diversity of the organizations submitting amicus briefs indicates the case’s possible far-reaching effects. The city of Chicago, the Securities Industry Association, the Bar Association of the District of Columbia, the American Bar Association, the U.S. Council for International Business, Novell Inc. and the Microsoft Corp. all submitted briefs. The trial judge in the case, T.S. Ellis III of the U.S. District Court for the Eastern District of Virginia, adhered to precedent and concluded that the defendants must “produce an exculpatory opinion of counsel in response to a charge of willful infringement.” If they did not, a negative inference to support the charge was appropriate, Ellis wrote in a February 2001 opinion. Herbert Cantor, lawyer for Knorr-Bremse, says the trial court’s ruling should stay put. “The state of the law in this area has existed for quite a few years,” says Cantor, a senior counsel at Crowell & Moring. “Under a principle of stare decisis, the court should honor it.” If the law is to be reversed, it should be done by Congress, Knorr-Bremse argues in its brief. In May 2000, Cantor’s client, Knorr-Bremse Systeme fuer Nutzfahrzeuge GmbH — a German maker of air disc brakes for commercial vehicles — sued Swedish manufacturer Haldex Brake Products, its U.S. affiliate Haldex Brake Products Corp., and U.S. retailer Dana Corp. for infringing a patent it owned relating to the brakes. Additionally, Knorr-Bremse accused the defendants of the more serious charge of willfully infringing the patent. Although there was conflicting evidence about the existence of an opinion, Ellis said that Haldex had consulted with lawyers and obtained legal opinions on the infringement charge, but was refusing to turn them over. Because Haldex did not disclose its legal opinions, Ellis said, “It is reasonable to conclude that such opinions were unfavorable.” (The Dana Corp., Ellis wrote, first learned of the patent after the suit began and did not obtain any legal opinions about its actions.) In the end, Ellis concluded that the defendants willfully infringed the patent. He ordered an injunction preventing them from selling certain of their air disc brakes in the United States during the life of Knorr-Bremse’s patent. He also awarded nearly $700,000 in attorney fees and costs to Knorr-Bremse. Although the trial court’s finding could have triggered treble damages, the issue was moot, since no damages were awarded. Ellis relied on case law — stemming from the 1983 case Underwater Devices Inc. v. Morrison-Knudsen Co. Inc. — that says a potential infringer who knows of another’s patent has a “duty of care” requiring it to obtain legal advice about the patent before it acts in a way that could infringe it. If the accused infringer, like Haldex, refuses to disclose his lawyer’s opinion, then a court can conclude that it had received legal advice suggesting that the company could be infringing an existing patent. A court can also infer that the accused did not obtain a legal opinion. For Finnegan Henderson’s Dunner, the law leaves a potential infringer with no choice at all: Either claim the attorney-client privilege and suffer an inference supporting the claim that you willfully infringed a patent or release the legal opinion and possibly waive the privilege for other related documents. In this case, the parties’ dispute over the patent was also ongoing in Germany, says Wesley Whitmyer Jr., principal attorney for Haldex Brake Products. If his client waived the privilege and submitted a legal opinion to the court, there was a possibility that the waiver could extend to the litigation in Germany, says Whitmyer, a partner at St. Onge, Steward, Johnston & Reens in Stamford, Conn. All the amicus briefs addressing the attorney-client privilege urged the court to do away with a negative inference when a defendant invokes the privilege. The law “undercuts entirely the whole reason for the privilege,” says Susan Hackett, senior vice president and general counsel for the Association of Corporate Counsel, formerly the American Corporate Counsel Association. And the whole reason for the privilege is to encourage open communications between lawyer and client. The client is better off if a patent attorney can give his candid opinion without concern for the adverse inference, says David Schlitz, a partner at the Alexandria, Va.-based IP boutique Burns, Doane, Swecker & Mathis. For one, lawyers are concerned that the law has had a chilling effect on the quality of communications with their clients. While the amicus briefs agreed that a negative inference should be eliminated when the attorney-client privilege is invoked, there was disagreement on whether an inference is acceptable when the accused infringer failed to obtain a legal opinion. “Someone with notice of potential infringement should actually seek advice of counsel,” says Kelly Morron, principal counsel for the Association of the Bar of the City of New York and a counsel at New York’s Chadbourne & Parke. A patent user can receive notice of possible infringement from independently researching the patents or from the patent owner itself. The Intellectual Property Owners Association also said in its brief that an infringer with “express written notice of infringement” from the patent owner should obtain advice of counsel, and a negative inference is allowed if an opinion is not sought. But others point out several reasons why a party might not seek a legal opinion, including the expense and a belief that a legal opinion is just not needed. For example, in-house counsel may find it unnecessary to obtain an outside opinion when they, themselves, have made decisions for the corporation, says Hackett of the Association of Corporate Counsel. Microsoft’s concerns were much more narrow. John Dragseth, a partner in Fish & Richardson’s Twin Cities, Minn., office and one of the lawyers who filed an amicus brief on Microsoft’s behalf, says the computer giant is primarily concerned with a scenario where a potential infringer first receives notice from the patent owner at the time a suit is filed. In that situation, Dragseth says, an infringer might feel compelled to obtain two sets of lawyers: one to write a legal opinion and another to litigate the case in order to safeguard the privilege. “It requires gymnastics, basically, on the part of the defendant,” he says. Proponents for reversing the precedent point to its other harmful effects. Some patent owners and users are failing to research existing patents to avoid knowledge of possible infringement. Making changes “will eliminate people’s fear of reading patents,” says Herbert Wamsley, executive director of the IP owners association, which is urging legislation to change the precedent. The Federal Trade Commission is also recommending legislation. The agency in a 2003 report urges Congress to heighten the requirements for a finding of willful infringement, including a condition that the alleged infringer had actual, written notice of the patent. Legislation may be unnecessary, however, if the Federal Circuit — as many predict — overturns or revises the law.

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