Philip Brooks' Patent Infringement Updates

The Federal Circuit Raises The Standard For Willful Infringement And Enhanced Damages

Ali Dhanani writes in the February 2008 Intellectual Property Report (Volume 5, Issue 73) from Baker Botts L.L.P., an article entitled, "In The Wake Of In re Seagate Technology, LLC: The Federal Circuit Raises The Standard For Willful Infringement And Enhanced Damages And Heightens The Protection Of Attorney-Client And Work Product Privilege."

On August 20, 2007, the Federal Circuit arguably took significant arrows from the quiver of patent owners in litigation and simultaneously provided a considerable new shield to alleged infringers with its ruling in In re Seagate Technology, LLC.[1] In a unanimous en banc decision, the Federal Circuit increased the standard of proof necessary to establish willful infringement, eliminated its previous willfulness standard based upon an affirmative duty of due care, and determined that the waiver of attorney-client privilege and attorney work product protection created by the assertion of an opinion of counsel defense does not extend to trial counsel. These questions in the Seagate case were previously discussed in an article in our January 2007 IP Report entitled Federal Circuit To Consider Extent Of Waiver Of Attorney-Client Privilege For Reliance On An Opinion Of Counsel In In re Seagate. As noted in that article, the standard for willful infringement matters a great deal because a finding of willful infringement can serve as a predicate for an award of enhanced damages and attorneys’ fees to the prevailing patentee.

A link is available here to access the full article.

Accenture Files Patent Suit Against Guidewire

Anthony O'Donnell reporting yesterday, December 19, 2007, for Insurance & Technology writes:

Yesterday afternoon Accenture filed a lawsuit alleging that San Mateo-based Guidewire Software, a rival in the insurance claims software market, has infringed the U.S. patent protecting the Accenture Claim Components solution and has misappropriated trade secrets related to the design, coding and implementation of the Accenture software. In a preliminary response issued late last night, Guidewire denied the allegations and has followed up with further statements refuting the charges made by Accenture.

An Accenture statement referred to the company's belief that "Guidewire willfully and deliberately developed, manufactured, used and sold ... computer software and services used for insurance claims management that are covered by Accenture U.S. Patent 7,013, 284." Accenture also claims that Guidewire "willfully and maliciously obtained Accenture trade secrets without authorization" as part of an ongoing effort to compete against Accenture in the claims software market.

Accenture's allegations are based on what partner John Del Santo characterizes as good reason to believe that Guidewire had access to Accenture's confidential information. "We carefully compared our U.S. patent to the information available about the Guidewire system and concluded that they not only infringed the patent but that they must have gotten access to our trade secrets at a client somewhere," Del Santo says. "We believe that their product development trajectory was just too fast to result in the kind of product that they have, which looks fairly similar to ours. From our view that's too much of a coincidence, so there has to be a trade secret violation here, in our opinion."

Will this survive a Rule 11 challenge?

Intellectual property suits have been common in the software industry as a whole but not in the insurance software market, according to Light. "This lawsuit is a sign that there is a new front in the intellectual property wars: software that makes insurance companies better at executing their core functions," he comments.

From an industry perspective the Accenture/Guidewire suit is significant for several reasons, according to John MacPete, a patent litigator at Locke Lord Bissel & Liddell LLP (Atlanta). "First, I think it's a notice to the industry that they need to look at their software to determine whether they should have infringement concerns about the 284 patent or, frankly, any other patents that may be out there that are similar in nature to the 284," he comments. "Second, I think it's a notice to companies that either have licensed software or are in the process of licensing software in the insurance space to carefully examine or negotiate for broad non-infringement representations and indemnity language in their contract for third party infringement claims from their software providers."

Read the full article here.

Attorney Opinions and the New Law of Willfulness After In re Seagate

On Tuesday, October 30, 2007 the American Bar Association's Sections of Intellectual Property Law and Litigation are holding a 60-minute teleconference titled, "Attorney Opinions and the New Law of Willfulness After In re Seagate."

Program Description

What corporate counsel needs to consider in seeking non-infringement opinions for business purposes in light of the new Seagate standard.

In a rare en banc opinion issued on August 20, 2007, the Court of Appeals for the Federal Circuit overturned its 24-year precedent by eliminating the “affirmative duty of due care” and holding that proof of willful infringement requires, at a minimum, a showing of “objective recklessness,” increasing the challenge of proving willful infringement in patent cases.  The decision also effectively insulates trial counsel’s opinions from discovery.

