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Intellectual Property Litigation

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Federal Circuit Hears Oral Arguments in In Re: Seagate

On June 7, 2007 the Federal Circuit heard oral arguments in In Re Seagate Technologies, a petition for mandamus challenging orders that required Seagate to disclose communications with its trial counsel and in house counsel regarding infringement, validity and enforcement of the patents in suit.

The issue arose after Seagate asserted an advice of counsel defense to the patentee’s charge of willful infringement. Seagate produced the opinions of and communications with opinion counsel, but this disclosure was found insufficient. The plaintiffs argued that under In re EchoStar, Seagate’s assertion of an advice of counsel defense waived the privilege for communications on the subject matter of that advice with any and all counsel, including trial counsel and in-house counsel. The District Court agreed and entered orders compelling testimony and the production of documents regarding communications between Seagate and any of its attorneys regarding the subject matter of the opinions, i.e., “infringement, validity and enforcement of [the patents in suit].”

Seagate filed a petition for writ of mandamus with the Federal Circuit and on January 26, 2007 the Federal Circuit issued an order setting the matter for en banc consideration and inviting the parties to address the following questions: (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?”; (2)“What is the effect of any such waiver on work-product immunity?”; and (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?”

At oral argument, counsel faced a very active en banc panel. The Court first heard argument on the issue of the waiver of the attorney-client privilege from Brian Ferguson on behalf of Seagate. Mr. Ferguson argued for a bright line rule that waiver does not extend to trial counsel when trial counsel was not retained for and did not provide the client with an exculpatory opinion of counsel. “If the district court’s orders stand,” Mr. Ferguson warned “the net effect here is that respondents will have access to the mind of Seagate’s trial counsel.”

Judge Rader immediately questioned whether it matters that the opinions in this case were rendered after the litigation began. In response, Mr. Ferguson argued that the timing of the opinions did not matter so long as trial counsel and opinion counsel play different roles. According to Mr. Ferguson, trial counsel focuses on risk assessment in the context of a particular jurisdiction in which a case is pending, while opinion counsel does not know where the case will be tried or what a jury in that particular jurisdiction will do with the facts.

Judge Dyk asked: “What’s the rule that you’re arguing for? Suppose there’s an opinion from Firm A saying that there’s no infringement and then a week later the trial counsel provides an oral opinion saying there is infringement. Is that discoverable?” Mr. Ferguson initially took the position that the opinion of trial counsel would not be discoverable because trial counsel would be rendering advice based on the vagaries of the particular jurisdiction in which the case is pending. However, when Judge Dyk pushed further, clarifying that in his hypothetical trial counsel concludes based on discovery that there is infringement, not merely that the case will be difficult to defend in that jurisdiction, then Mr. Ferguson agreed that waiver would extend to trial counsel because, in that instance, trial counsel would be acting as opinion counsel.

Mr. Ferguson went on to argue that in this case trial counsel did not act as opinion counsel, to which Judge Dyk retorted “How do we know until the documents are produced in camera?” Mr. Ferguson replied that the Federal Rules tells us to look at the needs of the parties. According to Mr. Ferguson “if opinion counsel has rendered an opinion that has … an objectively unreasonable basis for what is stated in it, then the patentee has all the tools necessary to explore why that opinion is objectively unreasonable, and it does not need to invade the mind of trial counsel in order to prove that.”

The Court then asked about communication with in-house counsel, especially where in house counsel communicates with both opinion counsel and trial counsel. While conceding that there may be difficulties drawing the line, Mr. Ferguson argued that the line could still be drawn so that a deposition of in-house counsel would be limited to communications with opinion counsel and would bar inquiries into communications with trial counsel.

Finally, the Court asked whether Mr. Ferguson would still advocate this same bright line rule even if the Court were to abolish the duty of care and Mr. Ferguson responded that the same rule should still apply because of the importance of preserving candid communication with trial counsel.

The Court then heard from Mr. Raphael Lupo on the issue of whether the Underwater Devices duty of care standard should be reconsidered. Mr. Lupo began his argument by citing the research of former professor, now Judge, Kimberly Moore which found that 92.3% of the patent infringement cases filed during the 1999-2000 time period had a charge of willful infringement and asking rhetorically “Can it really be that all of these cases had enough information in them to plead willful infringement?” According to Mr. Lupo, this statistic shows an undue focus on willful infringement caused by the duty of care standard. He suggested that while the duty of care standard may have served its function in earlier years, it is now time for a change.

