Beating ‘wilful infringement’: a new alternative?

In the US, a patent holder who can prove wilful patent infringement can obtain treble damages. This can put dollar signs in the eyes of plaintiffs so, to establish knowledge, patent holders often send letters notifying potential infringers of their patented claims. In turn, this presents a delicate tightrope for defendants to walk by forcing them to decide how, and if, to respond.

A common defence mechanism is to file away any accusation and, while waiting to be sued, prepare an opinion of counsel confirming that a recipient’s allegedly infringing activities were done in good faith and do not infringe.

These opinions are expensive and they have some risks, such as waiving privilege with opinion counsel. But a new decision indicates that another possible defence is available when business or cost reasons dictate.

In IP Power Holdings v Westfield Outdoor, issued in June 2020, the US District Court for the District of Nevada found that a substantive response to a demand letter can demonstrate a good-faith belief of noninfringement, especially when the response explains why the recipient believes it does not infringe.

Case study

Such demand letters are received with consternation and force recipients to decide how, and whether, to respond. For many, to establish a defence to future wilful infringement claims, the first reaction is to arm themselves with an opinion of counsel confirming that their activities were done in good faith and do not infringe.

In IP Power Holdings v Westfield Outdoor the court dismissed wilful infringement allegations based on an accused infringer’s letter response to a notification letter.

On March 22, 2019, Westfield received a letter accusing it of infringing an IP Power patent (number 6,817,671) through the sale of its reclining camp chair. Less than a month later, Westfield responded with a letter indicating that it would investigate the allegation further, followed by a second letter on April 23, explaining in detail why it believed its product did not infringe the ‘671 patent. For example, Westfield’s letter explained, the rear leg and armrest were not coupled in the same manner relative to the second lateral cross brace, nor was there a locking member.

Despite Westfield’s letter explaining its noninfringement positions, IP Power’s complaint alleged that Westfield has committed wilful patent infringement. To support this allegation, IP Power argued (1) that IP Power notified Westfield that its camp chair infringed the ’671 patent; and (2) that Westfield knowingly copied the ‘671 patent. IP Power also argued (3) that Westfield had failed to obtain a licence and had continued to deliberately infringe the ‘671 patent.

Westfield moved based on Federal Rule of Civil Procedure 12(b)(6) to dismiss IP Power’s claim that any infringement by Westfield was done with actual knowledge, arguing that IP Power “cherry-picked” the correspondence it attached to the complaint and deliberately withheld other prelitigation letters which provide a much broader story that argued against wilful infringement.

The Nevada district court agreed. The court ruled that the totality of Westfield’s letters must be considered to address the substance of the wilful infringement allegations. After reviewing the other letters in the chain of correspondence, the court granted Westfield’s motion to dismiss the allegation of knowledge as supported by the notice letter alone.

With regard to the second allegation, that Westfield “knowingly” copied the patent, the court found IP Power’s allegations to be unfounded. In particular, the court found that merely alleging copying without evidence is insufficient. Accordingly, the court dismissed IP Power’s third assertion regarding Westfield’s alleged need for a licence.

IP Power failed to demonstrate that Westfield was “wilfully blind” to the possibility that the alleged activity constituted patent infringement or that Westfield subjectively believed it was infringing a valid patent. Specifically, Westfield’s responsive letters showed that Westfield did not hold the required belief that it was infringing a valid patent.

That is, Westfield’s writing of good faith letters to IP Power informing it of its belief in noninfringement along with its reasoning for its beliefs preclude any finding of wilful infringement (at least as initially pleaded by IP Power: notably, Judge Du allowed IP Power to file an amended complaint within 30 days, which may add additional facts to support the allegation of wilful copying and infringement).

While obtaining an opinion of counsel is still the best option in most situations, this case demonstrates that the practice of substantively responding to notice letters could be a very attractive option for recipients of patent notice letters (either as a supplement to, or replacement of, an opinion) when business or cost reasons dictate, as it can be used to rebut wilful infringement claims.

However, not just any response will do. The response should include an explanation and basis for the accused’s belief of noninfringement, invalidity, or other substantive defences. Companies and their counsel may rethink their current response (or non-response) strategy to patent infringement notice letters, keeping in mind that a substantive response to such a letter is a factor courts will consider in addressing knowledge-based wilfulness or induced infringement allegations.

Lionel Lavenue is a partner at Finnegan. He can be contacted at:  lionel.lavenue@finnegan.com

Benjamin Cassady is an associate at Finnegan. He can be contacted at:  r.benjamin.cassady@finnegan.com

Kevin Spinella is an associate at Finnegan. He can be contacted at:  kevin.spinella@finnegan.com

Seth Bruneel is an associate at Finnegan. He can be contacted at:  seth.bruneel@finnegan.com

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