Mr. Klein is a partner at Wilson Sonsini Goodrich and Rosati, P.C. and an Adjunct Lecturer in Law at Santa Clara University School of Law. The opinions expressed herein are his own. Wilson Sonsini Goodrich and Rosati, P.C. filed an amicus brief in the case that is the subject of this article.
Federal Circuit Establishes Tougher Standard for Proving
On August 20, 2007, the Court of Appeals for the Federal Circuit overruled its Underwater Devices decision of 24 years ago1 to hold that a patent holder asserting willful infringement will now be required to show that an accused patent infringer recklessly disregarded that its conduct constituted infringement. The August 20 case, In Re Seagate Technology, LLC, Miscellaneous Docket No. 830 (Fed. Cir. August 20, 2007), also clarified the scope of waivers of the attorney-client privilege and work product protection when invoking the reliance on counsel defense. Seagate involved the assertion against Seagate Technology of willful infringement of patents owned by Convolve, Inc. and the Massachusetts Institute of Technology. Seagate received three legal opinions on which Seagate intended to rely for an advice of counsel defense to willful infringement. This defense is made out in part, according to Underwater Devices, by showing that one exercised due care in determining that one’s conduct was not infringing or that the asserted patents were likely invalid or unenforceable. Because Underwater Devices established a “due care” standard, willful infringement was considered to be founded on a negligence standard, rather than some more stringent standard such as recklessness or intentionality. Seagate also involved the scope of waivers of attorney-client privilege and work product immunity when an alleged infringer asserted a defense of reliance on counsel to defeat a claim of willfulness. The controversy in Seagate was brought as a writ of mandamus action in which Seagate sought an order to the trial court to limit the scope of the waiver of the attorney-client privilege and the waiver of work product immunity with respect to certain documents and testimony in Seagate’s possession or control. Convolve sought a waiver broad enough to discover communications between Seagate and its trial counsel rather than a waiver that would have limited discovery to just communications between Seagate and its patent opinion counsel.
Although Section 284 of the Patent Act2 allows for enhanced damages beyond a reasonable royalty, the Act does not express any standards for awarding such enhanced damages. Federal Circuit precedent has established that an award of enhanced damages requires a showing of willful infringement. The standard for proving willful infringement was established by the Federal Circuit in Underwater Devices, which held that “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.” 3 Subsequent Federal Circuit cases enumerated factors for evaluating willfulness and due care under a totality of the circumstances analysis.4 To make out a due care defense, an alleged willful infringer may show that it exercised reasonable care by seeking the advice of counsel. If counsel’s advice is that the patent or patents are invalid, unenforceable, or not infringed, then the defendant usually continues to market and sell the exposed product. Although reliance on counsel is not dispositive, it is often an important aspect of a court’s evaluation of due care.5 The Court canvassed a number of opinions in the Circuits and recent Supreme Court decisions that addressed willfulness in other civil cases, and concluded that Underwater Devices set a lower standard, akin to negligence, than the higher recklessness standard commonly utilized by the federal courts in determining willfulness in civil cases.6 Accordingly, the Court overruled the lower willfulness standard of Underwater Devices and determined that to prove willfulness, a patent holder 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.”7 If the patent holder can make this showing of what the Court calls “objective recklessness”, then further, the patent holder 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.”8
Waiver of the Attorney Client Privilege and Work Product Protection
Until Seagate, it was quite common for alleged infringers to obtain patent opinions in order to be able to make out an advice of counsel defense in litigation. The Federal Circuit held in pre-Seagate cases that relying on in-house counsel’s advice to refute a charge of willfulness would trigger the waiver of the attorney-client privilege. Further, in In re Echostar Communications Corp., the Court held that asserting the advice of counsel defense waives work product protection and the privilege for all communications on the same subject matter.9 Echostar did not address these questions as it relates to communications between the alleged infringer and its trial counsel. Some waiver of the privilege and work product protection at least with respect to opinion counsel’s opinion and communications seemed necessary to enable the patent holder to evaluate or challenge the alleged infringer’s reasonableness in relying on its opinion counsel’s advice. This was the case so that the alleged infringer’s state of mind could be evaluated under the pre-Seagate willfulness analysis to determine if the alleged infringer exercised due care by reasonably relying on its patent counsel’s opinion. District courts have not been consistent when determining the scope of waivers of the attorney-client privilege in cases involving the reliance on counsel defense. Some courts have extended the waiver to communications with trial counsel over aspects of the reliance on counsel defense, whereas other courts have limited the waiver to communications just between the alleged infringer and opinion counsel. Other courts have taken positions in between. The Court in Seagate acknowledged that there is no bright line test for determining the proper scope of the waiver; rather, courts review the relevant circumstances to fashion the proper waiver. The Seagate Court reasoned, however, that in light of the new objective willfulness standard articulated by the Court, the value of a common approach, and that willfulness would be determined almost exclusively based on the alleged infringer’s pre-litigation conduct, then on balance the waiver should not extend to communications with trial counsel.10 The Court pointed out that this is not an absolute rule; rather, trial courts remain free to continue to exercise discretion in unique circumstances to extend the waiver to trial counsel communications. Similarly, the Court held that a waiver does not extend to trial counsel’s work product, absent exceptional circumstances. The work product doctrine balances the needs of the client with society’s interest in reaching all true and material facts to resolve a dispute. Work product protection in contrast to the attorney-client privilege is qualified and may be overcome by a showing of undue hardship. Factual information may be required to be disclosed on a showing of need and undue hardship, whereas mental process work is afforded greater protection. The protection, however, may be waived. The Court held that relying on opinion counsel’s work product does not waive work product immunity with respect to trial counsel. Trial courts will have discretion in this regard, and the general principles of the work product doctrine would not be affected by this decision. However, the general rule in the Circuit would be work product immunity for trial counsel’s work product notwithstanding the assertion by the alleged infringer of the reliance on counsel defense. 11
5 E.g., Electro Med. Sys., S.A. v. Cooper Life Scis., Inc., 34 F.3d 1048 (Fed. Cir. 1994) (“Possession of a favorable opinion of counsel is not essential to avoid a willfulness determination; it is only a factor to be considered, albeit an important one.”).
8 Id., at 12. In an interesting concurring opinion, Judges Gajarsa and Newman argued that a trial judge should have the discretion to award enhanced damages without regard to willfulness because Section 284 of the Patent Act (the Section authorizing enhanced damages) does not contain any requirement that willfulness be found. The Judges reviewed the language and history of the enhanced damage statute and found no authority for grafting willfulness onto Section 284, other than federal judge-made law interpreting the statute. Accordingly, Judges Gajarsa and Newman argued for eliminating willfulness as a necessary factor for enhanced damages.