Broadcom: And the Continued Vitality of Opinions-of-Counsel After Seagate

The implications of In v. Seagate Technology, LLC, 497 F.3d 1369 (Fed. Cir. 2007) were explored in a number of Federal Circuit decisions in 2008, but most notably in Broadcom Corp. v. Qualcomm, Inc.,543 F.3d 683 (Fed. Cir. 2008), a case which arose from a jury verdict finding Qualcomm liable for inducing patent infringement.

I. The Trial Court’s Orders
The parties were competitors in the market for cell phone chipsets. Broadcom asserted three of its chipset patents against Qualcomm, contending that Qualcomm directly infringed the asserted patent claims and that it had also induced infringement by its customers. A jury trial produced a verdict of willful infringement in favor of Broadcom, and an award of attorneys’ fees for willfulness. But the jury had been instructed, consistent with pre-Seagate case law, that it could find willfulness if Qualcomm had breached its “affirmative duty of care.” Seagate then supervened, and the trial court invited reconsideration of its own trial rulings, remarking that it “would be an understatement to say that the Federal Circuit rewrote decades of case law interpreting the requirements for demonstrating willful infringement in a patent case.” Broadcom Corp. v. Qualcomm Inc., 2007 U.S. Dist. LEXIS 86627 at *5 (C.D. Cal. 2007), aff’d in part and vacated in part, 543 F.3d 683 (Fed. Cir. 2008). Concluding that its prior instruction “was error,” the trial court held that Qualcomm was entitled to a new trial on the jury’s finding of willfulness. Id., at *7.

The trial court then addressed Seagate’s implications for its instructions to the jury on inducing infringement. The court had instructed the jury that in determining whether Qualcomm had the necessary intent to induce infringement it could consider whether Qualcomm had obtained advice of counsel, though it did not inform the jury that such an opinion was necessary. The jury instruction stated:

In considering whether Qualcomm acted in good faith, you should consider all of the circumstances, including whether or not Qualcomm obtained and followed the advice of a competent lawyer with regard to infringement. The absence of a lawyer’s opinion, by itself, is insufficient to support a finding of willfulness, and you may not assume that merely because a party did not obtain an opinion of counsel, the opinion would have been
unfavorable. However, you may consider whether Qualcomm sought a legal opinion as one factor in assessing whether under the totality of the circumstances, any infringement by Qualcomm was willful. Id., at *9.

Qualcomm maintained that this instruction could not survive Seagate, which had jettisoned any duty to obtain an opinion of counsel while still suggesting that they were of utility. The trial court rejected this argument, reasoning that the absence of a legal opinion was nevertheless one factor, among many, that the jury could consider in determining whether Qualcomm had knowingly induced the infringement of others. Id., at *9-12.

This left for consideration whether a retrial on all issues would be required, in view of the necessity of retrying the issue of willfulness under the new Seagate standards. Where trial “of an issue such as willfulness is necessarily bound up with the basic liability determination,” noted the court, “a new trial on all issues should be granted.” Id., at 17. Hence Broadcom was required to elect either to retry the case on all issues or to abandon its efforts to obtain enhanced damages for willfulness. Id., at 17-19. Broadcom elected to drop its willfulness claims, and Qualcomm then appealed.

II. The Opinion-Of-Counsel Ruing
The Federal Circuit disagreed with the trial court’s construction of one of Broadcom’s patents, and ordered JMOL for Qualcomm on grounds of anticipation, affirming infringement as to Broadcom’s other asserted patents. Broadcom, at 543 F.3d at 691-697. This cleared the way for consideration of the disputed opinion-of-counsel willfulness instruction. Qualcomm urged the court not to allow the inducement verdicts to stand on the theory that opinion-of-counsel evidence, after Seagate, is no longer relevant to determining whether an accused party had the specific intent to encourage anothers infringement – a required element of an inducement claim. The court rejected this argument. Id., at 697-700.

As the court noted, to make out a case for inducement, the claimant must show that the defendant intended to cause the acts that constitute direct infringement and must have known or should have known that its actions would actually induce infringement. Id., at 698-99. This is a higher standard than that of willful infringement generally, for under Seagate the claimant need only establish (a) objective recklessness, namely a “high likelihood that . . . [the infringer’s] actions constituted infringement of a valid patent,” and (b) subjective bad faith, namely, that the objectively-defined risk of infringement “was either known or so obvious that it should have been known to the accused infringer.” Seagate, 497 F.3d at 1371. One should be able to meet this higher standard of culpability, reasoned the court, by evidence tending to show whether or not the defendant obtained and followed the advice of a competent lawyer. Broadcom, 543 F.3d at 698-99.