Hear the attorneys who represented petitioner Seagate Technology LLC,  respondent Convolve, Inc., and others as they discuss the decision and the significant implications that it will have in patent litigation in general and for companies relying on the opinions of counsel.

Program Faculty

• William LaFuze (Moderator), Partner, Vinson & Elkins LLP, Houston, TX
• Brian E. Ferguson, Partner, McDermott Will & Emery LLP, Washington, DC
• Albert L. Jacobs, Jr., Partner, Dreier LLP, New York, NY
• Harold C. Wegner, Partner, Foley and Lardner LLP; Professional Lecturer in Law, George Washington University Law School, Washington, DC

Additional information and registration details are available here.

$100 Million + Awarded to U.S. Philips Corporation

The following is an excerpt from an October 1, 2007 press release found at Business Wire:

Finnegan, Henderson, Farabow, Garrett & Dunner, LLP announced two major victories for client U.S. Philips Corporation, against KXD Technology, Inc., et al.; and International Norcent Technology, Inc., et al., respectively. In both cases, which were in the U.S. District Court for the Central District of California, there was a finding of willful infringement of Philips’ patents directed to DVD technology and Philips was awarded monetary damages. The Norcent decision is one of the first willful infringement verdicts to be handed down by a jury since the landmark Seagate case, in which the Federal Circuit Court of Appeals introduced new standards for determining willful infringement.

In orders issued on September 18, 2007 (U.S. Philips v. KXD Technology, Inc., et al.), Senior U.S. District Court Judge Edward Rafeedie ruled in favor of Philips, awarding more than $91 million in trebled damages and interest, a permanent injunction, and a finding that Philips is entitled to attorneys' fees and litigation expenses. This judgment was entered against the KXD and Astar group of defendants for the sale and importation of DVD players incorporating Philips’ patented technology.

In a separate patent infringement action tried before a jury, with Judge Rafeedie presiding (U.S. Philips v. International Norcent Technology, et al.), the jury returned a verdict on September 5, 2007, finding the Norcent defendants liable for willful patent infringement and awarded Philips $12.8 million. The jury found that the Norcent defendants infringed all four asserted claims from two Philips patents related to DVD players.

At issue was Norcent and KXD’s infringement of two Philips patents, Nos. 5,677,903 (“the ’903 patent”) and 5,463,607 (“the ‘607 patent”), which are part of a group of patents licensed by Philips to third parties for the production, importation and sale of DVD players. Both KXD and Norcent were found liable for willfully infringing these patents, and held liable for sales of units incorporating technology protected under the ‘903 and ‘607 patents. In both cases, Finnegan Henderson, assisted by local counsel Keats, McFarland, and Wilson, vigorously defended Philips’ intellectual property rights to its industry-standard DVD patents, as well as its licensees’ rights to fair competition.

Read the full release here.

In re Seagate Technology - Federal Circuit Sets New Standard

As a follow-up to yesterday's post, Strafford Publications is hosting a live 90-Minute CLE Teleconference with Interactive Q&A on September 18, 2007 titled, "In re Seagate Technology - Federal Circuit Sets New Standard  - Understanding the New Patent Infringement Standard and Advice of Counsel Defense."

On August 20, 2007, a unanimous Federal Circuit Court of Appeals issued a decision overturning a 24-year precedent and establishing a new standard for determining willful patent infringement. In the same decision, the court also held that the accused infringer's reliance on the advice of counsel defense did not require waiver of the attorney-client privilege.

The Federal Circuit's new standard for proving willful patent infringement, "objective recklessness," abolishes the long-standing "duty of due care" standard required of defendants. This increases the challenge of proving willfulness in patent infringement cases.

Listen and participate from your telephone as our panel of intellectual property specialists examines the new willfulness standard, the decision's impact on the use of the advice-of-counsel defense and obtaining patent opinions, and the far-reaching impact on patent litigation and implications for IP owners and counsel going forward.

The panel includes:

• Brian E. Ferguson, Partner, McDermott Will & Emery, Washington, D.C.  He argued on behalf of Seagate Technology in this case.
• Mark P. Wine, Partner, McDermott Will & Emery, Los Angeles.
• David R. Clonts, Partner, Akin Gump Strauss Hauer & Feld, Houston.

The panel will review these and other key questions:

1. What is the new willfulness standard and what does it mean for IP owners and counsel?
2. What will be the practical impact on a defendant's conduct and how it combats an allegation of willfulness?
3. What steps can patent owners take to protect their patents from willful infringement?
4. What is the scope of attorney-client privilege or work product waiver if a defendant relies on an opinion of counsel?

Obtain additional information and register here.

