In re EchoStar Communications: Implications for Opinion Practice in Patent Cases

The Court of Appeals for the Federal Circuit finally has opined on the scope of waiver of privilege in patent infringement litigation when an accused infringer relies on an attorney opinion to defend against a charge of willful infringement. In re EchoStar Commc'ns Corp., 2006 U.S. App. LEXIS 11162 (Fed. Cir., May 1, 2006).

Opinions, Willful Infringement, and Attorney-Client Privilege

Patent owners accuse infringers of willful infringement because, if willfulness can be proved, the infringement case may be deemed 'exceptional' and the court may increase a damages award (by a factor of up to three) and also may grant attorneys' fees to the patent owner. 35 U.S.C. '285. Analyzing willful infringement necessarily implies that there is infringement.

Willfulness as a State of Mind

Determining whether infringement is 'willful' necessarily requires looking into the motives, or state of mind, of an accused infringer. As part of rebutting a willful infringement charge, an accused infringer may decide to present evidence that it received attorney advice that the accused infringing conduct was permitted and that the accused infringer reasonably relied on that advice in continuing its conduct. Because there is infringement, the attorney's advice ultimately is incorrect; but if the advice was reasonable, taking all of the circumstances into account, then the infringer could rely on it, and thus rebut a finding that the infringement was willful.

Normally, the attorney-client privilege protects a client from having to disclose advice from an attorney. In the realm of willful infringement, the Federal Circuit's prior decision in Knorr-Bremse v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004), entitles an accused infringer to withhold opinions of counsel in litigation, while prohibiting a court or a jury from drawing an adverse inference from that withholding (ie, that the infringer had received advice that it was infringing).

However, when an accused in-fringer (client) decides to rely on an opinion received from an attorney to defend against a willful infringement charge, the client waives attorney-client privilege as to the subject matter of that opinion. By waiving privilege, the client must disclose the opinion and the underlying communications with the attorney on that subject.

Another principle that applies is that if an accused infringer receives multiple opinions on the same subject and decides to rely on one of those opinions, it must produce all of those opinions and the underlying communications with the attorneys. It is not responsible to limit waiver of privilege as a sword to fight the willfulness charge, while hiding behind privilege to shield another opinion from disclosure.

EchoStar: When Attorney Work Product Must Be Disclosed

In EchoStar, the Federal Circuit held that in addition to waiving the attorney-client privilege by disclosing an attorney opinion, the client also waives the attorney work product immunity, which is a separate privilege with separate standards, in certain circumstances. The court recognized three categories of work product that were potentially relevant to the advice-of-counsel defense at issue:

1) documents that embody a communication between the attorney and client concerning the subject matter of the case, such as a traditional opinion letter;

2) documents analyzing the law, facts, trial strategy, and so forth that reflect the attorney's mental impressions but were not given to the client; and

3) documents that discuss a communication between attorney and client concerning the subject matter of the case but are not themselves communications to or from the client.

2006 U.S. App. LEXIS 11162 at *19.

The court concluded that waiver extends to the first and third categories (which involve what an attorney told a client), but does not extend so far as the second (which does not). 2006 U.S. App. LEXIS 11162 at *20. Consequently, an attorney's documents that either a client saw, or reflect what a client was told, must be produced.

The Federal Circuit's reasoning in EchoStar makes sense because the categories of disclosure that the court required relate to what the accused infringer saw or heard, and so relate to the accused infringer's state of mind. The attorney's work quality obviously is relevant, but the client's understanding or interpretation of the attorney's advice is what determines whether the client reasonably elected to proceed with its infringing conduct.

Interesting Facts in EchoStar

Apparently, EchoStar received attorney advice from three different sources at three different times. First, shortly after learning of a patent that TiVo owned, EchoStar's in-house counsel coordinated an internal investigation, as a result of which the counsel concluded that EchoStar did not infringe the patent. Thereafter, Echo-Star and TiVo entered into negotiations, during which TiVo never mentioned either the patent or EchoStar's infringement. EchoStar hired an outside law firm, which analyzed the infringement issue, concluded there was no infringement, and drafted a non-infringement opinion; but EchoStar instructed the firm that it was not necessary to finalize the opinion, apparently because the conclusion was the same as the favorable one that in-house counsel reached.

