What Does Advice of Counsel Get You in a Trademark Case?
Throwing your counsel under the bus to save yourself, which is also known as the advice of counsel defense. It gets a lot more play in patent infringement cases, but the defense is available in trademark infringement cases too. It’s just not invoked as often in trademark cases. Here’s what we’ve learned from when it has been invoked.
An Advice of Counsel Defense Is Relevant to Intent and Willfulness
There are really two areas of trademark law that lend themselves to an advice of counsel defense: (1) the defendant’s intent in adopting the infringing mark, which is one of the likelihood of confusion factors, and (2) willfulness for purposes of damages. Conceptually, however, the defense could theoretically be used whenever the defendant’s intent or state of mind is at issue. For example, it could be used to negate fraud on the U.S. Patent and Trademark Office (“USPTO”). See, e.g., MCI Foods, Inc. v. Bunte, 2010 TTAB LEXIS 381 (TTAB 2010) (“Under the circumstances of this case, finding particularly that MCI sought advice of counsel, we cannot conclude that MCI intended to deceive the USPTO.”). However, there are almost no cases involving an advice of counsel defense being used for issues other than the defendant’s intent in a likelihood of confusion analysis and willfulness.
The Defendant’s Intent
One of the factors that courts consider when determining whether a likelihood of confusion exists is the defendant’s intent in selecting the mark. In considering this factor, courts will evaluate an advice of counsel defense if such a defense is being asserted. Adidas America, Inc. v. Payless Shoesource, Inc., 546 F. Supp. 2d 1029, 1057-58 (D. Or. 2008); Aero-Motive, Co. v. U.S. Aeromotive, Inc., 922 F. Supp. 29, 44-45 (W.D. Mich. 1996) (finding defendant acted in good faith pursuant to advice of counsel); Teal Bay Alliances, Inc. v. Southbound One, Inc., 2014 U.S. Dist. LEXIS 55378, *8 (D. Md. 2014) (“Advice-of-counsel evidence is most relevant to the factor concerning the defendant’s intent.”).
Notably, in contrast to willfulness, this likelihood of confusion factor considers an alleged infringer’s subjective intent. As such, when evaluating an advice of counsel defense in this context, it is not entirely clear whether an infringer’s reliance on advice of counsel has to be reasonable as long as the reliance was in good faith. Aero-Motive, 922 F. Supp. at 44-45.
While most courts are willing to consider an advice of counsel defense under this likelihood of confusion factor, at least one court has decided that the defense is not relevant to a likelihood of confusion analysis. Shakopee Mdewakanton Sioux Community v. FBCV, LLC, 2011 U.S. Dist. LEXIS 110301, *13-14 (D. Nev. 2011) (“Reliance on advice of counsel is only relevant to a future question on willfulness, not infringement.”)
A defendant’s reliance on advice of counsel is relevant to the question of willfulness. Adidas, 546 F. Supp. 2d at 1047. In this regard, obtaining the advice of counsel generally negates a finding of willfulness—unless the advice is ignored or the advice is found to be incompetent. Id.; The Economist Newspaper Ltd. v. The American Economist Inc., 1994 U.S. Dist. LEXIS 11811, *15 (S.D.N.Y. 1994); Teal Bay, 2014 U.S. Dist. LEXIS 55378, at *9 (“advice of counsel may serve as evidence that the party did not engage in the willful conduct that has served as a basis for other courts to award attorney’s fees in ‘exceptional cases'”). However, in cases of obvious infringement, even reliance on advice of counsel may not be sufficient to negate willfulness. Universal City Studios, Inc. v. Mueller Chemical Company, Inc., 1983 U.S. Dist. LEXIS 12242, *4 (N.D. Ill. 1983).
