September 12, 2007

In Seagate Decision, Federal Circuit Raises Standard for Willfulness in Patent Infringement Suits


The U.S. Court of Appeals for the Federal Circuit has raised the bar for proving willful patent infringement and the entitlement of patent owners to an award of enhanced damages and attorneys’ fees. On Aug. 20, 2007, the court issued its opinion in In re Seagate Technology, LLC, No. 06-M380, slip op. (Fed. Cir. 2007) (en banc), expressly overturning its nearly 24-year-old standard of care in avoiding a charge of willful patent infringement. Previously, accused infringers had an affirmative duty to exercise "due care" to determine whether or not their actions constituted infringement.

In setting its new burden of proof, the In re Seagate court reasoned that the prior standard was akin to "mere negligence" and inconsistent with the "general understanding of willfulness in the civil context." To be consistent with willfulness standards in other civil contexts, the court adopted a higher standard—"objective recklessness." In the process, the court explicitly eliminated any affirmative duty to exercise due care and, notably, any affirmative duty to seek an opinion of counsel. While the full impact of In re Seagate remains to be seen, it will inevitably have a major impact on clients and lawyers involved in patent litigation.

Background—Underwater Devices and In re EchoStar

Prior to In re Seagate, the standard for willful patent infringement was that set forth in Underwater Devices, Inc. v. Morrison-Knudsen Co., Inc., 717 F.2d 1380 (Fed. Cir. 1983). There, in response to royalty demands from the plaintiff patent owner prior to suit, the defendant’s in-house counsel advised the company that the patent-in-suit was invalid, and also "to refuse to even discuss the payment of a royalty" with the patent owner. Among his reasons for taking this position was the in-house attorney’s statement that "[c]ourts, in recent years, have—in patent infringement cases—found the patents claimed to be infringed upon invalid in approximately 80% of the cases." The in-house attorney, who was not a patent attorney, initiated a prior art search but did not review the patent file histories or actually evaluate infringement or validity of the patent at issue until after the defendant began its infringing activities.

In affirming the trial court’s finding of willful infringement, the Federal Circuit stated that "where, as here, 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 possible infringing activity." The court concluded that the in-house attorney’s advice "was not legal advice upon which the [defendant] was justified in relying."

The Underwater Devices decision established an affirmative duty of due care, including an affirmative duty to seek competent legal advice with respect to the potential infringement of third party patents. Over the course of the following two decades, the due care requirement of Underwater Devices fostered, among other things, "a cottage industry of window-dressing legal opinions by third party counsel." Knorr-Bremse Systeme Fuer Nutzfahrzeuge GMBH v. Dana Corp., 383 F.3d 1337, 1351 (Fed. Cir. 2004) (en banc) (Dyk, C.J., concurring-in-part, dissenting-in-part). Litigation would inevitably focus on whether to waive privilege, and if waived, the scope of the waiver. In particular, efforts were made to seek disclosure of all communications related to the subject matter of the opinion, including communications with trial counsel.

Courts have consistently viewed the assertion of an opinion of counsel defense as a waiver of the attorney-client privilege. Courts will not allow defendants to use opinions of counsel as both a sword and a shield, i.e., by relying on favorable opinions of counsel while asserting the attorney-client privilege over unfavorable opinions. Thus, an accused infringer will be required to disclose at least some otherwise privileged communications if it asserts an opinion of counsel defense. The scope of the waiver has varied. Some courts applied the waiver narrowly to communications only between the accused infringer and its opinion counsel, while other courts extended the waiver beyond opinion counsel, including communications with trial counsel.

The decision in In re EchoStar Communications Corp., 448 F.3d 1294 (Fed. Cir. 2006) addressed the scope of waiver arising from asserting an advice of counsel defense. There, the defendant had relied on opinions of in-house counsel prior to trial, and also obtained opinions from its outside counsel after the suit was filed. The defendant apparently chose, however, to not "rely" on the outside counsel’s opinions. The trial court ordered production of any communications and work product between the defendant and its in-house and outside opinion counsel, regardless of whether the work product was actually communicated to the defendant.

