The recent decision in In re Seagate Technology, LLC, Miscellaneous Docket No. 830 (Fed. Cir. 2007), is another setback for patentees, who lost several important battles in the United States Supreme Court earlier this year. Although it is likely to substantially impact the conduct of patent infringement litigation, at this time, it does not appear to warrant significant changes in pre-litigation risk management strategies.
In a unanimous, en banc opinion, the Court of Appeals for the Federal Circuit tossed aside 24 years of jurisprudence on what constitutes “willful” patent infringement for purposes of awarding enhanced damages. Faced with deciding a thorny question involving the scope of waiver of the attorney-client privilege when asserting an advice of counsel defense, the court took the opportunity to raise the standard for showing willful patent infringement from the affirmative duty to exercise “due care” to avoid infringement, to “objective recklessness,” overruling its seminal case of Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983).
The Federal Circuit admitted that the affirmative duty of due care, which was essentially a negligence standard, failed “to comport” with the standard meaning of “willfulness” in civil law generally. In doing so, it specifically noted several Supreme Court decisions concluding that willfulness, in other contexts, meant reckless behavior and reckless disregard for the law. The court also recognized that other circuits had interpreted the Copyright Act’s willfulness standard as requiring reckless disregard.
To prove willful infringement, the Federal Circuit explained that a patentee must present clear and convincing evidence (1) “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.”
In light of this new standard and differences between the roles of, and types of advice given by, opinion and trial counsel, the court concluded that, “asserting the advice of counsel defense and disclosing opinions of opinion counsel do not constitute waiver of the attorney-client privilege for communications with trial counsel.” It warned that this was not an absolute rule, and that a court would have the discretion, in “unique circumstances,” to extend the waiver to trial counsel if “a party or counsel engages in chicanery.”
Noting the Supreme Court and other courts have approved of narrowly restricting the scope of work product waiver, the court further held that relying on opinion counsel’s work product does not waive work product immunity with respect to trial counsel except in rare circumstances.
While the full impact of the decision will not be known until it has been interpreted and applied in later cases, following are some initial impressions and predictions:
1- Given that “an objectively high likelihood of infringement must be known, or “should have been known” to the accused infringer, it may be tempting to forego advice of counsel and opinions when faced with knowledge of a possibly relevant patent. Seeking advice of counsel would inform the party of any potential for infringement.
However, we urge caution. It is not clear under what circumstances a party will be deemed to have known of an objectively high likelihood of infringement. Furthermore, ignoring potential infringement issues is not good risk management strategy, even if the new standard lowers the risk of a successful claim for increased damages. Unless these issues are clarified in future decisions, it continues to be prudent to seek advice of counsel on known patents. Having a written opinion will be useful for proving that an accused infringer did not in fact possess the requisite knowledge. In our opinion, Seagate does not warrant significantly changing current clearance practices and risk mitigation strategies.
2-It appears that an opinion, to be useful as a defense to a claim of willfulness, need only raise a substantial question concerning the likelihood of success of a claim of infringement. Thus, simpler, but still well reasoned, opinions should suffice.
3- Although juries may still tend to find “willfulness,” the new standard affords a greater possibility of resolving the issue as a matter of law. Defendants, at least in some cases, will likely feel less threatened by a claim of willfulness, thus robbing patentees of some leverage in settlement negotiations.
4- The “chicanery” exception suggests a continuing potential for discovery disputes concerning the scope of waiver. Nevertheless, it appears that an accused infringer will have the upper hand in these disputes.
5- Pleading willfulness may be more difficult. Simply making a party aware of a patent may not be sufficient to satisfy the Rule 11 duty when making an allegation of willfulness. The information that would be sufficient to comply with Rule 11 in alleging willfulness remains to be seen.
6- If a patentee intends to rely solely on post-filing conduct to support enhanced damages, the patentee will likely need to file a motion for preliminary injunction and to win it. According to the court, a patentee who fails to file a motion for preliminary injunction in these circumstances should not be allowed to accrue enhanced damages based solely on post-filing conduct. Furthermore, it explained that the loss of the motion based on a substantial question about validity or infringement should lead to the conclusion that the infringing conduct was not reckless.
7- Whether an opinion is necessary or desirable for post-complaint conduct is uncertain. Pending further developments in the case law, it would be prudent to obtain an opinion.