New England Biz Law Update
While patent legislation deliberately makes its way through in Congress, the courts and the U.S. Patent and Trademark Office are making changes on their own.
In an opinion expected to have a significant impact on patent practice, the Federal Circuit recently established a higher standard for willful violation. The court also established new standards for the use of opinion letters as part of an “advice of counsel defense” – creating an exception to the waiver of the attorney-client privilege and work product immunity.
The decision in In re Seagate Technology, “is a fundamental change overruling almost 25 years of precedent,” said Kirsten R. Rydstrom, a patent attorney and partner at Reed Smith in Pittsburgh. “For accused infringers, this is a welcome change, as the majority of patentees had been asserting willfulness claims, and a finding of willfulness is a prerequisite to enhanced damages.”
On the heels of the Seagate ruling, the PTO also took action, issuing a new rule limiting the number of claims on a patent application, as well as the number of continuations an applicant may request. (For more details on the rule changes, see the accompanying article.)
“Between the PTO, the Federal Circuit and the U.S. Supreme Court’s patent rulings earlier this year, patent reform is coming from everywhere but the legislature,” said University of Richmond School of Law professor Christopher Cotropia.
Patent practitioners need to pay close attention to all the activity, because “the landscape is changing pretty rapidly,” said Jeffrey Lindeman, a partner at Nixon Peabody in Washington, D.C.
A heightened standard
Seagate Technology hired outside counsel for an opinion about the validity of a competitor’s patents. In three opinion letters, the attorney concluded that many of the competitor’s claims were invalid and that Seagate’s products did not infringe.
The competitor, Convolve, subsequently sued Seagate for willful infringement of its patents relating to disc drive technology.
To establish that it acted in good faith, Seagate told Convolve that it intended to rely on an “advice of counsel defense” to the willfulness claim based on the opinion letters of its outside counsel.
In response, Convolve moved to compel discovery of any communications and work product from Seagate’s attorneys, both trial and in-house counsel.
The trial court agreed with Convolve, concluding that Seagate had waived the attorney-client privilege for all communications with any of its lawyers concerning the subject matter of the opinion letters – specifically, the infringement, invalidity and enforceability of the patents at issue.
Seagate appealed.
The Federal Circuit ordered en banc review and, in a unanimous opinion dated Aug. 20, reversed and established an enhanced standard for willful patent infringement.
The court said proving willful infringement requires clear and convincing evidence of “that a patent infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.”
The court also ruled that companies relying on the “advice of counsel” defense do not waive attorney-client and work product privileges specific to communications with attorneys hired to litigate a patent infringement suit.
The court said opinion counsel and trial counsel serve distinctly different roles, with opinion counsel assessing commercial activity related to patents, and trial counsel focusing on litigation strategy and presenting the case at trial.
The ruling is not absolute, the court said. Instead, “trial courts remain free to exercise their discretion in unique circumstances to extend waiver to trial counsel, such as if a party or counsel engages in chicanery. [But], as a general proposition, relying on opinion counsel’s work product does not waive work product immunity with respect to trial counsel.”
Insurance policy
Although the court specifically held that opinion letters are no longer required, lawyers predicted that most companies will continue to get them.
“Most companies are risk-adverse,” Cotropia said. Even if it isn’t an absolute necessity, opinion letters remain “a really good insurance policy against willfulness claims.”
And given the limitations the court set out on privilege waivers, defendants no longer have to weigh the risk of waiving privilege for their in-house and trial counsel.
“It won’t hurt to have the letters,” Rydstrom noted.
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New PTO limits on claims, continuations
The U.S. Patent and Trademark Office recently issued its final rule for claims and continuation practice.
The PTO claims the changes will permit it to conduct more thorough and reliable examinations of patent applications.
For patent lawyers, the changes are as if “we had been playing football and switched to a baseball field,” according to Jeffrey Lindeman, partner in the Washington, D.C. office of Nixon Peabody. “You can’t play football on a baseball field, so we have to change the way we practice.”
The rule contains three major changes:
Limit on claims: Applications can now contain only 25 claims total, with a maximum of five independent claims. If an applicant wants to add more claims, he or she must file an “examination support document,” which verifies a search for prior art and other research that an examiner would typically perform.
The idea is to shift some of the burden for larger applications to the applicant, who also has to pay more for extra claims, explained Christopher Cotropia, University of Richmond School of Law patent professor.
Lawyers will have to be more creative with how they set out their claims, he warned, although he predicted the rule changes will disproportionately affect certain industries more than others.
“Tech, and specifically bio-tech devices, typically file more than five independent claims, so they face a big challenge,” he said.
Continuation changes: Applicants are now limited to just two requests for continuation by right, and must file a request for further review.
For practitioners, this means that an application “must be more developed when we file it,” Lindeman said. “It may speed things up [if lawyers] enter the prosecution with more fully developed claims than working things out later through a couple of office actions.”
The PTO views this change as a way to reduce its backlog and workload, explained Cotropia. “But some lawyers are concerned that this will just transfer the backlog to the review board as applicants appeal the office’s decisions,” he said.
Multiple applications: The rules also change the procedure for multiple applications that have the same claimed filing or priority date, substantial overlapping disclosure, common ownership or a common inventor.
Examiners will now be more likely to aggregate applications they find are too similar to be separated, Lindeman explained. He said this can be problematic for a variety of reasons, not least of which is the new limit on the number of claims.
In addition, “there is a general fear from the practitioner side that these procedural changes are just that – changes to procedure, and not improvements on the substance of patent applications,” Cotropia added.
“There is concern right now that a lot of bad patents are being issued. While the rule changes may lighten the load, does that mean the application process will be improved substantively?” he asked.
A Connecticut inventor, Triantafyllos Tafas, has already taken his concerns to the courts, filing a lawsuit in U.S. District Court in the Eastern District of Virginia. Tafas argues the rule changes are invalid because the PTO lacked the authority to issue it, and that it conflicts with the Patent Act.
He wants to enjoin enforcement of the rules, which are scheduled to take effect Nov. 1.
On the bright side, Lindeman emphasized that a potentially shorter prosecution period can extend the life of a patent. Since a patent term begins on the filing date and lasts 20 years, fewer continuations can result in more time on the market for a patented product. “It’s important to really think strategically about the process, and while using continuations may extend the breadth of a patent, it can also decrease its time length,” he noted.
