Patent Litigation in the Energy Sector. Mitigating the risk of willful infringement and treble damages

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1 Patent Litigation in the Energy Sector Mitigating the risk of willful infringement and treble damages July 18, 2018 James L. Duncan III Counsel, IP Litigation Group 2018 (US) LLP All Rights Reserved. This communication is for general informational purposes only and is not intended to constitute legal advice or a recommended course of action in any given situation. This communication is not intended to be, and should not be, relied upon by the recipient in making decisions of a legal nature with respect to the issues discussed herein. The recipient is encouraged to consult independent counsel before making any decisions or taking any action concerning the matters in this communication. This communication does not create an attorney-client relationship between (US) LLP and the recipient. (US) LLP is part of a global legal practice, operating through various separate and distinct legal entities, under. For a full description of the structure and a list of offices, please visit

2 What is Willful Infringement? And why does it matter? Infringement of a patent is willful when it is done deliberately and intentionally, and with knowledge of the patent Essentially covers reckless and egregious infringement Often associated with copying someone s technology Finding of willful infringement can have severe consequences: Potential enhanced damages up to treble damages Potential award of attorneys fees as exceptional case Decided by a jury NOT a judge 2

3 History of Willful Infringement Standard 1983: Federal Circuit adopts duty of care standard essentially requires defendant to obtain opinion of counsel on noninfringement or invalidity Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.3d : Federal Circuit created two-part Seagate test: (1) objective recklessness, and (2) subjective recklessness Plaintiff s burden of proof heightened to clear and convincing In re Seagate Tech., 497 F.3d : Supreme Court drops the objective recklessness step; now the focus is solely on subjective recklessness I.e., defendant s knowledge and beliefs on infringement/validity during the infringement Plaintiff s burden of proof lowered to preponderance of evidence Halo Elecs. v. Pulse Elecs., 136 S. Ct

4 The Willfulness Standard Today Conduct that is willful wanton malicious bad faith flagrant characteristic of a pirate Focus on subjective knowledge and intent during the infringement Whether litigation defense was objectively reasonable is (mostly) irrelevant 4

5 Mitigating Risk Opinion of Counsel Pro: Opinion of counsel is the best insurance policy Key issue: when you obtain the opinion vs. awareness of the patent/infringement Best practice: consider obtaining opinion from outside counsel soon after learning about problematic patent Con: Opens door to waiver of attorney-client privilege Advice of counsel defense waives privilege with opinion counsel Key issue: Minimizing the scope of waiver from advice-of-counsel defense Potentially waive privilege with trial counsel if any consultation with opinion counsel See Krausz Inds. Ltd. v. Smith-Blair, Inc., 2016 WL (E.D.N.C. Dec. 13, 2016); see also Zen Design Group Ltd. v. Scholastic Inc., 2018 WL (E.D. Mich. June 22, 2018) Best practices: Wall-off trial counsel and opinion counsel, and use different firms; potentially wall-off in-house counsel assisting with opinion; wait until time of trial to decide to assert opinion 5

6 Mitigating Risk Internal Review Internal assessment of the problematic patent infringement, invalidity, design around, etc. Pro: Provides as least some evidence of subjective belief Con: BE VERY CAREFUL not as credible or as safe as opinion from outside counsel Key issues: The competency/legitimacy of the assessment Actual consideration and implementation by relevant executives Using in-house counsel for formal opinion Best practices: Generally safer to seek opinion of outside counsel Use in-house counsel to prepare assessment (waives privilege) The more robust the analysis, the better Provide analysis to decision-maker in the business 6

7 Mitigating Risk Do Nothing Because knowledge is required, some parties avoid becoming aware Very risky tactic because willful blindness = knowledge Juries and courts typically view head in sand strategy negatively 7

8 Processes to Manage Risk of Willful Infringement Understand weak points for obtaining knowledge of problematic patents Product development/clearance, patent prosecution, licensing negotiations, unsolicited proposals, notice letters, research by technical teams, competitors, etc. Prepare processes for review of problematic patents Willful blindness sufficient for knowledge If the company becomes aware of problematic patents, make sure they are assessed Determine level of analysis required Outside opinion needed for risky patent? Internal assessment? Potentially both? Involve decision-makers in the process Early analysis helps prepare overall strategy: fight, settle, design around, etc. 8

9 Questions? 9

10 James L. Duncan III Counsel, IP Litigation Group D: F: Fannin St., Suite 3700 Houston, Texas eversheds-sutherland.com 2018 (US) LLP All rights reserved.