The issue of attorney-client privilege in the context of patent infringement actions long has been a thorny one. An accused infringer historically was forced to make the choice of electing to protect the privilege, thus fostering candid communications between client and counsel, or to waive the privilege to present a critical substantive defense against a claim of willful infringement and possible treble damages. Neither alternate was particularly attractive. The most painful repercussion of maintaining the privilege was ameliorated when the Federal Circuit held in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp. that it was not proper to draw a negative inference from failure to waive the privilege.
The Federal Circuit soon followed Knorr-Bremse with another decision involving the attorney-client privilege; an opinion that laid out guidelines for the scope of waiver when asserting the advice-of-counsel defense to a claim of willful patent infringement: In re Echo- Star. The Federal Circuit held that “when EchoStar [the alleged infringer] chose to rely on the advice of in-house counsel, it waived the attorney-client privilege with regard to any attorneyclient communications relating to the same subject matter,” including communications with other attorneys such as outside counsel. The court did not draw distinctions based on the role of the attorney who created the work product; the subject matter waiver extended to opinion-related documents regardless of whether they were produced by in-house counsel (acting as opinion counsel), or by “counsel other than in-house counsel.”
Further, the Federal Circuit did not place a temporal limitation on the waiver in EchoStar. In a footnote, the court stated that communications taking place after the complaint is filed are discoverable if they relate to the subject of willful infringement. The waiver covers “the entire course of the alleged infringement,” because when the allegedly infringing activity continues during litigation, the communications that the defendant received from counsel are relevant in determining the defendant’s willfulness.
Despite the seeming clarity of EchoStar, its interpretation and its application to subject-matter waiver as it relates to communications with, and work product of, trial counsel has varied widely among district courts. Some district courts have extended the waiver to trial counsel, others have not, and still others have adopted a middle ground.
Now, and soon, the Federal Circuit will attempt to resolve the disparate interpretations of EchoStar and will address the important issue of the breadth to be given to the scope of waiver of the attorney- client privilege and work product immunity when a defendant in a willful patent infringement case invokes the advice-of-counsel defense.
On Jan. 26, 2007, the Federal Circuit ordered an en banc review of a petition for mandamus in the case of In re Seagate Technology, LLC., 2007). Specifically the Federal Circuit ordered briefing on the following issues:
- Should a party’s assertion of the advice of counsel defense to willful infringement extend waiver of the attorney-client privilege to communications with that party’s trial counsel? See In re EchoStar Commc’n Corp.
- What is the effect of any such waiver on work-product immunity?
- Given the impact of the statutory duty of care standard announced in Underwater Devices, Inc., v. Morrison- Knudsen Co., 717 F.2d 1380 on the issue of waiver of attorney-client privilege, should this court reconsider the decision in Underwater Devices and the duty of care standard itself?
As illustrated by the varied district court opinions that construed EchoStar, the issue of whether waiver extends to trial counsel communications and work product (issues 1 and 2 of the Federal Circuit’s Order) calls out for clarity. Otherwise, patent litigants will be forced to continue to endure the additional costs associated with the uncertainties in this area, and the risks associated with the potential that trial counsel communications and work product could be discoverable.
The third issue to be addressed in Seagate, one not raised by Seagate’s petition, focuses on whether the Federal Circuit should reconsider the standard of “an affirmative duty of care” to avoid infringement that the court set down nearly 25 years ago in Underwater Devices, Inc. v. Morrison-Knudsen Co. Since then, it has been the law that once a potential infringer has notice of a relevant patent, it has an affirmative duty of due care to avoid infringement. Such an affirmative duty includes the “duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.”
The duty of care standard is intertwined with the issue of waiver of attorney-client privilege because it is this duty that forces the untenable choice between defending against willful infringement and protecting the privilege. The inseparable nature of these two issues likely was a consideration for Judge Dyk who, in his dissenting opinion in Knorr-Bremse, opined that the affirmative duty of due care in patent cases “cannot be squared with” recent Supreme Court cases which have held that “punitive damages can only be awarded in situations where the conduct is reprehensible.”
Ordering briefing on the affirmative duty of care standard suggests that the Federal Circuit may revisit Judge Dyk’s concerns about the fallout from the duty of due care standard in patent cases. It remains to be seen whether the court’s focus will be limited to modifying the duty or will extend to evaluation of whether such duty requires a potential infringer to obtain an opinion of counsel at all.
Given that most patent infringement cases involve allegations of willfulness, and therefore the potential for treble damages, the Federal Circuit’s decision on the waiver and duty of care issues could have significant impact on all patent litigants, regardless of the outcome. Briefing on the issues should be completed by early April 2007, and oral argument, if any, will be scheduled at a later date. Stay tuned.