In re Seagate Technology, LLC, F.3d , Misc. Docket No. 830 (Fed. Cir. Aug. 20, 2007) sets forth new rules in three important areas related to willful patent infringement. First, the court replaced the "duty of due care" standard for willful patent infringement with a two-part "objective recklessness" standard which will make it more difficult to prove willful infringement. Second, the court held that the waiver of attorney-client privilege and the work-product doctrine generally do not apply to trial counsel when opinion counsel's opinion is used to defend against an accusation of willful infringement. Third, the court indicated that an accused infringer's activities after the patentee sues the accused infringer can serve as a basis for a finding of willful infringement in narrower circumstances and that the patentee may need to seek and obtain a preliminary injunction in order to seek enhanced damages for post-filing infringement.
Sections I - III below provide a brief summary of these new rules. Section IV provides a brief commentary about these new rules.
I. Duty of Due Care Replaced With a Two-Part "Objective Recklessness" Standard
Since 1983, the Federal Circuit has said that one who has knowledge of a patent has an affirmative duty of due care "to determine whether or not he is infringing." The court held that this duty includes "the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity." This was expressed in Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983) and its progeny. The court held that an accused infringer's failure to meet this affirmative duty would result in a finding of willful infringement and possibly a trebling of actual damages.
In In re Seagate Technology, LLC, F.3d , Misc. Docket No. 830 (Fed. Cir. Aug. 20, 2007) (en banc), the Federal Circuit overruled and abandoned the affirmative duty of due care and the standards set out in Underwater Devices.
The Federal Circuit replaced the affirmative duty of due care with an "objective recklessness" standard. The court held that "proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness."
The court acknowledged that "reckless" is not "self-defining" and provided some guidance on its meaning. The court noted that "[t]he civil law generally calls a person reckless who acts . . . in the face of an unjustifiably high risk of harm that is either known or so obvious that it should be known." (citing Farmer v. Brennan, 511 U.S. 825 (1994); Prosser and Keeton on Torts, § 34; Restatement (Second) of Torts § 500 (1965)).
Specifically, the court held that to establish willful patent infringement, a patentee must show (1) "by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent"; and (2) "that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer." The court did not explicitly indicate whether (2) must be shown by clear and convincing evidence, but the context indicates that it likely must be shown by clear and convincing evidence.
The court said that it would "leave it to future cases to further develop the application of this standard." The court did say, however, that it "would expect, as suggested by Judge Newman['s concurrence]..., that the standards of commerce would be among the factors a court might consider." Judge Newman's concurrence said: "The standards of behavior by which a possible infringer evaluates adverse patents should be the standards of fair commerce, including reasonableness of the actions taken in the particular circumstances. It cannot be the court's intention to tolerate the intentional disregard or destruction of the value of the property of another, simply because that property is a patent; yet the standard of "recklessness" appears to ratify intentional disregard, and to reject objective standards requiring a reasonable respect for property rights."
The court further noted that "[b]ecause we abandon the affirmative duty of due care, we also reemphasize that there is no affirmative obligation to obtain opinion of counsel."
II. Waiver of Privilege by Using Opinion Counsel's Opinion to Defend Against Willfulness Does Not Generally Encompass Trial Counsel's Communication or Work Product
When an accused infringer uses an opinion of counsel to defend against a charge of willful patent infringement, the accused infringer waives attorney-client privilege and the work-product doctrine protection as to the relevant subject matter. See, e.g., In re EchoStar Commc’n Corp., 448 F.3d 1294 (Fed. Cir. 2006) (en banc). An important question is the scope of this waiver. Echostar's statements regarding the scope of waiver were quite broad. The majority of district courts addressing the issue held that Echostar indicated that the scope of the waiver reached both opinion counsel and trial counsel.
The Seagate court, however, held that the use and disclosure of opinion counsel's opinion in defending against an accusation of willful infringement does not generally waive attorney-client privilege for communications with trial counsel. The court reasoned that "we conclude that the significantly different functions of trial counsel and opinion counsel advise against extending waiver to trial counsel. Whereas opinion counsel serves to provide an objective assessment for making informed business decisions, trial counsel focuses on litigation strategy and evaluates the most successful manner of presenting a case to a judicial decision maker. And trial counsel is engaged in an adversarial process." The court left open the possibility of waiver reaching trial counsel in unique (and impliedly rare) circumstances, such as chicanery (i.e, deception by artful subterfuge or sophistry).
Similarly, the court held that "as a general proposition, relying on opinion counsel’s work product does not waive work product immunity with respect to trial counsel." The court again left open the possibility of waiver reaching trial counsel in certain situations, such as chicanery or meeting the significant burden of showing need and hardship under Rule 26(b)(3) of the Federal Rules of Civil Procedure.
III. Post-Filing Conduct Can Serve as a Basis for Willfulness in Much Narrower Circumstances, Often Requiring a Preliminary Injunction Motion
Before Seagate, most viewed infringement after the complaint is filed as a possible basis for willful infringement. A classic question followed from this view--whether an opinion of counsel obtained after suit is filed is helpful in defending against a willfulness accusation?
