Federal Circuit Clarifies Rules for Punitive Damages for Willful Patent Infringement and Protects Trial Counsel from Scope of Advice of Counsel Waiver

Case: In Re Seagate Technology (Fed. Cir. Misc. No. 830, 8/20/07)

The One Sentence Summary: An en banc panel of the Federal Circuit (1) overruled a prior decision requiring an affirmative duty of care to avoid patent infringement, holding that a showing of objective recklessness is required; and (2) held that assertion of an advice of counsel defense by production of an opinion of pre-litigation counsel would not "as a general proposition" waive attorney-client privilege or work product protection for trial counsel.


What They Were Fighting About: After defendant's assertion of an advice of counsel defense by production of opinion letters from pre-litigation opinion counsel, the trial court had ordered discovery of communications with trial counsel on the same subject matter. On a petition for mandamus, an en banc panel of the Federal Circuit reversed.

Federal Circuit Holdings:

• The en banc panel overruled the Federal Circuit's prior decision in Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (1983), which had allowed punitive damages for willful patent infringement upon a negligence-like standard of failure to exercise due care to avoid infringement. The court held that willful infringement allowing enhanced damages requires at least a showing of objective recklessness. There is no affirmative duty of due care, and no affirmative obligation to obtain an opinion of counsel as to non-infringement or invalidity.
• The court set out the test for recklessness leading to enhanced damages as follows:

  Accordingly, 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. See [Safeco Ins. Co. of Am. v. Burr, 551 U.S. ___, Nos. 06-84, -100, slip op. at 19 (June 4, 2007)] (“It is [a] high risk of harm, objectively assessed, that is the essence of recklessness at common law.”). 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 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 en banc panel stated its holding as follows:

  We hold, as a general proposition, 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. We do not purport to set out an absolute rule. Instead, trial courts remain free to exercise their discretion in unique circumstances to extend waiver to trial counsel, such as if a party or counsel engages in chicanery.

  
  
• If an accused infringer continues to infringe after filing of the complaint, the patentee plaintiff can seek a preliminary injunction to stop the infringement. Enhanced damages for willful infringement should not be available due to post-filing conduct of the accused infringer if the plaintiff does not seek a preliminary injunction. If the preliminary injunction is not granted due to a failure to show a likelihood of prevailing on the merits, it is likely that the accused infringer should not be subject to enhanced damages for post-filing conduct. If the injunction is denied on other factors, the facts should be weighed case by case as to recklessness and enhanced damages based on post-filing conduct.
• As to attorney work product protection for trial's counsel's work, the en banc panel held that it would not be waived by assertion of an advice of counsel defense absent exceptional circumstances. The court stated:

  Accordingly, we hold that, as a general proposition, relying on opinion counsel’s work product does not waive work product immunity with respect to trial counsel. Again, we leave 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. And, of course, the general principles of work product protection remain in force, so that a party may obtain discovery of work product absent waiver upon a sufficient showing of need and hardship, bearing in mind that a higher burden must be met to obtain that pertaining to mental processes. See Fed. R. Civ. Pro. 26(b)(3).