An Advice of Counsel Defense Is Not Required to Find Good Faith and Non Willfulness
Acting on the advice of counsel is not the only way to show that an infringing defendant acted in good faith and did not act willfully. The vast majority of courts decline to draw in inference of bad faith or willfulness if the defendant did not rely on an opinion of counsel or if the defendant refuses to disclose the opinion of counsel it relied on. But see Partners for Health & Home, L.P. v. Yang, 2011 U.S. Dist. LEXIS 130921, *19 (C.D. Cal. 2011) (“Failure to seek a legal opinion of counsel as to infringement, especially after receiving a cease-and-desist letter, is probative evidence of an infringer’s willfulness.”)
No Negative Inference of Bad Faith
If a defendant obtained an opinion of counsel and chooses not to disclose the opinion, the plaintiff may argue that the court should infer that the opinion advised the defendant against proceeding with the infringing mark. Courts generally reject such an argument and refuse to make such an inference. Alliance Bank v. New Century Bank, 742 F. Supp. 2d 532, 561 (E.D. Pa. 2010) (“Although New Century has not produced the opinion of counsel here, no bad faith inference will be drawn from such strategy.”); Conopco, Inc. v. Cosmair, Inc., 49 F. Supp. 2d 242, 256 (S.D.N.Y. 1999) (“Conopco asks the Court to infer bad faith from Cosmair’s failure to seek advice of counsel and for allegedly remaining willfully blind in the face of the aforementioned warnings. The Court declines to do so.”).
Not Required to Find Non Willfulness
In La Victoria Foods, the plaintiff argued that the defendant’s infringement was willful as a matter of law because the defendant had not introduced objective evidence of good faith, such as an opinion of counsel. La Victoria Foods, Inc. v. Curtice-Burns, Inc., 1988 U.S. App. LEXIS 21763, *4 (9th Cir. 1988). The Ninth Circuit rejected the argument, holding that an opinion of counsel is not required for a finding of non-willful infringement. Id., at *5-6.
Is Advice of Counsel an Affirmative Defense?
Although a defendant can invoke advice of counsel in its crusade against one of the likelihood of confusion factors and against willfulness, it apparently is not an affirmative defense. In Bath & Body Works, the Southern District of New York tackled the question and decided advice of counsel is not an affirmative defense:
Further, there is no explicit rule that advice of counsel is an affirmative defense that must be pled in one’s answer pursuant to Fed. R. Civ. P. 8(c) in a trademark case. Advice of counsel is not listed among Rule 8(c)’s non-exhaustive list of 19 affirmative defenses that must be pled or are waived. See Fed. R. Civ. P. 8(c). No trademark treatise lists advice of counsel as an affirmative defense that must be pled in a defendant’s answer. See Kane on Trademark Law, § 13.12.1 (not mentioning advice of counsel among nine affirmative defenses that must be pled in an answer); McCarthy on Trademarks (advice of counsel is never discussed as an affirmative defense). Other courts in this Circuit have allowed defendants to raise advice of counsel to defeat willfulness without having to include it as an affirmative defense in their answers. See, e.g., Akiro LLC v. House of Cheatham, Inc., No. 12 Civ. 5775, 2013 U.S. Dist. LEXIS 72233 at *34 (S.D.N.Y. May 17, 2013) (discussing the defendants reliance on the advice of counsel, although defendants never raised advice of counsel as an affirmative defense in their answer; see ECF No. 8); see also J.T. Colby & Co. v. Apple Inc., No. 11 Civ. 4060, 2013 U.S. Dist. LEXIS 65959 at *76 (S.D.N.Y. May 8, 2013) (same; see ECF No. 43); Gameologist Group, LLC v. Sci. Games Int’l, Inc., 838 F. Supp. 2d 141, 163 (S.D.N.Y. 2011) (same; see ECF No. 52).
Generally, affirmative defenses fall into one of two categories: (1) “those that admit the allegations of the complaint but suggest some other reason why there is no right of recovery,” and (2) “those that concern allegations outside of the plaintiff’s prima facie case that the defendant cannot raise by a simple denial in the answer.” Wright & Miller, 5 Fed. Prac. & Proc. Civ. § 1271 (3d ed.). In this context, advice of counsel is plainly not the former, as it operates to refute, not admit, Summit’s charge of willfulness. And it does not fit neatly into the latter category because it bears on the Polaroid factor that assesses good or bad faith, which is part of Summit’s prima facie infringement case. See Lang v. Retirement Living Pub. Co., 949 F.2d 576, 583 (2d Cir. 1991) (noting that reliance on advice of counsel, inter alia, defeats willfulness and supports a finding of good faith).