Mr. Lupo was barely able to complete this short introduction before the questioning from the Court took over. Asked why the standard should be changed now after being recently re-affirmed in Knorr-Bremse, Mr. Lupo first cited changes in Supreme Court precedent. Mr. Lupo argued that a recklessness standard would be in keeping with Supreme Court precedent, such as the Safeco case, which was decided just three days before the argument. Judge Gajarsa noted that willfulness was explicitly written into the statute at issue in Safeco while it is not in the patent statute, but Mr. Lupo argued that this distinction makes no difference. Mr. Lupo further argued that under the duty of care standard, defendant is effectively forced to prove that it is not guilty of willful infringement. A recklessness standard, according to Mr. Lupo, would properly put the burden on the plaintiff.

Noting that in Underwater Devices the attorney actually recommended infringement because defendant would only have to pay royalties in any event, Judge Rader asked Mr. Lupo how a plaintiff would get such evidence to prove recklessness if the privilege applied. Mr. Lupo conceded that the “abhorrent” facts of the case make it a difficult question, but argued the attorney client privilege would still need to be protected because a defendant’s ability to talk freely and openly with litigation counsel is fundamental to our jurisprudence.

To answer Judge Mayer’s concern that a departure from the duty of care standard would further “drain away” the value of patents, Mr. Lupo acknowledged the desire to maintain the value of patents and argued that his position is consistent with long standing patent law precedent.

Debra Steinberg addressed the Court for respondents on all issues, and again the Court quickly began its questioning, pressing her to clarify exactly what communications should remain privileged under her view. Ms. Steinberg said that trial strategy, settlement advice, and estimates of likelihood of success would not be discoverable, but that trial counsel’s opinion regarding the quality of opinion counsel’s opinion and trial counsels independent assessment of the case would be “absolutely relevant” and discoverable.

Ms. Steinberg took issue with Judge Rader’s suggestion that something may need to be done to address the strategic allegation of willfulness as a tool to gain discovery, stating that plaintiff’s allegation of willfulness in this case was well supported in fact. Moreover, Ms. Steinberg rejected the notion that under the duty of care standard, defendants are effectively compelled to rely on an opinion of counsel and waive privilege. In support of her view, she pointed to the recent Microsoft trial in which plaintiff obtained the largest infringement verdict in history and yet defendant successfully defended against a willfulness charge without relying on an opinion of counsel.

After repeated questioning by Judges Dyk and Lourie as to the basis for reading a duty of care into the statute resulted in Ms. Steinberg acknowledging that the duty of care and willfulness itself are products of judicial decisions, the argument focused on the appropriate burden of proof for a willfulness charge. Ms. Steinberg argued that the plaintiff has the initial burden, which was met here, of alleging specific facts showing willful infringement and that after plaintiff shows a prima facie case the burden properly shifts to defendant. If defendants chose an advice of counsel defense, then they have waived the privilege. Ms. Steinberg argued that it would be unfair and a violation of decades of precedent to prevent the patentee from exploring all the information defendant had at the time of its reliance on the advice of counsel.

Under pointed questioning from Judge Linn, Ms. Steinberg admitted that pursuant to the discovery orders at issue here she would be entitled to learn trial counsel’s assessment of infringement, validity and enforceability throughout the course of the litigation. While being sympathetic to Ms. Steinberg’s argument in terms of drawing lines between opinion counsel and trial counsel, Judge Linn said that somehow such an extensive waiver seemed “fundamentally wrong” and asked how defendants would be able to defend themselves if plaintiff had “access to their entire case”. In response, Ms. Steinberg argued that when an advice of counsel defense is chosen, waiver is the only option. Allowing only one side of the story to be told at trial would offend the adversary system going back a hundred years or more.

This discussion led to questioning regarding the duty of care. Ms. Steinberg rejected the notion that the Supreme Court has set a reprehensibility standard for punitive damages, insisting that the standard is willfulness, which includes reckless disregard of the law.

When asked by Judge Mayer whether it would be advisable for the Court to eliminate the “Swiss cheese” jurisprudence of privilege and waiver by eliminating exceptions that have swallowed the rule, Ms. Steinberg cautioned the court against adopting a bright line rule and argued that on the facts in this case waiver is appropriate.

The oral argument highlighted the many difficult issues present by this case and the divergent perspectives of many of the judges. When the decision is issued it will undoubtedly have a significant impact on how patent litigators and their clients prepare for and litigate patent infringement claims.

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