Patent Infringement Claims, Opinions of Counsel and Attorney Client Privilege

Transcription

1 presents Patent Infringement Claims, Opinions of Counsel and Attorney Client Privilege Best Practices for Opinion Letters After Seagate and Qualcomm A Live 90-Minute Audio Conference with Interactive Q&A Today's panel features: Alison Tucher, Partner, Morrison & Foerster, San Francisco Sanford E. Warren Jr., Partner, Akin Gump Strauss Hauer & Feld, Dallas Mark P. Wine, Partner, Orrick Herrington & Sutcliffe, Irvine, Calif. Tuesday, June 2, 2009 The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific The audio portion of this conference will be accessible by telephone only. Please refer to the dial in instructions ed to registrants to access the audio portion of the conference. CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS. If no column is present: click Bookmarks or Pages on the left side of the window. If no icons are present: Click View, select Navigational Panels, and chose either Bookmarks or Pages. If you need assistance or to register for the audio portion, please call Strafford customer service at ext. 10

2 Proof of Willful Infringement, Inducement to Infringe, and Opinions of Counsel Alison Tucher June 2, Morrison & Foerster LLP All Rights Reserved Attorney Advertising

3 Today s Presentation In re Seagate and proving willfulness at least... objective recklessness replaces affirmative duty of due care Broadcom v. Qualcomm and proving inducement failure to procure [an exculpatory] opinion may be probative of intent Waiver attorney-client privilege work-product immunity if confidential advice of counsel 2

4 Background: Old Willfulness Standard Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983) Imposed affirmative duty of due care to determine infringement after notice of patent rights Promoted opinion of counsel as primary defense to willfulness charge Resulted in (inconsistent) waiver of attorney-client privilege and work-product immunity 3

5 Background: Old Willfulness Standard Read Corp. v. Portec, Inc., 970 F.2d 816, 826 (Fed. Cir. 1992) Details factors to consider in totality of the circumstances Emphasizes accused s state of mind Knorr-Bremse Systeme Fuer Nutzfahreuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004) Allows no adverse inference from failure to procure or produce an opinion of counsel Sought to lift inappropriate burdens on the attorney-client relationship 4

6 Background: Did Opinions Matter? Opinions matter to judges, not juries, per empirical analysis by [Judge] K. Moore Willfulness alleged in 92.3% filed cases Willfulness found in 55.7% of cases finding infringement Juries virtually indifferent about opinions (55.8% willful with opinion; 56.1% without) Judges heavily influenced by reliance on an opinion (44.8% willful with opinion; 84.2% without) Judges enhanced damages or awarded fees in 60.6% of cases in which juries found willfulness, per her analysis of cases 5

7 Seagate: Summary of Decision New, tougher standard for willful infringement Requires at least a showing of objective recklessness Replaces affirmative duty of due care Ordinarily will depend on an infringer s prelitigation conduct Waiver based on opinion of counsel does not generally extend to: Attorney-client communications with trial counsel Work product of trial counsel 6

8 Seagate : Redefines Willfulness Overrules Underwater Devices definition of willfulness because the affirmative duty of due care is [M]ore akin to negligence (Slip Op. at 11.) Out of line with standard for willfulness in other contexts Copyright sister circuits enhance damages for willful infringement, including reckless disregard for whether conduct represents infringement Safeco Ins. Co. v. Burr, 551 U.S. (June 4, 2007) Supreme Court construes Fair Credit Reporting Act provision for punitive damages upon showing of willful misconduct Common law treats actions in reckless disregard of the law as willful (citing Safeco.) 7

9 Seagate: Facts Trial counsel and opinion counsel retained pre-filing, but opinions received post-complaint Plaintiff moved to compel discovery of communications and work product of counsel, including trial counsel Opinion and trial counsel operated separately and independently at all times, although trial counsel presented opinions to Board (Slip Op. at 3.) 8