The Federal Circuit explained that when the defendant chose to rely on the advice of in-house counsel as a defense to willful infringement, it waived the attorney-client privilege with regard to any attorney-client communications relating to the "same subject matter," and also waived work product immunity for any document or opinion that "embodies or discusses" a communication to or from it concerning whether the patent is valid, enforceable and infringed. In In re EchoStar, this waiver extended to the outside opinion counsel.

At the same time, however, the court determined that work product of opinion counsel that was not communicated to the defendant and that did not reflect a communication with the defendant was not within the scope of the waiver. The focus was on the defendant’s state of mind—work product immunity for uncommunicated work product was not waived because this work product could play no part in the defendant’s state of mind regarding its possible infringement of a valid patent. Notably, In re EchoStar did not address the issue of waiver with respect to trial counsel. Nevertheless, by defining the scope of waiver as extending to any communications relating to the "same subject matter" as that covered in the opinion, the In re EchoStar decision raised the question of whether even communications with trial counsel relating to the potential infringement, validity or enforceability of the patent at issue would remain protected.

In re Seagate—Facts and Holdings

Convolve, Inc. and the Massachusetts Institute of Technology (collectively "Convolve") asserted three patents against Seagate Technology, LLC, alleging willful infringement of each. Seagate obtained opinions by outside counsel that the asserted patents were invalid and/or that Seagate did not infringe the patents. The attorney who rendered the three opinions and Seagate’s litigation counsel undisputedly operated separately and independently at all times. Seagate notified Convolve of its intent to rely on its opinion letters in defending against willful infringement, disclosed to Convolve all of its outside opinion counsel’s work product, and made him available for deposition. Convolve then moved to compel discovery of any communications and work product of Seagate’s other counsel, including its trial counsel. Notably, Convolve sought discovery of, among other things, all communications and documents on the "same subjects" as its outside opinion counsel’s opinions.

The trial court concluded that Seagate waived the attorney-client privilege for all communications between it and any counsel, including its trial counsel, concerning the subject matter of the opinions, i.e., infringement, invalidity and enforceability. It further determined that the waiver began when Seagate first gained knowledge of the patents and would last until the alleged infringement ceased. The trial court ordered production of any requested documents and testimony concerning the subject matter of the opinions. It provided for in camera review of documents relating to trial strategy, but said that any advice from trial counsel that undermined the reasonableness of relying on the opinions would warrant disclosure. The trial court also concluded that work product protection for work product that was communicated to Seagate was similarly waived.

Seagate ultimately petitioned the Federal Circuit for a writ of mandamus directing the trial court to vacate orders compelling discovery of protected work product and testimony from Seagate and its trial counsel. The Federal Circuit sua sponte ordered en banc review of the petition. The order setting en banc review set out the following questions:

1. Should a party’s assertion of the advice of counsel defense to willful infringement extend waiver of the attorney-client privilege to communications with that party’s trial counsel? See In re EchoStar.

2. What is the effect of any such waiver on work-product immunity?

3. Given the impact of the statutory duty of care standard announced in Underwater Devices on the issue of waiver of attorney-client privilege, should this court reconsider the decision in Underwater Devices and the duty of care standard itself?

Willfulness Standard

The Federal Circuit addressed the last question first. The court determined that the Underwater Devices duty of care standard provided a lower threshold for establishing willfulness than was required in other civil litigation contexts. After discussing the willfulness standard in copyright infringement actions and claims brought under the Fair Credit Reporting Act, the court held that establishing willful infringement requires at least a showing of "objective recklessness." The court expressly overruled the standard adopted more than 20 years before in Underwater Devices, abandoning both the affirmative duty of due care and the affirmative obligation to obtain an opinion of counsel.

