IP NEWS IN JAPAN
PRACTICAL CONSIDERATIONS, In re Seagate
1. Patentees should anticipate more difficulty in proving enhanced-damages willful infringement, and should monitor developments in case law.
The CAFC expressly overruled its 1983 Underwater Devices “duty of due care” standard.
Under the “duty of due care” standard, a potential infringer that has actual notice of another’s patent rights has “an affirmative duty to exercise due care to determine whether or not he is infringing”, including the “duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity”.
The Seagate decision replaced this standard with a higher standard: the patentee must show that “the infringer acted despite an objectively high likelihood that its actions constituted infringement”, and that the accused infringer knew or should have known of such high likelihood.
Generally, it will be more difficult for patentees to prove willful infringement under this standard than the previous and now-overruled negligence-level “duty of due care” standard.
Å@How much more difficult remains to be seen, as the CAFC has left it to future case law to define how the standard will be applied.
Patentees should monitor developments in willful infringement case law to determine what conduct by an accused infringer rises to the level of “objective recklessness”. Patentees may also wish to consider prior copyright willful infringement case law for guidance, as the CAFC formed its “objective recklessness” standard based partly on harmonization with copyright law.
To increase the likelihood of a finding of recklessness, patentees should make their infringement notice letters to accused infringers sufficiently thorough and detailed so that accused infringers know or should know that their continued actions will constitute an objectively high likelihood of infringement.
Of course, the patentee must also consider the risk of whether, under the CAFC’s recent Sundisk decision, the notice letter could trigger a valid basis upon which the accused infringer could file a declaratory judgment action.
2. Willfulness will ordinarily depend on the accused infringer’s conduct prior to the patentee’s filing of patent infringement suit.
The CAFC stated that in ordinary circumstances, willfulness will depend on the accused infringer’s pre-litigation conduct.
The CAFC noted that when a patentee alleges willful infringement in a patent infringement lawsuit, he must already have a good faith basis for doing so under the Federal Rules of Civil Procedure, Rules 8 and 11(b).
Therefore, an allegation of willful infringement at the time of filing a patent infringement lawsuit must be based “exclusively in the accused infringer’s pre-filing conduct.”
3. For post-filing conduct the patentee should move for a preliminary injunction.
The CAFC further noted that if a patentee believes an accused infringer’s post-filing conduct is reckless, then the patentee should move for a preliminary injunction to stop the accused infringer’s conduct.
From prior CAFC case law, in order to obtain a preliminary injunction, a patentee must demonstrate: 1) a reasonable likelihood of success on the merits; 2) irreparable harm if the injunction is not granted; 3) a balance of hardships tipping in the patentee’s favor; and 4) the injunction’s favorable impact on the public interest.
In the Seagate decision, the CAFC ruled that if the patentee does not move for a preliminary injunction, then the patentee should not be allowed to accrue enhanced damages based solely on the accused infringer’s post-filing conduct.
Similarly, if a patentee moves for a preliminary injunction and the motion is denied, then the patentee should not be allowed to recover enhanced damages – the reason being that it is likely that the accused infringer’s conduct did not rise to the level of recklessness. See Practical Consideration 4.
4. If an accused infringer can show merely a “substantial question” (in contrast to “clear and convincing evidence”) as to the validity or infringement of the patent, it is likely the accused infringer will avoid a preliminary injunction or a charge of willful infringement based on post-filing conduct.
An accused infringer can defeat a patentee’s motion for preliminary injunction by showing there is a “substantial question” as to the validity or infringement of the patent.
The CAFC “fully recognized” that this showing is less than what is necessary to prevail on the merits, in which the accused infringer must show by clear and convincing evidence that the patent is invalid or not infringed. The CAFC noted that this lessened showing is consistent with its requirement that recklessness must be shown to recover enhanced damages.
In other words, in most cases, the accused infringer can continue its post-filing allegedly infringing conduct without risk of a preliminary injunction or a willful infringement finding if the accused infringer can show that there is merely a substantial question (in contrast to “clear and convincing evidence”) that the patent is invalid or not infringed.
5. In “some cases” the patentee may still be able to prevail on a willful infringement claim even though it was denied a preliminary injunction.
The CAFC also recognized that in some cases a patentee may be denied a preliminary injunction despite establishing a likelihood of success on the merits.
This may occur, for example, when the patentee loses on the remaining factors 2, 3 and 4. See Practical Consideration 3.In such case, whether a willful infringement claim based on post-filing conduct solely after litigation began is sustainable will depend on the facts of each case.
6. Potential licensees and accused infringers should utilize Seagate to increase their bargaining power.
Potential licensees and accused infringers are clearly in a stronger position under the Seagate “objective recklessness” standard.The potential accused infringer no longer has a duty to exercise due care in determining whether or not he infringes, or to obtain opinion of counsel before initiating potentially infringing activity.
The CAFC stressed this second point, stating “because we abandon the affirmative duty of due care, we also reemphasize that there is no affirmative obligation to obtain opinion of counsel.” The potential accused infringer, however, should be mindful that recklessly disregarding the risk that its conduct represents infringement is likely to result in enhanced-damages willful infringement.
For this reason, as with patentees, potential licensees and potential accused infringers should monitor developments in the case law, and likewise consider prior copyright willful infringement case law for determining what type of conduct rises to the level of “objective recklessness.” Potential licensees and potential accused infringers should, however, utilize Seagate to increase their bargaining power.
More specifically, Seagate’s abolishment of the “duty of due care” standard in favor of the higher threshold “objective recklessness” standard provides the potential licensee or potential accused infringer with greater leverage in negotiating licensee-friendly terms in licenses, and greater flexibility in defending against a charge of willful infringement.
7. A favorable opinion of counsel remains an important factor in avoiding a willfulness determination.
The CAFC reemphasized that because it was abandoning the “duty of due care” standard, “there is no affirmative obligation to obtain opinion of counsel.”
However, the Seagate decision does not appear to reduce the relevance of a favorable opinion of counsel with respect to the willfulness inquiry; it appears the CAFC sought merely to raise the threshold and make sure the willfulness inquiry is an objective one. A favorable opinion of counsel remains an important factor in avoiding a willfulness determination.
Certainly if an accused infringer relies on its opinion counsel’s letters in defending against willful infringement, it is less likely a court or jury will find that the accused infringer “recklessly disregarded” the possibility that its conduct represented infringement.
Of course, the more objective, thorough, and substantive the opinion is, the more likely the opinion will weigh against a finding of willful infringement.
8. Preferably opinion counsel should be maintained separate from trial counsel. 5. In “some cases” the patentee may still be able to prevail on a willful infringement claim even though it was denied a preliminary injunction.
The CAFC held in Seagate that waiver of opinion counsel’s communications and work product generally does not extend to trial counsel’s communications and work product. It should be noted that this ruling was made in the context of opinion counsel operating separately and independently of trial counsel. This distinction is important because the ruling on scope of waiver was based in large part on the different functions performed by opinion and trial counsel.
Having one person serve both functions could result in intermingling as to which communications and work product pertain to opinion issues, and which pertain to trial issues. Such intermingling may result in the accused infringer waiving a significantly wider scope of material than anticipated.
In order to prevent such intermingling and negative consequences, potential accused infringers should employ different counselors, preferably at different firms, to handle the respective opinion issues and trial issues.
If the potential accused infringer desires to employ two counselors at the same firm, steps should be taken to ensure the two counselors operate separately and independently of each other.
- Paul R.Steffes
U.S. Patent Attorney
Itoh International Patent Office