Seagate vs. Patent Reform Act of 2007
Summary: Don't get too comfortable with Seagate's "objective recklessness" standard for determining willfulness in patent litigation: the Patent Reform Act of 2007 could change everything.
35 U.S.C. § 284, enacted in 1952, provides that a court "may increase damages up to three times the amount found or assessed" in the case of willful patent infringement. In 1983, the Federal Circuit established the standard for evaluating willfulness:
“Where . . . a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.”
Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389-90 (Fed. Cir. 1983)(emphasis added). Thus, an accused infringer could establish that its continued accused activities were done in good faith if it reasonably relied on advice from counsel. The duty of care standard survived until just recently, when the Federal Circuit overruled the standard and held that:
"Proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness."
In re Seagate Technology, LLC, Civ. No. 830 (Fed. Cir. 2007) (en banc) (Newman, J., Garjarsa, J., concurring). Under Seagate, 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." Once the threshold objective standard is satisfied, the patentee "must also demonstrate 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." According to the Federal Circuit, the state of mind of the accused infringer is not relevant to this objective inquiry.
The Patent Reform Act of 2007, if enacted, would include a new § 284 concerning willful patent infringement (see Senate and House bills S.1145 and H.R.1908, respectfully; see also related posts here). The new law would allow a court to find willfulness only if the patent owner presented clear and convincing evidence that the accused did one of the following three things:
"(A) after receiving written notice from the patentee...alleging acts of infringement...the infringer, after a reasonable opportunity to investigate, thereafter performed one or more of the alleged acts of infringement;
"(B) the infringer intentionally copied the patented invention with knowledge that it was patented; or
"(C) after having been found by a court to have infringed that patent, the infringer engaged in conduct that was not colorably different from the conduct previously found to have infringed the patent, and which resulted in a separate finding of infringement of the same patent."
Part of the new law, if enacted in its current form, would limit willfulness damages where the infringer has an informed good faith belief that the patent was invalid or unenforceable, or would not be infringed by the conduct later shown to constitute infringement of the patent. An "informed good faith belief" may be established by:
(1) "reasonable reliance on advice of counsel;"
(2) "evidence that the infringer sought to modify its conduct to avoid infringement once it had discovered the patent;" or
(3) "other evidence a court may find sufficient to establish such good faith belief."
Under the new law, there is no requirement, like in Seagate, to perform an objective risk of infringement assessment or establish that an accused infringer knew or should have known of the risks. However, like in Seagate, the new law would also not impose a requirement that infringers obtain advice of counsel as a prerequisite to making, using, or selling a product or performing a method. As William Lafuze and Michael Valek noted in their recent article [1]:
"If [patent reform is] enacted, the advice-of-counsel defense will remain an option, but accused infringers will not face the same pressure to waive privilege over such advice because there will be additional, statutorily defined limits and defenses to willfulness."
Comments:
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[1] In re Seagate: Rethinking Waiver of Privilege and the Future of the Affirmative Duty of Care, IPL Newsletter, vol. 25, No. 4 (2007)
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Please see related post about the Seagate opinion: "Federal Circuit Clarifies Waiver of Attorney-Client Privilege and Work Product Immunity in Patent Litigation"
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For more about whether patent reform legislation will be enacted in 2007, see R. David Donoghue's Chicago IP Litigation Blog and his post "Is the Patent Reform Act Stalled?"
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