In re Seagate Technology, LLC: The Federal Circuit Reevaluates the Standards for Proving Willful Patent Infringement, and the Scope of Waiver of the Attorney-Client Privilege Resulting from Reliance on Advice of Counsel

The United States Court of Appeals for the Federal Circuit recently issued a major ruling regarding the standard for proving willful patent infringement, and the scope of the waiver of attorney-client privilege that results from an accused infringer’s reliance on the advice of counsel in defending against a charge of willful infringement. In re Seagate Technology, LLC, Misc. Doc. No. 830, slip op. (Fed. Cir. Aug. 20, 2007) represents a dramatic overturning of the Federal Circuit’s long-standing precedent regarding an accused infringer’s affirmative duty of care established in Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983). The Federal Circuit’s latest decision also restricts the scope of attorney-client waiver that many courts had found to result from an accused infringer’s reliance on the advice of counsel. Accused infringers should be aware, however, that, while on its face the court’s holding abrogates the previously perceived necessity of obtaining a legal opinion to defend against charges of willful infringement, the practical result of this case may not go so far — especially in light of the current standard industry practice of obtaining such opinions.

History

Shortly after its inception, the Federal Circuit crafted a standard for evaluating claims of willful infringement. For potential infringers who had actual notice of the patent at issue, the court imposed "an affirmative duty to exercise due care" that effectively required an accused infringer to obtain competent legal advice from counsel that the patent in question was invalid, unenforceable or not infringed. Underwater Devices, 717 F.2d at 1389-90. As the Federal Circuit’s jurisprudence evolved, the court indicated that although an infringer’s reliance on, or failure to proffer, favorable advice of counsel was not dispositive of the willfulness inquiry, it was crucial to the analysis. See Seagate, at 8; Electro Med. Sys., S.A. v. Cooper Life Scis., Inc., 34 F.3d 1048, 1056 (Fed. Cir. 1994). Accordingly, as a result of Underwater Devices and its progeny, entire practices have grown up around drafting opinions for patent infringement cases.

Such opinions, of course, are protected by the attorney-client privilege unless and until, the accused infringer disclosed them for use in defending against the willful infringement charge. Disclosure of such opinions was held to waive both the attorney-client privilege and work product protection for all communications regard the same subject matter, as well as any documents containing attorney-client communications. In re Echostar Commc’ns Corp., 448 F.3d 1294, 1299, 1302-03 (Fed. Cir. 2006). This broad waiver was meant to require the disclosure of all opinions related to the patents, to mediate the effects of opinion shopping. As district courts gave different breadth to the Federal Circuit’s holding that any waiver was to be applied to all communications regarding the "same subject matter," accused infringers were presented with a dilemma in weighing the disclosure of any patent opinions for fear that the waiver could encompass communications well beyond their communications with the attorneys who had provided their opinion letters. For example, trial courts have held such a waiver to extend to communications with trial counsel. The trial court’s rulings in Seagate is an example of the application of such a broad waiver.

Procedural Posture

Seagate was sued in Federal District Court in the Southern District of New York in July 2000 by Convolve, Inc. and the Massachusetts Institute of Technology for infringement of two patents (a third patent was added to the suit 18 months later). Shortly before the suit was filed, Seagate retained counsel to provide an opinion concerning the patents. Seagate received the opinion concerning the two original patents eleven days after the suit was filed. The opinion concluded that both patents were either invalid, unenforceable or not infringed. Seagate notified Convolve of its intent to rely on these opinions, and disclosed all of its opinion counsel’s work product and made him available for deposition.

Convolve moved to compel discovery of Seagate’s communications with and work product of Seagate’s counsel — including its trial counsel. Using a broad interpretation of the subject matter test, the District Court found that Seagate had waived privilege and protection for all of its communications with any counsel, including trial counsel, concerning the subject matter of the opinion letters — infringement, invalidity and enforceability. Accordingly, the court ordered production of trial counsel’s documents regarding this broad subject matter, and an in camera review of documents relating to Seagate’s trial strategy. After Convolve noticed the depositions of Seagate’s trial counsel, and the trial court denied Seagate’s motion for an appeal, Seagate petitioned the Federal Circuit for a writ of mandamus.

