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Contact: Donald W. Rupert 312.474.9571 or drupert@marshallip.com

On August 20, 2007, the Federal Circuit issued its en banc opinion in the case of In re Seagate.  The decision has implications for patent opinion practice, enhanced damages, willful infringement, and waiver of the attorney-client privilege and attorney work product.  This memorandum provides a summary of the Court’s decision.

The Issues

In the underlying patent infringement litigation, defendant Seagate decided to rely on an advice of counsel defense to counter the willful infringement charge asserted by plaintiff Convolve.  Thereafter, Convolve moved to compel discovery of the attorney’s opinions, together with discovery of the files of Seagate’s trial counsel; Convolve also sought to depose trial counsel.  Seagate’s opinion counsel was independent from its trial counsel.

The district court determined that Seagate’s reliance on the advice of counsel defense acted as a waiver of the attorney-client privilege for all communications between Seagate and any of its counsel, including trial counsel.  The court also determined that work product protection of trial counsel’s work product communicated to Seagate was waived.

Seagate then petitioned the Federal Circuit for a writ of mandamus, after which the Court sua sponte ordered en banc review of the following questions:

1.                  Should a party’s assertion of the advice of counsel defense to willful infringement extend waiver of the attorney-client privilege to communications with that party’s trial counsel?  See In re Echostar Commc’n Corp., 448 F.3d 1294 (Fed. Cir. 2006).

2.                  What is the effect of any such waiver on work-product immunity?

3.                  Given the impact of the statutory duty of care standard announced in Underwater Devices, Inc., v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983), on the issue of waiver of attorney-client privilege, should this court reconsider the decision in Underwater Devices and the duty of care standard itself?

Background of the Court’s Decision

In addressing the issues presented, the Court first revisited the standard to be applied in the willful infringement setting.  The Court’s apparent rationale for this approach was that the nature of the “offense” of patent infringement is only relevant in determining whether enhanced damages are warranted.  The Court recognized that the patent damages statute contains no standard for awarding enhanced damages (See 35 U.S.C. § 284, emphasis added: “Upon a finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement … When the damages are not found by a jury, the court shall assess them.  In either event the court may increase the damages up to three times the amount found or assessed.”).  Nonetheless, the Court reaffirmed its precedent that “an award of enhanced damages requires a showing of willful infringement.”  (Slip op. at 6, emphasis added).

Having concluded that willful infringement is the touchstone of an enhanced damages award, the Court went on to consider the standard for evaluating the existence, or not, of willful infringement.  The Court noted the current standard articulated in Underwater Devices, Inc., v. Morrison-Knudsen Co., 717 F.2d 1380, 1389-90 (Fed. Cir. 1983), quoting:

Where … 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.  (Emphasis in original).

The Court also noted that, more recently, willfulness and the duty of care have been evaluated under the totality of the circumstances.  See Read Corp. v. Portec, Inc., 970 F.2d 816, 826-27 (Fed. Cir. 1992).  Additionally, the Court commented on the interplay of willfulness with the prospects of adverse inferences arising if the attorney-client privilege is relied upon and an opinion is not produced (no adverse inference with respect to willfulness: Knorr-Bremse Systeme Fuer Nutzfahreuge GmbH v. Dana Corp., 383 F.3d 1337, 1343 (Fed. Cir. 2004)) and the scope of any work product waiver as a result of asserting the advice of counsel defense (waiver does not extend to work product not communicated to accused infringer: In re Echostar Commc’n Corp., 448 F.3d 1294 (Fed. Cir. 2006)).

The Decision

            Willful Infringement

On the issues presented, the Court’s first step was to overrule Underwater Devices and set out a new standard for willful infringement.  This new standard is (slip op. at 12):

[P]roof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness.  Because we abandon the affirmative duty of care, we also reemphasize that there is no affirmative obligation to obtain opinion of counsel.

***

Accordingly, 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 … The state of mind of the accused infringer is not relevant to this objective inquiry.  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.

Having established this new, objective standard, the Court provided no guidance as to what it means or how it is to be implemented.  Rather “[w]e leave it to future cases to further develop the application of this standard.”  (Slip op. at 12).