Acknowledging that the term "reckless" is not self-defining, the court further explained that to establish willful infringement required an ostensibly two-part showing. First, the patentee "must show by clear and convincing evidence that the infringer acted despite an objectively high risk of harm that is either known or so obvious that it should be known." The court stated that the accused infringer’s state of mind is not relevant to this "objective inquiry." Second, if this "threshold objective standard" is met, the patentee must also demonstrate (presumably also by clear and convincing evidence) that this objectively defined risk "was either known or so obvious that it should have been known to the accused infringer."

Interestingly, Convolve challenged the propriety of the court’s review of the willfulness standard, as neither willful infringement, nor even infringement in the first instance, had been decided by the trial court. The Federal Circuit summarily rejected this argument. The court reasoned that "the proper legal standard for willful infringement informs the relevance of evidence relating to that issue and, more importantly, the proper scope of discovery." The court concluded, therefore, that its opinion addressing willfulness was neither hypothetical nor advisory.

Scope of Waiver

Having adopted a new standard for willful infringement, the Federal Circuit turned to the scope of waiver issues. The court distinguished between "opinion counsel" and "trial counsel," reasoning that the former "serves to provide an objective assessment for making informed business decisions," while the latter "focuses on litigation strategy and evaluates the most successful manner of presenting a case to a judicial decision maker." The court stated that because of these differences, the "classic ‘sword and shield’" concerns were not present.

Additionally, the Federal Circuit drew a distinction between an accused infringer’s pre-filing and post-filing conduct with respect to a willful infringement allegation. The court reasoned that because Rule 11 of the Federal Rules of Civil Procedure requires a patentee to have a good faith basis for alleging willful infringement when a complaint is filed, a willfulness claim in the complaint "must necessarily be grounded exclusively in the accused infringer’s pre-filing conduct." Thus, the court reasoned, communications of trial counsel have little, if any, relevance warranting their disclosure, which further supports protecting trial counsel from waiver. Indeed, the court stated that the opinions of Seagate’s opinion counsel received after the lawsuit was commenced appeared to be of "marginal value."

The court further reasoned that a patentee can move for a preliminary injunction if the accused infringer’s post-filing conduct is reckless. According to the court, a preliminary injunction "generally provides an adequate remedy for combating post-filing willful infringement." Perhaps most notably, the court noted that if a patentee is unsuccessful in securing injunctive relief, "it is likely the infringement did not rise to the level of recklessness" (emphasis added). Along the same lines, the court stated that a "substantial question about invalidity or infringement is likely sufficient not only to avoid a preliminary injunction, but also a charge of willfulness based on post-filing conduct" (emphasis added).

The court ultimately held that "as a general proposition," asserting an advice of counsel defense and disclosing opinions of "opinion counsel" do not constitute waiver of the attorney-client privilege for communications with "trial counsel."

Finally, the court also held that "as a general proposition, relying on opinion counsel’s work product does not waive work product immunity with respect to trial counsel." With respect to both attorney-client privileged communications and protected work product, the court confirmed that trial courts may exercise their discretion to extend waiver to trial counsel in "unique circumstances … such as if a party or counsel engages in chicanery."

Implications of the In re Seagate Decision

In re Seagate undoubtedly has numerous implications and raises significant questions for patent owners and potential infringers. Perhaps first and foremost is the nature of the pre-filing conduct that will constitute willful infringement under the new standard. A corollary to this is whether a substantial defense to infringement will be enough to defeat a willful infringement claim. Unfortunately, In re Seagate’s somewhat unusual procedural posture prevented the Federal Circuit from actually applying its new standard.