Bath & Body Works Brand Management, Inc. v. Summit Entertainment, LLC, 2013 U.S. Dist. LEXIS 97098, *12-13 (S.D.N.Y. 2013).
Importantly, most courts have not tackled this question head-on so be aware of that. However, as discussed below, the defendant will need to raise the advice of counsel defense early enough in the case to allow the plaintiff to take discovery on it. Otherwise, the defendant may be precluded from asserting the defense. With this in mind, it may be a good idea for a defendant to allege the defense in its answer to avoid any arguments as to whether the defense was sufficiently raised.
Asserting an Advice of Counsel Defense
In order to establish an advice of counsel defense, the infringing defendant must demonstrate that (i) it made a complete disclosure of the relevant facts to counsel; (ii) it received advice from counsel that the conduct in question was legal; and (iii) it relied on that advice in good faith. Bath & Body Works, 2013 U.S. Dist. LEXIS 97098, at *15-16.
An Advice Counsel Defense May Require That the Advice Given Be Competent
In order to find that a defendant reasonably relied on its counsel’s legal advice, the legal advice must be competent based on the totality of the circumstances. Adidas, 546 F. Supp. 2d at 1048. Whether the advice is competent depends on the following non-exclusive factors: (1) the background research performed by the attorney; (2) whether the opinions were written or oral; (3) the objectivity of the opinions; (4) whether the attorneys rendering the opinions were trademark lawyers; (5) whether the opinions were detailed or merely conclusory; and (6) whether material information was withheld from the attorney. Id; see also TakeCare Corp. v. TakeCare of Oklahoma, 889 F.2d 955, 957-958 (10th Cir. 1989).
On the other hand, I did come across a couple of decisions in which other courts decided that an advice of counsel defense does not require the advice to be competent because it is the good faith of the defendant that is at issue.
The Defendant Must Rely on the Advice Before Infringing
In order to successfully assert an advice of counsel defense, the defendant must have reasonably relied on the opinion of counsel. This, in turn, requires a consideration of when the legal opinion was rendered. If the legal opinion is obtained after the defendant engaged in infringing conduct, then the defendant probably did not actually rely on the advice before acting:
In addition, many of the shoe reviews upon which Payless purportedly relied were conducted after adidas initiated this lawsuit. Of the shoe reviews submitted by Payless in support of its motion, only four pre-date the filing of this action in 2001. It is difficult to see how Payless could have relied in good faith upon advice that it did not seek or obtain until after adidas filed suit for willful infringement . . . Payless’ failure to obtain advice of counsel before engaging in the conduct at issue undermines its contention that it acted in good faith reliance on the advice of its counsel. It also raises the inference that the opinions were designed simply to bolster Payless’ advice of counsel defense.
Adidas, 546 F. Supp. 2d at 1049.
Selected Examples of Problems With Advice of Counsel Defenses
I researched and read a lot of advice of counsel cases in order to write this blog post. In doing so, it didn’t take long for me to notice that the cases were far from uniform, even conflicting sometimes. So I can’t say that there are hard and fast rules when it comes to an advice of counsel defense in a trademark infringement case, but I want to highlight a couple of factual circumstances in which a court found the advice of counsel lacking, incompetent, or inapplicable.
