When a Startup Really Needs a Formal Opinion of Patent Counsel (and When It Doesn’t)

Startup technology companies often hear—sometimes vaguely, sometimes urgently—that they “need a patent opinion” before launching a product, raising money, or entering the market. In reality, formal opinions of patent counsel serve a specific purpose in patent law; and whether obtaining one makes sense depends heavily on a company’s stage, risk profile, and business objectives. For some startups, a well‑timed patent opinion can be a practical tool to evaluate risk and support informed decision‑making. For others, it may add cost and complexity without providing commensurate value. Understanding what formal opinions of patent counsel are, what they are not, and when they are (and are not) useful is key to deciding whether a patent opinion is a valuable step for a startup company.

This article explains what formal opinions of patent counsel are, how courts view them in the context of willful patent infringement, and scenarios in which formal opinions may be valuable for startup companies. Finally, this article outlines useful alternatives to formal opinions of patent counsel.

What Is a Formal Opinion of Patent Counsel?

A formal opinion of patent counsel is a legal analysis, typically memorialized in writing, that:

• Compares a company’s existing or proposed product to the claims of one or more identified third-party patents. In some instances, patent counsel may perform a search of the relevant patent landscapes to identify third-party patents for further analysis.
• Applies relevant legal standards, including patent claim construction principles, to interpret the claims of the identified patents.
• Evaluates the likelihood of infringement of the identified patents and/or assesses whether the identified patents may be invalid.
• Provides a well-reasoned legal conclusion.

It is important to understand that the existence of a formal opinion prepared at the request of a startup does not prevent a third-party patent owner from filing a lawsuit against the startup alleging patent infringement. Nor does can it guarantee a favorable outcome if litigation occurs. However, when prepared competently and relied upon in good faith, it can serve as powerful evidence against allegations of willful patent infringement as described below.

Why Formal Opinions Matter: Willful Infringement, Seagate, and Halo

In patent litigation, the normal rule is that, if someone is found to infringe a patent, they must pay monetary damages to compensate the patent owner. But a court may also award enhanced damages as a penalty on top of those normal damages—up to three times the amount—when the infringement is especially bad, such as when it is willful. 35 U.S.C. § 284.

Under the Federal Circuit’s 2007 decision in In re Seagate Technology, LLC, willful patent infringement could only be established by clear and convincing evidence that (i) the infringer acted despite an “objectively high likelihood that its actions constituted infringement of a valid patent” and (ii) the objectively high likelihood was “known or so obvious that it should have been known” to the infringer. 497 F.3d 1360, 1371 (Fed. Cir. 2007). After Seagate, companies at potential risk of an infringement suit were less likely to obtain an opinion of patent counsel, since Seagate raised the willfulness standard to objective recklessness and eliminated an adverse inference from not obtaining or producing a formal opinion of patent counsel.

But in 2016, Seagate’s rigid, objective standard changed. Specifically, in Halo Electronics, Inc. v. Pulse Electronics, Inc., the Supreme Court announced a more discretionary standard, in which district courts can “take into account the particular circumstances of each case” when analyzing willfulness—such as the subjective intent of the infringer. 579 U.S. 93, 94 (2016). In this sense, Halo restored a more flexible, discretionary willfulness standard focused on the infringer’s subjective intent and good faith. And it renewed the practical value of formal opinions of patent counsel as evidence that the accused infringer acted reasonably and not egregiously.

Accordingly, while there is no affirmative duty to obtain a formal opinion of patent counsel under Halo if a startup believes that it may be at risk for a potential infringement suit, demonstrating that the startup sought and reasonably relied on competent legal advice remains a significant factor in defending against claims of willful infringement. Thus, a well-reasoned written formal patent opinion can meaningfully reduce exposure to damages for infringement.

When Formal Opinions May Be More Valuable for Startups

In patent enforcement, startups don’t generally become targets until they become threats: a real product, in the market, with real success. A formal opinion is not always warranted, as the relative benefit of obtaining it may not justify its cost. Indeed, the decision as to whether to obtain a formal opinion should be driven by various risk-based and broader business considerations.

