The Federal Circuit Rules that the Assertion of the Advice-of-Counsel Defense Does Not Waive the Privilege for Trial Counsel Communications and Work Product and Adopts New Willfulness Standard
By: Amy Osberg
In a decision that results in more protection for defendants in patent infringement cases, the Federal Circuit held that the attorney client privilege for communications with trial counsel and communicated trial counsel work product is not waived when a defendant asserts an advice-of-counsel defense to an allegation of willful infringement. In In re Seagate Technology, LLC, Miscellaneous Docket No. 830 (Fed. Cir. 2007), the Federal Circuit took the position that “the oldest of the privileges for confidential communications known to the common law” should be preserved and declined to extend its ruling in In re EchoStar Communications Corp., 448 F.3d 1294 (Fed. Cir. 2006) to trial counsel. Id. at 13. The Court’s ruling in Seagate is significant for four reasons:
- It protects the privilege for trial counsel client communications and trial counsel work product immunity;
- it releases the patent infringement defendant from the affirmative obligation of seeking an opinion of counsel;
- it raises the threshold for willful infringement, which will likely create lower damage awards in patent cases; and
- it reveals, in dicta, the Federal Circuit’s current posture on enhanced damages for willful infringement based upon post-filing conduct and supports a conclusion that a preliminary injunction, and not enhanced damages, may be considered an adequate remedy for such conduct.
In EchoStar, the Federal Circuit addressed the scope of waiver resulting from the advice-of-counsel defense in the context of opinion counsel only. The Court held that when a defendant asserts an advice-of-counsel defense, the defendant waives privilege as to both attorney-client communications and communicated work product regarding the subject matter of the opinion. EchoStar, 448 F.3d at 1302-03. The waiver includes communications of counsel disregarded by the defendant. Id. at 1296-97. Consequently, the likely scenario that must be taken into an account by a defendant in an infringement case occurs when the defendant receives an unfavorable opinion of counsel regarding infringement and, as a result, seeks a second or even third opinion of non-infringement which it relies upon. According to the Court’s ruling in EchoStar, communications and communicated work product relevant to both the favorable and unfavorable opinion are discoverable. Id. at 1296-97 & 1299.
The Federal Circuit’s recent ruling in Seagate is good news for patent infringement defendants in jurisdictions that have previously interpreted EchoStar to include communications and communicated work product between trial counsel and a client regarding infringement when the advice-of-counsel defense is raised. Such an interpretation has been applied by at least one Judge in the Eastern District of Texas, a popular venue for patent infringement cases. See Network-1 Sec. Solutions, Inc. v. D-Link Corp., et al., No. 6:05-cv-00291 (E.D. Tex. April 19, 2007) (Davis, J.) (order granting motion to compel). The ramifications of such an application were the motivation for the Federal Circuit’s holding in Seagate; “fairness counsels against disclosing trial counsel’s communications on an entire subject matter in response to an accused infringer’s reliance on opinion counsel’s opinion to refute a willfulness allegation.” Seagate at 15. The Court in Seagate recognized that an extension of the waiver to trial counsel would result in not only the discovery of communications and communicated work product, but allow depositions of trial counsel and potentially make trial counsel a witness against their own client. Id. at 21. In preserving the privilege, the Federal Circuit was guided by “its purpose to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” Id. at 13.
The Seagate Court recognized that there would be instances where the extension of the waiver to trial counsel would be appropriate and stated that trial courts “remain[ed] free to exercise their discretion in unique circumstances to extend waiver to trial counsel, such as if a party or counsel engage[] in chicanery.” Id. at 18 & 21. But, as a general rule, the Court held that 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 or work product immunity with respect to trial counsel. Id.
The Federal Circuit’s opinion in Seagate is also significant in that it overrules its prior decision in Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983) regarding the standard for evaluating willful infringement and awarding enhanced damages. Seagate at 12. Underwater Devices created an affirmative duty of care for defendants accused of willful patent infringement, “Where . . . a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possibly infringing activity.” Id. at 7 (quoting Underwater, 717 F.2d at 1389-90). According to the Court in Seagate, the affirmative standard was announced shortly after the creation of the Federal Circuit and at a time “when widespread disregard of patent rights was undermining the national innovation incentive.” Seagate at 7 (citations omitted). The Court seems to recognize that the current climate is different and in doing so abandons the affirmative duty of care and holds “that there is no affirmative obligation to obtain opinion of counsel.” Id. at 12. The Court also raised the standard of proof of willful infringement by holding that enhanced damages require “at least a showing of objective recklessness.” Id. This new standard overrules the duty of care announced in Underwater, which set a lower threshold for willful infringement that was more akin to negligence. Id. at 11. Under Seagate, “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.” Id. at 12 (citations omitted).
The Federal Circuit’s opinion in Seagate may signal an end to enhanced damage awards for post-filing conduct. In dicta, the Seagate Court reasoned that any benefit of extending the privilege waiver to trial counsel was outweighed by the realization that “in ordinary circumstances, willfulness will depend on an infringer’s prelitigation conduct.” Seagate at 16. “So a willfulness claim asserted in the original complaint must necessarily be grounded exclusively in the accused infringer’s pre-filling conduct.” Id. “[W]hen an accused infringer’s post-filing conduct is reckless, a patentee can move for a preliminary injunction, which generally provides an adequate remedy for combating post-filing willful infringement. A patentee who does not attempt to stop an accused infringer’s activities in this manner should not be allowed to accrue enhanced damages based solely on the infringer’s post-filing conduct.” Id. at 16-17 (citations omitted). This means that, in cases where willful infringement is based upon post-filing conduct, the plaintiff’s remedy could be restricted to a preliminary injunction and not enhanced damages.
The Seagate decision will likely have a broad positive impact for patent infringement defendants. The protection of the privilege for trial counsel client communications and trial counsel work product immunity will lift the burden of monitoring communications between trial counsel and the client on the subject of infringement from the outset of the case and protect against the possibility of trial counsel becoming a witness against their own client. It will also allow trial counsel to enjoy the full benefit of the privilege and have frank and honest communications with their client regarding trial strategy and infringement defenses. The Federal Circuit’s decision regarding the standard of care for willful infringement is also significant in that it recognizes the modern day climate of patent infringement litigation and releases the patent infringement defendant from the obligation of seeking an opinion of counsel. The decision also raises the threshold for willful infringement, which will likely create lower damage awards in patent cases. Lastly, Seagate reveals the Federal Circuit’s current posture on enhanced damages for willful infringement based upon post-filing conduct and supports a conclusion that a preliminary injunction, and not enhanced damages, may be considered an adequate remedy for such conduct.
If you have questions or comments about this e-Alert, please contact Amy Osberg at 214.953.5977 or aosberg@jw.com.
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