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Federal Circuit Imposes New Limits on Willful Infringement

Written by on Friday, September 14th, 2007 Print This Post Print This Post

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:

    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 Commc’n Corp., 448 F.3d 1294 (Fed. Cir. 2006).
    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?

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? 

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