            Attorney-Client Privilege

On the attorney-client waiver issue and the scope of the privilege, the Court concluded that the significantly different functions played by opinion counsel and trial counsel advise against extending any waiver to trial counsel.  Although the Court could have stopped there, it did not.  Rather, the Court then launched into a treatment of pre-litigation and post-litigation opinions and willfulness.  As to pre-litigation activities, the Court noted that a willfulness claim asserted in the original complaint must necessarily be grounded exclusively in the accused infringer’s pre-filing conduct.  This circumstance would generally be outside of the realm of trial counsel’s activities.  As the Court stated:  “[b]ecause willful infringement in the main must find its basis in prelitigation conduct, communications of trial counsel have little, if any, relevance warranting their disclosure, and this further supports generally shielding trial counsel form the waiver stemming from an advice of counsel defense to willfulness.”  (Slip op. at 18).

On the other hand, if the willfulness issue is raised as a result of the accused infringer’s post-filing conduct, the patentee has the ability to move for a preliminary injunction “which generally provides an adequate remedy for combating post-filing willful infringement.”  (Slip op. at 17, citations omitted).

This section of the Court’s opinion sets out a roadmap of what needs to be done to obtain enhanced damages for post-filing conduct.  It only addresses the waiver issue in passing.  According to the Court (slip op. at 17):

A patentee who does not attempt to stop an accused infringer’s activities in this manner [i.e., via a preliminary injunction for post-filing conduct] should not be allowed to accrue enhanced damages based solely on the infringer’s post-filing conduct.  Similarly, if a patentee attempts to secure injunctive relief but fails, it is likely the infringement did not rise to the level of recklessness.

We fully recognize that an accused infringer may avoid a preliminary injunction by showing only a substantial question as to invalidity, as opposed to the higher clear and convincing standard required to prevail on the merits … However, this lessened showing simply accords with the requirement that recklessness must be shown to recover enhanced damages.  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.

After this aside, the Court returned to the waiver issue and simply noted that Seagate’s opinions were obtained after the litigation commenced and “will likely be of little significance”.  (Slip op. at 18).  Apparently, the Court is signaling that if opinions are going to be relied on for willfulness purposes, they need to be completed prior to suit.

Finally, the Court wrapped up its waiver holding, stating (slip op. at 18):

In sum, we hold, as a general proposition, that asserting the advice of counsel defense and disclosing opinions of opinion counsel do not constitute a waiver of the attorney-client privilege for communications with trial counsel.  We do not purport to set out an absolute rule.  Instead, 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.

            Work Product

The Court’s discussion of the work product doctrine should be much less controversial than the other holdings in this decision.  The Court determined that reliance on advice of counsel does not generally waive trial counsel’s work product.  As the Court stated (slip op. at 21):

Accordingly, we hold that as a general proposition, relying on opinion counsel’s work product does not waive work product immunity with respect to trial counsel.  Again, we leave open the possibility that situations may arise in which waiver may be extended to trial counsel, such as if a patentee or his counsel engages in chicanery.  And, of course, the general principles of work product protection remain in force, so that a party may obtain discovery of work product absent waiver upon a sufficient showing of need and hardship, bearing in mind that a higher burden must be met to obtain that pertaining to mental processes.

Conclusion

The Federal Circuit’s decision has implications far beyond the questions presented for en banc review.  The Court has redefined the nature of willful infringement, but provided no guidance as to how the new “objective recklessness” standard it to be applied and little suggestion as to what it means.  Moreover, the Court has drawn a clear line of demarcation between pre-litigation conduct and post-filing conduct as related to enhanced damages and provided a set of rather stringent hurdles a patentee must surmount if post-filing enhanced damages are to be awarded.

On the brighter side, the Court has set out a relatively clear view that the actions of trial counsel will not be subject to a waiver of the attorney-client privilege or the work product protection in nearly all situations.  Nonetheless, the Court left open the possibility that certain activities of the accused infringer or trial counsel could result in a waiver of the privilege or the work product protection if either engages in “chicanery”.  The Court did not provide concrete examples of what it intended by this choice of wording.

Finally, the Court’s passing comment about the relevance of a post-filing attorney opinion relied upon to defend against a claim of willful infringement cannot be overlooked.  Whether the Court intended this comment as a signal that such opinions can be discounted will have to await subsequent cases.

This Marshall, Gerstein & Borun LLP memorandum provides information and comments on issues and developments that may be of interest to our clients and friends.  It is not intended as a comprehensive treatment of the subject matter covered and does not provide legal advise.  Readers should seek specific legal advice before taking any action with respect to matters discussed herein.