Authored by Erik R. Puknys
In a patent infringement case, patentees may assert a claim of willful infringement against an accused infringer. A charge of willful infringement poses significant risk to the accused infringer, since it subjects an infringer to the possibility of treble damages. To manage this risk, an accused infringer may seek an opinion of counsel showing that it does not infringe the asserted patent or that the asserted patent is invalid. A competent opinion of counsel can defeat a claim of willful patent infringement, thereby removing the specter of treble damages even if a court later determines that the patent is infringed.
Over the past several years, the Federal Circuit U.S. Court of Appeals has substantially altered the legal landscape pertaining to willful infringement. This has had a significant impact on willful infringement jurisprudence. In particular, these legal changes have had an effect on waivers of attorney-client privilege where an accused infringer relies on an opinion of counsel.
To put this into perspective, we briefly discuss the law prior to 2004, beginning with the Federal Circuit's 1983 decision in Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380. Underwater Devices was significant because it established that companies had an affirmative "duty of care" to avoid infringing the patent rights of others, which included the duty to obtain competent legal advice before the initiation of any possible infringing activity. Subsequently, the Federal Circuit placed further importance on opinions of counsel, holding that an "adverse inference" of willful infringement could be drawn from the lack of an opinion. In the alternative, an adverse inference could also be drawn where a company did seek an opinion of counsel but did not produce the opinion at trial, the premise being that the company did not produce the opinion because it was unfavorable. See Fromson v. W. Litho Plate & Supply Co., 853 F.2d 1568, 1572-73 (Fed. Cir. 1988).
But even where a party did rely on an opinion of counsel to defeat willful infringement, they faced another dilemma — waiver of attorney-client privilege as to the subject matter of the opinion. This subjected accused infringers to a difficult choice: risk an adverse inference that might lead to a finding of willful infringement and treble damages, or produce the opinion to prove that it was favorable but, by doing so, waive the attorney-client privilege. Despite the huge risks for either option, this was the choice created by the duty of due care.
This landscape changed dramatically beginning with the Federal Circuit's 2004 decision in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337. In Knorr-Bremse the Federal Circuit expressly concluded that the adverse inferences of willful infringement noted above were not proper. Nevertheless, that decision did not address the impact on the attorney-client privilege where a company does obtain an opinion and decides to produce it to avoid willful infringement. Two years later, the court in In re EchoStar Communications Corp., 448 F.3d 1294, addressed this issue. In EchoStar, the Federal Circuit caused some uncertainty by affirming a broad waiver of privilege extending to "any attorney-client communications relating to the same subject matter, including communications with counsel other than in-house counsel." (emphasis added). In the wake of this opinion, some district courts extended the waiver to trial counsel, while other courts imposed a more limited waiver.
Recognizing these divergent approaches (and the resulting uncertainty), the Federal Circuit in 2007 largely resolved the issue with its landmark holding in In re Seagate Technology, LLC, 497 F.3d 1360. In Seagate, the Federal Circuit overruled the duty of due care and established a new standard, stating that willful infringement requires "at least a showing of objective recklessness." (emphasis added). Moreover, because the court abandoned the affirmative duty of due care, it emphasized that there was "no affirmative obligation to obtain opinions of counsel."
The Seagate court then addressed the scope of the waiver of privilege that results from the production of an opinion of counsel, noting the "varying results" that district courts had reached in extending the waiver to trial counsel. The court expressly concluded that, in general, the waiver did not extend to trial counsel. Key to this decision were "the significantly different functions of trial counsel and opinion counsel." Specifically, the court noted that opinion counsel provides "an objective assessment for making informed business decisions" while trial counsel functions as an advocate. In addition, the court accepted that willfulness will ordinarily depend on an infringer's pre-litigation conduct, and thus post-litigation communications with trial counsel are largely irrelevant to the willfulness inquiry.
While these recent decisions have reduced the need of an accused infringer 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. Even after these decisions, therefore, a company may wish to produce an opinion even though this would waive the privilege that would otherwise protect the communications of opinion counsel. Seagate demonstrates that generally this waiver will be limited and will not extend to trial counsel.
Nevertheless, Seagate left a significant issue open — the extent of the waiver where opinion counsel and trial counsel are members of the same law firm. The court's decision in Seagate was premised on the fact that opinion counsel and trial counsel operated separately and independently at all times. This raises the question of whether attorneys working for the same firm may operate separately and independently, thereby obtaining the benefit of Seagate's limitations on waiver. If not, a litigant's right to obtain counsel of their choice would be significantly impeded.
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., 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." 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." The court qualified its conclusion, however, by noting that such cases must be decided on their own peculiar facts. Since this case was pre-Seagate, 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., 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. See Bristol-Myers Squibb Co. v. Rhone-Poulenc Rorer, Inc., 95 Civ. 8833 RPP, 2000 WL 1655054 (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." See 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 "nontestifying expert" and unfairly bolsters position and influence with the jury. See Bristol-Myers Squibb, 2000 WL 1006235, at *1. As above, courts have generally not been receptive to this argument.
In contrast, the countervailing arguments to disqualification and waiver have proven quite compelling. One particularly successful argument is that willfulness does not turn on the state of mind of the opinion writer. Thus, since 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. See Liqui-Box Corp.
These arguments are even more persuasive after Seagate since, under the "objective recklessness" standard, the "state of mind of the accused is not relevant to this objective inquiry." Moreover, once 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." Since this second prong of the analysis expressly and exclusively focuses on what the accused infringer knew or should have known, it makes it even less likely that the opinion writer would be called to testify on this issue.
Thus, we believe that in all but the most unusual cases trial counsel should be permitted to represent an accused infringer without risking disqualification or waiver of privilege, even though opinion counsel is from the same firm. As discussed in Seagate, the significantly different functions of trial counsel and opinion counsel advise against such a waiver of privilege, even if the attorneys work for the same firm. Of course, to comply with Seagate's underlying premise, trial counsel should operate separately and independently of opinion counsel at all times. This may be accomplished, for example, by instituting ethical walls between the attorneys that provided the opinion(s) and the attorneys serving as trial counsel. Where such barriers are erected, Seagate's underlying policies and rationales would not be disturbed and Seagate's waiver protections should remain in force.
Reprinted with permission from the March 29, 2010 issue of The Recorder. ©2010 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved. 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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