10 Seagate: Trial Court Decision Defendant waived the attorney-client privilege and work product protection for all communications between it and Opinion counsel Trial counsel In-house counsel Defendant must produce any requested documents and testimony concerning subject matter of opinions In camera review of documents related to trial strategy, but any advice from trial counsel undermining reasonableness of reliance warrants disclosure 9

11 Seagate s Holding: Willfulness Willfulness requires at least a showing of objective recklessness (Slip Op. at 12.) Patentee must show Step 1: By clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement Step 2: Objectively-defined risk was known or so obvious that it should have been known to the accused infringer 10

12 Seagate s Holding: Willfulness New Standard The state of mind of the accused infringer is not relevant to th[e] objective inquiry in step 1 (Slip Op. at 12.) There is no affirmative obligation to obtain opinion of counsel (Id.) 11

13 Seagate: How will the standard be applied? Merits defense: Was non-infringement/invalidity/unenforceability defense plausible? Patent counsel to opine if claim construction went against you Process defense: Industry experts to compare your process to standards of fair commerce Evidence of re-examination may be relevant Defendant s state of mind (and thus opinion of counsel) may be relevant 12

14 Seagate s Dicta: Willfulness Prelitigation [W]illful infringement in the main must find its basis in prelitigation conduct. * (Slip Op. at 18.) [W]hen a complaint is filed, a patentee must have a good faith basis for alleging willful infringement. (Id. at 16.) Lawsuit Filed Pre-Seagate Focus Post-Seagate Focus * Post-filing conduct alone can suffice. (See id. at 17.) 13

15 Seagate s Dicta: Willfulness Post-Filing Preliminary injunction generally provides an adequate remedy for combating post-filing willful infringement (Slip Op. at 17.) A patentee who does not attempt to stop an accused infringer s activities in this manner should not be allowed to accrue enhanced damages based solely on the infringer s post-filing conduct. (Id.) Lawsuit Filed Pre-Filing: Willful Infringement Post-Filing: Preliminary Injunction 14

16 Inducement before Broadcom v. Qualcomm DSU Med. Corp. v. JMS Co., 471 F.3d 1293 (Fed. Cir. 2006) (en banc): Inducement to infringe requires specific intent (defendant knew or should have known direct infringement would occur). Effective reliance upon an opinion of counsel negates specific intent. 15

17 Broadcom v. Qualcomm: Facts Broadcom alleged direct and indirect infringement Evidence at trial was of a failure to investigate, a failure to explore design around approaches, a failure to take remedial steps and of course a failure to seek legal advice (543 F.3d at 700) Qualcomm had secured opinions of counsel re invalidity of patents, but chose not to waive privilege 16

18 Broadcom v. Qualcomm: District Court Court instructed jury, When considering whether Qualcomm knew or should have known that the induced actions would constitute infringement... You may consider all of the circumstances, including whether or not Qualcomm obtained the advice of a competent lawyer Qualcomm did not ask for other factors to be stressed Broadcom awarded damages on inducement theory that Qualcomm s chips infringed in downstream uses 17

19 Broadcom v. Qualcomm: Holding Intent to induce infringement may be inferred from all of the circumstances Opinion of counsel evidence may reflect what infringer knew or should have known; failure to procure such an opinion may be probative of intent It would be manifestly unfair to allow opinion-of-counsel evidence to serve an exculpatory function, as was the case in DSU itself, and yet not permit patentees to identify failures to procure such advice Instruction was proper and substantial evidence supports finding of inducement 18

20 Broadcom v. Qualcomm: An Outlier? Inconsistent with Knorr-Bremse and similar cases How can jury consider failure to obtain legal advice without drawing adverse inference? Inconsistent with N.D. Cal. jury instruction on Willful Infringement which states, The totality of the circumstances comprises a number of facts which include... [whether [the Defendant] relied on competent legal advice,] This factor should only be included if the alleged infringer relies on a legal opinion as a defense to an allegation of willful infringement. 19

21 Broadcom v. Qualcomm: Implications Do something whenever you learn of a patent Opinions are valuable if inducement allegation is plausible Non-privileged record of decision to continue manufacturing may be a good alternative Understand risks and limits of waiver 20

