Copycats, relax! The Federal Circuit lightens up on willful patent infringement: In re Seagate Technology, LLC.

• Author: Garber, Sarah J.

1. INTRODUCTION

   "Willful" infringement is alleged in over 90% of patent cases. (2) This is primarily because, under the Patent Act and Federal Circuit case law, a finding of willful infringement gives trial judges the discretion to award treble damages and attorney's fees to the patentee. (3) Given that patent infringement actions can carry litigation fees of two million dollars or more, an award of punitive damages is a serious threat to accused infringers. (4) A common and powerful defense to a willful infringement allegation is reasonable reliance on an opinion of counsel. (5) Using this defense, the accused infringer can prove he acted in good faith and in accordance with his duty of care because he reasonably relied on an attorney's opinion, usually in the form of an opinion letter, that he was not infringing. (6) However, in order to assert this defense, the plaintiff must disclose the relied upon opinion letter and waive attorney-client and work product privileges as to the subject matter of the opinion. (7) District courts differ widely as to the scope of this waiver, with some even holding that this waiver extends to the defendant's communications with trial counsel in addition to opinion counsel. (8) Thus, in these cases, accused patent infringers face a dilemma as to which to forego: a potentially powerful defense to a patentee's claim of willfulness or attorney-client and work product privileges, possibly even as to trial counsel. (9)

   In In re Seagate Technology, the Federal Circuit was asked to vacate the rulings of the United States District Court for the Southern District of New York that allowed the patentee-plaintiff to obtain discovery of the work product of the defendant's trial counsel that was communicated to the defendant. (10) The Federal Circuit, sua sponte, ordered an en banc review of the petition and issued a general rule as to the scope of the waiver affected by the use of an opinion counsel. (11) The court stated that, ordinarily, the scope of the privilege waiver would only extend to opinion counsel, not to trial counsel. (12) The Federal Circuit then elected to overrule its own 24-year-old Underwater Devices decision and lightened the standard of care imposed on a potential infringer to determine whether he is infringing on another's patent. (13)

2. FACTS &HOLDING

   Seagate Technology, Inc. ("Seagate") was one of the defendants in Convolve, Inc. v. Compaq Computer Corp. (14) In April of 1990, Convolve, Inc. ("Convolve") received two United States patents on their "Input Shaping" technology (the "'635 patent" and the "'267 patent") which reduces vibrations associated with machine movement and, thus, allows a machine to run more rapidly and quietly. (15) On November 6, 2001, a third patent was issued to Convolve (the "'473 patent") on its "Quick and Quiet" technology--a computer control panel application permitting users to choose between the fastest or the quietest performance for a system's disk drives. (16) According to Convolve, defendant Compaq Computer Corporation ("Compaq") entered negotiations with Convolve regarding a licensing agreement for the '635 patent. (17) However, because Compaq did not manufacture disk drives, it enlisted the aid of Seagate to evaluate the technology. (18) Convolve alleged that when Seagate began the evaluation of Convolve's technology, it had nothing that compared to Convolve's technology and that "Seagate saw the value of Convolve's pioneering technology, but, rather than pursuing a license, Seagate undertook to copy the technology and to pass it off as its own." (19) Convolve filed an initial complaint against Seagate and Compaq in July of 2000, alleging, among other things, theft of trade secrets and willful patent infringement of the '635 and '267 patents. (20)

   Prior to the lawsuit, Seagate retained the services of attorney Gerald Sekimura to provide a legal opinion as to the validity of Convolve's patents; (21) although Seagate did not receive the first of these opinions until after Convolve's complaint was filed. (22) Mr. Sekimura eventually issued three opinions, concluding that Convolve's claims were without merit. (23) Seagate notified Convolve of its intent to rely on Mr. Sekimura's opinions to rebut a finding of willfulness, disclosed Mr. Sekimura's entire work product, and made Mr. Sekimura available to Convolve for deposition. (24) However, Convolve moved to compel discovery of "any communications and work product of Seagate's other counsel, including its trial counsel." (25) Convolve alleged that, by asserting the advice-of-counsel defense to willfulness, Seagate waived attorney-client and work product privileges with respect to any counsel Seagate consulted, including in-house counsel and trial counsel, from the time Seagate became aware of Convolve's patents until Seagate ceased its infringing activity. (26)

