The Federal Circuit, in a recent en banc decision (In re Seagate Technology LLC, __ F.3d __ (Aug. 20, 2007)), overruled the standard for willful infringement set forth in Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983). In patent infringement cases, a willful infringer can be required to pay enhanced damages of up to three times the patentee’s actual damages. Aligning the standard for willful patent infringement with other areas of law, such as copyright, the Federal Circuit established a threshold requirement of objective recklessness, rather than mere negligence, on the part of an accused infringer. Overruling Underwater Devices, the Court expressly abandoned the requirement that a potential infringer on notice of the patent must exercise “due care” to determine whether it infringes, which generally required an opinion of counsel to be obtained. The Court confirmed that there is no longer an affirmative duty to obtain an opinion of counsel. The Seagate decision also holds that if an accused infringer does rely on an opinion of counsel, waiver of the privilege typically will not extend to communications with or work product of trial counsel, thereby resolving a disagreement among the District Courts.
Seagate Technology, the alleged infringer, elected to produce opinions of counsel to show that it had acted in good faith and complied with its affirmative duty of due care. Those opinions, prepared without the involvement of trial counsel, concluded that the asserted patents were invalid, not infringed and possibly unenforceable. Seeking to probe the reasonableness of Seagate's reliance on the opinions, plaintiffs requested communications and work product of not only opinion counsel, but all of Seagate's attorneys, including trial counsel, on the subject matter addressed in the opinion letters. The District Court ordered Seagate to produce that material and to produce its trial counsel for deposition on the subject matter of the opinions, reasoning that reliance on opinions of counsel triggered a broad subject matter waiver of the attorney-client privilege for communications Seagate had with any of its attorneys.
Granting Seagate’s petition for a writ of mandamus, the Federal Circuit reversed, and took the opportunity to clarify not only the scope of waiver but also the underlying standard for willful infringement. The Court modified the threshold for showing willful infringement by requiring a patentee to show “objective recklessness” on the part of the accused infringer. To prove “objective recklessness,” a patentee must demonstrate: first, that the accused infringer acted despite an objectively high likelihood that it was infringing a valid patent; and second, that the infringer knew or should have known that there was a high likelihood that it infringed. The Court left to future cases to develop the application of the standard, but there is no doubt there is now a higher burden on the patentee to establish willful infringement than under the now-discarded “due care” test, which the Seagate court likened to a negligence standard.
In downplaying the probative value of communications with trial counsel, the Court noted that willfulness is usually alleged in the complaint and thus is based on alleged pre-litigation conduct. It went on to suggest that a patentee who alleges willful infringement but does not seek to enjoin the alleged infringement may not be entitled to collect enhanced damages for conduct taking place after the complaint is filed. The Court further suggested that if a patentee tries but fails to secure a preliminary injunction, then objective recklessness probably does not exist. A decision to seek preliminary injunctive relief thus takes on significant consequences for the recovery of enhanced damages, especially for post-filing conduct.
The Seagate decision also held that, absent exceptional circumstances, an accused infringer who relies on an opinion of counsel as a defense to a charge of willful infringement does not waive the applicable privileges involving its trial counsel. Some district courts had decided that the broad subject matter waiver meant that an accused infringer faced the unhappy choice of not using an opinion of counsel or relying on the opinion and potentially waiving the communications and work product of its trial counsel on that subject matter. That dilemma is now much less likely, especially if one uses different opinion counsel and trial counsel.
WHAT DOES THIS MEAN TO YOU?
The ramifications of Seagate are far-reaching, both for patent holders and for those accused of infringement. To recover enhanced damages, a patentee must be able to prove that there was an objectively high risk of infringement, and be prepared to move for preliminary injunctive relief if the alleged willful infringement is ongoing. A patentee who fails to bring a motion for a preliminary injunction now has a much lower probability of recovering enhanced damages for an alleged infringer’s ongoing conduct. By the same token, a patentee who loses such a motion has decreased its chance of recovering any enhanced damages. Thus, patentees seeking enhanced damages should thoroughly investigate both the strength of their patent and potential non-infringement arguments before alleging willful misconduct.
For potential infringers, even actual notice of infringement of another’s patent no longer imposes an affirmative duty to obtain an opinion of counsel. However, it is important to note that the Seagate case deals only with willful infringement. There is no change in the standard for infringement, and it remains a “strict liability” offense. Thus, the Seagate case does not reduce the need for risk assessment, which may very well involve obtaining an opinion from counsel (e.g., concerning freedom to operate or otherwise evaluating a particular patent) before launching a product line or after being put on notice of a patent that may be problematic. Such opinions are often helpful in evaluating the risk in making (or continuing) investment in particular products or services. In addition, even if not required, such opinions are still likely to be useful to combat a charge of willfulness, because they are potentially relevant on the second prong of the new willfulness test- that the alleged infringer knew or should have known that there was a high likelihood that it infringed. While Seagate raises the bar for showing willful infringement, there is still a role for opinions of counsel as part of risk assessment.