Then, without prior notice, TiVo sued EchoStar for infringement of the patent and accused EchoStar of willful infringement. Naturally, EchoStar hired litigation counsel to handle the lawsuit. EchoStar also hired yet another outside firm to obtain opinions regarding infringement. The firm apparently rendered two separate, favorable non-infringement opinions.

During the litigation, EchoStar re-vealed its in-house counsel's analysis, and apparently also revealed the draft opinion and associated documents that the first outside firm had prepared. EchoStar steadfastly refused to produce the post-lawsuit outside counsel opinions.

In a series of orders, the district court judge ordered EchoStar to produce not only the post-lawsuit opinions, but all of the work product of the law firm that prepared the opinions, irrespective of whether that work product was revealed to EchoStar, or whether it reflected information that the outside law firm provided to EchoStar. Both EchoStar and the law firm appealed to the Federal Circuit for a writ of mandamus to cause the district court judge to vacate his orders.

Why Fight over Producing Favorable Advice?

All of the opinions that EchoStar received, both pre-litigation and post-litigation, were favorable. So why would EchoStar have to worry about producing all of the opinions? There are several possibilities including the following:

1) The post litigation opinion counsel was working with the trial counsel that EchoStar had hired to defend it in the litigation. There was a risk that the waiver of privilege could apply to trial counsel's communications with the client;

2) The analysis in the post-litigation opinions was considerably different from trial counsel's analysis, thereby casting doubt on the reliability or reasonableness of the opinions;

3) The patent analysis in the post-litigation opinions was considerably different from the court's analysis, again casting doubt on the opinions.

Another puzzling question is why the post-litigation opinions were necessary in view of the two favorable pre-litigation opinions received. Perhaps it was not possible to go back and have outside counsel finalize its draft pre-litigation opinion. Or perhaps that draft opinion was itself problematic in some respect.

Communications Between Opinion and Trial Counsel

If indeed opinion counsel and trial counsel take considerably different paths to reach the same non-infringement conclusion, that divergence can present a problem at trial, either because it casts doubt on trial counsel's case or because it casts doubt on the reasonableness of the opinion. The problem is that it can be difficult, if not impossible, for trial counsel and opinion counsel to talk to each other about their respective analyses without client communications somehow being implicated. As a result, the fact that trial counsel and opinion counsel may have talked to each other would be revealed, thus casting doubt on the reliability of the opinions (at least, for opinions generated after litigation begins).

Interestingly, the Federal Circuit's decision may have provided a clue as to how to get around this problem. If the communications between opinion counsel and trial counsel are oral, and do not touch on communications with the client, then under the court's reasoning in EchoStar, those counsel communications should be protected under attorney work product immunity. In its opinion, the Federal Circuit differentiated between attorney-client privilege and attorney work product immunity as follows: 'Unlike the attorney-client privilege, which protects all communication whether written or oral, work-product immunity protects documents and tangible things, such as memorandums, letters, and e-mails.' 2006 U.S. App. LEXIS at *15 (citations omitted).

Lessons to Be Learned

Attorneys often will minimize their note taking on the assumption that any notes they create might fall into the wrong hands. Avoiding memorializing discussions with clients on substantive issues takes on added significance when preparing an exculpatory opinion to counter willful infringement charges, because anything containing or summarizing a client communication would have to be produced to the other side in litigation, in the course of relying on the opinion.

Trial counsel and post-litigation opinion counsel also take care to preserve an appearance of independence, and so rarely, if ever, talk to each other about the subject matter of the opinion, or the underlying analysis. Perhaps the Federal Circuit has provided a mechanism for counsel to talk to each other after all.

Frank L Bernstein is a partner in the Silicon Valley office of Kenyon & Kenyon LLP. He can be contacted at 408-975-7988 or [email protected].