Federal Circuit Rules in In re Seagate

William LaFuze and Michael Valek of Vinson & Elkins write in an article titled, "In re Seagate: Rethinking Waiver of Privilege and the Future of the Affirmative Duty of Care" in the print edition of the American Bar Association's Section of Intellectual Property Law's IPL Newsletter (the electronic version will ultimately appear here):

Reliance on an opinion of counsel, the traditional - and still most common - defense to a charge of willful patent infringement, is an increasingly risky strategy for accused infringers.  A well-reasoned opinion detailing why the patent at issue is not infringed, not valid, or not enforceable remains a powerful defense to willfulness.  But reliance on such an opinion, that is, assertion of the advice-of-counsel defense, is a two-edged sword.  When the advice-of-counsel defense is asserted, privilege with respect to that opinion is waived.  Both opinion counsel and the client are subject to being deposed regarding the subject matter of the opinion.  Moreover, that subject matter waiver typically involves noninfringement, invalidity, and unenforceability defenses - defenses that are usually the very heart of the accused infringer's case.  Most troubling of all is that courts are increasingly prone to rule that the subject matter waiver extends also to communications with and the work product of trial counsel - even in those situations where opinion counsel and trial counsel are different lawyers at separate law firms.

District courts are increasingly relying on the Court of Appeals for the Federal Circuit's decision in In re Echostar to hold that the subject matter waiver resulting from assertion of an advice-of-counsel defense extends to trial counsel.

In re Seagate stems from a petition seeking mandamus relief from an order of the district court for the Southern District of New York requiring the accused infringer to produce documents reflecting communications with and the work product of trial counsel.

The Federal Circuit decided sua sponte to consider that petition en banc, and on January 26, 2007, issued an order requesting additional briefing on three 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?
3. Given the impact of the statutory duty of care standard announced in Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983) 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?

The briefing in Seagate and argument were complete prior to submission of the article for publication, but the Federal Circuit just issued its opinion on Monday, August 20, 2007.  The opinion states, in part:

Seagate Technology, LLC (“Seagate”) petitions for a writ of mandamus directing the United States District Court for the Southern District of New York to vacate its orders compelling disclosure of materials and testimony that Seagate claims is covered by the attorney-client privilege and work product protection. We ordered en banc review, and now grant the petition. We overrule Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (1983), and we clarify the scope of the waiver of attorney-client privilege and work product protection that results when an accused patent infringer asserts an advice of counsel defense to a charge of willful infringement.

A party seeking a writ of mandamus bears the burden of proving that it has no other means of attaining the relief desired, Mallard v. U.S. Dist. Court for the S. Dist. of Iowa, 490 U.S. 296, 309 (1989), and that the right to issuance of the writ is “clear and indisputable,” Allied Chem. Corp. v. Daiflon, Inc., 449 U.S. 33, 35 (1980). In appropriate cases, a writ of mandamus may issue “to prevent the wrongful exposure of privileged communications.” In re Regents of the Univ. of Cal., 101 F.3d 1386, 1387 (Fed. Cir. 1996). Specifically, “mandamus review may be granted of discovery orders that turn on claims of privilege when (1) there is raised an important issue of first impression, (2) the privilege would be lost if review were denied until final judgment, and (3) immediate resolution would avoid the development of doctrine that would undermine the privilege.” Id. at 1388. This case meets these criteria.

In light of the duty of due care, accused willful infringers commonly assert an advice of counsel defense. Under this defense, an accused willful infringer aims to establish that due to reasonable reliance on advice from counsel, its continued accused activities were done in good faith. Typically, counsel’s opinion concludes that the patent is invalid, unenforceable, and/or not infringed. Although an infringer’s reliance on favorable advice of counsel, or conversely his failure to proffer any favorable advice, is not dispositive of the willfulness inquiry, it is crucial to the analysis. E.g., Electro Med. Sys., S.A. v. Cooper Life Scis., Inc., 34 F.3d 1048, 1056 (Fed. Cir. 1994) (“Possession of a favorable opinion of counsel is not essential to avoid a willfulness determination; it is only one factor to be considered, albeit an important one.”).

In sum, we hold, as a general proposition, that asserting the advice of counsel defense and disclosing opinions of opinion counsel do not constitute waiver of the attorney-client privilege for communications with trial counsel. We do not purport to set out an absolute rule. 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. We believe this view comports with Supreme Court precedent, which has made clear that rules concerning privileges are subject to review and revision, when necessary. See Jaffee, 518 U.S. at 9 (noting that federal courts are “to ‘continue the evolutionary development of testimonial privileges.’” (quoting Trammel, 445 U.S. at 47)).

