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Seagate Court Unanimously Rejects Affirmative Duty of Care Standard for Willfulness Infringement

8/21/2007

Today in In re Seagate, a unanimous Federal Circuit, sitting en banc, overturned its long-standing precedent in Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (1983) and held that proof of willful infringement (permitting enhanced damages) requires at least a showing of objective recklessness.  In abandoning the Underwater Devices’ affirmative duty of due care standard, the court stated clearly that there is no affirmative obligation to obtain an opinion of counsel.

In Seagate, defendant who produced opinions of counsel in defense of a charge of willful infringement were ordered to produce all documents and communications between it and any counsel, including trial counsel and in house counsel regarding the subject matter of the opinions, including trial strategy and advice of trial counsel.  Defendant Seagate petitioned for a writ of mandamus, seeking protection from orders compelling production of trial counsel opinions relating to infringement, invalidity, and enforceability of the patents in suit.  The Federal Circuit ordered en banc review of the petition, certifying three questions for review: (1) whether the assertion of the advice of counsel defense to willful infringement extended waiver of the attorney-client privilege to communications with that party’s trial counsel; (2) the effect of any such waiver on work-product immunity; and (3)  the propriety of the duty of care standard in Underwater Devices.

The duty of care in Underwater Devices was inaugurated as an affirmative requirement prior to infringement, but eventually evolved to one evaluated under a totality of the circumstances, and later to one which forced an infringer to choose between waiver of the privilege and the likeliness of a finding of willfulness if liability was proven.  The Knorr-Bremse abrogation of adverse inferences for failure to obtain or produce advice of counsel was a belated remedy for the Hobson’s choice that crippled accused infringers for many years, and the Echostar extension of the waiver to materials protected by the work product immunity further illustrated the complex administration of the waiver rules in the context of their relationship to willful infringement defenses.

First, the federal circuit reconsidered the burdens of complying with the duty of care under modern patent litigation practice and analogized the standards for willfulness in other areas of civil law.  The court held that to establish willful infringement, a patentee must first 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 the 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. The court provided no further guidance on the application of this two-part standard, but relegated further development to future matters involving willfulness.

Second, the court held that waiver associated with the advice-of-counsel defense does not extend to trial counsel.  Fairness to the parties, the demands of an adversarial system of justice, and the fact that willful infringement is based on prelitigation conduct were all cited as reasons why communications with trial counsel are not waived when communications with opinion counsel are disclosed.

Third, the federal circuit held that generally, relying on opinion counsel’s work product does not waive work product immunity with respect to trial counsel.  The court left 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.
 
Seagate raises the standard for proof of willful infringement to objective recklessness and unburdens litigants from both the intricacies of waiver and the confusion over the affirmative duty of care that has evolved over the past two decades.  In so doing, Seagate unquestionably changes the calculus underlying the economics of infringement associated with market entry.   The deterrent effect of a finding of willfulness is diminished if not nearly absent; only time will tell if economically-justified infringement will result in a weakened patent system.