Seagate held that if the patentee does not seek a preliminary injunction, the patentee cannot seek enhanced damages for post-filing infringement alone. Even if the patentee does not seek a preliminary injunction, the patentee can seek enhanced damages for pre-filing conduct.
The court implied that a patentee who does not seek a preliminary injunction can still seek enhanced damages based on the combination of pre-filing and post-filing conduct. The court so implied by stating that "[a] patentee who does not attempt to stop an accused infringer’s activities [with a preliminary injunction motion] should not be allowed to accrue enhanced damages based solely on the infringer’s post-filing conduct." (emphasis added) Enhanced damages may not be available for post-filing conduct generally, however. The court stated that "when an accused infringer’s post-filing conduct is reckless, a patentee can move for a preliminary injunction, which generally provides an adequate remedy for combating post-filing willful infringement." (emphasis added) (citing 35 U.S.C. § 283; Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d 1343, 1350 (Fed. Cir. 2001)).
The court discussed the consequences of seeking, but not obtaining, a preliminary injunction. The court held that a district court's denial of a preliminary injunction motion based on a finding of a "substantial question about invalidity or infringement is likely sufficient not only to avoid a preliminary injunction, but also a charge of willfulness based on post-filing conduct." The court noted that if the motion is denied on a basis besides failure to show a likelihood of success on the merits, the viability of willfulness based solely on post-filing conduct "will depend on the facts of each case."
As a corollary to this analysis, the court noted that reliance on opinions obtained post-filing "will likely be of little significance."
IV. Brief Commentary on the New Standards
Below are some initial observations and questions regarding these new standards.
How does one prove "that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent"? How does one take steps to reduce the likelihood of being found to have known of (or should have known of) such risk?
From whose perspective is the objective likelihood viewed? Will it be from the viewpoint of a patent attorney of ordinary skill, of a general reasonable person, of the particular person at issue, or some other viewpoint?
For example, if in-house counsel receives a letter asserting one of the company's products infringes a particular patent, does in-house counsel know of an objectively-high likelihood that the company's actions constitute infringement of a valid patent? In the abstract, it is doubtful that in-house counsel would generally know of such high likelihoods simply by reading the standard notice-of-alleged-infringement letter. If in-house counsel read the patent in some detail or if the letter contained a detailed claim chart, might in-house counsel then know of an objectively-high likelihood of infringement? Possibly so. In some instances, reasonable in-house counsel might read the patent or claim chart and know immediately of an objectively-low likelihood of infringement. In others, reasonable in-house counsel might read such material and see that the claims are rather broad on their face and that the plain language of the claims encompasses the product at issue. But, given the Federal Circuit's post-Phillips emphasis on the specification and prosecution history, can one know of an "objectively high likelihood" of infringement without reading the intrinsic evidence?
Since a patent is presumed valid under the Patent Act, wouldn't in-house counsel's lack of knowledge of a judgment of invalidity or the like mean that one would know of an objectively high likelihood of a valid patent? Or can one take into account that many issued patents are invalid when considering objective likelihoods?
Since the affirmative duty of due care no longer exists, can in-house counsel open the letter, see that it is an accusation of infringement and then stop reading and ignore the letter without risking a willfulness finding? In this regard, the majority's formulation of "objectively-high likelihood" of infringing a valid patent is somewhat at odds with Judge Newman's "standards of behavior" bench-mark. Judge Newman explained that "[t]he standards of behavior by which a possible infringer evaluates adverse patents should be the standards of fair commerce, including reasonableness of the actions taken in the particular circumstances." Thus, Judge Newman indicates that how in-house counsel handles such letters generally, in addition to how the in-house counsel handled the particular letter, should be viewed against what is fair and reasonable.
This view is not the same as asking whether in-house counsel, on opening and reading the letter, then knows of an "objectively high likelihood" that the company's actions constitute infringement and that the patent cited in the letter is valid. If one stops reading immediately, how can one have known of (or should have known of) an objective high likelihood? Does the "should have known" standard require in-house counsel to keep reading? Since the affirmative duty of due care has been abandoned, one can argue that in-house counsel does not have to keep reading. But Judge Newman's formulation and the "should have known" standard calls this argument into question.
Thus, there are several unanswered questions about this new standard that will be developed and answered by the courts.
Opinions of counsel will likely continue to be the best way to drastically reduce the likelihood of a willfulness finding. It will be very difficult to assert that a company that obtains an opinion was "objectively reckless."
Seagate, though, does away with the duty of due care's rule that knowledge of a patent gives rise to a duty to investigate and seek an opinion of counsel in many instances. Now, it appears that mere knowledge cannot be the basis of willfulness. Seagate indicates that it must be, instead, that "an objectively high likelihood" of infringement of a valid patent is known (or should have been known).
Thus, it is likely a company can now decide not to seek an opinion about a patent known to it in many instances in which the duty of due care before Seagate would have placed an affirmative duty on the company to investigate and analyze the patent. Carrying out such activities as reviewing a competitor's patent portfolio will likely be more palatable now.
For defendants in patent litigation suits, the Federal Circuit reached a useful result by finding that waiver generally does not reach trial counsel. Seagate will facilitate fuller and franker discussions between trial counsel and trial counsel's client when an opinion may be used to defend against a willfulness accusation.
Seagate is a very positive development for companies that face accusations of patent infringement.