22 Waiver: What Is Scope of Subject Matter? Do not expect to pick and choose among opinions Does waiver based on reliance on one issue (e.g., noninfringement) extend to other issues? Does it matter if opinion addresses multiple issues (e.g., non-infringement and invalidity)? 21

23 Seagate on Waiver: Attorney-Client Privilege Waiver should not extend to trial counsel Opinion and trial counsel serve different functions Opinion Counsel Inform business decisions Trial Counsel Case presentation 22

24 Seagate on Waiver: Attorney-Client Privilege Interests weigh against extending waiver to trial counsel Need to protect trial counsel s thoughts Willfulness generally depends on pre-filing conduct Because willful infringement in the main must find its basis in prelitigation conduct, communications of trial counsel have little, if any, relevance warranting their disclosure. Exception: chicanery (Slip Op. at 18.) 23

25 Seagate s Holding: Work Product Immunity Absent exceptional circumstances, waiver does not extend to work product Counsel s mental processes heavily protected Exception: chicanery 24

26 EchoStar on Waiver: Work-Product In re EchoStar Communications Corporation, 448 F.3d 1294 (Fed. Cir. 2006) Relying on in-house counsel s advice waives privilege with regard to any attorney-client communications relating to the same subject matter No waiver of work product that was not communicated, unless it refers to an attorney-client communication 25

27 Does Waiver Reach In-House Counsel? In re EchoStar Defendant relied on opinions from in-house and outside counsel Defendant and its in-house counsel treated as separate entities In re Seagate Defendant relied on opinion only from outside counsel Does waiver extend to: Communications between client and in-house counsel? In-house counsel s work product? We do not address the trial court s discovery orders pertaining to Seagate s in-house counsel. (Slip Op. at 3 n.2.) Depends on function, timing, and circumstances 26

28 When Are Opinions Useful? Inform business strategy (without waiver) Taking a license Attempting to design-around a patent Outsource analysis and prior art search before litigation Resources Tough arguments Credibility (with waiver) Defend against inducement claims (with waiver) 27

29 If You Rely on an Opinion of Counsel... Limit on waiver is not an absolute rule ; district courts free to exercise discretion in unique circumstances Inadequate separation between opinion and trial counsel Seagate s opinion counsel operated separately and independently of trial counsel When might communication become chicanery? Who s the trial witness? 28

30 Thank you Sf

31 Post-Seagate/Broadcom Court Treatment Sanford E. Warren, Jr. Partner 2009 Akin Gump Strauss Hauer & Feld LLP. All Rights Reserved.

32 Objective high likelihood Must have supporting evidence for objective prong Franklin Elec. Co. v. Dover Corp. ( W.D. Wis. Nov. 2007) Not willful when only evidence of second prong is offered Significant support for noninfringement position Resqnet.com, Inc. v. Lansa, Inc. (S.D. N.Y. Feb. 2008) No evidence of objective recklessness, only on subjective evidence Noninfringement and invalidity arguments were substantial, reasonable and far from the sort that an objectively reckless infringer would rely upon 2

33 Objective high likelihood Informatica Corp. v. Business Objects Data (N.D. Cal. Oct 2007) Engineer aware of possible infringement In house counsel aware of similarity to product No enhance damage due to closeness of case on claim construction, invalidity and noninfringement Plaintiff might have lost if Seagate was applied Depomed, Inc. v. Ivax Corp. (N.D. Cal. Dec 2007) No reasonable belief that patent is invalid Patent issued before sale of infringing product giving ample time to investigate License of patent to 3 rd party well publicized 3

34 Objective high likelihood Trading Techn. Int l Inc. v. espeed Inc (N.D. Ill. Jan. 2008) Totality of circumstances still applies Knowledge of patent alone not enough for willfulness Patent issued after sale of product Focus on post-patent conduct No further sale after knowledge of patent Ball Aerosol and Specialty Container, Inc. v. Limited Brands, Inc. (N.D. Ill. Mar 2008) Utilized plaintiff s advice, support, expertise to create and market infringing product Put on notice from variety of sources Post-filing conduct cannot be sole basis but part of totality of circumstances analysis Continued to sell a year after court found infringement 4

