An Opinion of Counsel or Freedom To Operate (FTO) opinion though not legally required often, is a good business practice. First, a company may seek the FTO opinion for due diligence, merger & acquisition, and for other deal-making needs. For many companies, a question exists: “If we launch this product into the marketplace, will we be sued for patent infringement?” This article does not answer to that question; rather it’s about how to go about getting the answer to that question. For most companies, the answer is to ask your patent counsel for an opinion. And the question asked of the patent counsel is whether the product that is about to be launched will infringe another’s patent, and if so, what defenses may exist.
The opinion of counsel is generally used at the end of a litigation to mitigate potential money awards paid to the patentee. Why? After the liability stage, the winning patentee will argue that it entitled to basic damages and then additional enhanced damages. The patentee argues that enhanced damages are proper because of the infringer’s willful infringement. And the infringement was willful because of the reckless and unjustified infringement. Now willful infringement does not necessarily mean that enhanced damages are automatically awarded. Notwithstanding, to mitigate against willful infringement, the infringer trots out the FTO opinion.
Background to the Opinion of Counsel or FTO
For decades, sophisticated companies hired competent patent counsel to provide opinions of non-infringement, invalidity, and/or unenforceability. If the accused infringer lost at trial on liability, the patentee would generally seek triple damages based on willful infringement. That is, the defendant was essentially reckless. A defendant, therefore, would use the opinion of counsel/FTO as a basis to show good faith in the arguments and that even though the defendant lost, at least the defendant was not reckless. That is, if damages were awarded, then the damages are 1x instead of 3x. Further, the opinion of counsel could be used to avoid paying legal fees and costs.
Patentees, when faced with the opinion of counsel as a basis to eliminate the enhanced damages, would then criticize the opinion to render it worthless. This way, the purpose of the opinion (to show good faith) would be wrecked. The patentee could easier convince the fact finder about willfulness and the judge about an award of fees. And in the absence of any opinion, courts often would penalize the defendant with a negative inference of willfulness because of the absence of an opinion. Finally, even if the opinion was obtained, the defendant producing the opinion may have needed to waive any attorney client privilege as to that opinion.
A patentee can attack the opinion of counsel in several ways: (i) the defendant didn’t even get any FTO opinion in the first place; (ii) the opinion came too late in the timeline of infringement; (iii) the “wrong” kind of attorney gave the opinion; (iv) the opinion was factually and legally wrong; (v) the opinion was verbal instead of written down; (vi) that the opinion relied on outdated information and was never updated with relevant new facts or law; and (vi) of course my favorite is that whatever the advice or counselling was in the opinion, the defendant didn’t actually follow that advice.
Considerations for an Opinion of Counsel
The patent statute now protects the defendant that the absence of opinion cannot be basis of the negative inference. It states:
The failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed the patent or that the infringer intended to induce infringement of the patent. 35 U.S.C. § 298
Deconstructing the above factors, though no negative inference is permissible, prudence (depending the actual case) may dictate obtaining any FTO opinion. An FTO opinion should come early enough in the timeline so that the infringer can shape its behavior accordingly. If its too late, how can the opinion be used to say that the infringement was thoughtful. As to the attorney, a competent patent counsel should provide it. That is, the counsel should have knowledge of the technology, should be experienced in patent law and litigation, and should have the requisite level of experience to render the opinion. Junior lawyers may provide the skeleton but senior attorneys should review, approve, and sign it. Certainly for competency, the FTO opinion should examine the facts and law properly. This means really evaluating the patent, the claims, the file history, the facts, access to the defendant’s internal people (as necessary, and to ensure that valuable information was not withheld from the counsel), etc. Facts and law should be updated too if the timeline of development is long. An FTO opinion that opines on a far-removed infringement is perhaps not relevant to the current infringement. Because the FTO opinion is to demonstrate good faith, then of course the defendant is expected to have followed that advice (though the scrupulousness will be for the fact finder).
Inside Versus Outside Counsel
A question arises of whether the FTO opinion author has to be from outside counsel only. Patentees argue that inside counsel cannot provide good faith and unbiased opinions because of inherent bias. But there is no categorical rule that inside counsel are incompetent per se to provide any opinion. The inside counsel will have the best access to the facts around the product in question. Assuming that inside counsel is also qualified patent counsel, the inside counsel can still provide competent advice. And outside counsel may not have as much experience in that precise product as inside counsel.
Practical considerations exist. First an outside counsel opinion is expensive. And a company should not be required to incur expenses needlessly. Second, as mentioned the inside counsel may have more experience. Third, the ultimate damages quantum may influence the decision. For example, if the potential damages are low, then 3x of a low amount may still be manageable. Fourth, the risk of a later liability may be low and the company may manage that risk. As such, inside counsel may provide a high quality, highly competent, file opinion. Another practical tool is that inside counsel drafts the opinion, thereby minimizing costs, provides that to outside counsel for review and approval. Of course outside counsel is not expected to rubber-stamp the opinion.
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Upadhye Tang LLP is an IP and FDA boutique firm concentrating on the pharmaceutical and medical device spaces. We help clients with navigating the legal landscape by helping on counseling and litigation. Clients call us to help move drug and device approvals along and to represent them in IP and commercial litigation. Call Shashank Upadhye, 312-327-3326, or by email: firstname.lastname@example.org, for more information.
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