Authored by Erik R. Puknys
A number of years ago, a client accused of patent infringement would risk having their litigation counsel disqualified if attorneys from the same firm had also prepared an opinion related to the subject matter of the litigation. At the very least, the client would run a significant risk that relying on such an opinion would waive attorney-client privilege with trial counsel as to the subject matter of the opinion.
While recent decisions by the Federal Circuit have greatly reduced that risk, they have not directly addressed the situation where trial counsel and opinion counsel work for the same firm. Nevertheless, we believe that the waiver of privilege would not extend to trial counsel, even if trial counsel is from the same firm as opinion counsel.
As patent practitioners are well aware, in 2004 the U.S. Court of Appeals for the Federal Circuit began to significantly alter the legal landscape of willful infringement, culminating with the decision in In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007). Prior to this time, the law imposed on companies an affirmative duty of due care to avoid infringing the patent rights of others. See Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983).
This duty of care included the duty to obtain competent legal advice before the initiation of any possible infringing activity. Moreover, an adverse inference of patent infringement could be drawn 1) where a company did not obtain an opinion of counsel, or 2) where the company did obtain an opinion of counsel but did not produce it at trial. See Fromson v. W. Litho Plate & Supply Co., 853 F.2d 1568, 1572-73 (Fed. Cir. 1988).
But beginning with its 2004 decision in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004), the Federal Circuit altered the willfulness inquiry. In Knorr-Bremse, the Court addressed the "adverse inferences" of willful infringement and expressly concluded that such adverse inferences were not proper in the two situations noted above.
Knorr-Bremse was universally regarded as reducing the likelihood of a finding of willful infringement if a company decided not to obtain or not to produce an opinion. Accordingly, it also reduced the likelihood that a company would produce any opinion during litigation.
While Knorr-Bremse did not address the impact on the attorney-client privilege where a company does obtain an opinion and decides to produce it, the Federal Circuit addressed that issue two years later in In re EchoStar Communications Corp., 448 F.3d 1294 (Fed. Cir. 2006). In EchoStar, the Court held that a company waived attorney-client privilege on "any attorney-client communications relating to the same subject matter, including communications with counsel other than in-house counsel." Id. at 1299.
EchoStar created some unease among companies and increased the uncertainty in the law because district courts varied tremendously on their application of this holding. Even though the EchoStar decision addressed discovery from opinion counsel only, a few district courts broadly extended the waiver to trial counsel, apparently regardless of whether opinion counsel and trial counsel were from the same firm. See Informatica Corp. v. Bus. Objects Data Integration, Inc., 454 F. Supp. 2d 957 (N.D. Cal. 2006).
The rationale for such a broad waiver was to prohibit companies from producing favorable opinions, while at the same time hiding unfavorable opinions. Other courts read EchoStar as not favoring a broad waiver. See Ampex Corp. v. Eastman Kodak Co., No. CIV A. 04-1373- KAJ, 2006 WL 1995140 (D. Del. July 17, 2006). Yet still other district courts found a "middle ground" where they extended the waiver to information that "contained conclusions or advice that contradict[s] or cast[s] doubt on the earlier opinion." Intex Recreation Corp. v. Team Worldwide Corp., 439 F. Supp. 2d 46, 52 (D.D.C. 2006).
This uncertainty was largely resolved in 2007 by Seagate, which fundamentally changed the landscape of willful infringement. In Seagate, the Federal Circuit recognized that the duty of care led to, inter alia, a fundamental conflict between relying on the advice of counsel to avoid willful infringement and the protections of the attorney-client privilege. Thus, the Federal Circuit overruled the duty of due care and established a new standard, holding that "proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness." Seagate, 497 F.3d at 1371. (emphasis added).
Moreover, because the Court abandoned the affirmative duty of due care, it reemphasized "that there is no affirmative obligation to obtain opinion of counsel." Id. These two holdings changed over 20 years of jurisprudence.
The Seagate Court then addressed the scope of waiver resulting from the production of an opinion of counsel, noting the "varying results" that district courts had reached in extending the waiver to trial counsel. Id. at 1372. The Court expressly concluded that waiver of the attorney-client privilege does not extend to trial counsel. Key to this decision were "the significantly different functions of trial counsel and opinion counsel." Id. at 1373.
Specifically, the Court noted that opinion counsel provides "an objective assessment for making informed business decisions" while trial counsel functions as an advocate. Id. In addition, the Court accepted that "in ordinary circumstances, willfulness will depend on an infringer's prelitigation conduct." Id. at 1374. Thus, the "communications of trial counsel have little, if any, relevance warranting their disclosure." Id.
While these recent decisions have greatly reduced an accused infringer's need to produce an opinion to avoid a charge of willful infringement, opinions of counsel still play a significant role in avoiding a finding of willful infringement. Indeed, several recent decisions rejecting allegations of willful infringement expressly noted the presence of an opinion of counsel.
For example, the 2008 Federal Circuit decision in Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1339 (Fed. Cir. 2008), noted that the accused infringer had obtained an opinion of counsel on non-infringement and further commented that a "competent opinion of counsel" on non-infringement or invalidity would be sufficient to overcome a finding of objectively reckless behavior. Accordingly, a company may still wish to produce an opinion even though this would waive the privilege that would otherwise protect the communications of opinion counsel. Under Seagate this waiver generally will not extend to trial counsel.
