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WASHINGTON � In the specialized arena of the U.S. Court of Appeals for the Federal Circuit, where patent cases now predominate, combatants over a core question of attorney-client privilege have swiftly moved into position for a rare argument before the entire appellate court. Nearly two dozen bar, industry and association amicus briefs have been filed in the case, In re Seagate, No. 2006-830. The high number of briefs reflects the high stakes, both financial and legal, in a case with the potential to affect almost every patent infringement lawsuit filed. The Federal Circuit will hear arguments on June 7 in a case brought by Seagate Technology LLC, the defendant in a patent infringement lawsuit in which Convolve Inc. and the Massachusetts Institute of Technology (MIT) seek $800 million in damages. The court will examine the waiver of attorney-client privilege and work-product immunity for cases in which a party, such as Seagate, defends itself against a claim of willful infringement by relying upon an attorney’s opinion that it was not infringing. Seagate asks whether the required waiver for such a defense extends beyond communications with opinion counsel to communications with separate trial counsel and in-house counsel, as the district court in its case and a number of other district courts around the country have held. The Federal Circuit itself, in what litigators and others call a surprising and aggressive move, raised a separate question of whether, given the impact on waiver of the attorney-client privilege, it should re-examine a 24-year-old decision imposing a fundamental duty of due care to avoid infringement when a company or party has notice of another’s patent rights. Claims of willful infringement are made in more than 90% of patent infringement suits, according to patent scholars and litigators, in part because the standard for proving willful infringement is low and also because treble damages may be awarded. “It’s huge money,” said patent litigator Kenneth Adamo of Jones Day’s Cleveland office. “It’s rare to get a three multiplier, but getting a two or a two and a half is not unusual. And willfulness almost always is enough to trip the ‘exceptional case’ designation, which means you get attorney fees. Attorney fees these days would choke a horse in some cases. It’s the pot of gold at the end of the rainbow.” Uncertainty in litigation Questions about the scope of waiver of the attorney-client privilege have generated extensive satellite litigation, dividing the district courts and creating uncertainty and inconsistency in patent litigation, said patent litigator Alison Tucher of the San Francisco office of Morrison & Foerster, whose firm filed an amicus brief supporting Seagate on behalf of EchoStar Communications Corp. “Any trial lawyer knows it is hard to work up a case properly with the other side’s lawyer listening in. Yet that is what the lower court ordered here,” she said. “It’s an opportunity to bring some logic and reasonableness to this area of the law and to solve a problem unique to patent litigation.” In 1983, the Federal Circuit held that when a potential infringer has notice of someone else’s patent rights, there is an affirmative “duty of due care” to determine whether he or she is infringing those rights. That duty generally has been interpreted as requiring obtaining a legal opinion on the validity of those rights before engaging in or continuing any infringing activity. Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380. Reliance on that legal opinion is now a primary defense to a charge of willful infringement. The disk-drive maker Convolve and MIT sued Seagate and Compaq, a division of Hewlett-Packard Co., in 2000 in the U.S. District Court for the Southern District of New York. They alleged that Seagate and Compaq made disk drives that infringed on Convolve’s exclusive license on vibration-control technology developed by MIT. Both Seagate and Compaq asserted advice-of-counsel defenses to the allegations of willful infringement. In that defense, the accused infringer asserts it acted in good faith when the alleged infringement took place because it relied on counsel’s advice, which usually takes the form of the opinion letter by an attorney. Raising that defense waives the attorney-client privilege with respect to the subject matter of the opinion on which the defendant relies. In 2006, the Federal Circuit, in another case involving waiver, said in a footnote that the privilege waiver does extend to advice given after litigation begins. In re EchoStar, 448 F.3d 1294. Although the case did not involve waiver of trial counsel communications, a number of district courts have interpreted the footnote as supporting waiver as to trial counsel. Seagate was ordered to disclose all communications with its trial counsel, opinion counsel and all attorneys concerning the subject matter of the infringement opinion. Seagate’s counsel in the Federal Circuit, Brian E. Ferguson, partner in the Washington office of McDermott, Will & Emery, urges the appellate court to adopt a bright-line rule on the waiver issue. In an advice-of-counsel defense, he said, waiver of the attorney-client privilege and work-product immunity should not extend to communications between the client and its trial counsel when opinion counsel and trial counsel are separate and independent. The