In Re Seagate Technology, LLC: The Federal Circuit Abolishes The Duty Of Due Care In Willfulness Cases

Introduction

Yesterday the Federal Circuit issued a decision that will affect almost every company accused of patent infringement, as well as the trial lawyers and opinion counsel who represent them. In a much-anticipated en banc decision,1 the court overruled its standard for proving willful patent infringement, raising the bar by requiring clear and convincing evidence of "objective recklessness" on the part of the accused infringer, rather than a mere failure to exercise "due care" to avoid patent infringement. The court also held that if a defendant elects to rely on an opinion of counsel, the resulting waiver does not generally include attorney-client communications with trial counsel or the work product of trial counsel.

This decision will have a significant impact on willfulness in patent cases. By abolishing the duty of due care, the Federal Circuit likely made it more difficult for patentees to show willfulness. The incentive for accused infringers to waive the attorney-client privilege by producing an opinion of counsel is now greatly reduced, which will mean less collateral litigation regarding waiver in willfulness cases. Indeed, under the new standard companies are likely to refrain from obtaining opinions in the first place in many more circumstances. Finally, if a defendant elects to waive the privilege, it can do so knowing that communications with trial counsel, and trial counsel's work product, are not a part of that waiver.

Background

In 1983, the Federal Circuit held that where a potential infringer has notice of another's patent rights, he has an affirmative duty of due care to determine whether or not he is infringing. SeeUnderwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1390-91 (Fed. Cir. 1983). The duty generally required obtaining competent legal advice before engaging in any potentially infringing activity or continuing such activity. Id. After Underwater Devices, reliance on an opinion of counsel stating that there is no infringement or that the patent is invalid became one of the primary defenses to a charge of willfulness. However, reliance on an opinion required that the accused infringer waive the attorney-client privilege as to the subject matter of the opinion. Issues regarding the scope of the waiver generated extensive and inconsistent satellite litigation, raising the cost of patent litigation.

In the past few years, the Federal Circuit decided two significant cases regarding willfulness. In 2004, the Federal Circuit abolished the negative inference that an opinion of counsel was (or would have been) unfavorable if the alleged infringer failed to produce or to obtain an exculpatory opinion of counsel in response to a charge of willful infringement. See Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004) (en banc). The court stated that its prior precedent allowing an adverse inference resulted in inappropriate burdens on the attorney-client relationship that distorted the relationship. Id. at 1343-44.

In 2006, the court held that although reliance on an opinion of counsel waives the attorney-client privilege as to the subject matter of the opinion, there is no waiver of un?communicated work product, i.e., work of opinion counsel that was not communicated to the client. See In re EchoStar Communications Corp., 448 F.3d 1294 (Fed. Cir. 2006). Although EchoStar did not involve any attempt to discover trial counsel's communications with the client, EchoStar was construed by several district courts as supporting a waiver of the privilege as to trial counsel.

Questions Addressed by the Federal Circuit

The Federal Circuit granted en banc review on three questions:

should the Federal Circuit revisit Underwater Devices and, if so, what should the new standard be?

does reliance on an opinion of counsel waive attorney-client communications with trial counsel? and

does reliance...