Willful Patent Infringement Standards Changed
After a Federal Circuit decision this week, patent owners will have a harder time proving willful infringement and defendants will be less likely to have to disclose the opinions of their trial counsel regarding the merits of patent cases. In In re Seagate Technology, LLC, the Federal Circuit, sitting en banc, changed the standards for proving willful infringement and clarified how broadly the attorney-client privilege and work product immunity are waived when accused infringers introduce advice of counsel as a defense to willful infringement.
Courts often award increased damages (up to three times actual damages) and/or attorneys' fees for "willful" patent infringement. Until this week, the courts applied a negligence standard in determining whether infringement was willful. In particular, where a "potential infringer had actual notice of another's patent rights, [it] had an affirmative duty to exercise due care to determine whether or not [it was] infringing [and such] an affirmative duty include[d]. . . the duty to seek and obtain competent legal advice from counsel. . . ." Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389 (Fed. Cir. 1983) (emphasis added). That affirmative duty and the risk of enhanced damages and liability for attorneys' fees led many defendants to seek advice of counsel to support a "good faith" defense against charges of willful infringement, which became ubiquitous. Reliance on opinions of counsel in litigation in turn led to disputes and conflicting decisions concerning the waiver of attorney-client privilege and work product protection inherent in disclosing and relying on legal advice. Some courts (including the lower court in Seagate) extended the waiver to communications with trial counsel as well as opinion counsel, on the theory that the patentee was entitled to discover all the advice the client received in order to test the client's good faith.
In Seagate, the Federal Circuit took the unusual step of hearing the case en banc on its own motion. Moreover, it called for briefing not only on the scope of the waiver caused by reliance on advice of counsel (the issue presented in Seagate’s petition for a writ of mandamus), but also the existence of the underlying “duty of care” that led accused infringers to seek opinions in the first place.
In a unanimous opinion, the Federal Circuit began by overruling the negligence standard of Underwater Devices and holding that "proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness." The court announced a two-step test to prove willful infringement:
[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 action 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.
Based upon this new standard, the court held that "there is no affirmative obligation to obtain opinion of counsel."
The court then went on to consider whether reliance on an opinion of counsel results in waiver of privilege as to opinions regarding patent validity and infringement that had been expressed by litigation counsel. Recognizing the different roles played by opinion counsel and trial counsel, the court held that, in general, "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." In so holding, the court emphasized that willfulness allegations are normally predicated on prelitigation conduct, and that preliminary injunctions generally provide an adequate remedy for combating willful infringement that continues after a lawsuit is filed. The court thus concluded that advice by trial counsel is of marginal relevance to willfulness, and its disclosure would undermine important values expressed in the attorney-client privilege and work product doctrine. The court noted, however, that it was not setting out an absolute rule and that waivers might extend to trial counsel in exceptional cases, "such as if a party or counsel engages in chicanery." The court also declined to decide whether a waiver would extend to opinions supplied by in-house counsel, observing that the issue was not raised in Seagate’s case.
The Seagate decision constitutes a fundamental change in the law of willful infringement and is likely to lead to new strategies in litigation. An accused infringer may be able to avoid a finding of willfulness, for example, based upon a substantial defense on validity or infringement, even if the defense did not come to light until the litigation. Moreover, we may see a revived effort to use patent law experts to opine regarding the merits of defenses, in an attempt to establish or rebut the "objective" likelihood that the plaintiff would prevail. Such experts were common in the past, but have been frowned on by the courts in recent years. Given the court’s comments on preliminary injunctions, such motions may be filed more often in the future. Finally, Judge Gajarsa’s concurrence suggests that at least two Federal Circuit judges are willing to revisit the law on enhanced damages: in Judge Gajarsa’s view, willful infringement should not be a prerequisite for an award of increased damages to patentees in the first place. Although the majority declined to reach the issue because it was not presented in the Seagate case, prevailing patentees are likely to raise it in the future.