The Court of Appeals for the Federal Circuit finally has opined on the scope of waiver of privilege in patent infringement litigation when an accused infringer relies on an attorney opinion to defend against a charge of willful infringement. In re EchoStar Commc'ns Corp., 2006 U.S. App. LEXIS 11162 (Fed. Cir., May 1, 2006).

Opinions, Willful Infringement, and Attorney-Client Privilege

Patent owners accuse infringers of willful infringement because, if willfulness can be proved, the infringement case may be deemed 'exceptional' and the court may increase a damages award (by a factor of up to three) and also may grant attorneys' fees to the patent owner. 35 U.S.C. '285. Analyzing willful infringement necessarily implies that there is infringement.

Willfulness as a State of Mind

Determining whether infringement is 'willful' necessarily requires looking into the motives, or state of mind, of an accused infringer. As part of rebutting a willful infringement charge, an accused infringer may decide to present evidence that it received attorney advice that the accused infringing conduct was permitted and that the accused infringer reasonably relied on that advice in continuing its conduct. Because there is infringement, the attorney's advice ultimately is incorrect; but if the advice was reasonable, taking all of the circumstances into account, then the infringer could rely on it, and thus rebut a finding that the infringement was willful.

Normally, the attorney-client privilege protects a client from having to disclose advice from an attorney. In the realm of willful infringement, the Federal Circuit's prior decision in Knorr-Bremse v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004), entitles an accused infringer to withhold opinions of counsel in litigation, while prohibiting a court or a jury from drawing an adverse inference from that withholding (ie, that the infringer had received advice that it was infringing).

However, when an accused in-fringer (client) decides to rely on an opinion received from an attorney to defend against a willful infringement charge, the client waives attorney-client privilege as to the subject matter of that opinion. By waiving privilege, the client must disclose the opinion and the underlying communications with the attorney on that subject.

Another principle that applies is that if an accused infringer receives multiple opinions on the same subject and decides to rely on one of those opinions, it must produce all of those opinions and the underlying communications with the attorneys. It is not responsible to limit waiver of privilege as a sword to fight the willfulness charge, while hiding behind privilege to shield another opinion from disclosure.

EchoStar: When Attorney Work Product Must Be Disclosed

In EchoStar, the Federal Circuit held that in addition to waiving the attorney-client privilege by disclosing an attorney opinion, the client also waives the attorney work product immunity, which is a separate privilege with separate standards, in certain circumstances. The court recognized three categories of work product that were potentially relevant to the advice-of-counsel defense at issue:

1) documents that embody a communication between the attorney and client concerning the subject matter of the case, such as a traditional opinion letter;

2) documents analyzing the law, facts, trial strategy, and so forth that reflect the attorney's mental impressions but were not given to the client; and

3) documents that discuss a communication between attorney and client concerning the subject matter of the case but are not themselves communications to or from the client.

2006 U.S. App. LEXIS 11162 at *19.

The court concluded that waiver extends to the first and third categories (which involve what an attorney told a client), but does not extend so far as the second (which does not). 2006 U.S. App. LEXIS 11162 at *20. Consequently, an attorney's documents that either a client saw, or reflect what a client was told, must be produced.

The Federal Circuit's reasoning in EchoStar makes sense because the categories of disclosure that the court required relate to what the accused infringer saw or heard, and so relate to the accused infringer's state of mind. The attorney's work quality obviously is relevant, but the client's understanding or interpretation of the attorney's advice is what determines whether the client reasonably elected to proceed with its infringing conduct.

Interesting Facts in EchoStar

Apparently, EchoStar received attorney advice from three different sources at three different times. First, shortly after learning of a patent that TiVo owned, EchoStar's in-house counsel coordinated an internal investigation, as a result of which the counsel concluded that EchoStar did not infringe the patent. Thereafter, Echo-Star and TiVo entered into negotiations, during which TiVo never mentioned either the patent or EchoStar's infringement. EchoStar hired an outside law firm, which analyzed the infringement issue, concluded there was no infringement, and drafted a non-infringement opinion; but EchoStar instructed the firm that it was not necessary to finalize the opinion, apparently because the conclusion was the same as the favorable one that in-house counsel reached.

