The United States Court of Appeals for the Federal Circuit yesterday issued an en banc decision in In re Seagate Technology, LLC, overruling the duty of care standard established nearly 25 years ago and increasing the threshold of proof necessary to establish willful infringement. The court also held that assertion of the attorney-client privilege does not waive the privilege as to trial counsel (as opposed to opinion counsel). Nor, the court held, does assertion of an advice of counsel defense waive the work product immunity of trial counsel.
The plaintiffs, Convolve and MIT, had sued Seagate for infringement of three patents. Seagate retained outside opinion counsel to provide written opinions, which ultimately addressed issues of validity, infringement and enforceability of the disputed patents. Opinion counsel operated separate and independent of trial counsel at all times.
Seagate notified the plaintiffs of its intent to rely on opinion counsel's opinion letters in defending against the allegations of willful infringement. Plaintiffs then moved to compel discovery of any communications and work product of Seagate's other counsel including its trial counsel. In May 2004, the trial court concluded that Seagate had waived the attorney-client privilege for all communications between it and any counsel, including its trial attorneys and in-house counsel, concerning the subject matter of the opinions (i.e., invalidity, infringement and enforceability). The court further held that the waiver began when Seagate first gained knowledge of the patents and would last until the alleged infringement ceased. The court also determined that the protection of work product communicated to Seagate was waived.
After the trial court denied Seagate's motion for a stay and certification of interlocutory appeal, Seagate petitioned for a writ of mandamus. Although the petition focused solely on the discovery orders, the Federal Circuit ordered en banc review not only of the issues of whether a party's assertion of the advice of counsel defense to willful infringement extended the waiver of attorney-client privilege to communications with that party's trial counsel and what the effect of such waiver is on work product immunity, but also whether the court should reconsider its duty of care standard for evaluating willful infringement enunciated in its 1983 decision in Underwater Devices, Inc. v. Morrison-Knudsen Co.
Proving Willful Infringement
Nearly 25 years ago, in Underwater Devices, the Federal Circuit held that "[w]here...a potential infringer has actual notice of another's patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity." Over time, case law evolved to evaluate willfulness and the duty of care under a totality of the circumstances. For example, in 2004, in Knorr-Bremse Systeme Fuer Nutzfahreuge GmbH v. Dana Corp., the Federal Circuit held that invoking the attorney-client privilege or work product protection does not give rise to an adverse inference, and that an accused infringer's failure to obtain legal advice also does not give rise to an adverse inference.
Rejecting and expressly overruling the Underwater Devices standard, and affirmatively citing to the recklessness standard for enhanced damages in copyright law, the Federal Circuit yesterday held that "proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness." Although recognizing that the term "reckless" is not self-defining, the court held that "a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent...If this threshold objective standard is satisfied, the patentee must also demonstrate 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."
Protection of the Attorney-Client Privilege and Attorney Work Product
In addressing the issue of the scope of waiver resulting from the advice of counsel defense, the court recognized that the Supreme Court has stated that the attorney-client privilege is "the oldest of the privileges for confidential communications known to the common law" and that its purpose is "to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice." The court also noted that district courts have reached varying results with respect to whether the waiver of the privilege as applied to opinion counsel also extended to trial counsel.
The court weighed the competing interests between disclosure and protection of confidences and explained the "significantly different functions of trial counsel and opinion counsel," (i.e., trial counsel is engaged in an adversarial process, focusing on litigation strategy and the most successful manner of presenting a case to a trier of fact, whereas opinion counsel provides an objective assessment). The court held, "as a general proposition, 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." Significantly, the court did not set out an absolute rule, acknowledging that "trial courts remain free to exercise their discretion in unique circumstances to extend waiver to trial counsel, such as if a party or counsel engages in chicanery."
The court also held that the same rationale applies with even greater force to limiting waiver of work product immunity with respect to trial counsel. The court did not, however, address the issue of the scope of any waiver resulting from the reliance on in-house counsel's advice, which was the subject of the court's 2006 decision in In re Echostar Communications Corp.
Possible Effects of this Decision
By raising a patentee's burden of proof in establishing willful infringement, the Seagate decision, like the Supreme Court's 2006 decision in eBay Inc. v. MercExchange LLC, which rejected the general rule granting permanent injunctions in patent cases, and the 2007 decision in KSR International Co. v. Teleflex Inc., which refined the analysis for determining whether a patent is invalid on the grounds of obviousness, has the potential to affect how patentees and accused infringers evaluate the risks associated with claims of patent infringement. If that occurs, it is possible that the negotiation of patent licenses may also be impacted.