Federal Circuit Imposes New Limits on Willful Infringement
The recent opinion of the Federal Circuit in In re Seagate Technology (Fed. Cir. Docket No. 830; 8/20/07) imposed new limits on willful infringement by establishing a new standard: proof of willful infringement permitting enhanced damages now requires at least a showing of objective recklessness.
This new standard overruled the prior standard set out in Underwater Devices Inc. v. Morrison-Knudsen, Co., 717 F.2d 1380 (Fed. Cir. 1983), which was that when a potential infringer has notice of another’s rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing.
The Federal Circuit’s opinion addressed three key issues:
- 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 Commc’n Corp., 448 F.3d 1294 (Fed. Cir. 2006).
- What is the effect of any such waiver on work-product immunity?
- 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?
On the first issue, the Federal Circuit held that "as a general proposition, asserting the advice of counsel defense and disclosing opinions of opinion counsel do not constitute a waiver of the attorney-client privilege for communications with trial counsel." However, the Federal Circuit declined to set out an absolute rule.
On the second issue, the Federal Circuit held that "an advice of counsel defense asserted to refute a charge of willful infringement" does not extend to trial counsel’s work product, absent exceptional circumstances.
On the third issue, the Federal Circuit overruled the standard announed in Underwater Devices, holding that "proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness." The Court abandoned the affirmative duty of due care, and reemphasized that there is no affirmative duty to obtain an opinion of counsel.
Peter Zura’s 271 Patent Blog provided a good summary of Federal Circuit opinion, as did the Patent Baristas, who also provided some additional background information on the issue, such as the Underwater Devices decision and the freedom-to-practice opinions.
So what is the significance of the opinion?
The Patent Baristas reported on the significance as follows:
The Federal Circuit has demonstrated once again that it is not afraid to effect a sea change in patent law jurisprudence in a big way. . . .
[I]t appears that Seagate signals a receding of the tide of willful infringement litigation. The decision appears to be intended by the court to make a willfulness case substantially more difficult to prove. In view of the complexity and high reversal rate on claim construction issues in patent infringement cases, how can it be argued in any but the simplest and clearest of cases (is there such a thing?) that an accused infringer knew or should have known of a strong case before litigation and adjudication? This would seem to require proof that the infringer was omniscient. Whether this logical conundrum was intended by the court or not, the effect will be to remove risk for accused infringers and shift some of the burden back to patent owners.
Clearly, the Federal Circuit used this case to impose new limits on the ability to obtain willful damages in patent infringement . Is this a case of judicial legislating? Or is it just a case of the Federal Circuit correcting a prior misreading of the precedent?
The fact that the Federal Circuit issued the opinion to coincide with the consideration of patent reform legislation in the House, which has also contemplated imposing limits on willful infringement damages, certainly is an indication that the Federal Circuit could have been influenced by the political debate going on in Congress. On the other hand, perhaps the Federal Circuit really did believe that the relevant precedent had been incorrectly decided, and that this alone prompted the Court to overturn the precedent.
Somehow I am not quite convinced. Are you?
Comment from Edward D. Manzo
Time September 16, 2007 at 5:20 am
After being reversed by the Supreme Court within the past 18 months for its jurisprudence on permanent injuncitons (eBay), justiciability (MedImmune), and obviousness (KSR), the Federal Circuit certainly must have a heightened awareness that (1) it is not the court of last resort and (2)the Supreme Court is less reticent to take patent cases these days. Nor is it bashful about reversing a court of appeals. Your question goes to the timing of the en banc opinion in Seagate. First, the issuance of any court opinion depends somewhat on litigants raising the issue, as it is unlikely that a court of appeals will sua sponte decide that its own jurisprudence is wrong and then look for a case in which to announce the new law. Second, having Congress legislate new STATUTORY standards for willfulness is, in my view, somewhat different than being overruled by a higher court. Congress is free to enact whatever (constitutional) legislation it pleases. Nevertheless, I think there may be some merit to your point. When enough support is mustered to have Congress legislate on what the law regarding willfulness in patent cases, this might have motivated the court to take a further look at the affirmative duty of due care in a suitable case. After all, look at how many amici participated in that case. It is likely that some of those amici or others in their industries also urged Congress to legislate similar relief. I believe that the Federal Circuit is trying to act responsibly and to harmonize its jurisprudence with the law of the land. I believe there were problems with the “affirmative duty” and there still will be issues over when increased damages should be awarded. I do not believe that the Federal Circuit decides cases on the basis of what is popular in Congress at any given moment.