Then, without prior notice, TiVo sued EchoStar for infringement of the patent and accused EchoStar of willful infringement. Naturally, EchoStar hired litigation counsel to handle the lawsuit. EchoStar also hired yet another outside firm to obtain opinions regarding infringement. The firm apparently rendered two separate, favorable non-infringement opinions.

During the litigation, EchoStar re-vealed its in-house counsel's analysis, and apparently also revealed the draft opinion and associated documents that the first outside firm had prepared. EchoStar steadfastly refused to produce the post-lawsuit outside counsel opinions.

In a series of orders, the district court judge ordered EchoStar to produce not only the post-lawsuit opinions, but all of the work product of the law firm that prepared the opinions, irrespective of whether that work product was revealed to EchoStar, or whether it reflected information that the outside law firm provided to EchoStar. Both EchoStar and the law firm appealed to the Federal Circuit for a writ of mandamus to cause the district court judge to vacate his orders.

Why Fight over Producing Favorable Advice?

All of the opinions that EchoStar received, both pre-litigation and post-litigation, were favorable. So why would EchoStar have to worry about producing all of the opinions? There are several possibilities including the following:

1) The post litigation opinion counsel was working with the trial counsel that EchoStar had hired to defend it in the litigation. There was a risk that the waiver of privilege could apply to trial counsel's communications with the client;

2) The analysis in the post-litigation opinions was considerably different from trial counsel's analysis, thereby casting doubt on the reliability or reasonableness of the opinions;

3) The patent analysis in the post-litigation opinions was considerably different from the court's analysis, again casting doubt on the opinions.

Another puzzling question is why the post-litigation opinions were necessary in view of the two favorable pre-litigation opinions received. Perhaps it was not possible to go back and have outside counsel finalize its draft pre-litigation opinion. Or perhaps that draft opinion was itself problematic in some respect.

Communications Between Opinion and Trial Counsel

If indeed opinion counsel and trial counsel take considerably different paths to reach the same non-infringement conclusion, that divergence can present a problem at trial, either because it casts doubt on trial counsel's case or because it casts doubt on the reasonableness of the opinion. The problem is that it can be difficult, if not impossible, for trial counsel and opinion counsel to talk to each other about their respective analyses without client communications somehow being implicated. As a result, the fact that trial counsel and opinion counsel may have talked to each other would be revealed, thus casting doubt on the reliability of the opinions (at least, for opinions generated after litigation begins).

Interestingly, the Federal Circuit's decision may have provided a clue as to how to get around this problem. If the communications between opinion counsel and trial counsel are oral, and do not touch on communications with the client, then under the court's reasoning in EchoStar, those counsel communications should be protected under attorney work product immunity. In its opinion, the Federal Circuit differentiated between attorney-client privilege and attorney work product immunity as follows: 'Unlike the attorney-client privilege, which protects all communication whether written or oral, work-product immunity protects documents and tangible things, such as memorandums, letters, and e-mails.' 2006 U.S. App. LEXIS at *15 (citations omitted).

Lessons to Be Learned

Attorneys often will minimize their note taking on the assumption that any notes they create might fall into the wrong hands. Avoiding memorializing discussions with clients on substantive issues takes on added significance when preparing an exculpatory opinion to counter willful infringement charges, because anything containing or summarizing a client communication would have to be produced to the other side in litigation, in the course of relying on the opinion.

Trial counsel and post-litigation opinion counsel also take care to preserve an appearance of independence, and so rarely, if ever, talk to each other about the subject matter of the opinion, or the underlying analysis. Perhaps the Federal Circuit has provided a mechanism for counsel to talk to each other after all.

Frank L Bernstein is a partner in the Silicon Valley office of Kenyon & Kenyon LLP. He can be contacted at 408-975-7988 or [email protected].