Not Opining on All Infringing Marks/Products. It may seem obvious, but if an opinion of counsel does not address one of the allegedly infringing marks, then a defendant cannot rely on an advice of counsel defense for that infringing mark. For example, in Adidas, defendant’s counsel did not actually review each of the allegedly infringing shoes:
There are, however, significant questions as to whether Payless’ counsel actually reviewed each of the shoes at issue in this case and whether the reviews were conducted before the commencement of this lawsuit. For example, Payless acknowledges that it did not obtain any advice as to its allegedly infringing version of the Stan Smith Millennium. As a matter of law, Payless’ advice of counsel defense fails as to Payless’ allegedly infringing versions of that shoe because a party cannot rely on advice that it did not seek or obtain. Payless’ conclusory assertion that its version of the Stan Smith looks nothing like the adidas version does not alter that conclusion.
Adidas, 546 F. Supp. 2d at 1048-49.
An Opinion of Counsel Should Evaluate All of the Likelihood of Confusion Factors. In Adidas, the District of Oregon denied the defendant’s motion for summary judgment on the issue of willfulness partly because there were genuine issues of material fact as to whether the legal advice obtained by the defendant was competent. One reason the court found a genuine issue of material fact was because the defendant’s counsel failed to consider all of the Ninth Circuit’s Sleekcraft factors. Adidas, 546 F. Supp. 2d at 1049.
There May Be a Continuing Duty to Update an Opinion of Counsel. In Adidas, the advice of counsel had hinged partly on the defendant’s interpretation of a settlement agreement. The parties’ interpretation was appealed to the Ninth Circuit, who rejected the defendant’s interpretation. After the Ninth Circuit rejected the defendant’s interpretation of the settlement agreement, the defendant’s counsel never revised its legal advice to take into consideration the effect of the Ninth Circuit’s decision. The District of Oregon pointed this out more than once in finding that there was a genuine issue as to the competency of the legal opinion. Adidas, 546 F. Supp. 2d at 1049.
An Asserted Advice of Counsel Defense Waives the Attorney-Client Privilege and Sometimes the Work Product Doctrine Too
By asserting an advise of counsel defense, a defendant voluntarily waives the attorney-client privilege and work product doctrine for certain documents. Adidas America, Inc. v. Payless Shoesource, Inc., 2006 U.S. Dist. LEXIS 79154 (D. Or. 2006); Sidco Industries Inc. v. Wimar Tahoe Corp., 1992 U.S. Dist. LEXIS 3458, *3-4 (D. Or. 1992).
Scope of Waiver: Same Subject Matter
The general rule is that an advice of counsel defense waives the privilege as to communications and documents relating to the advice. Minnesota Specialty Crops, Inc. v. Minnesota Wild Hockey Club, L.P., 210 FRD 673, 675 (D. Minn. 2002); Teal Bay, 2014 U.S. Dist. LEXIS 55378, at *5-7. To prevent an advice of counsel defense from being used as both a sword and a shield, fairness dictates that a defendant not be permitted to selectively disclose privileged communications. This, in turn, requires that the scope of the waiver be somewhat broad. With this in mind, the waiver is a subject matter waiver—i.e., a waiver of all communications on the same subject matter. Id.
The Waiver May Extend to Advice Relating to Different Versions of the Mark
One issue that may arise is whether the scope of the waiver extends to opinions and communications regarding advice related to an earlier version of a trademark or trade dress. At least one court has held that it does. In Eco Manufacturing, the Southern District of Indiana held that the waiver extended to the communications from the defendant’s counsel regarding an earlier version of a circular thermostat design in a trade dress case. Eco Mfg., LLC v. Honeywell International, Inc., 2003 U.S. Dist. LEXIS 7257, *5-12 (S.D. Ind. 2003).
The Waiver Includes Drafts of Documents
It appears that the scope of waiver extends not just to any final letters containing legal advice, but also to draft of such letters. Teal Bay, 2014 U.S. Dist. LEXIS 55378, at *12-13.
The Waiver Encompasses Documents Create Before and After the Litigation Begins
Although a defendant may argue that the waiver should only extend to pre-suit communications, courts do hold that the waiver also extends to post-suit communications. Payless, 2006 U.S. Dist. LEXIS 79154, * 2-3; Minnesota Specialty, 210 FRD at 679; Zip Dee, Inc. v. Dometic Corporation, 1997 U.S. Dist. LEXIS 8526, *6 (N.D. Ill 1997) (“it is entirely possible that infringement may be nonwillful at one time and may become willful at some later time”).
