Wednesday, August 22, 2007

Seagate patent decision could prompt more settlements

Source: Financial Week

The Federal Circuit Court of Appeals, which hears most of the country's appeals of patent litigation, provided a new precedent for attorney-client privilege in patent lawsuits late yesterday. The decision is likely to make it more difficult for plantiffs to prove infringement and thus lead to more settlements, according to patent attorneys.

The ruling came in a closely watched intellectual property case involving a suit filed by the Massachusetts Institute of Technology and private technology company Convolve against disk-drive manufacturer Seagate Technology in 2000 for patent infringement.

The decision was not about the underlying patent and whether or not Seagate infringed on it, but rather the definition of willful infringement and the extent of attorney-client privilege in patent cases.

When the court agreed to take the case in January, it announced that it would hear it "en banc." In other words, all ten judges on the appeals court would hear the case as opposed to the customary panel of three. "The court recognized that this was a very important issue, and they had to consider it as a full court," said Charles Barquist, a patent litigation partner with Morrison & Foerster, based in Los Angeles. Mr. Barquist, along with several colleagues, filed an amicus brief in support of Seagate's position.

The issue was whether Seagate should be forced to hand over communications with its trial lawyers to the plaintiffs in the case. The U.S. District Court for the Southern District ruled that the company did have to, which prompted Seagate to file its appeal.

The appeals court indicated it would also review its 1983 decision in a case known as Underwater Devices that established a standard for individuals and companies regarding patent infringement. That decision stated that parties had a duty of care to make sure that they weren't infringing on a patent. If they didn't meet that duty of care, they could be charged with willful infringement, which carries treble damages. In practice, that meant getting a legal opinion.

In the Seagate case, plaintiffs argued that Seagate waived its attorney-client privilege by turning over the opinion from separate counsel on the matter in question. It demanded that all communications between the company and its trial lawyers on the matter should also be disclosed. The district court agreed, at which point Seagate appealed.

The appeals court not only overturned the lower court's decision on the waiver of privilege issue, it also raised the bar for proving willfulness on the part of the defendant. Plaintiffs must now prove "objective recklessness" by defendants rather than just a failure to take due care.

"The new standard won't change the frequency with which willfulness is alleged, but it will be harder to prove," said Mr. Barquist. "It may facilitate more settlements too, as plaintiffs develop more moderate expectations."