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Canadian companies locked in bitter patent disputes south of the border may pay less in damages because a U.S. court ruling this week could make it harder to prove willful infringement.
The U.S. Court of Appeals for the Federal Circuit on Monday overturned a ruling made in 1983. The standard set in that case was that willful infringement occurred when a defendant knew about a copyright, and failed to take care not to breach it.
With the latest ruling, however, patent holders must now prove that the defendant was reckless, not just negligent, in violating a patent.
It's a significant distinction because a finding of willful infringement can lead to three times the damages. Lawyers believe the ruling could make it harder to prove a breach was willful.
“It will certainly make it harder to prove that there was willful infringement, which in turn means that the chances of getting enhanced damages in patent cases will be reduced,” predicts Brian Ferguson, a partner at McDermott Will & Emery LLP in Washington, who represented Seagate Technology in the case.
Many technology companies in both Canada and the United States have wrestled with patent infringement lawsuits in recent years.
Research In Motion Ltd., the Waterloo, Ont.-based BlackBerry maker, for example, was locked in a four-year patent dispute with NTP Inc. And Toronto-based telecommunications equipment maker Nortel Networks Corp. currently faces a patent battle with phone carrier Vonage Holdings Corp.
As for Seagate, which sells storage solutions for personal computers and other electronics devices, it was sued by Convolve Inc. and the Massachusetts Institute of Technology in 2000, which alleged it violated three of their patents.
As with many defendants in patent trials, Scotts Valley, Calif.-based Seagate retained an attorney to provide an opinion on those patent complaints. It planned to use that assessment for its defence.
Convolve, however, wanted Seagate to also reveal details on its communications with the lawyers that represented it in the lawsuit. A trial court in 2004 found that Seagate had waived its attorney-client privilege for its trial lawyers.
So Seagate took the case to the U.S. appeals court.
When it came to the issue of attorney-client privilege, the U.S. appeals court ruled on Monday that disclosing information relating to the opinion counsel doesn't mean that the defendant must also release details about its discussions with its trial lawyers.
That's good news for those facing patent lawsuits, who now have more flexibility in seeking outside lawyers' opinions on infringement without worrying that they are waiving attorney-client privileges with their other attorneys, according to Christopher Arena, a partner at intellectual property law firm Woodcock Washburn in the U.S.
“If you know your adversary's strategy and thought processes, that's a huge advantage,” Mr. Arena said. “[Patent holders' lawyers] were figuring out how to exploit that.”
As for willful infringement, the U.S. appeals court ruled that “proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness.”
The U.S. appeals court has indicated it wants a higher standard to prove willful infringement, Mr. Arena said. However, he said the court has also left it up to future cases to define that standard.
“I don't think it will have an effect on the amount of patent litigation,” Mr. Arena said. “It balances the exposure that some of these defendants may be facing.”
On Monday, the U.S. appeals court told the district trial court to reconsider its discovery orders related to the Seagate case .