Opinion-of-counsel evidence, concluded the court, is one circumstance, in the totality of the circumstances, logically relevant to the “knew or should have known” element of inducing infringement. Id.,at 699. Indeed, the court had specifically acknowledged the exculpatory value of such evidence in an en banc pre-Seagate case, DSU Medical Corp. v. JMC Co., 471 F.3d 1293, 1307 (Fed. Cir. 2006), which the Broadcom court found to be still viable in light of Seagate. Id., at 699. The court reasoned that it would be “manifestly unfair to allow opinion-of-counsel evidence to serve an exculpatory function, as was the case in DSU itself . . . and yet not permit patentees to identify failures to procure such advice as circumstantial evidence of intent to infringe.” Broadcom, 543 F.3d at 699. Hence the trial judge did not err in instructing the jury to consider whether Qualcomm “sought the advice of counsel as to non-infringement,” as one factor among all relevant circumstances, on the inducement claim. Id., at 700.

The court went on to consider whether there was “substantial evidence” supporting the jury’s verdict of induced infringement. In concluding that such evidence had been presented, the court took note of a number of factors militating in favor of willfulness: a “failure to investigate” the Broadcom patents, a “failure to explore design around approaches,” a failure to “take remedial steps” even after the lawsuit was filed, and “a failure to seek legal advice.” Id., at 700 -701.

III. The Implications For Willful Infringement Generally

Much of the reasoning of the Federal Circuit in upholding both the judgment of willfulness and the instruction on opinion-of-counsel could easily be adapted to the willful infringement context, even in the post-Seagate era. Each of the willfulness factors identified above, for example, could be used to support a finding of “subjective bad faith” under Seagate, even though such evidence was deemed irrelevant to Seagate’s initial standard of proof: the existence of an objectively-defined risk of infringing a valid patent. Put otherwise, the failure to seek the advice of a competent lawyer once an accused infringer is aware of an objectively high likelihood that its actions constitute infringement, ought to qualify as one of the circumstances relevant to subjective bad faith.

If subjective bad faith is, under Seagate, proof that the risk of liability is “either known or so obvious that it should have been known to the accused infringer,” Seagate, 497 F.3d at 1371, then the conduct of the defendant in either seeking, or not seeking, the advice of counsel ought to be as relevant in the ordinary willfulness context as it is in the context of willful inducement, at least in logic. Indeed the same rationale used by the appeals panel in Broadcom Corp. would seem to apply: failing to seek counsel is probative of the “knew or should have known” element of subjective bad faith, just as relying on competent advice should be exculpatory. Moreover, the “standards of commerce” alluded to in the Seagate majority and concurring opinions, would seem to include seeking advice of counsel in the face of a high potential for liability. Seagate, 497 F.3d at 1371, n.5 and 1385 (Newman, J., concurring). This Seagate factor could arguably strengthen the relevance of such opinion-of-counsel evidence in view of the opinion in Broadcom.

A recent district court case suggests, on the other hand, that an instruction like the one approved in Broadcom would be improper in infringement cases that do not turn upon a claim of induced infringement. World Wide Stationary Manufacturing Co., Ltd. v.U.S. Ring Binder, L.P., 2009 U.S. Dist. LEXIS 113169 at * 6 (E.D. Mo. Dec. 4, 2009) (holding that because inducement claim had been withdrawn, “defendant was under no obligation to obtain an opinion of counsel, and plaintiff is precluded from mentioning evidence related to defendant’s lack of opinion of counsel.”) The rationale of this approach seems to be that Seagate simply forbids such evidence outside of the inducement context. This is almost certainly a sound analysis, but only because of the policy-based decision in Seagate, rather than logic. Because the Federal Circuit frequently changes direction, a litigator might nevertheless advocate for a Broadcom instruction for the subjective bad faith prong of the analysis, preserving the record should the wins of change alter the Court’s course again, and the logical connection between the failure to obtain an opinion of counsel as to a known risk of infringement and subjective bad faith be acknowledged.

January 2010