On August 20, 2007, the Federal Circuit announced its much anticipated en banc decision in In re Seagate Technology, which focused on willful infringement and the scope of the waiver that accompanies assertion of the advice of counsel defense.
The court held that: (1) the waiver of attorney-client privilege associated with the assertion of the advice of counsel defense does not extend to trial counsel; (2) the waiver of work-product immunity associated with the assertion of the advice of counsel defense does not extend to trial counsel; and (3) the standard of care announced in Underwater Devices is overruled, and a finding of willful infringement requires at least a showing of objective recklessness.
The court took up three key issues related to willful infringement. The court received nearly two dozen amicus briefs on the issue, and the decision was rendered by 10 judges - Chief Judge Michel and Judge Moore did not take part in the decision. The issues decided by the court were as follows:
(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?
(2) What is the effect of any such waiver on work-product immunity? and
(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?
Standard of Care for Finding Willful Infringement
The court took up the third issue first and noted that the standard for finding willful infringement previously announced in Underwater Devices, namely "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," does not comport with the general understanding of willful conduct in other civil litigation contexts.
The court went on to hold that "we overrule the standard set out in Underwater Devices and 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. We fully recognize that 'the term [reckless] is not self-defining.' However, '[t]he civil law generally calls a person reckless who acts . . . in the face of an unjustifiably high risk of harm that is either known or so obvious that it should be known.' 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. We leave it to future cases to further develop the application of this standard." (Internal citations omitted.)
The key takeaways on this issue are that the new standard is objective, and the state of mind of the accused infringer is no longer relevant. Thus, it would seem that it will be much more difficult to establish willful infringement.
Waiver of Attorney-Client Privilege Does Not Extend to Trial Counsel
On the first issue, the court noted that "in light of the new willfulness analysis set out above, we conclude that the significantly different functions of trial counsel and opinion counsel advise against extending waiver to trial counsel." The court reasoned that while "opinion counsel serves to provide an objective assessment for making informed business decisions, 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, the court noted that waiver in these circumstances does not present the classic "sword and shield" concerns typically requiring a broad subject matter waiver. Accordingly, "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."
The court concluded by noting that "[i]n sum, we hold, as a general proposition, that asserting the advice of counsel defense and disclosing opinions of opinion counsel do not constitute 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. We believe this view comports with Supreme Court precedent, which has made clear that rules concerning privileges are subject to review and revision, when necessary."
Waiver of Work-Product Immunity Does Not Extend to Trial Counsel
On the second issue, the court held that the waiver of work-product immunity, through the reliance on an opinion of counsel, does not result in a waiver of trial counsel's work product. Specifically, the court held 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."
The key takeaways on the two scope of waiver issues are that the waiver does not extend to trial counsel. This clarification is important, as different courts, and in some cases different judges within a district, have taken different views on the scope of the waiver. This ruling should, in theory, eliminate many of the protracted disputes that you often see in district court regarding the scope of the waiver associated with raising the advice of counsel defense.
If you have any questions or wish to discuss how this decision will impact your company, please contact your attorney at Brinks Hofer Gilson & Lione.
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