This article was first published in the February 12, 2007 edition of The Legal Intelligencer.

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The standard for finding willfulness in patent infringement suits is too low, and the resultant enhancement of damages is much too common, according to many critics of the patent system. But the question of what that standard should be has not been addressed for some time. A second and somewhat related question is whether waiver of privilege with respect to advice from opinion counsel extends to advice of trial counsel. This has been a lingering question since the Federal Circuit's Echo Star opinion last year. Now, with an Order issued on January 26 on a Mandamus Petition in In re Seagate, the Court of Appeals for the Federal Circuit has indicated it will deal with both of these questions en banc. The dilemma of Echo Star was discussed by Lynda Calderone in her Intelligencer column of November 15, 2006.

 

 

Willfulness, in connection with patent infringement, bears separate discussion. Typically it results in enhanced, often trebled, damages. Current law finds its underpinnings in the Underwater Devices case of 1983.

 

 

Unlike the antitrust laws, in which trebling of damages is automatic (when a violation is found), U.S. patent law permits a court to increase the damages, whether found by the court or by a jury, up to three times the amount of damages found or assessed. The statute, 35 USC §284, is otherwise silent as to the circumstances which might justify increasing the damage award in this manner. Not surprisingly, this engenders a significant amount of litigation activity, which is usually an overlay on a case that is complex to start with.

 

 

Through a long history of case law, "willfulness" has evolved as the touchstone to justify increased damages. Thus, if a patent infringer is found to have been "willful" in its infringement, it may suffer an increase in the damage award. Recent case law demonstrates that such "willfulness" is found in a high proportion of cases where infringement is found.

 

 

Just what is "willful" patent infringement remains, to a significant degree, an open question. Merriam Webster defines "willful" as "obstinately and often perversely self-willed" and "deliberately: intentional."

 

 

The Court of Appeals For the Federal Circuit was established in 1982, with the objective of making the jurisprudence of patent law more uniform and more predictable. Shortly after the court was formed, Underwater Devices v. Knudsen gave it the opportunity to define willful patent infringement. To do so, it looked to prior cases from the regional circuit courts of appeal and found reference there to a "duty of care" which willful infringers were found to have violated. Thus, the Federal Circuit equated willful patent infringement with a failure on the part of the infringer to exercise due care to avoid infringement. With at least one notable exception (Read v. Portec, discussed below) this has been the standard for determining willfulness since the Underwater Devices decision of 1983. A concomitant requirement of that duty, as stated in Underwater Devices, was that, ordinarily, advice of counsel before the infringing activity was undertaken (or continued, after first knowledge of the patent) would be required to meet the duty.

 

 

Federal Circuit case law subsequently embellished this requirement by discounting any opinion of counsel found to have been substantively incompetent (sometimes but not always looking to whether the infringer should have known that the opinion was incompetent) and by encumbering the infringer with an adverse inference if an opinion had been obtained and was not offered into evidence.

 

 

With these constraints, it was not surprising that a disproportionately high number of patent infringers were found to have been willful infringers. In the Knorr-Bremse case decided last year, an en banc Federal Circuit reversed those cases approving the adverse inference rule.

 

 

Federal Circuit Judge Timothy Dyk's dissent in Knorr-Bremse may turn out to be of greater significance then the en banc decision, however. Echoing criticism, of the Federal Circuit's willfulness standard, in the FTC-Antitrust Division and National Academy of Science studies of the patent system, Judge Dyk noted two particularly counterproductive results flowing from that standard.

 

 

First, the possibility, that counsel's opinion might eventually be required to prove non-willfulness, may significantly impair the objectivity of the advice given to a party honestly and forthrightly trying to determine whether or not prospective activity will in fact amount to patent infringement. Thus the very purpose of the attorney-client privilege, to encourage free and honest exchanges between a party and its counsel, could be frustrated by this rule.

 

 

Second, published reports and testimony, in the FTC-Antitrust Division and National Academy of Science studies, indicate that in some companies, those responsible for developing new technology are instructed not to read patents of others. These companies allege that they are greatly concerned that mere knowledge of a patent may lead to a finding of willfulness, if the company is subsequently found to have infringed, irrespective of their good faith efforts to avoid infringement. But the result is that those developers who might best use the knowledge gained by reading issued patents do not have the benefit of that knowledge. This is directly contrary to one of the objectives of the patent system as established in the Constitution, namely publication and dissemination of knowledge (that contained in issue patents) to promote progress in the useful arts, with a consequent impairment of the innovative process.

