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In a sharp departure from existing case law, an en banc panel of the U.S. Court of Appeals for the Federal Circuit has ruled that no adverse inference should flow from a party’s refusal to present an exculpatory opinion of counsel. The Federal Circuit overruled its contrary precedent and vacated the district court’s judgment of willful infringement. The Federal Circuit remanded the case to consider the totality of the circumstances with regard to the issue of willful infringement in conjunction with its holding in this case that there be no adverse inference from, or presumptive weight accorded to the fact that no opinion of counsel was obtained or that any opinion of counsel was or would have been unfavorable. The case is Knorr-Bremse Systeme Fuer Nutzfahrzeughe GMBH v. Dana Corporation, Nos. 01-1357, -1376, 02-1221, -1256 (Sept. 13, 2004). At trial before the U.S. District Court for the Eastern District of Virginia, the appellants, Dana Corp., Haldex Brake Products Corp. and Haldex Brake Products AB were found liable for infringement of Knorr Bremse’s patent for a type of disk brake. Infringement by Dana was deemed to be willful. No damages were awarded however, since there were no sales of the infringing brake. Based on the finding of willful infringement, the district court awarded partial attorney fees under 35 U.S.C. �285. PROCEDURAL HISTORY In December 1998, Knorr-Bremse orally notified Dana of patent disputes with Haldex in Europe involving the Mark II brake. In August 1999, Knorr-Bremse notified Dana in writing of infringement litigation against Haldex in Europe, and that Knorr’s U.S. Patent No. 5,927,445 (the ’445 patent) had issued on July 27, 1999. Knorr-Bremse filed its infringement suit on May 15, 2000. In November 2000, the district court granted Knorr Bremse’s motion for summary judgment of literal infringement by the Mark II brake. Before and after the judgment of infringement by the Mark II brake, Dana et al. continued to operate trucks in the U.S. containing the Mark II brake. On the issue of willful infringement, Haldex told the district court that it had consulted European and United States counsel concerning Knorr-Bremse’s patents, but declined to produce any legal opinion or to disclose the advice received, asserting the attorney-client privilege. Dana stated that it did not itself consult counsel, but relied on Haldex. Applying Federal Circuit precedent, the district court found: “It is reasonable to conclude that such opinions were unfavorable.” The court discussed the evidence for and against willful infringement and concluded that “the totality of the circumstances compels the conclusion that defendants’ use of the Mark II air disk brake, and indeed Dana’s continued use of the Mark II air disk brake on various of its vehicles [after the judgment of infringement] amounts to willful infringement of the ’445 patent.” Knorr-Bremse II, 133 F.Supp.2d at 863. Based on the finding of willful infringement the court found that the case was “exceptional” under 35 U.S.C. �285, and awarded Knorr-Bremse its attorney fees for the portion of the litigation that related to the Mark II brake. AT THE FEDERAL CIRCUIT The appellants appealed only the issue of willfulness of the infringement and the ensuing award of attorney fees. Appellants sought reversal of the willful infringement finding, arguing that an adverse inference should not have been drawn from the withholding by Haldex of an opinion of counsel concerning patent issues, and from the failure of Dana Corp. to obtain its own opinion of counsel. The district court, applying Federal Circuit precedent, inferred that the opinion of counsel withheld by Haldex was unfavorable to the defendants. The Federal Circuit then took the case en banc to reconsider its precedent. Four questions were posed by the Federal Circuit for en banc review: 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? Question 2: When the defendant had not obtained legal advice, is it appropriate to draw an adverse inference with respect to willful infringement? 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? Question 4: Should the existence of a substantial defense to infringement be sufficient to defeat liability for willful infringement even if no legal advice has been secured? To questions 1, 2 and 4, the court answered with an emphatic “No.” In answering question 1, the Federal Circuit held that “[A]though the duty to respect the law is undiminished, no adverse inference shall arise from invocation of the attorney-client and/or work-product privilege.” The court elaborated by stating that “[T]here should be no risk of liability in disclosures to and from counsel in patent matters; such risk can intrude upon full communication and ultimately the public interest in encouraging open and confident relationships between client and attorney.” In responding to question 2, the Federal Circuit stated that “[I]n tandem with our holding that it is inappropriate to draw an adverse inference that undisclosed legal advice for which attorney-client privilege is claimed was unfavorable, we also hold that it is inappropriate to draw a similar adverse inference from failure to consult counsel.” On this question, the Federal Circuit concluded that “[A]lthough there continues to be ‘an affirmative duty of due care to avoid infringement of the known patent rights of others,’ the failure to obtain an exculpatory opinion of counsel shall no longer provide an adverse inference or evidentiary presumption that such an opinion would have been unfavorable.” Citing L.A. Gear Inc. v. Thom McAn Shoe Co., 988 F.2d 1117, 1127 (Fed. Cir. 1993). In response to Question 3, the Federal Circuit analyzed the district court’s willfulness determination and concluded that because elimination of the adverse inference as drawn by the district court is a material change in the totality of the circumstances, a fresh weighing of the evidence is required to determine whether the defendants committed willful infringement. This determination is the primary responsibility and authority of the district court. The Federal Circuit therefore vacated the finding of willful infringement and remanded for redetermination of the issue. In responding to question 4, the Federal Circuit declined to adopt a per se rule and instead stated that it preferred a flexible approach which enables the trier of fact to consider the totality of circumstances and to fit the decision to those circumstances. WHAT’S NEXT? Although the Federal Circuit left some unanswered questions about whether a potential infringer can satisfy the requirement of due care without securing and disclosing an opinion of counsel, or, if such an opinion is not absolutely required, whether an adverse inference can be drawn from the accused infringer’s failure to obtain and disclose such an opinion, it is still advisable to obtain a competent opinion when faced with allegations of infringement or when a company concludes that an allegation of infringement may arise in the future. There is no doubt that producing a well-qualified opinion would be considered as favorable exculpatory evidence and will still shield an infringer from charges of willfulness. However, now that the adverse inference has been eliminated, questions arise as to how the opinion fits in to the overall strategy during litigation. It seems reasonably straightforward that one would need to get an opinion anyway to make an initial determination as to where you stand in relation to the claim language. Questions still remain, though, as to how to show that you have a substantial defense to infringement to defeat liability for willful infringement without an opinion (Question 4). The Federal Circuit avoided a bright-line answer to this question. It is hopeful that this question is answered on remand or in a future case. It remains to be seen how this case will play out and what will transpire on remand. Since the Federal Circuit only determines issues of law, it was necessary to send the case back down for determination of the factual issue pertaining to willfulness. If the willfulness holding cannot be supported by the acts, it is possible that we are seeing the beginning of the end of the doctrine of treble damages based on willful infringement. Nevertheless, the decision by the Federal Circuit bodes well for patent attorneys and their clients since it permits patent attorneys to provide clients with the complete and total truth regarding validity or infringement and not have to worry that the client is going to be pressured at trial about nonproduction of the opinion. Although this decision would appear to be one that has a major impact on patent practices that do substantial opinion work, the most prudent clients will hopefully realize that the safest course of action is still to obtain a competent opinion of counsel. And even if such opinion is later withheld from production, the Federal Circuit’s decision has eliminated any negative inference from such withholding and no adverse inference arises from invocation of the attorney-client privilege and/or work product privilege. Marc S. Friedman is the chair of the Intellectual Property Practice at Sills Cummis Epstein & Gross (www.sillscummis.com) of Newark, N.J. Barry J. Marenberg, a patent attorney, is a lawyer in the firm specializing in patent matters. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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