Federal Circuit Changes Willfulness Standard And Limits Scope Of Privilege Waiver

September 6, 2007

In the recent In re Seagate Technology, LLC decision, the Court of Appeals for the Federal Circuit issued an en banc opinion changing the standard for willful infringement and limiting the scope of the attorney-client privilege and work product protection waivers. The Court unanimously held that (1) invoking the advice of counsel defense and disclosing opinions of counsel did not constitute a waiver of the attorney-client privilege or work product immunity for communications with trial counsel; and (2) a finding of willful infringement, which permits the awarding of enhanced damages, requires at least a showing of objective recklessness on the part of the accused infringer. While the full impact of this decision has yet to be determined, it is clear that the decision has raised the bar for a patentee alleging willful infringement. The new standard makes it easier for accused infringers to defend against willful infringement allegations. In addition, the decision has changed the role of opinions of counsel and preliminary injunctions as a way of combating willful infringement. Finally, the new rule regarding waivers will lessen the risk of relying on opinions of counsel.

Background

Seagate Technology, LLC was sued by Convolve, Inc. for patent infringement. The claim included allegations of willful infringement of Convolve’s patents. Seagate had obtained three written opinions from opinion counsel concluding that all of the patent claims were either invalid or not infringed. Seagate relied on the advice of counsel defense to rebut charges of willful infringement. As a result, the district court held that Seagate waived the attorney-client privilege and work product immunity for all communications between it and any counsel, including its trial attorneys and in-house counsel, concerning the subject matter of these opinions from the time Seagate first gained knowledge of the patents until the alleged infringement ended.

Willful Infringement

More than twenty years ago, the Federal Circuit set forth the standard for willful infringement: “[if] . . . a potential infringer has actual notice of another’s patent rights, he has an affirmative duty of due care to determine whether or not he is infringing.” This duty of due care was generally understood to require the accused infringer to obtain competent legal advice before engaging in any potentially infringing activity or continuing such activity. This standard established a low threshold for determining willfulness that was more akin to negligence.

In Seagate, the Federal Circuit expressly overruled its prior ruling and held that proof of willful infringement now requires a showing of "objective recklessness" on the part of the infringer. The Court also emphasized that there is no affirmative obligation to obtain an opinion of counsel. It established a new, two-step process for determining whether the alleged infringer's conduct has been objectively reckless: first, the 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 second, once the patentee has met this threshold requirement, the patentee must show that the objective risk was either known or so obvious that it should have been known to the infringer. Regarding the first step in the process, the infringer's subjective state of mind is irrelevant.

Attorney-Client & Work Product Privilege

Reliance on an opinion of counsel that there is no infringement or that the patent is invalid or unenforceable has become a standard defense to a charge of willful infringement. However, reliance on opinion of counsel typically requires the accused infringer to waive the attorney-client privilege as to the subject matter of the opinion. This has created issues regarding the scope of the resulting waiver with varying results among the district courts. This uncertainty and inconsistency complicated the decision for an accused infringer whether to rely on (and disclose) an opinion of counsel as a defense.

In light of the changes it has now made to the willfulness standard, the Federal Circuit held that, in general, asserting an advice of counsel defense in response to a charge of willful infringement and disclosing opinions of opinion counsel does not generally result in a waiver of the attorney-client privilege or work product immunity for communications with trial counsel. This ruling significantly and with more certainty restricts the scope of the privilege waiver. The only stated exception to this rule was “chicanery” on the part of a party or its counsel.

Seagate’s Effect

The full impact of this decision is yet to be determined. The Court itself noted that the willful infringement standard will need to be further fleshed out in subsequent decisions. The Court did point out that, if a patentee fails to seek and obtain a preliminary injunction, it is unlikely that infringement is willful. These changes to the law will also need to be considered when making decisions on the proper response to an allegation of infringement and decisions about seeking a preliminary injunction.

Furthermore, in view of the Court’s re-emphasis on the abandoned obligation to obtain an opinion of counsel, accused infringers will need to consider the value of opinions of counsel. In addition, the limitations on the scope of waiver as to trial counsel make the consequences of disclosing an opinion of counsel more clearly defined.

Patent Reform Act of 2007

Additional reforms to the willful infringement standard may occur if the proposed Patent Reform Act of 2007 (which is currently pending before Congress) is enacted. Under the proposed section 284(b)(2), willfulness may be found if the patent owner presents clear and convincing evidence that after receiving written notice from the patentee, the infringer, after a reasonable opportunity to investigate, intentionally copies the patented invention with knowledge that it was patented or after having been found by a court to have infringed that patent, the infringer engaged in conduct that was not colorably different from the previous infringing conduct, and which resulted in a separate finding of infringement of the same patent.

However, the infringer can rely on an informed good faith belief that the patent was invalid or unenforceable, or would not be infringed by the infringer’s conduct. A good faith belief can be established by: (a) reasonable reliance on advice of counsel; (b) evidence that the infringer sought to modify its conduct to avoid infringement after discovering the patent; or (c) other evidence found sufficient by the court to establish a good faith belief. The proposed section also states that a patentee may not plead willful infringement until after the court has found the patent to be infringed by the infringer, and that the court shall determine an infringer’s willfulness without the use of a jury.

These additional changes, if adopted, will undoubtedly further impact decisions made by patentees when deciding whether and how to enforce their patents and by accused infringers when deciding what to do in the face of an accusation of patent infringement.

Practices

Top