The Federal Circuit granted Seagate’s petition. Recognizing the practical dilemmas raised by its willfulness jurisprudence, the court sua sponte ordered an en banc review.

New Standard Regarding Willful Infringement

In Seagate, the Federal Circuit expressly overruled Underwater Devices. After looking to other Circuit Court interpretations of the term "willful" in other civil statutes and contexts, the court concluded that "‘standard civil usage’ of ‘willful’ includes reckless behavior," but that its Underwater Devices standard had lowered the threshold for willful infringement to more closely approximate negligence. In other words, the court determined that Underwater Devices and its progeny had lowered the standard for "willful" patent infringement to require little more of the alleged infringer than what would be considered negligent action in other contexts. In overturning its long-standing precedent, the court abandoned the affirmative duty of due care, and held that proof of willful infringement requires at least a showing by the patent holder of "objective recklessness" by the accused infringer. It further emphasized that there is no affirmative obligation to obtain an opinion of counsel.

In explaining the new standard, the Federal Circuit instructed that:

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. ... If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk ... was either known or so obvious that it should have been known to the accused infringer.

Unfortunately, the court did not further elaborate on this standard or provide meaningful guidance to evaluate the newly articulated standard. Rather, the court left further development of the standard to future cases. Among the most important questions left open by the court is what level of precaution an accused infringer of a patent who has knowledge of the allegedly infringed patent must take to avoid being found reckless. Specifically, in light the standard industry practice of obtaining opinions of counsel — albeit a practice resulting from a line of cases now overturned by Seagate — and the complexity of most modern patents and patent law, could a patentee be found to have been reckless for not obtaining an opinion? Moreover, though opinions of counsel were previously used to show their effect on an accused infringer’s state of mind, or their subjective intent to infringe, a well-written, convincing opinion of counsel may now be useful to prove that an accused infringer was not reckless because there was not an objectively high likelihood of infringement. These questions will need to be answered by future cases. It is likely, however, that the practice of obtaining opinions of counsel will continue, at least in the short term.

Waiver of Privilege

After noting the varying decisions reached by courts regarding the scope of the waiver of attorney-client privilege resulting from an alleged infringer’s reliance upon an opinion of counsel, the court began its discussion by recognizing the significantly different functions served by opinion counsel and trial counsel. Because of these functional differences, the court found that the classical "sword and shield" concern that typically justifies broad waiver is not present in this context. As a result, fairness weighs against waiver of the attorney-client privilege with respect to trial counsel. The court did not reach issues of imputation that might arise when opinion counsel and trial counsel belong to the same firm.

The court further recognized that in ordinary circumstances, an accused infringer’s willfulness will depend mostly on prelitigation conduct. The court, relying on the requirement that the patentee have a good faith basis for filing suit, opined that "a willfulness claim asserted in the original petition must necessarily be grounded exclusively in the accused infringer’s pre-filing conduct." The court went on to conclude that if the accused infringer’s post-filing conduct is thought to be reckless, the opportunity to obtain a preliminary injunction provides adequate protection, because a patentee’s failure to obtain a preliminary injunction likely demonstrates that the infringement is not reckless. Therefore, because willful infringement must normally find its basis in prelitigation conduct, an accused infringer’s communications with trial counsel are unlikely to be relevant enough to justify their disclosure. The court reached the same conclusion regarding the waiver of trial counsel’s work product protection.

These are general rules, however, and trial courts are left with the discretion under Seagate to find a waiver of attorney-client privilege with trial counsel where it is warranted by the facts.

It is important to note that the scope of the waiver was narrowed only with respect to trial counsel; the court did not narrow the scope of waiver regarding communications with, and work product of, opinion counsel.

Conclusion

In general, Seagate is a positive ruling for accused infringers. However, given the complexities of the patent law, and the current industry standard of obtaining opinions of counsel when a party is informed of potentially infringing activity, opinions of counsel are likely to continue to have value to accused infringers. Although the accused infringer’s state of mind is no longer at issue, opinions of counsel could provide evidence of the objective reasonableness of an accused infringer’s actions. While Seagate does eliminate part of the dilemma faced by an accused infringer when weighing the waiver of attorney-client privilege against the value of producing an opinion of counsel, the ruling applies only to trial counsel; the Federal Circuit did not narrow the scope of waiver regarding communications with, and work product of, opinion counsel.