The following are a few scenarios in which formal opinions may be more valuable for startup companies on the balance of those considerations. Of course, this list is not exhaustive.

1. A Product’s Design is Mature

Formal opinions may quickly become obsolete if a product’s technical direction is still evolving. Thus, formal opinions may be more valuable once:

• Core features of the product are stable, and its architecture is unlikely to materially change.
• The product is being prepared for sale/launch.
• The product is already being sold.

2. There is a High Risk of Adverse Action by a Patent Owner

Formal opinions are highly valuable when dealing with litigious entities and credible threats of enforcement. Indeed, formals opinions are frequently obtained when:

• A specific patent has been asserted against other products that are similar to a company’s own products.
• A patent owner has sued others in the relevant industry.
• A demand letter has been received from a patent owner.
• A patent directed to a company’s products has been assigned to a new entity.

Relatedly, formal opinions are also highly valuable when claims of an identified patent read on a company’s product and a design-around would be costly or otherwise impractical.

3. A Problematic Patent Has a Long Remaining Term

Generally, with respect to a new product or process being introduced by a startup, a patent with more years remaining in its term presents more potential exposure than a patent that will expire soon. Thus, patents with longer terms generally justify the investment in formal opinions to navigate the potential exposure the patents present.

4. A Patent Infringement Lawsuit Would Be Disruptive to Funding Opportunities

Although lawsuits tend to arise as a company grows and becomes more successful, patent infringement actions are often expensive to litigate, may take years to resolve, and may result in large liabilities. Thus, a pending infringement suit (regardless of merit) may shy potential investors away from an otherwise healthy company.

Accordingly, obtaining a formal opinion may be especially prudent to identify and avoid risks of infringement when:

• A funding round or major partnership is pending.
• Due diligence is being conducted prior to an acquisition.
• A company is being valued in connection with a loan.

Alternatives to Formal Opinions

As can be appreciated from the foregoing discussion, formal opinions may not be as valuable in situations where, e.g., a startup is rapidly iterating its product’s design, other industry participants are not litigious, or resources would simply be better spent elsewhere.

The following are some alternatives that startups might consider when deciding whether to forgo a formal opinion.

1. An Informal Review by Patent Counsel

When a potentially problematic patent is identified, patent counsel can conduct an initial, informal analysis of its claims to determine whether a full, formal opinion would be prudent. This informal analysis can save costs in situations where, e.g., a patent’s claims appear to read on a product based on an initial glace, but there are actually clear distinctions between the two. An informal analysis could also be helpful to identify easy design-around strategies.

2. Investing in Patenting Your Own Technologies

Sometimes the best defense is a good offense. Obtaining a strong patent portfolio for one’s own technologies can sometimes create leverage at the negotiating table if an infringement dispute occurs. For example, startups can use their own patent portfolio to negotiate a cross-licensing agreement with an adversarial patent owner—and sometimes defuse tensions before a full-blown infringement suit arises.

Another benefit of pursing patents for one’s own technologies is that a better understanding of the patent landscape may be obtained, which can be used to help identify risks as those technologies continue to mature.

3. An Informal, Proactive Clearance Search

Searching patent landscapes early in product development will often provide more flexibility than waiting to search these landscapes at the 11^th hour. Indeed, an informal, proactive clearance search can contribute to the design criteria of a product if it is determined that a design-around may be needed based on existing IP.

In some instances, design-around solutions can even be patented themselves, meaning that searching for an identifying design-arounds can give a startup an advantage over those who are conducting clearance searches reactively, instead of proactively.

Conclusion

While formal patent opinions can be valuable in certain contexts, startups must carefully weigh their costs and benefits against the realities of their business environment. Alternative strategies, such as informal reviews, building a robust patent portfolio, and conducting proactive clearance searches, offer practical ways to manage intellectual property risks without overextending resources. By carefully considering these options, startups can be better positioned to innovate, protect their technologies, and navigate potential disputes efficiently, ensuring that their approach to patents aligns with their growth objectives and operational needs.