The Waiver Can Sometimes Extend to Documents Not Actually Communicated to the Client
Another dispute that can arise is whether the scope of the waiver extends to work product documents that were not actually communicated to the defendant. In this regard, some courts extend the waiver to attorney work product documents that were not actually communicated to the defendant. Payless, 2006 U.S. Dist. LEXIS 79154, * 6-9. In the Ninth Circuit, waiver extends to both disclosed and undisclosed documents and information. Undisclosed documents and information are deemed relevant because they can help determine what the attorney actually told the client and may help determine the reasonableness of the reliance on the advice of counsel. Allowing discovery of undisclosed documents and information also helps prevent an infringer from shielding themselves from discovery of unfavorable advice.
Courts Are Divided on Whether Waiver Extends to Work Product
Depending on which court you are litigating in, asserting an advice of counsel defense may also waive attorney work product. However, federal courts are divided on the issue:
Whether a deliberate waiver of the attorney-client privilege as to advice of counsel also effects a waiver of the attorney work product privilege as to the attorneys’ internal drafts, thought processes, and research that were not communicated to the client is a question that has divided a number of district courts, without specific guidance from appellate courts.
Eco Mfg., 2003 U.S. Dist. LEXIS 7257, at *12-15. On the one hand, if the scope of the waiver does not extend to attorney work product, then intentional infringement could be obscured by incompetent opinions. On the other hand, extending the waiver to attorney work product creates a substantial risk of confusion and wasted time, money, and effort as lawyers duel over the ultimate merits of an opinion when the only relevant question is whether the client honestly and reasonably relied on the opinion. Id.
An Advice of Counsel Can Be Deemed Waived If Not Asserted or If the Defendant Does Not Allow Discovery
An advice of counsel defense cannot be used as both a sword and a shield. When a defendant asserts an advice of counsel defense, fundamental fairness requires disclosure of the protected communications to the plaintiff. Accordingly, if a defendant refuses to allow such discovery or if a defendant raises the defense for the first time after the close of discovery, a court may deem the advice of counsel defense waived. QS Wholesale, Inc. v. World Marketing, 2013 U.S. Dist. LEXIS 193992, *18-21 (C.D. Cal. 2013) (granting motion in limine to exclude advice of counsel defense that was asserted after the close of discovery and preceded by “an across-the-board invocation of privilege” during discovery); Ramada Franchise Systems, Inc. v. Boychuk, 283 F. Supp. 2d 777, 793 n.16 (N.D.N.Y. 2003) (deeming advice of counsel defense waived because it was not raised in the pleadings or during discovery); Sidco Industries Inc. v. Wimar Tahoe Corp., 1992 U.S. Dist. LEXIS 3458, *4 (D. Or. 1992); TakeCare Corp. v. TakeCare of Oklahoma, 889 F.2d 955, 956 (10th Cir. 1989) (rejecting defendant’s attempt to insert an advice of counsel defense post-trial).
A Couple of Thoughts From the Well
I am unaware of any trademark infringement case that has ever been determined by the defendant’s intent likelihood of confusion factor. If you know of such a case, please email me and let me know about it. Therefore, if I were a defendant, my decision as to whether to assert an advice of counsel defense would hinge solely on the issue of willfulness.
However, as you know from one of my recent blog posts, the standard for awarding attorneys’ fees in trademark cases has changed after the U.S. Supreme Court redefined “exceptional” in Octane Fitness. In short, willfulness is no longer required to show that a case is exceptional such that attorneys’ fees should be awarded. Therefore, given this change in the law, it appears there may be less reason to assert an advice of counsel defense than before. It will be interesting to see how the Octane Fitness standard affects defendants’ willingness to assert an advice of counsel defense and waive the attorney-client privilege and work product doctrine.