In re Seagate Technology, LLC (Fed. Cir. Aug. 20, 2007)

On August 20, 2007 the Federal Circuit issued its en banc decision redefining willful infringement and further addressing the advice-of-counsel defense in relation to both the attorney-client privilege and the work product privilege. More specifi cally, the Federal Circuit held that proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness, which abandons the affi rmative duty of due care approach. Regarding the attorney-client privilege, the Federal Circuit held that asserting the advice-of-counsel defense and disclosing opinions of counsel do not constitute a waiver of the attorney-client privilege for communications with trial counsel. Furthermore, the assertion of advice of counsel as a defense against willful infringement does not implicate a waiver that extends to trial counsel’s work product, absent exceptional circumstances.

Under U.S. Patent Law, section 284 of the Patent Act allows a court to “increase the damages up to three times the amount found or assessed.” 35 U.S.C. § 284. Although the phrase “willful infringement” does not appear in the statute, courts have held that these enhanced damages under section 284 require a showing of willful infringement. In Underwater Devices Inc. v. Morrison- Knudsen Co., the Federal Circuit stated, “Where . . . a potential infringer has actual notice of another’s patent rights, he has an affi rmative duty to exercise due care to determine whether or not he is infringing. Such an affi rmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.” 717 F.2d 1380 (Fed. Cir. 1983) (citations omitted). The Federal Circuit, however, has now changed this standard.

In Seagate, Convolve, Inc. and the Massachusetts Institute of Technology (collectively, “Convolve”) sued Seagate, alleging willful infringement of U.S. Patent Nos. 4,916,635 (the ‘635 patent) and 5,638,267 (the ‘267 patent). Subsequently, U.S. Patent No. 6,314,473 (the ‘473 patent) issued, and Convolve amended the complaint to also assert infringement of the ‘473 patent.

Prior to the lawsuit, Seagate hired an attorney to provide an opinion concerning Convolve’s patents, and the attorney ultimately prepared three written opinions. Seagate received the fi rst after the complaint was fi led, an updated complaint, and a third opinion after the ‘473 patent issued. There was no dispute that Seagate’s opinion counsel operated separately and independently of trial counsel at all times.

Pursuant to the trial court’s scheduling order, Seagate notifi ed Convolve of its intent to rely on the three opinion letters in defending against willful infringement. Convolve then moved to compel discovery of any communications and work product of Seagate’s other counsel, including Seagate’s trial counsel. The trial court concluded that by raising the opinion letters, Seagate 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., infringement, invalidity and enforceability. Despite Seagate’s providing the three opinion letters and making the attorney who prepared them available for deposition, Convolve sought production of trial counsel opinions relating to infringement, invalidity and enforceability of the patents. The trial court denied Seagate’s motion for a stay and certifi cation of an interlocutory appeal as to this matter. Seagate therefore petitioned the Federal Circuit, which entered a stay and reviewed the case.

First, the Federal Circuit addressed the willfulness issue and compared willfulness under patent law to willfulness in other areas of law. The court stated that the duty of care announced in Underwater Devices set a lower threshold for willfulness than in other legal areas. Accordingly, the court overruled the standard set out in Underwater Devices and held that proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness. Thus, the Federal Circuit set out a two-step analysis: (1) to establish willful infringement, “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”; and (2) “the patentee must also demonstrate that this objectively defi ned 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.”

Second, the court addressed waiver-related issues associated with the attorney-client privilege and the work product privilege. The court noted that “opinion counsel serves to provide an objective assessment for making informed business decisions,” while “trial counsel focuses on litigation strategy and evaluates the most successful manner of presenting a case to a judicial decision maker.” “Because of the fundamental difference between these types of legal advice, this situation does not present the classic ‘sword and shield’ concerns typically mandating broad subject matter waiver. Therefore, fairness counsels against disclosing trial counsel’s communications on an entire subject matter in response to an accused infringer’s reliance on opinion counsel’s opinion letter to refute a willfulness allegation.” Additionally, the Federal Circuit noted that, in typical patent litigation, “willfulness will depend on an infringer’s prelitigation conduct.” Thus, “communications of trial counsel have little, if any, relevance warranting their disclosure, and this further supports generally shielding trial counsel from the waiver stemming from an advice of counsel defense to willfulness.”

In summary, the court concluded that to establish willful infringement, patentees must establish a higher threshold of objective recklessness by (1) showing clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent, and (2) demonstrating that this objectively defi ned 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. Additionally, the court generalized that asserting the advice-of-counsel defense and disclosing written opinions will not constitute a waiver of the attorney-client privilege or the work product privilege with respect to work associated with trial counsel.