   The district court ruled that Seagate waived privilege with respect to any work product relating to the same subject matter that was actually communicated to them regardless of which counsel was responsible for the work product; (27) however, it would not be required to disclose attorney work product that remained uncommunicated. (28) Thus, Seagate was required to produce the requested documents, though the court did "[provide] for in camera (29) review of documents [related] to trial strategy." (30) The district court specified that any advice from Seagate's trial counsel that would undermine the reasonableness of Seagate's reliance on Mr. Sekimura's opinions would be discoverable. (31)

   Seagate then petitioned the district court to stay the discovery orders and certify an interlocutory appeal. (32) After the district court denied the appeal, Seagate petitioned the Federal Circuit for a writ of mandamus to review the district court's discovery ruling that the scope of waiver extended to Seagate's communications with its trial counsel. (33) Seagate argued that the scope of the waiver applied by the district court was too broad as a matter of public policy and reflected a misinterpretation of prior Federal Circuit case law. (34) Seagate asserted that the Federal Circuit's decision in In re EchoStar Communications Corp. (35) is entirely consistent with Seagate's position and that cases interpreting EchoStar to extend the waiver to trial counsel have misconstrued the law. (36) Seagate also argued that extending the waiver to trial counsel is contrary to public policy as it would effectively remove the advice-of-counsel defense as a viable option because the protection of the attorney-client privilege would be so severely limited. (37)

   Conversely, Convolve argued for a broader application of the waiver--specifically an application that covered advice received by Seagate from its in-house and trial counsel. (38) In support of this contention, Convolve argued that Seagate's "selective waiver" rule would create injustice, particularly in this instance, because Seagate claimed to have relied on three opinions received only after the litigation was initiated. (39) Thus, "[b]y the time Seagate received each of these post-litigation opinions, its state of mind was fully formed by information received from in-house and trial counsel." (40) The ruling Seagate requested, Convolve argued, was just the sort of policy that "would hand Seagate an unfair strategic advantage, frustrate Knorr-Bremse's 'totality of the circumstances' test, and overrule EchoStar's rejection of abusive 'sword-and-shield' tactics." (41)

   The Federal Circuit ordered an en banc review of Seagate's petition for a writ of mandamus. (42) The court set forth three issues for its consideration. (43) Two of these issues were raised by the parties--the scope of the attorney-client privilege waiver and the scope of the work product privilege waiver. (44) However, the third issue, raised by the Federal Circuit itself, was whether it should overrule its own decision in Underwater Devices which stated that an alleged infringer had an affirmative duty to ensure he was not infringing. (45) The court overruled Underwater Devices by holding that, in order to show willful infringement, a patentee-plaintiff is required to show the defendant's conduct was objectively reckless. (46) The court then stated a general rule that the scope of the attorney-client and work-product privilege waiver accompanying the advice-of-counsel defense should not extend to trial counsel absent "unique circumstances." (47)

3. LEGAL BACKGROUND

   The Patent Act provides that "whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent." (48) As defined, patent infringement is a strict-liability offense and the infringer's state of mind is usually irrelevant. (49) However, the Patent Act also provides that, in a patent infringement action, "the court may increase the damages up to three times the amount found or assessed" against the defendant. (50) The Federal Circuit has held that a finding of treble damages requires a showing that the defendant willfully infringed the plaintiff's patent. (51) Thus, the alleged infringer's state of mind becomes relevant only when willfulness is claimed. This section will first describe the development of the duty of care a potential infringer must meet to avoid liability for willful infringement and will then discuss the use of the advice-of-counsel defense to negate an allegation that a defendant willfully infringed on a plaintiff's patent.

   1. Willfulness and the Infringer's Duty of Care

      "Willful" is "'a word of many meanings' whose construction is often dependent on the context in which it appears." (52) The ambiguity inherent in the term "willful" makes the Federal Circuit's decision in Underwater Devices, Inc. v. Morrison-Knudsen Co. (53) even more important.

      In Underwater Devices, the Federal...