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More than 20 years ago, the U.S. Court of Appeals for the Federal Circuit signaled in Underwater Devices Inc. v. Morrison-Knudsen Co. Inc., 717 F.2d 1380 (Fed. Cir. 1983), that the best, if not required, way of avoiding treble damages for willful patent infringement was to obtain and rely upon an opinion of counsel. Part and parcel of the decision was the acknowledgment that one cannot assert reliance on the advice of counsel without waiving the evidentiary privilege that would otherwise protect it from discovery in litigation. Just recently, in In re EchoStar, Misc. Nos. 803, 805, 2006 WL 1149528 (Fed. Cir. May 1, 2006), the Federal Circuit addressed a crucial scope-of-the-waiver issue that Underwater Devices engendered. The court ruled that waiver of the attorney-client privilege does not necessarily waive the attorney’s work-product immunity. The rule that the Underwater Devices court articulated was intuitive inasmuch as the willfulness inquiry probes the state of mind of the accused infringer and, since businesspeople are usually not skilled in patent law, they should be informed by competent counsel. By obtaining and relying upon counsel’s advice, a defendant could disprove allegations that it willfully disregarded an asserted patent. To reinforce the need to obtain and rely upon an opinion, Underwater Devices also established punitive, negative inferences regarding willfulness for cases in which an opinion was not obtained or was obtained but not relied upon as evidence. Underwater Devices thus forced companies to establish defensive opinion policies and to waive the attorney-client privilege when sued, regardless of the strength of their liability defenses. The decision effectively engendered burdensome litigation about the scope of the waiver and arguably undermined the fairness of the adversary system by exposing one party’s defensive strategy to its opponent. Thus reliance on counsel’s advice raised issues ranging from whether discovery and trial of willfulness and liability should be bifurcated, to whether the waiver extended only to the attorney-client privilege or also reached attorney work product, to whether a defendant must or should have separate law firms to render opinions and to defend it in the courtroom, respectively. ‘Quantum’ recommended bifurcated trials The Federal Circuit has attempted to address these issues in the past. In Quantum Corp. v. Tandon Corp., 940 F.2d 642 (Fed. Cir. 1991), the court recognized the “dilemma” with which its jurisprudence on the issue confronted a defendant, and suggested that district courts give strong consideration to bifurcation of willfulness and liability as a due remedy. That solution, while appealing at first blush, was well received by neither district court judges nor patentees. Judges, concerned with efficient trial and jury management, derided the added burdens of bifurcated trials. Infringement plaintiffs universally opposed bifurcation due to delay and added expense. As such, bifurcation requests were rarely granted. More recently, the Federal Circuit reconsidered parts of its Underwater Devices decision in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004). The court held that, in an infringement suit, the trier of fact should not draw an adverse inference with respect to willful infringement when a defendant invokes the attorney-client privilege and/or work-product privilege, or when the defendant has not obtained legal advice. The court did not address the issue of whether the existence of a substantial defense to infringement should be sufficient to defeat liability for willful infringement even if no legal advice has been secured. In In re EchoStar, the court has now addressed squarely the scope of waiver issues raised by Underwater Devices. On its face, the EchoStar decision resolves much of the uncertainty. The party accused of infringement had obtained noninfringement opinions from both in-house and outside counsel, but chose to rely only upon the former in defense against the patentee’s claim that any infringement was willful. When the plaintiff moved to compel production of the outside counsel’s opinion and work files, the district court ruled that reliance on the in-house opinion waived the attorney-client privilege and work-product immunity with respect to outside counsel’s files as well, rendering its opinion and files discoverable. The outside counsel then filed a petition for a writ of mandamus to challenge the court’s interlocutory order. Granting the petition, the Federal Circuit explained that the advice-of-counsel defense indeed results in a broad waiver of the attorney-client privilege that reaches all applicable attorney-client communications regarding the same subject matter. The defendant had argued that the privilege associated with the opinion of its in-house counsel could be waived separately from that of its outside counsel. By treating the defendant’s in-house opinion like the opinion of any other lawyer, the Federal Circuit reinforced the principle that the subject matter of the advice governs the scope of the waiver, not the identity of the lawyer rendering it. According to the court, however, a waiver of the attorney-client privilege does not necessarily waive the attorney’s work-product immunity. The court held that such immunity is waived only with respect to documents that inform the accused infringer’s state of mind. Thus, counsel’s mental impressions are discoverable only to the extent that they were communicated to the client. The EchoStar decision contemplates three categories of possible work product on which the court gave guidance. First, all communications between an attorney and his or her client are subject to waiver when the client relies on an advice of counsel defense. Second, documents containing the attorney’s mental impressions, etc. that were not communicated to the client and that do not reference communications with the client remain immune from discovery under the work-product doctrine. Third, documents that were never communicated but that discuss or refer to a communication between attorney and client concerning the relevant subject matter are also subject to waiver. When a document contains some material in the second category and some in the third, it should be produced with the uncommunicated legal analysis redacted. The EchoStar decision takes note of the true inquiry-the state of mind of the accused infringer-and limits discovery to that which could possibly inform the actor in question. To allow broader discovery, as many district courts have in the past, sometimes encouraged overzealous litigation tactics. With a more proper balance in place, expanding litigation in this area should be quelled. Instead, would-be infringers can now confidently establish opinion policies without regard to where they might be sued, without the need to hire multiple law firms to represent them and without the threat of exposing their lawyer’s uncommunicated thoughts to an adversary. Patent counsel can be more relaxed as well with EchoStar protecting their files. That is, EchoStar ensures that the attorneys’ thoughts can be recorded with less concern that their uncommunicated notes will be given to the enemy and used to disadvantage their clients. This should make the attorneys’ lives easier and improve the efficiency and quality of their work product. Separating opinion and trial counsel may be in vain EchoStar may have its greatest impact on companies’ choice of counsel policies. Many companies maintain separate litigation and opinion counsel on the reasoned belief that a waiver of the privilege associated with an opinion of counsel would not reach the files of its defense counsel. By disregarding the identity of the lawyer rendering the advice and focusing instead on the subject matter, the EchoStar decision suggests that such a strategy might be in vain. On the one hand, because work product that does not reference or embody a client communication is immune from discovery, the patentee cannot gain access to the entire litigation file regardless of who serves as counsel. On the other hand, if broadly applied, under EchoStar, the waiver could reach communications between litigation counsel and its client (or uncommunicated documents in defense counsel’s files that reference such communications) regarding the subject matter of a waived opinion-even if the communication in question occurred after the onset of litigation. In this latter regard, in a footnote, the EchoStar court confirmed that if the alleged infringement continues during the lawsuit, so too does the waiver. How then, can defense counsel candidly discuss the merits of the case with its client in confidence? Unless it is limited by subsequent decisions, EchoStar may go further in allowing discovery than had the available district court decisions in the past. This issue will without doubt be the subject of future litigation and, in the meantime, may render uncomfortable some discussions between defense counsel and their clients. The Federal Circuit’s decision in EchoStar addresses and solves once and for all several issues that have plagued patent cases for decades but that have practically evaded review. Yet, perhaps as always, issues still remain. Thankfully, the Federal Circuit appears keen to these issues and hopefully will solve them in due course. William M. Atkinson is a partner, and Joseph E. Bracken is an associate, in the Charlotte, N.C., office of Atlanta’s Alston & Bird. Both are members of the firm’s intellectual property litigation group.

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