Yesterday, in its sweeping en banc decision In Re Seagate, Misc. Docket No. 830 (Fed. Cir. Aug. 20, 2007), the Federal Circuit abolished the "affirmative duty to exercise due care" to determine whether or not a company put on notice of a patent is infringing that patent. In doing so, the Federal Circuit overruled what had been the touchstone for assessing willful patent infringement (and for awarding enhanced damages) for the past twenty-four years, since the Federal Circuit's decision in Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983). A Heller Ehrman team has been litigating a companion case to In Re Seagate in the context of a writ petition filed for CA, Inc. The Federal Circuit stayed CA's fully-briefed petition pending the en banc review in Seagate.

New Willfulness Standard: Objective Recklessness

In place of the affirmative duty of care, the Federal Circuit has established an objective recklessness standard for evaluating whether infringement is willful. This new standard requires two steps. First, "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."  Slip op. at 12. Importantly, "The state of mind of the accused infringer is not relevant to this objective inquiry." Second, "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." The Federal Circuit added, "We leave it to future cases to further develop the application of this standard." Id.

Attorney-Client Privilege Not Waived For Trial Counsel Communications Even When Advice of Counsel Defense Is Invoked

The Federal Circuit's decision came in the context of a writ petition filed during a long-running and heated battle concerning whether the attorney-client privilege is waived as to communications between an alleged patent infringer and its trial counsel when asserting the advice of counsel defense to willful infringement. The court ruled that trial counsel's communications remain privileged, and are not waived, even when an alleged infringer asserts the advice of counsel defense (absent "unique" circumstances, "such as if a party or counsel engages in chicanery"). The same rule extends to trial counsel work product.  The decision puts to rest a substantial split of opinion among district courts facing the same issue across the country, many of which had found broad waivers of trial counsel communications while others found no such waiver. (Note: the Court expressly declined to reach the question of the appropriate scope of discovery regarding in-house counsel when the privilege is waived. Slip op. at 3 n.2). 

No Affirmative Duty to Obtain Patent Opinions 

The ruling is likely to have a far-reaching impact on patent litigation, and on a company's decision whether and when to obtain patent opinion letters. For two decades, conventional wisdom has held that obtaining an opinion on the invalidity, non-infringement, or unenforceability of a patent was all but necessary to avoid a finding of willful infringement (and an enhanced damages award), if the alleged infringer did not prevail on its defenses.  That is no longer the case.  The court expressly stated, "Because we abandon the affirmative duty of due care, we also reemphasize that there is no affirmative obligation to obtain opinion of counsel [sic]."  Slip op. at 12. In some circumstances, patent opinions may still prove useful in providing support that an alleged infringer's conduct was not objectively reckless. But in the majority of cases, the utility of patent opinions now appears to be called into serious question, counseling a reevaluation of the cost-benefit analysis of obtaining such opinions.

Timing of Alleged Infringement May Sometimes Change Patent Holder's Litigation Strategy

In refusing to extend the privilege waiver to trial counsel, the Federal Circuit noted that most allegations of willfulness are based on the pre-litigation conduct of the alleged infringer. A patent holder must have a good faith basis for alleging willfulness in the original complaint.  When ongoing, post-lawsuit conduct is the basis for a willfulness claim, the court suggested that the patent holder may need to seek a preliminary injunction to stop the ongoing conduct. The court explained, "A patentee who does not attempt to stop an accused infringer's activities [with a preliminary injunction] should not be allowed to accrue enhanced damages based solely on the infringer's post-filing conduct.  Similarly, if a patentee attempts to secure injunctive relief but fails, it is likely the infringement did not rise to the level of recklessness."