Nevertheless, the court’s dicta regarding preliminary injunction standards provides at least a glimpse as to the nature of showing that the court believed could defeat a willfulness allegation. The court suggested that a showing by an accused infringer of a substantial question as to invalidity and/or infringement sufficient to avoid a preliminary injunction (i.e., a showing sufficient to preclude the patentee from establishing a likelihood of success on the merits) would also "likely" be sufficient to avoid a willfulness finding based on post-filing conduct. If such a showing would be sufficient to defeat a willfulness claim as to post-filing conduct, it should at least arguably also be sufficient to defeat a willfulness claim based on pre-litigation conduct.

In re Seagate is ostensibly clear on one point—clients need not spend their resources on opinions from "opinion counsel" after a complaint has been filed. The continued value of detailed, written pre-filing opinions, however, is less clear. The Federal Circuit did not reject the advice of counsel defense altogether, or otherwise suggest that it was no longer a viable defense. Indeed, in some cases, an opinion of counsel could be the most effective means for an accused infringer to defeat the second prong of the new willful infringement showing—i.e., that the accused infringer knew or should have known of the "objectively high" risk that its activities constituted infringement. Furthermore, given that the invocation of the attorney-client privilege with respect to opinions of counsel no longer raises an adverse inference as to the content of the opinions, see Knorr-Bremse, 383 F.3d 1337 (Fed. Cir. 2004) (en banc), the consequences of obtaining an opinion and not producing it are significantly diminished.

The elimination of the affirmative duty to seek an opinion of counsel should also provide companies increased flexibility in managing infringement risks, by permitting companies to rely, where appropriate, on non-legal resources to evaluate these risks. Thus, for example, a company may now have more flexibility in deciding whether to retain counsel and obtain an opinion when confronted with vague "notice letters" and the like.

A related issue is the appropriate content and detail of opinions when they are obtained. The In re Seagate court did not address competence of the opinions at issue. Nevertheless, the higher "objective recklessness" standard at least suggests that the accused infringer need not understand in the same detail as before the bases for the opinions in order to reasonably rely upon them.

To be sure, the Federal Circuit’s newly adopted burden of proof may likely reduce the number of willful infringement allegations brought by patentees in infringement suits. And when patentees do bring willful infringement claims, the higher burden of proof may justify phased discovery and/or bifurcated trials. Accused infringers could gain significant strategic advantages where, for example, a court requires the patentee to establish an objectively high risk of harm (the "threshold objective standard" established by the Federal Circuit) before the accused infringer is required to make any decisions on waiver of the attorney-client privilege.

The In re Seagate decision also creates a potential strategic dilemma for patentees. The opinion indicates that a plaintiff might waive the right to enhancement of damages as to post-filing willful infringement if it chooses not to seek a preliminary injunction. ("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.") At the same time, if the plaintiff does move for a preliminary injunction and the trial court denies its motion based on a substantial question as to infringement, invalidity and/or enforceability, such denial may likely eliminate the plaintiff’s chances for a finding of willful infringement as to pre-filing conduct as well.

With respect to the scope of waiver, In re Seagate makes a clear distinction between "opinion counsel" and "trial counsel." Additionally, it continues to afford trial courts the discretion to expand the waiver of privilege to trial counsel, for example, in situations where the parties or counsel engage in "chicanery." This analysis assumes that "trial counsel" and "opinion counsel" can be readily distinguished and leaves unclear the types of conduct that would constitute chicanery. Thus, it may be wise to continue the practice of keeping the identity and activities of trial counsel distinct and separate from that of opinion counsel.


In re Seagate’s higher burden of proof for willful infringement should result in more willfulness claims being disposed of as a matter of law. It may also reduce the frequency with which willful infringement allegations are asserted in patent cases. This conclusion is bolstered by the court’s dicta stating that a substantial question as to infringement or invalidity is likely sufficient to preclude a willful infringement finding based on post-filing conduct. Nevertheless, because the trial court had not yet rendered a willful infringement decision for the Federal Circuit to review, the appellate court could not actually apply its new standard. The Federal Circuit "[left] it to future cases to further develop the application of this standard."

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