Accordingly, Seagate’s petition for a writ of mandamus is granted, and the district court will reconsider its discovery orders in light of this opinion.

I encourage you to get a copy of Mr. LaFuze and Mr. Valek's article and read it in conjunction with the Court's opinion.

No Lost Profits From Sales Prior To Patentee’s Market Entry

An article by Rachel N. Repka of McDermott Will & Emery appeared July 3, 2007 at Mondaq.  She writes:

The U.S. Court of Appeals for the Federal Circuit reversed the jury’s award of lost profit damages and the district court’s grant of judgment as a matter of law (JMOL) that the defendant was personally liable for inducing patent infringement. Wechsler v. Macke Int'l Trade, Inc., Case Nos. 05-1242, -1243 (Fed. Cir., May 18, 2007) (Prost, J.).

Defendant O’Rourke is president, lone stockholder and sole employee of Macke International Trade. O’Rourke was sued by Wechsler for patent infringement. At the time of the lawsuit, Macke was selling the accused device, but subsequently took the device off the market. Approximately one year after Macke stopped selling the device, Wechsler began to manufacture and sell a similar product.

On motions for summary judgment, the district court held that Mr. O’Rourke was not an alter ego of Macke International and was not personally liable for infringement. Following trial, the jury returned a special verdict, finding Macke and O’Rourke willfully infringed and granted Wechsler lost profits and reasonable royalties for the infringement. The jury, however, found that O’Rourke was not personally liable for inducing Macke’s infringement. Nevertheless, the district court granted Wechsler’s motion for JMOL that O’Rourke was personally liable for inducing infringement. Macke appealed.

The Federal Circuit overturned a jury verdict that Wechsler was entitled to lost profits damages. Generally, there can be no lost profits if a patentee is not selling a product. The "only exception is where the patentee has the ability to manufacture and market a product, but for some legitimate reason does not."

Access the full article here.

Patent Reform 2007: Apportionment of Damages

Dennis Crouch writes at Patently-O:

Patent are business tools that can help ensure some monetary reward for innovative effort.  Although few patent are litigated through final decision, the threat of litigation casts an ever-present shadow on licensing negotiations and inter-corporate dealings.  Of course, any underlying threat is closely related to the size of potential damages and strength of a potential injunction.  In the past two-years, damages in particular have become more important as the Supreme Court's decision in EBay v. MercExchange lessens the likelihood of injunctive relief.

There has been little scholarly discussion of how ongoing money damages should be assessed when an injunction is denied.  I take the position that a denial of an injunction should not necessarily result in a compulsory license and that there are many times when continued infringement would be considered willful.

The Patent Reform Acts of 2007 (both House and Senate) propose changes to damage calculations that would require specific economic analysis to ensure that any reasonable royalty damage award captures "only [the] economic value properly attributable to the patent's specific contribution over the prior art."  These calculations would apparently apply to calculations of both past and future damages. CAFC Chief Judge Michel recently testified before Congress -- discussing some practical implementation of the damage modifications.

See excerpts from Judge Michel's testimony and extensive comments here.

Willful Infringement Not Necessarily Personal Liability Against Its Sole Officer

Stefani Delli Quadri wrote yesterday, May 29, 2007, at the IP Law Observer blog:

Case: Wechsler v. Macke Int'l Trade, Inc., Nos. 05-1242, 05-1243 (Fed. Cir. May 18, 2007)

The One Sentence Summary: The Federal Circuit: (1) reversed the Central District of California's grant of judgment as a matter of law ("JMOL") that the individual defendant was personally liable for inducing patent infringement of the corporation defendant because the district court erred in disregarding the jury's special verdict, and (2) reversed the district court's denial of JMOL regarding an award for lost profit damages because it was a matter of law whether lost profits were available and there was insufficient evidence to support such a finding.

Read the full post here.

In re Seagate Technology: Willfulness and Waiver, a Summary and a Proposal

Dennis Crouch wrote yesterday, May 17, 2007, at his Patently-O blog:

In re Seagate questions the scope of privilege and work-product waiver associated with an opinion-of-counsel defense to willfulness. In a new article, Joseph Casino and Michael Kasdan attempt to re-focus the debate by arguing for a "temporal limitation on the scope of waiver which is not hinged on retaining separate [opinion and litigation] counsel."  In addition, the article delves further into the CAFC's Quantum dicta, which encourages bifurcation of trials for liability and willfulness issues.

See excerpts and a link to the article here.