Businesses concerned about pending or potential patent infringement suits should pay careful attention to a case now pending in the Federal Circuit that may affect what strategies should be employed in dealing with infringement issues. The Federal Circuit has taken the unusual step of ordering an en banc hearing in In re Seagate Technology, LLC, 214 Fed. Appx. 997 (Fed. Cir. 2007), to address the scope of the attorney-client privilege waiver that may arise when a party sued for willful patent infringement raises advice of counsel as a defense. The court’s answers to these questions could radically alter how parties defend themselves in patent infringement cases.
Plaintiffs asserting an infringement claim often allege that the infringement was willful. If proven by clear and convincing evidence, treble damages may be awarded. As a defense to a claim of willful infringement, defendants often contend that they relied on legal advice before they engaged in any activity that might infringe on another’s patent rights. Seagate raised that defense in an infringement lawsuit in which the plaintiffs sought $800 million in damages. Courts have routinely held that raising that defense waives the attorney-client privilege with respect to the subject matter of the opinion on which the defendant relies. The district court in Seagate also held that this waiver extended beyond communications with counsel who gave the opinion to encompass communications with separate trial counsel and in-house counsel and also constituted a waiver of the work produce privilege.
Seagate asked the Federal Circuit to address whether a party’s assertion of the advice-of-counsel defense constituted a waiver of the attorney-client privilege with respect to that party’s trial counsel or waived the work produce privilege. In a footnote in In re EchoStar, 448 F.3d 1294 (Fed. Cir. 2006), the Federal Circuit stated that the privilege waiver does extend to advice given after litigation begins, and like the district court, a number of courts have relied on this dicta to support extending the waiver to communications involving trial counsel.
In an unusual move, the court itself raised a separate question of whether the court should re-examine the 24-year-old decision in Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed.Cir.1983), imposing a fundamental duty of due care to avoid infringement when a company or party has notice of another’s patent rights. Courts have generally interpreted that duty as requiring a party to obtain a legal opinion on the validity of those patent rights before engaging in or continuing any infringing activity. The court appears to be concerned about the impact of imposing such a duty should it agree with the district court that relying on such an opinion as a defense to a willfulness claim waives the any privilege for work product and attorney-client communications after the infringement opinion was given. The case has generated a great deal of interest, and more than a dozen amicus briefs have been filed. Oral argument is set for June 7, 2007. The decision in Seagate will be of interest to any business that may face a potential patent infringement suit.