35 Objective high likelihood Northbrook Digital Corp. v. Browster, Inc. (D. Minn. Aug 2008) took steps to reduce or eliminate any damages by removing infringing features from product Allow distribution website to become non-functional Mass Engineered Design, Inc. v. Ergotron, Inc. (E.D. Tex. Apr. 2009) Even if analysis is conducted, jury was free to disbelieve the occurrence, accuracy and reasonableness of analysis researching plaintiff s product when developing infringing product Plaintiff s product marked with patent number at the time defendant conducted analysis No procedure to investigate and did not investigate once notified 5

36 Objective high likelihood legitimate defenses Dicta: Black & Decker, Inc. v. Robert Bosch Tool Corp. (Fed. Cir. Jan. 2008) Legitimate defense to infringement and credible invalidity arguments demonstrate lack of objective high likelihood Jury found several claims invalid Mass Engineered Design, Inc. v. Ergotron, Inc. (E.D. TX Apr. 2009) Infringement and invalidity arguments entirely rejected by jury 6

37 Objective high likelihood legitimate defenses TGIP Inc. v. AT&T Corp. (E.D. Tex. 2007) Even though alleged infringer ultimately did not prove its invalidity defense, its position was hardly objectively unreasonable. Eaton Corp. v. ZF Mertor LLC (E.D. Mich. Apr. 2008) Invalidity finding is not final and not a jury verdict, but as a matter of law 7

38 Objective high likelihood legitimate defenses Church & Dwight Co. v. Abbot Lab (D. N.J. Jun 2008) Invalidity defense not very strong and rejected by PTO Did not contest infringement at trial Infringement arguments of other patents not convincing Bard Peripheral Vascular, Inc. v. W.L. Gore & Asscs., Inc. (D. Az. July 2008) Invalidating matter already considered by PTO required added burden to overcome deference Same references PTO previously found not invalidating 8

39 Objective high likelihood legitimate defenses Honeywell Int l, Inc. v. Universal Avionics Systems Corp. (D. Del. Nov. 2008) Noninfringement is found under claim construction and finding of anticipation of several claims provide legitimate defenses for lack of objectively high likelihood 9

40 Known or should have known (subjective) Trading Techn. Int l Inc. v. espeed Inc (N.D. Ill. Jan. 2008) Focus on pre-patent conduct No egregious copying when mere mimicking functionality Honeywell Int l, Inc. v. Universal Avionics Systems Corp. (D. Del. Nov. 2008) A patent review before entering market with outside counsel not reckless Indemnification refutes second prong of Seagate Church & Dwight Co. v. Abbot Lab. (D. N.J. Jun 2008) Insure itself against liability exposure via indemnification Sold business unit to avoid current & potential IP issues 10

41 Design-around Trading Techn. Int l Inc. v. espeed Inc (N.D. Ill. Jan. 2008) Immediately redesign after knowledge of patent Church & Dwight Co. v. Abbot Lab. (D. N.J. Jun 2008) Not willing to change until further investigation 11

42 Opinion of counsel Energy Transp. Group Inc. v. William Demant Holding (D. Del. 2008) Nothing in Seagate forbids jury to consider whether defendant obtained advice of counsel as part of totality of circumstances Cohesive Tech. Inc. v. Waters Corp. (D. Mass. Aug. 2007) Opinion is obtained in good faith even if done by in house counsel Obtained patent, conducted experiment, consult in-house counsel and scientist VNUS Med. Tech. v. Diomed Holdings, Inc. (N.D. Cal. Oct. 2007) Preliminary assessment with no legal analysis does not foreclose a finding of willful infringement Relied on conclusory opinion with no legal or factual basis 12