privilege waiver in this type of defense, he said, is designed to prevent “sword and shield” litigation tactics, in which a defendant collects opinions, using those favorable and discarding those negative. But there are no such concerns where opinion counsel and trial counsel are separate, he said. All communications with opinion counsel � good and bad � are disclosed. Extending the waiver to trial counsel, he said, “destroys a client’s ability, not only to defend itself adequately, but even to fairly evaluate the case by consulting with its trial counsel.” Seagate, he added, is a good example of how the willfulness question, with its risk of treble damages, becomes the paramount issue in a case. “It’s at the forefront of the court’s attention and the rest of the case has taken a backseat as a result,” he said, noting the lawsuit is seven years old. State of mind Convolve’s counsel, Debra Brown Steinberg, a partner at New York’s Cadwalader, Wickersham & Taft, contends that the key inquiry is not the attorneys’ affiliation or interaction but the information that Seagate obtained, “from whatever source,” which framed its state of mind with respect to its reliance on the opinion counsel. That is the only way to determine whether Seagate’s reliance was reasonable, according to Steinberg. Seagate, she argues, used post-litigation opinions in defense of its pre- and post-litigation infringement. “Opinion counsel communications may offer insight into part of Seagate’s state of mind, but only the favorable part,” Steinberg writes in her brief. “Seagate seeks to use this favorable advice to its advantage while concealing information obtained from in-house and trial counsel necessary to gauge whether Seagate’s reliance on the post-litigation opinions was reasonable.” Convolve does not have much support for its waiver position among the amici in the case. But its arguments, say some litigators, are not unreasonable. Patent infringement, for example, is considered a continuing activity and, if trial counsel offers an unfavorable view of the client’s position, that advice could bear on the accused infringer’s good faith. But many patent litigators are quite passionate in their belief that when weighing the equities on each side, the balance has to tip in favor of nonwaiver of the attorney-client privilege and work product as it applies to trial counsel. “This is not the only area of law where parties will defend prior conduct by a defense of good-faith reliance on a separate attorney opinion,” said Stephen P. Swinton, partner in the San Diego office of Latham & Watkins. “But in none of those other areas has there been a lawwide claim that by merely relying on another attorney’s opinion, the confidentiality of your trial counsel communications is waived.” That’s bothersome, because “few clients have a detached perception of what the risks and benefits of their litigation may be,” Swinton said. “No matter how much money you spend on patent trial counsel, one thing you ought to expect is a candid assessment of whether your defense will work.” As to whether it matters if a company gets an infringement opinion before or after it is sued, Swinton and others noted that it is rare today for a company to obtain an opinion letter before it has been sued. “Half of the world are patent trolls that may not have done a good-faith analysis to confirm whether the recipient of a notice letter has infringed, but it’s relatively cheap to fire off a thousand letters to everyone in an industry saying you infringed,” Swinton said. “It wouldn’t surprise me if Seagate gets 10 of those letters a day.” Infringement opinions cost $50,000 to $100,000 in fees, even more with complicated patents, according to patent lawyers. Due care Swinton and others following the case say they are cautiously optimistic that the Federal Circuit also will get to the duty of due care question that it raised on its own. Morrison & Foerster’s Tucher said it was the court’s decision 24 years ago announcing that duty that has led to the privilege-waiver problems. Jones Day’s Adamo agreed, explaining that the duty of due care drives the willful infringement claim, which, in turn, drives the need for an opinion letter, and that leads to the privilege-waiver issues. “You either have to draw a moat around trial and in-house counsel, saying they’re different from opinion counsel, or you have to say there’s something wrong with the premise we started with � this affirmative duty of due care,” said Tucher. Morrison & Foerster’s amicus brief urges the court to replace the due care standard � essentially a negligence standard, it says � with a standard that allows treble damages only when a party shows reckless disregard as to whether its actions were improper. Other amici suggest, as in the punitive damages context, using a standard that judges the reprehensibility of the conduct. Convolve argues that the only “germane” issue is the scope of Seagate’s waiver, and there is no reason to revisit the duty of care standard. The Federal Circuit does not hear many cases en banc, noted Seagate’s counsel, Ferguson. Scheduling the case for en banc consideration reflects the importance of the waiver issue. Regardless of the outcome, he predicts, the case probably will head to the U.S. Supreme Court. “I don’t think either party will go quietly into the night if it loses,” he said.

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