13 Nov New patent-infringement rules established in Seagate decision
Editor’s note: This article was written by George Best and Jeffrey Simmons of the law firm Foley & Lardner.
In a landmark decision this past August, the Court of Appeals for the Federal Circuit overturned a 24-year-old precedent and established new rules governing “willful” patent infringement, enhanced patent damages, and the waiver of attorney-client privilege and work-product protection. The decision in the Seagate Technology case significantly alters the analytical framework for some of the most basic, and potentially costly, issues in patent litigation.
The Seagate decision addresses three important issues: (1) the standard for proving “willful” patent infringement and, by extension, when a court may award enhanced damages, (2) the extent to which asserting an advice-of-counsel defense causes a waiver of attorney-client privilege, and (3) whether that waiver extends to trial counsel’s work product.
First, the Federal Circuit expressly overruled Underwater Devices, Inc. vs. Morrison Knudsen, a 24-year-old precedent governing willful patent infringement. Underwater Devices established a standard that put a significant burden on alleged patent infringers. Under that standard, alleged infringers had an “affirmative duty to exercise due care to determine whether or not [they were] infringing” once they had notice of a party’s patent rights. The financial consequences for failing to meet that standard could be disastrous, as a finding of willful infringement can result in an award of treble damages against the infringer.
The Seagate decision eases that burden on alleged infringers and reduces the likelihood of finding willful infringement and awarding enhanced damages. Under Seagate, willful infringement can be found only where there is a showing of “objective recklessness” by the infringer. The court set forth a new, two-step process for determining objective recklessness.
First, the patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions infringed a valid patent. In making this threshold determination, the infringer’s subjective state of mind is irrelevant. Second, if the patentee can meet this threshold requirement, then the patentee must demonstrate that the objectively high risk was either known or should have been known to the infringer.
In addition, the court noted that because it is abandoning the affirmative duty of care, “there is no affirmative obligation to obtain opinion of counsel.” Previously, many accused infringers felt compelled to obtain a formal non-infringement opinion from an attorney whenever they were confronted with the threat of a patent infringement suit.
Waiver of attorney-client privilege
Second, the court held that, in general, asserting an advice-of-counsel defense in response to a charge of willful infringement, and disclosing opinions of patent opinion counsel, does not result in a waiver of the attorney-client privilege for communications with trial counsel. This is a significant restriction on the scope of the privilege waiver.
In a previous decision, the Federal Circuit had held that asserting the advice-of-counsel defense waived the attorney-client privilege for all communications on the same subject matter. There was little consistency, however, among district courts regarding whether the waiver extended to opinions (whether formal or informal) by trial counsel. That uncertainty meant alleged infringers were often forced to make a difficult choice between disclosing highly sensitive communications with trial counsel or risk a finding of willful infringement and resulting enhanced damages.
Waiver of attorney work-product protection
Finally, the court ruled that, in general, relying on patent opinion counsel’s work product in asserting an advice-of-counsel defense generally will not waive work-product immunity with regard to trial counsel. As with the attorney-client privilege, the Federal Circuit had previously held that assertion of the advice-of-counsel defense waived work-product protection on the same subject matter that was communicated to the client.
While the Court’s decision generally is clear and provides important guidance, there are still a number of unanswered questions that will be sorted out in future cases. For example, under what circumstances is it helpful to obtain an opinion of counsel, now that the importance of such opinions is diminished for purposes of willful infringement? What sorts of evidence can be used to prove or to disprove objective recklessness? How high is the patentee’s evidentiary burden with regard to proving that the infringer “knew or should have known” of the objectively high risk of infringement?
Regarding the waiver of privilege, the court left open the possibility that there could be situations in which a party’s conduct might waive privilege or work-product protection as to trial counsel, such as when, in the court’s words, “counsel engages in chicanery.” Just what other circumstances might result in a waiver of privilege remains to be seen.
Finally, one unanswered question of particular interest to in-house counsel is whether the court’s new rules regarding waiver of privilege apply to them. The court explicitly refrained from addressing how asserting the advice-of-counsel defense might affect waiver of privilege and work-product protection with regard to in-house counsel.
These and other issues raised by the Seagate decision undoubtedly will be addressed by courts and litigants in the near future.
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Jeffrey A. Simmons is senior counsel in the Madison office of Foley & Lardner. He is a member of the firm’s general commercial litigation, intellectual property litigation and trademark, copyright, and advertising practices.
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