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Thursday at the Federal Circuit: en banc arguments on the duty of care and waiver of privilege

June 05, 2007
Post by Blog Staff

This Thursday, the Federal Circuit will sit en banc to hear oral argument in In re Seagate Technology LLC, a mandamus case regarding a district court's order to produce certain attorney-client privileged materials. (Update (6/7): the audio of the oral argument is now available online at this link.) Like in many patent cases, one of the defendants, Seagate, chose to obtain an opinion from counsel regarding noninfringement and invalidity of the asserted patents in order to defend itself from a charge of willful infringement. The district court, however, found that a subject matter waiver of attorney-client privilege occurred when the opinions were disclosed, and granted a motion to compel stating:

Seagate shall produce all documents, answers to interrogatories, and deposition testimony concerning communications between Seagate (or its in-house counsel) and any of its attorneys, including trial counsel, with respect to the subject matter of Mr. Sekimura's opinions, i.e., the infringement, validity, and enforcement of the '635, '267, and '473 patents.

(emphasis added). The order further required that trial counsel's advice regarding infringement, validity, and enforceability "must be disclosed even if it [was] communicated in the context of trial preparation." Thus, the court essentially ordered Seagate to produce its trial strategy, if requested, because of the subject matter waiver of privilege.

This case is even more interesting because the court, sua sponte, raised the issue of whether the court should reconsider the duty of care established in the court's 1983 Underwater Devices decision in light of its effect on attorney-client privilege.

More thoughts on the upcoming argument after the jump.

The specific questions presented for argument are:

(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).
(2) What is the effect of any such waiver on work-product immunity?
(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?

The Underwater Devices case imposed a duty of care on possible infringers to take steps to avoid infringement when put on notice of another's patent rights. This is typically done in one of two ways: altering the product or process that may be infringing, or obtaining a legal opinion from a patent lawyer that the patents are not infringed, invalid, unenforceable, or a combination of the three. This opinion is frequently produced if the dispute proceeds to litigation as evidence that the defendant did not willfully infringe the patent holder's rights, as steps were taken to either avoid infringement or conclude that an infringement claim would not be successful. This is important because a finding of willful infringement has the potential to treble the damages awarded to a successful plaintiff.

The Federal Circuit has shown signs, however, of finding ways to protect the attorney-client privilege in light of the duty of care. In 2004, the Federal Circuit decided en banc in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GMBH v. Dana Corp. that if an opinion of counsel was obtained but not disclosed during subsequent litigation, there should be no "adverse inference" that the undisclosed opinion was unfavorable to the defendant. This was a shift from prior cases, where if an opinion was obtained but not disclosed, courts generally gave an instruction that a jury could assume that the opinion did not help the defendant. This instruction, of course, was problematic for defendants and placed them in a bad position: either disclose an opinion (and thereby waive attorney-client privilege) or face the so-called "adverse inference" instruction. Potential defendants mitigated the risk of this problem by using a different lawyer to prepare the noninfringement/invalidity/unenforceability opinion than those used to represent them in the litigation. The goal was to limit the scope of the waiver of attorney-client privilege to opinion counsel, and thus be able to both use the opinion as a defense and keep the client's attorney-client privilege with trial counsel.

The district court's decision in this case ruined that strategy. By finding a subject matter waiver, the court essentially broke the barrier between opinion counsel and trial counsel, and permitted the plaintiffs, Convolve, Inc. and MIT, access to Seagate's trial counsel's trial strategy. Given that the Federal Circuit's 2004 Knorr-Bremse decision came down in favor of preservation of attorney-client privilege, it is reasonable to conclude that the court will reach a similar result here, grant the petition for mandamus, and hold that there was no subject matter waiver, instead that the waiver was limited to communications with the attorney who prepared the opinions. However, there is some contrary authority, including a footnote in a 2006 decision, In re EchoStar, where the Federal Circuit stated:

EchoStar contends that waiver of opinions does not extend to advice and work product given after litigation began. While this may be true when the work product is never communicated to the client, it is not the case when the advice is relevant to ongoing willful infringement, so long as that ongoing infringement is at issue in the litigation.

Some district courts have cited EchoStar when finding subject matter waiver that includes trial counsel.

The larger question is whether the court will abolish the duty of care standard altogether. This seems like an unwise course of action, as if there is no duty to avoid infringement of a known patent, the incentives for potential infringers would be skewed toward not getting prompt legal advice, potentially resulting in increased infringement damages if found to infringe.

Of course, patent lawyers and their clients shouldn't get too excited just yet. Only the first two issues appear to be directly presented by the facts, so it is possible that while the court may hear argument on whether the duty of care should be reconsidered, it may not actually decide the issue. This would be consistent with the Federal Circuit's past en banc behavior: When the Federal Circuit granted rehearing en banc in the 2005 claim construction case Phillips v. AWH Corp., the court also invited briefing on multiple issues, including one of great interest to many in the patent field: the level of deference due to a district court's claim construction. Of course, that issue was left undecided, but was addressed in several concurring and dissenting opinions.

That said, patent holders, potential infringement defendants, and members of the patent bar will be watching this case closely.

Related documents:

Petition for writ of mandamus

Opposition

Reply

Sua sponte order granting hearing en banc


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