 

 

In light of these two counterproductive results flowing from the current law of willfulness, Judge Dyk, in his Knorr-Bremse dissent, opined that the Federal Circuit should ask a more basic question: Can the Underwater Devices standard, i.e. failure to exercise due care to avoid infringement equals willfulness and justifies enhanced damages, be justified?

 

 

To answer this question he turned to Supreme Court law, which the Federal Circuit is sometimes accused of ignoring.

 

 

In Aro Convertible, an early patent infringement case following passage of the 1952 Patent Act in which the provision of increased damages for patent infringement was first legislated, the Supreme Court stated explicitly that the increased damages allowed by 35 USC §284 were punitive in nature. Thus, Aro established conclusively that damages increased in accordance with 35 USC §284 are punitive damages.

 

Punitive damages arise, however, in many cases having nothing to do with patents. In two such cases, the Supreme Court has had occasion to define the conduct necessary to justify punitive damages.

 

 

In BMW v. Gore, a product liability case, the court said that punitive damages could only be justified by conduct that was "willful and reprehensible." Using that definition to ascertain when patent infringement is willful, the "willful" part of the Court's definition must be disregarded as circular, except to the extent that the dictionary definition of willful may be pertinent. The "reprehensible" part is not of much help either, since one could argue that failure to exercise due care (the Federal Circuit standard for willfulness) is also "reprehensible."

 

 

But Judge Dyk's, Knorr-Bremse dissent cited another Supreme Court case that may be even more directly relevant. In that case, McLaughlin v. Richland Shoe, the Court found that more than mere negligence was required to meet the willfulness standard of a specific statute. That statute, the Fair Labor Standards Act, while not related to patent law, created a three-year statute of limitations for a willful violation of that act, as opposed to a shorter time period for non-willful violations. Regional circuit cases reflected an inconsistency in the interpretation of "willful" and the Supreme Court discussed specifically how that term should be interpreted: "The word 'willful' is widely used in the law, and, although it has not by any means been given a perfectly consistent interpretation, it is generally understood to refer to conduct that is not merely negligent." By definition, of course, negligence is the failure to exercise due care, which is in turn the Federal Circuit standard for increased damages under 35 USC §284 (or at least the threshold for a court to exercise its discretion to award increased damages). While the Federal Circuit has sometimes indicated that due care is just one of the factors to be considered, it often dominates the consideration of others factors.

 

 

With the notice of its intention to consider the mandamus petition in Seagate en banc, the Court has framed the issue (the third of three to be considered) as "Given the impact of the statutory duty of care standard announced in Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1389 (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 question that we may expect to see if that decision is reconsidered is, "If mere negligence (i.e., the failure to exercise due care) is insufficient to justify a finding of "willfulness," how can a patent infringer be subject to increased damages for willful patent infringement under a standard (the existing Federal Circuit standard) which defines willfulness as "failure to exercise due care?"

 

 

Increasingly, the Supreme Court's views on specific patent law issues seem to be at odds with those of the Federal Circuit and those differences are often explained on the basis that the Federal Circuit has not given sufficient deference to authoritative Supreme Court precedents. The Supreme Court could well be the next stop for the Seagate case if this question is not addressed as suggested in the Judge Dyk's Knorr-Bremese dissent and the Federal Circuit does not revisit the due care standard.

 

A more likely result of the Federal Circuit's consideration in Seagate will be a thorough reexamination of Federal Circuit willfulness decisions since Underwater Devices. This will likely reveal that the Federal Circuit, while often repeating the "due care" mantra of Underwater Devices, has in fact gone beyond failure to exercise due care in finding willfulness in many cases. Those cases would likely be completely in line with the Supreme Court cases discussed above. The most notable such case is Read v. Portec, in which former Chief Judge Nies explicated a number of factors to be considered and referred to the possibility of many others. In that decision, failure to exercise due care was not mentioned but the relevance of an opinion of counsel was carefully considered.

 

Going forward in Seagate, the Federal Circuit itself may return to the standards of the Read case to avoid still another Supreme Court reversal.