Patent holders have included a standard allegation of willful infringement as a routine matter in infringement actions in the hope of obtaining enhanced damages and attorneys' fees. In addition to these monetary considerations, even a general charge of willful infringement created the probability that, in defense of the willfulness allegation, the accused infringer would be forced to waive the attorney-client communication privilege and disclose the communications showing reliance on its patent counsel. The Federal Circuit's decision in In re Seagate, issued on August 20, 2007, may have put an end to this routine use of a claim of willful infringement and the accompanying issues of waiver.
Burden of Proof on Willfulness
In 1983, citing a need for more strict protection for patent holders, the Federal Circuit issued a decision imposing a "duty of due care" on potential infringers with knowledge of another's patent to ensure that their activities were not infringing on the patent. Accordingly, to avoid a finding of willful infringement, the burden was on the accused infringer to prove affirmatively that it had exercised "due care" in investigating whether its planned or current actions were infringing. One of the common steps taken by potential infringers as a defense against a willful infringement claim was to obtain legal advice from a patent counsel that the potential infringer's actions were not infringing any known patent or that any potentially infringed patents were invalid.
In the recent Seagate decision, the Federal Circuit noted that applying the affirmative "duty of due care" set forth in the 1983 ruling had, however, led to opportunities for "abusive gamesmanship." In view of this, the Court took two steps: it overruled the 1983 decision and it changed the standard necessary to prove willful infringement. The new willfulness inquiry has been transformed from a negligence standard, where the burden of proof was on the accused infringer to demonstrate due care when designing its products, to the standard of "objective recklessness" with the burden of proof on the patent holder.
Under this new ruling, not only does the burden of proof switch from the accused infringer to the patent holder, but the standard to prove willfulness is much more stringent. According to the Court, under the new "objective recklessness" standard, "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." As with many new judicial tests, the Federal Circuit did not explain how this standard was to be applied, but noted that development of the standard would be left to the lower courts.
Waiver of Attorney-Client Privilege
As discussed above, under the old negligence standard for willfulness, the primary defense used by an accused infringer was a legal opinion from its patent counsel that it was not infringing or that the patent at issue was invalid and unenforceable. If the accused infringer chose to rely on the opinion from its patent counsel in defense of the willfulness claim, the accused infringer waived its attorney-client privilege with respect to the subject matter of the patent counsel's opinion.
Just how far that waiver reached was never fully defined by the Federal Circuit and, thus, district courts had little direction as to how broadly to apply the waiver. This resulted in district courts differing on how the waiver should be applied. Some courts declined to extend the waiver beyond the communications of the patent counsel. Some courts, like the trial court in the Seagate matter, applied the waiver more broadly and extended the waiver even to the privileged communications between trial counsel and the client that had occurred after the initiation of the lawsuit. Other courts took a middle-ground approach and applied the waiver to trial counsel's communication only if the trial counsel's opinion differed significantly from the opinion given by the accused infringer's patent counsel.
As courts wrestled with the scope of the waiver, the charge of willfulness became an intensely litigated issue resulting in a significant increase in litigation costs. The undefined and varying scope of the waiver also presented a difficult dilemma for trial counsel for the accused infringer—whether to use the patent counsel's opinion in defense of the willfulness claim (and potentially waive the protection of trial counsel's trial advice to the client) or decline to use patent counsel's opinion (and face the possibility of treble damages for the client).
Noting the need for a consistent application of the wavier and the importance of maintaining the attorney-client privilege for trial counsel, the Federal Circuit decided in Seagate against extending waiver to trial counsel. The Court noted the very different roles of the patent and trial counsel, where the patent counsel deals with business advice while trial counsel deals with litigation strategy. Fairness weighed against a broad scope of waiver that would include a waiver of trial counsel's communication based solely on the accused infringer's reliance on its patent counsel's opinion in defense of willfulness. Finally, the Court observed that, based on the objective reckless standard for proving willfulness, willfulness will depend, in most cases, on the accused infringer's conduct before the litigation was commenced and, thus, trial counsel's communication occurring after the lawsuit was initiated would be irrelevant.
Until the new standard of willfulness is applied over time in district courts, questions remain as to how the "objective recklessness" standard will be developed and how this will affect future patent litigation. Questions remain as to the present significance of a patent counsel's infringement and validity opinion and any accompanying issues of waiver of attorney-client privilege. In this evolving area of the law, however, one thing seems clear—the Seagate Court's twofold change in willfulness jurisprudence has significantly altered the ability of patent holders to recover enhanced damages.