However, Seagate's analysis was premised on the assumption that opinion and trial counsel would operate "separately and independently" at all times. Seagate, 497 F.3d at 1366. As a result, Seagate did not address a significant issue — the extent of any waiver where opinion counsel and trial counsel are members of the same firm. Nevertheless, as we discuss below, we believe that Seagate's rationale applies even where trial counsel and opinion counsel are from the same firm.
We are not aware of any post-Seagate district court decisions addressing this particular issue. Prior to Seagate, however, patentees occasionally sought to disqualify trial counsel from the same firm as opinion counsel by arguing that opinion counsel is a necessary testifying witness. In making these arguments, patentees often relied on the ethical rules governing attorney conduct, particularly Model Rule 3.7 which prohibits a lawyer from personally acting as an advocate at trial if the lawyer is likely to testify as a necessary witness. That rule also "imputes" this prohibition to the entire firm if such representation would cause a conflict of interest.
In one pre-Seagate case, Crossroads Sys., Inc. v. Dot Hill Sys. Corp., No. A-03-CA-754-SS, 2006 WL 1544621 (W.D. Tex. May 31, 2006), a district court disqualified trial counsel because members of the same firm prepared an opinion on the patent at issue. The Court decided that allowing the firm to serve as trial counsel would place the trial attorneys in "the awkward and unseemly position of having to advocate for the credibility and reliability of the testimony of their law partners." Id. at *10.
Moreover, should opinion counsel give testimony adverse to the defendant's interest, the Court opined that "the attorneys serving as trial counsel would be squarely confronted with a conflict of interest in grappling with competing duties to the client and to the firm." Id.
Nevertheless, the Court cautioned that such cases must be decided on "their own peculiar facts." Id., n.2. Two key facts were 1) that the defendant was already represented by two other law firms, and 2) that trial counsel had agreed prior to trial that the firm would not represent the defendant if opinion counsel was called to testify. See id at *9-*10. Notably, the Court did not consider whether trial counsel and opinion counsel did, or could, operate separately and independently.
The Crossroads case, however, was an outlier even before Seagate. Most courts have not been receptive to disqualification motions based on the argument that opinion counsel is a necessary witness. Specifically, courts have explained that, when an accused infringer relies on an opinion, the key issues are whether the opinion was competent and whether the accused infringer reasonably relied on it. Bristol-Myers Squibb Co. v. Rhone-Poulenc Rorer, Inc., No. 95 Civ. 8833 RPP, 2000 WL 1006235, at *5 (S.D.N.Y. July 19, 2000).
But since an opinion "stands on its own," the opinion writer's testimony is not necessary to establish competency. Bristol-Myers Squibb Co. v. Rhone-Poulenc Rorer, Inc., No. 95 Civ. 8833 RPP, 2000 WL 1655054, at *6 (S.D.N.Y. Nov. 3, 2000). Likewise, the opinion writer's testimony is not necessary on the issue of good faith reliance since that "is a question of the party's state of mind, not the state of mind of counsel." Liqui-Box Corp. v. Reid Valve Co., 16 U.S.P.Q.2d 1074, 1075 (W.D. Pa 1989).
As an alternative to these arguments, other patentees have argued that if opinion counsel is not called as a witness, the opinion letter elevates trial counsel's status to a "non-testifying expert" and unfairly bolsters position and influence with the jury. Bristol-Myers Squibb, 2000 WL 1006235, at *1. As above, courts have generally not been receptive to this argument. See id. at *5.
In contrast, the countervailing arguments to disqualification and waiver have proven quite compelling. One particularly successful argument focuses on the fact that willfulness does not turn on the state of mind of the opinion writer.
Thus, because the opinion writer's testimony could not shed any light on the accused infringer's state of mind, such testimony "would be clouded by irrelevancies." See Bristol-Myers Squibb Co., 2000 WL 1006235, at *5. Instead, it is the accused infringer who would need to testify on this point. Accordingly, courts have refused to allow counsel to testify regarding an accused infringer's good faith reliance. Liqui-Box Corp., 16 U.S.P.Q.2d at 1075.
These arguments carry even greater weight after Seagate since, under the "objective recklessness" standard, the Federal Circuit has expressly concluded that the "state of mind of the accused is not relevant." Seagate, 497 F.3d at 1371.
Even after a threshold "objective standard" is satisfied, the patentee must demonstrate that the "objectively defined risk" was "either known or so obvious that it should have been known to the accused infringer." Id. Once again, this second prong of the analysis turns on what the accused infringer knew or should have known, thereby making it even less likely that the opinion writer would be called to testify on this issue.
Thus, so long as trial counsel plays absolutely no role in the drafting of an opinion, we believe that in all but the most unusual cases a firm can represent a client in a lawsuit even if the client had obtained an opinion of counsel from other attorneys within the firm.
To ensure that the attorneys act separately and independently, thereby avoiding issues of disqualification or waiver, the firm should take concrete steps to isolate the litigation team from opinion counsel. For example, the firm should erect ethical walls between the litigation team and any attorneys that provided an opinion.
Where a firm takes such steps, the bright line that the Federal Circuit drew between opinion counsel and trial counsel indicates to us that opinion counsel and trial counsel may be members of the same firm.
Originally published by Law 360 (www.law360.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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