Tuesday, August 21, 2007

In Re Seagate - CAFC Clarifies Attorney-Client Waiver, and then Some . . .

In Re Seagate Technology LLC (misc. docket no. 830), August 20, 2007 (link)

Seagate was sued by Convolve in the SDNY for patent infringement. After the lawsuit was filed, Seagate obtained outside counsel opinions on the patents, and 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 for all communications between it and any counsel, including its trial attorneys and in-house counsel. It further determined that the waiver began when Seagate first gained knowledge of the patents and would last until the alleged infringement ceased. The court also determined that protection of work product communicated to Seagate was waived.

In a rare en banc unanimous opinion, the CAFC set out and answered the following questions:

QUESTION #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? See In re EchoStar Commc’n Corp., 448 F.3d 1294 (Fed. Cir. 2006).

ANSWER: The CAFC concluded that, normally, the waiver does not apply to trial counsel:

[W]e conclude that the significantly different functions of trial counsel and opinion counsel advise against extending waiver to trial counsel. Whereas 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 . . . 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.

* * *

[W]e 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.

QUESTION #2: What is the effect of any such waiver on work-product immunity?

[W]e hold 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.
QUESTION #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?

ANSWER: In Underwater Devices, the CAFC fashioned a standard for evaluating willful infringement:
"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."
After reviewing SCOTUS precedence since Underwater Devices, the CAFC concluded:

Underwater Devices sets a lower threshold for willful infringement that is more akin to negligence. This standard fails to comport with the general understanding of willfulness in the civil context . . . and it allows for punitive damages in a manner inconsistent with Supreme Court precedent . . . Accordingly, 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.

[T]o 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.

Gajarsa (concurring opinion, joined by Newman):
I write separately to express my belief that the court should take the opportunity to eliminate the grafting of willfulness onto section 284. As the court’s opinion points out, although the enhanced damages clause of that section "is devoid of any standard for awarding [such damages]," this court has nevertheless read a willfulness standard into the statute . . . Because the language of the statute unambiguously omits any such requirement, see 35 U.S.C. § 284 ("[T]he court may increase the damages up to three times the amount found or assessed."), and because there is no principled reason for continuing to engraft a willfulness requirement onto section 284, I believe we should adhere to the plain meaning of the statute and leave the discretion to enhance damages in the capable hands of the district courts.


The CAFC opined that preliminary injunctions may be the best (and only?) place to flesh out post-filing willfulness, and the failure/success of the injunction will likely determine the chances that willfulness will subsequently be found:

[W]hen an accused infringer’s post-filing conduct is reckless, a patentee can move for a preliminary injunction, which generally provides an adequate remedy for combating post-filing willful infringement . . . A patentee who does not attempt to stop an accused infringer’s activities in this manner should not be allowed to accrue enhanced damages based solely on the infringer’s post-filing conduct. Similarly, if a patentee attempts to secure injunctive relief but fails, it is likely the infringement did not rise to the level of recklessness.

We fully recognize that an accused infringer may avoid a preliminary injunction by showing only a substantial question as to invalidity, as opposed to the higher clear and convincing standard required to prevail on the merits . . . However, this lessened showing simply accords with the requirement that recklessness must be shown to recover enhanced damages. A substantial question about invalidity or infringement is likely sufficient not only to avoid a preliminary injunction, but also a charge of willfulness based on post-filing conduct.

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