By Audrey A. Millemann

This week, in an en banc decision, the Federal Circuit Court of Appeals significantly altered the law of willful patent infringement and resolved a confusing issue concerning the waiver of the attorney-client privilege. In In re Seagate Technology, LLC (August 20, 2007), the court made it harder for a patent owner to prove willful infringement. The court also clarified that the waiver of the attorney-client privilege between the client and patent opinion counsel does not result in a waiver of the privilege and the work product protection between the client and its litigation counsel. 

In re Seagate was a patent infringement case filed by plaintiffs Convolve, Inc. and Massachusetts Institute of Technology against Seagate, alleging infringement of three patents and asserting willfulness. Seagate had obtained opinions from its patent counsel that the plainitffs’ patents were invalid, not infringed, and unenforceable. When Seagate was sued, it obtained separate trial counsel. 

During discovery, Seagate asserted its reliance on its patent opinions and waived the attorney-client privilege and work product protection with respect to its patent opinion counsel. The plaintiffs moved to compel the privileged communications and work product of Seagate’s trial counsel. The district court for the Southern District of New York granted the motion and ordered trial counsel to produce all materials, including work product, regarding the subjects of infringement, invalidity, and unenforceability of the patents.

Seagate filed a petition for a writ of mandamus with the Federal Circuit.  Many amicus briefs were filed in support of Seagate.  The appellate court granted the petition. 

In its opinion, the court reviewed its previous decisions in this area. In Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983), the court established an affirmative duty of a potential infringer to obtain a patent opinion from counsel once the potential infringer had notice of the patent. In the cases that followed Underwater Devices, the court emphasized that an opinion of counsel of noninfringement, invalidity, or unenforceability was the key factor in determining whether the defendant’s infringement was willful, and thus, whether a court could award treble damages under 35 U.S.C. § 284. The result of these cases was that a defendant was essentially required to prove non-willfulness by evidence of its affirmative steps, even though the burden of proving willfulness was on the plaintiff. 

In Quantum Cor. v. Plus Development Corp., 940 F.2d 642 (Fed. Cir. 1991), the court warned the district courts to be careful in requiring a defendant to choose between relying on a patent opinion to avoid willful infringement and waiving the attorney-client privilege, on the one hand, and, on the other hand, preserving the privilege and risking being held liable for willful infringement. The court suggested that the district courts should consider ways to minimize the risk to the defendant, such as bifurcating the case or reviewing documents in camera

More recently, in Knorr-Bremse Systeme Fuer Nutzfahreuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004), the court limited the scope of the willfulness doctrine by holding that a defendant’s failure to obtain a patent opinion or to waive the attorney-client privilege did not give rise to an adverse inference of willful infringement. 

In the latest case addressing this issue, In re Echostar Communications Corp. 448 F.3d 1294 (Fed. Cir. 2006), however, the court seemed to move in the opposite direction. There, the court held that reliance on a patent opinion resulted in a waiver of the attorney-client privilege for in- house counsel and a waiver of the work product protection for all communications on the subject matter of the opinion. The court did not address the question of whether reliance on patent counsel’s opinion also resulted in a waiver of the attorney client-privilege and work product protection of trial counsel. 

After Echostar, however, patent litigators feared that a defendant who asserted a patent opinion as a defense to willfulness would be required to waive the attorney-client privilege and work product protection for all of its counsel, including trial counsel. This fear turned out to be justified, as the district courts responded to Echostar. Some courts ordered that the privilege was waived as to trial counsel, as did the district court in Seagate, while others found that the privilege as to trial counsel was not waived at all, and some chose a middle ground in a partial waiver of trial counsel’s materials depending on the content of the materials.

In its decision, the court reached three important holdings. 

Willful Infringement

First, the court considered willfulness. The court analyzed willfulness in the context of copyright law and other areas of general civil law. In these areas, willfulness requires at least “reckless disregard” by the defendant rather than mere negligence. In reviewing its decision in Underwater Devices, the court found that the case was inconsistent with existing law in that it essentially created a duty of care based on negligence.

The court expressly overruled the standard it set in Underwater Devices. “[W]e … hold that proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness. Because we abandon the affirmative duty of due care, we also reemphasize that there is no affirmative obligation to obtain opinion of counsel.” (Seagate.)

The court established a two-part test for willful patent infringement. First, the patent owner must prove “by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. [Citation omitted.] The state of mind of the accused infringer is not relevant to this objective inquiry.”  (Id.)  Second, the patent owner must prove 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.” (Id.) 

The court stated that it would leave the further elaboration of this test to future cases. While the details of how the test will be applied may be resolved later, it is clear that the test is objective. Not only will a plaintiff have to prove that the defendant acted recklessly, but also that an objective person would find the defendant reckless.

Attorney-Client Privilege

The court next addressed the scope of the waiver of the attorney-client privilege when a defendant asserts a patent opinion as a defense to willful infringement. 

The court emphasized the importance of the attorney-client privilege in furthering the interests of justice. The court also pointed out that the reason for a waiver of the privilege is to avoid litigants using the privilege as a sword and a shield – – by disclosing communications that are favorable to the party and withholding communications that are unfavorable. 

Based on the differing functions of patent opinion counsel and trial counsel, the court held that “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 to refute a willfulness allegation.”  (Id.)  Part of the rationale for the court’s holding was that willfulness is typically proven by evidence of the defendant’s conduct before the litigation, meaning that attorney-client communications between the defendant and its trial counsel are not particularly relevant. 

Work Product Doctrine

Lastly, the court held that a defendant’s reliance on a patent opinion does not require a waiver of trial counsel’s work product. This holding was qualified by the court’s statement that the work-product protection may be waived in exceptional circumstances.

Most commentators believe that Seagate is a landmark case, both in its reversal of the Underwater Devices negligence-type of standard and in its clear rejection of the waiver as it applies to trial counsel. Many view the decision as a victory for potential patent infringers. While that may be going too far, it seems that patent cases may now be more likely to end in settlements of reasonable royalties than in large verdicts with treble damages.