Knorr-Bremse: The Federal Circuit eliminates the adverse inference

“The adverse inference that an opinion was or would have been unfavorable, flowing from the infringer’s failure to obtain or produce an exculpatory opinion of counsel, is no longer warranted. Precedent authorizing such inference is overruled.”

The Court of Appeals for the Federal Circuit, sitting en banc, recently issued an opinion in Knorr-Bremse v. Dana (.doc). This much-anticipated decision did not fail to deliver, marking a major shift in patent law.

The primary issues in the case are whether, during a determination of willful infringement, an adverse inference should be drawn when a defendent invokes the attorney-client and/or work-product privilege to shield an opinion of counsel and whether an adverse inference should be drawn when it is established that the defendent did not obtain legal advice upon notice of an alleged infringement.

In wonderfully simple language, the Federal Circuit stated that, for both situations, “[t]he answer is no.”

Prior to Knorr-Bremse, the trier of fact could draw adverse inferences in either of these situations and include the adverse inference in the totality of circumstances analysis used in the determination of willfulness. While such inferences were not dispositive prior to Knorr-Bremse, it is easy to see that they were likely to carry significant weight in the determination. Indeed, in order to hedge a bet against facing the adverse inference, patent-savvy corporations routinely obtain exculpatory opinions from third party counsel in order to allow the existence of the opinion to be considered during the analysis while shielding litigating counsel from the waiver of privilege that occurs when the opinion is entered into evidence.

What are the practical effects? First and foremost, the decision stands as a cornerstone of privilege law as applied in patent law, and should encourage full and frank communications between clients and their counsel with respect to alleged infringements. Its amzing to think that just last week this was not the case. The Court acknowledged that the old rule placed a burden on the attorney-client relationship “…in derogation of the foundations of that relationship” and stated that “[t]here should be no risk of liability in disclosure to and from counsel in patent matters…” Again using wonderfully simple language, the Court concluded that “…a special rule affecting the attorney-client privilege in patent cases is not warranted.”

Second, the decision equilibrates the decision a defendent has regarding opinions and willfulness determinations. Under the old rule, the defendent faced a difficult choice: Let the opinion in and waive the privilege, or withhold the opinion and allow the fact-finder to draw the adverse inference. Now, at least in theory, withholding an opinion should do no harm. From a practical standpoint, however, the third party opinion is still attractive because it preserves the ability to allow an opinion into evidence while shielding litigating counsel from the waiver of privilege.

What is the next frontier? One large issue cracked wide open by Knorr-Bremse is whether the trier-of-fact can or should be told whether or not counsel was consulted as part of the totality of the circumstances analysis. The Federal Circuit explicitly refused to extend its opinion to this issue since it was not raised in the underlying case or on appeal. This will be an interesting area to monitor. Will a fact-finder, particularly a jury, be able to consider this fact without drawing the prohibited adverse inference? Stay tuned…

The Knorr-Bremse decision has many more interesting aspects. There are a few I plan to discuss in future blog posts. The “dissent” is particularly interesting….