Using Opinions of Counsel as a Budgeting Tool
Using Opinions of Counsel as a Budgeting Tool

The ongoing pandemic has wreaked uncertainty for many businesses. Forecasting expenses and costs, especially in the research and development areas, has become more difficult. In the intellectual property world, opinions of counsel on patentability, infringement, clearance, and validity are often overlooked as tools to control budgets and forecast spending. While each of these opinions will necessarily require upfront costs, the information they provide often yields tangible cost savings resulting from a more focused research and development effort. This article explores some common scenarios where these opinions are useful, and analyzes their benefits and drawbacks.

Patentability Opinions
Patentability opinions are typically rendered when there is a new product in development. Patentability opinions regarding a field for new product development are frequently referred to as landscape opinions. In any case, the purpose is to determine the potential patentability and whether someone else has made an earlier disclosure or secured a patent covering the invention. Patentability opinions typically include two core aspects: a prior art search, and an opinion regarding whether a proposed invention is patentable based on the results of the prior art search.

Patentability opinions are usually flexible in terms of costs and scope. The value of a patentability opinion is based on identifying problematic prior art which could prevent or otherwise drastically reduce the chances of obtaining a patent. While some may view patentability opinions as presenting a binary answer to whether to proceed or not proceed with pursuing a patent application, it is important to remember that more value can be derived from these opinions. If prior art is discovered that is similar to the new concept being searched, but not necessarily novelty destroying, the search results can be used to shape the commercial design and development of the new product and guide the patent application drafting process to avoid the prior art and address deficiencies in the prior art.

While there is considerable upside to a patentability opinion, these opinions are entirely optional because neither the United States Patent and Trademark Office (USPTO) nor any other analogous foreign patent examining body requires them, and each examining body will ultimately perform its own prior art search. One potential downside to such a search is the requirement to disclose known prior art to the USPTO in an information disclosure statement (IDS) in order to comply with the applicant’s duty of disclosure.

When one considers the potential for investing in research and development of a product that ultimately may be covered by another party’s patent or may not be protectable, patentability opinions can provide valuable guidance in terms of allocating budget expenses.

Infringement Opinions
An infringement opinion is rendered to determine whether a commercial product does or does not infringe a particular patent. These opinions can be drafted from either an offensive or defensive point of view.
Offensively, for example, patentees generally seek an infringement opinion prior to filing an infringement lawsuit in order to comply with the requirement of pre-suit infringement analysis. Such an opinion can show that there was a reasonable basis for the infringement lawsuit and helps avoid sanctions under Rule 11 of the Federal Rules of Civil Procedure.

Defensively, non-infringement opinions are usually prepared upon discovery that a particular commercial product may infringe another party’s patent. This can sometimes happen through independent review of the patent landscape regarding a commercial product or when notification of another party’s patent is received. Reliance on non-infringement opinions is primarily invoked to avoid allegations of willful infringement. The concept of willful infringement is critical in determining damages, and a positive finding of willful infringement can cause damages to be enhanced, up to three times the amount of the damages award. Accordingly, it is often very desirable to obtain a non-infringement opinion immediately upon becoming aware that one of your commercial products may be close to or within the scope of another’s patent.

If a non-infringement opinion is going to be relied on as a defense to willful infringement, it is critical that certain factors are adhered to. Courts have looked at whether the author of the opinion examined the subject patent’s file history, the objectivity of the analysis, and whether the opinion’s author was a registered patent attorney, among other factors. The overriding factors for determining whether a non-infringement opinion is a valid defense against willful infringement usually comes down to whether the opinion is reasonable and whether the opinion was competently prepared. Timing is also a major factor, as courts have found that non-infringement opinions that are only developed after litigation has commenced cannot be relied on as a defense to willful infringement. It is important to know that invoking a non-infringement opinion as a defense to willful infringement also raises issues regarding possible waiver of attorney-client communications associated with preparation of the opinion.

Regardless of how it is being used, infringement opinions are typically more expensive than patentability opinions. However, their value is oftentimes also much higher than a patentability opinion considering the multiplying effect of damages due to willful infringement and their protection against Rule 11 sanctions.

Validity Opinions
Validity opinions, as their name suggests, essentially examine whether the subject patent is valid. Validity opinions can be used in similar situations as those involving infringement opinions. These opinions can be useful upon learning of a potentially harmful patent that could be asserted against a commercial product. Validity opinions may also arise in the context of pre-litigation analysis by patentees. Although issued patents are presumed to be valid, obtaining a validity opinion can be a useful tool to rebut any allegations that the patentee did not comply with the requisite pre-litigation analysis necessary to avoid Rule 11 sanctions.

The analysis of whether a patent is valid can hinge on the same concepts underlying the requirements for examining a patent at the USPTO. These factors include examining whether the subject patent is novel and non-obvious, whether the subject patent is directed to eligible subject matter, and whether the subject patent is enabled and sufficiently definite, among other factors.

Similar to infringement opinions, validity opinions can also be used as a defense to willful infringement, and are therefore analyzed using similar factors with respect to the competency, objectivity, and reasonableness of the analysis underlying the opinion. The exact costs of validity opinions can vary greatly due to various aspects of the subject patent, but are also typically more expensive than patentability opinions. Similar to non-infringement opinions, the return on investment of a validity opinion can be very high due to their use as a defense against willful infringement.

Freedom to Operate Opinions
These opinions, which are also known as clearance opinions, essentially examine the patent landscape to determine whether a proposed product will infringe an existing patent. Companies typically consider having these opinions prepared prior to investing substantial resources, including marketing and manufacturing efforts, as part of their budget controls.

Although freedom to operate opinions should be comprehensive, these opinions are completely optional and can be tailored in many different ways, including limiting the opinion to certain jurisdictions based on expected commercial efforts, known competitors, and other factors in order to control the budget. As with patentability opinions, the end product will only be as reliable as the parameters dictating the scope of the opinion, such as the allotted budget.

Each of the various patent opinions should be viewed as tools that cost money upfront but can prevent spending research and development resources on projects that may have little chance of being patentable or may run the risk of patent infringement. While the value of these opinions is not always immediately apparent, investing in them early on in the development of a product can pay dividends in long-term cost savings. It is important to keep these various opinions in mind as cost controlling tools in any business cycle.

Reprinted with permission from the April 28, 2021 issue of The Legal Intelligencer ©2021 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

Posted in: Patents
Tags: Opinions



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