Filewrapper-old

En banc Federal Circuit scraps affirmative duty of care to avoid infringement
August 21, 2007

In a unanimous en banc decision issued late yesterday afternoon, the Federal Circuit granted a petition for mandamus requested by a party who was ordered by a district court to produce attorney-client privileged and work product protected material of its trial counsel, and to permit deposition of its trial counsel. The order was entered after the defendant disclosed it would rely upon an opinion of counsel as a defense to willful infringement; the district court held that the waiver of attorney-client privilege and work product protection extended to the work trial counsel performed relevant to the opinions (a full recitation of the underlying facts can be found in this post.)

The Federal Circuit disagreed, and held that in most circumstances, such material will remain protected assuming trial counsel and opinion counsel are different. The court went a step further, however, and decided to overrule its 1983 decision in Underwater Devices Inc. v. Morrison-Knudsen Co., which established that once a party had notice of a patentee's rights, that party had an affirmative duty of care to avoid infringement of the patent. One way companies could comply with this duty was to obtain a competent opinion of counsel that the patent was either invalid or not infringed.

The Federal Circuit unanimously abrogated the affirmative duty of care. The court adopted a recklessness standard for willful infringement, holding that to act "willfully," an infringer must act "despite an objectively high likelihood that its actions constituted infringement of a valid patent." The risk must also be "known or so obvious that it should have been known to the accused infringer."

The facts of this case were fully set out in this post, so they won't be repeated here except as necessary.

The court, in abrogating its "due care" standard set out in Underwater Devices, set forth several reasons why that standard was no longer necessary. First, the court noted that the environment in 1983 was such that many companies were simply ignoring patent rights, instead opting to infringe due to an 80% invalidation rate of patents litigated by the circuit courts before the creation of the Federal Circuit. The court stated that this "widespread disregard of patent rights was undermining the national innovation incentive." Of course, after KSR, a similar invalidation rate is not out of the question, so it will be interesting to see if the court revisits this once the full effects of KSR have been seen.

The court also noted that the Supreme Court, in its decision this year in Safeco Insurance Co. v. Burr, described the "standard civil usage" of "willfulness" as including recklessness. As stated by the court (internal citations omitted):

Just recently, the Supreme Court addressed the meaning of willfulness as a statutory condition of civil liability for punitive damages. Safeco involved the Fair Credit Reporting Act ("FCRA"), which imposes civil liability for failure to comply with its requirements. Whereas an affected consumer can recover actual damages for negligent violations of the FCRA, 15 U.S.C. § 1681o(a), he can also recover punitive damages for willful ones, 15 U.S.C. § 1681n(a). Addressing the willfulness requirement in this context, the Court concluded that the "standard civil usage" of "willful" includes reckless behavior. Significantly, the Court said that this definition comports with the common law usage, "which treated actions in 'reckless disregard' of the law as 'willful' violations."

Because the Underwater Devices case established a lower standard for willful conduct than the "standard civil usage," the court overruled Underwater Devices.

The court did offer some guidance on how willful infringement will be determined in the future, although specifically noted that further cases will help develop the standard. In order to establish willful infringement under the new standard (internal citation omitted):

[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.

One factor relevant to whether conduct was reckless is likely the "standards of commerce," such that compliance with industry standard behavior may be a factor that weighs against a finding of willfulness.

The court then turned to the privilege and work product issues presented. Here, the court also offered additional insight into possible findings of willful infringement. The court noted that when a complaint is filed, there must be a good faith basis for asserting a claim of willful infringement, and as a result, such a claim must be based solely on "the accused infringer's pre-filing conduct." However, when willful infringement is asserted only in the infringer's post-filing conduct, in order for willful infringement to be found, the patentee likely must successfully obtain a preliminary injunction. As described by the court (internal citations omitted):

when 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.

As a result, it appears that it will be difficult to obtain enhanced damages on post-filing infringements, as moving for a preliminary injunction is costly and only requires a showing of a "substantial question" of validity in order to be defeated by the accused infringer. Such a showing is no doubt easier after KSR.

The dichotomy of the relevant conduct for assertions of willfulness guided the court's opinion regarding the privilege and work product issues:

Because willful infringement in the main must find its basis in prelitigation conduct, communications of trial counsel have little, if any, relevance warranting their disclosure, and this further supports generally shielding trial counsel from the waiver stemming from an advice of counsel defense to willfulness. Here, the opinions of Seagate’s opinion counsel, received after suit was commenced, appear to be of similarly marginal value. Although the reasoning contained in those opinions ultimately may preclude Seagate’s conduct from being considered reckless if infringement is found, reliance on the opinions after litigation was commenced will likely be of little significance.


In 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.

The court came to a similar conclusion regarding the work product doctrine:

[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.

The court offered an additional proviso regarding work product protection, noting that Rule 26(b)(3) only extends to "documents and tangible things." As a result, the Rule would not prevent a deposition of trial counsel. The court, seeing the loophole, noted that Hickman v. Taylor continues to protect "intangible" work product, and thus provides the basis for rejecting such an argument.

As applied to the facts, the court noted that there was no dispute that opinion counsel and trial counsel operated separately and independently, and as a result waiver of privilege or protection for one likely would not result in waiver for the other. However, the court remanded for the district court to reconsider its decision in light of its decision regarding the applicable willfulness standard.

Judges Gajarsa and Newman concurred, and would have removed the concept of "willfulness" from § 284 completely. They noted that the term is not present in the statute, but has been read into the statute by the Federal Circuit and its predecessor, the Court of Customs and Patent Appeals. Accordingly, they would vest the district court with discretion to enhance damages when it deems appropriate, such as when the amount of actual damages proven is insufficient to make the patentee whole.

To read the full decision in In re Seagate Tech. LLC, click here.

Post has no comments.
Post a Comment




Captcha Image
Return to the Filewrapper Blog
  Newer Posts Older Posts  

Purpose

The attorneys of McKee, Voorhees & Sease, P.L.C. designed this blog as an informational and educational resource about intellectual property law for our clients, other attorneys, and the public as a whole. Our goal is to provide cutting-edge information about recent developments in intellectual property law, including relevant case law updates, proposed legislation, and intellectual property law in the news.

Disclaimer

McKee, Voorhees & Sease, P.L.C. provides this blog for general informational purposes only. By using this blog, you agree that the information on this blog does not constitute legal or other professional advice and no attorney-client or other relationship is created between you and McKee, Voorhees & Sease, P.L.C. Do not consider this blog to be a substitute for obtaining legal advice from a qualified, licensed attorney. While we try to revise this blog on a regular basis, it may not reflect the most current legal developments. We consciously refrain from expressing opinions on this blog and instead, offer it as a form of information and education, however if there appears an expression of opinion, realize that those views are indicative of the individual and not of the firm as a whole

Connect with MVS

Enter your name and email address to recieve the latest news and updates from us and our attorneys.

Subscribe to: MVS Newsletter

Subscribe to: Filewrapper® Blog Updates

  I have read and agree to the terms and conditions of McKee, Voorhees & Sease, P.L.C.