New England Biz Law Update
The Federal Circuit recently increased the importance of bringing a successful motion for preliminary injunction in a patent infringement action.
The court in In re Seagate Technology, decided Aug. 20, created a new connection between the recovery of enhanced damages and preliminary injunctions. The court ruled that “[a] patentee who does not attempt to stop an accused infringer’s activities [by moving for a preliminary injunction] should not be allowed to accrue enhanced damages based solely on the infringer’s post-filing conduct. Similarly, if a patentee attempts to secure injunctive relief but fails, it is likely the infringement did not rise to the level of recklessness.”
The Federal Circuit reasoned that an allegation of willful infringement in a complaint will be based on pre-litigation conduct. After the complaint is filed, a preliminary injunction generally provides an adequate remedy for combating postfiling reckless conduct.
The Federal Circuit’s pronouncement concerning preliminary injunctions came in the context of an en banc unanimous decision concerning the scope of waiver of attorneyclient privilege to avoid enhanced damages in a patent infringement action, but the statute is devoid of any standard for awarding enhanced damages.
Trial courts have statutory discretion to enhance damages for patent infringement. 35 U.S.C. § 284. Before Seagate, Federal Circuit precedent was that an award of enhanced damages required a showing of willful infringement.
Two decades of precedent overturned
In Seagate, the Federal Circuit overruled two decades of precedent that a potential infringer with actual notice of another’s patent rights had an affirmative duty to exercise due care to determine whether infringement had occurred.
This included a duty to seek and obtain competent legal advice from counsel before the initiation of possible infringing activity. To meet the affirmative duty of due care, companies obtained an opinion from counsel concerning validity and infringement of the patent.
The opinion, a privileged attorney-client communication, formed the basis for a defense to enhanced damages. In ensuing litigation, an accused infringer had to choose between the assertion of the attorney-client privilege and reliance on the opinion to avoid a willfulness finding if infringement was found.
When the decision was made to waive the privilege and rely on the opinion, disputes over the scope of the waiver resulted in protracted motion practice seeking to compel production of documents and depositions of opinion and trial counsel.
The Federal Circuit’s decision to abandon the affirmative duty of due care is the culmination of its recent decisions in Knorr-Bremse and Echostar trending toward heightened respect for the attorney-client relationship.
The Federal Circuit explicitly left it to future cases to develop application of the following announced standard:
“To establish willful infringement a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. … If this threshold objective standard is satisfied, the patentee must also determine that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.”
As a result of this new standard, the “state of mind of the accused infringer is not relevant to this objective inquiry” and “there is no affirmative obligation to obtain [an] opinion of counsel.”
Opinions remain significant to avoid increased financial and other risks when introducing a new product, investing in a new venture, deciding whether to enter into license agreements, and in other contexts. As cases develop following Seagate, corporations may be able to focus more on counsels’ opinions for these business purposes and less on their role in the defense of claims of willfulness.
Scope of waiver
The new standard established by the Federal Circuit also addresses the scope of waiver of attorney-client privilege resulting from an advice of counsel defense asserted in response to a charge of willful infringement.
The Federal Circuit decided that:
Excluding trial counsel from the waiver that results from reliance on an opinion was based on a number of considerations, including “the significantly different functions of trial counsel and opinion counsel. Opinion counsel serves to provide an objective assessment for making informed business decisions, [while] trial counsel focuses on litigation strategy and evaluates the most successful manner of presenting a case to a judicial decision maker.”
Further outweighing any benefit of extending waiver to trial counsel, according to the Federal Circuit, is the realization that in ordinary circumstances, willfulness will depend on an infringer’s pre-litigation conduct.
The Federal Circuit explained that even though patent infringement is an ongoing offense that can continue after litigation commences, a patentee must have a good faith basis for alleging willful infringement in a complaint. Reckless post-filing conduct is appropriately addressed through a preliminary injunction motion.
This analysis led the Federal Circuit to pronounce that a patentee who does not attempt to stop an accused infringer’s activities through a preliminary injunction motion is barred from accruing enhanced damages based solely on the infringer’s post-filing conduct. Also, the infringement likely would not rise to the level of recklessness if a patentee attempts but fails to secure injunctive relief.
The heightened significance of preliminary injunctions counsels in favor of bringing a motion for preliminary injunction in a patent case when warranted – and winning.
Susan G. L. Glovsky is a principal at Hamilton, Brook, Smith & Reynolds practicing in the areas of intellectual property litigation, licensing, interferences, and trademark law. Susan can be reached at [email protected].