43 Opinion of counsel No stay of discovery of second prong pending ruling on the first prong Convolve, Inc. v. Compaq Computer Corp. (S.D. N.Y. 2007) Prelitigation communication to in-house opinion counsel still discoverable if relied on for advice of counsel defense Intervet Inc. v. Merial Limited (D.D.C. Jun 2008) No opinion of counsel defense has been asserted, discovery continues VMane FILS S.A. v. Int l Flavors and Fragrances, Inc. (D. N.J. Mar 2008) Nothing in Seagate requires bifurcation of discovery Trial court discretion in unique circumstances to extend waiver 13

44 Scope of Waiver SPX Corp. v. Bartec USA, LLC (E.D. Mich. Jan 2008) Uncommunicated work product is not waived Post-filing communication with trial counsel has little bearing on willfulness Confidential communication not relating to invalidity, unenforceability and noninfringement remain privileged 14

45 Pre-Seagate Jury Instructions Voda v. Cordis Corp. (Fed. Circ. Aug. 2008) Not harmless error when Design around Obtained opinion of counsel on redesign Remand for new trial or determine sufficiency of evidence as a matter of law Power Integrations, Inc. v. Fairchild Semiconductor Int l, Inc. (D. Del. Dec. 2008) Granted motion for new trial to extent of willful infringement, because presentation of issues in this case would not result in different juries considering the same issues, no jury issue in claim construction and no confusion of expert testimony by jury 15

46 Pre-Seagate Jury Instructions Telcordia Tech., Inc. v. Cisco Systems, Inc. (D. Del. Jan 2009) Harmless error when reasonable jury could find objective recklessness Knowledge of patent and enforcement Failed license negotiations Continue to make and sell products 16

47 Best Practices for Use of Opinions of Counsel Post-Seagate and Broadcom Mark P. Wine Orrick Herrington & Sutcliffe LLP Irvine, California June 2, 2009

48 Everything Relating to Opinions of Counsel Has Changed Over the Past Five Years.. The process of change began with the Knorr-Bremse decision by the Federal Circuit in 2004 eliminating the adverse inference for failure to obtain and use an opinion of counsel. The Seagate decision established an entirely new approach for assessing willfulness in a patent case and seemed at the time to foreshadow a decline in the importance of opinions of counsel. The Broadcom decision created an exception to Seagate that continues to cause some confusion as to whether Knorr- Bremse really meant what it said. Recent district court opinions are all over the map regarding the application of the new standards for willfulness. 2

49 Except one. No opinion has criticized or implicated the obtaining of an opinion of counsel as a prudent business decision. 3

50 Opinions of counsel continue to have an important role outside litigation Early stage companies seeking investors or financing. Freedom to operate opinions. Independent verification of design around options. Development of a patent strategy for established companies. Sarbanes-Oxley compliance issues. Licensing negotiations. 4

51 The Broadcom decision and some recent district court opinions have revived the use of opinions in a litigation context Inducement of infringement q How is this predictable in advance? q We know from Seagate that opinions obtained after litigation commenced are of little value. q As a practical matter, a prudent company is going to get an opinion of counsel whenever it is conceivable that an inducement claim could be made e.g. where the company is the manufacturer or supplier of components or application software. 5

52 Other litigation uses for opinions exist as well. To establish the existence of a meritorious defense to infringement claims or affirmative claims against patent holder; or to support or defend against a Rule 11 motion. To be used by a defendant with indemnity rights. To act as evidence of non-willfulness in the totality of the circumstances. To establish compliance with standards of fair commerce. To rebut claim on chicanery? 6

53 When in doubt..get an opinion. There is no downside for obtaining an opinion other than that cost. The benefit of having one is likely to outweigh the cost in almost every instance. If you are are being told by the client that an opinion is unnecessary in the particular field..be doubtful. If the client indicates after counseling that the risk of harm doesn t justify the expenditure.. write a memo to the file. 7

54 Guidelines to follow for obtaining opinions that will be useful in all contexts. Obtain the opinion from qualified patent counsel. Avoid the use of anyone who might appear for you in court. Keep the potential audience or audiences in mind when preparing. Beware of the paper trail you are creating. Establish a corporate policy on use of opinions. Don t bother with post-filing opinions of counsel. 8

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