Seagate A Floodgate To Patent ADR?

The U.S. Supreme Court just denied review of Convolve Inc. v. Seagate Technology.

Why do we care?

Because in Seagate, the Federal Circuit reversed a long established precedent and announced a new and higher standard for obtaining treble damages in patent cases, which could have the impact of making some patent cases more receptive to mediation or other ADR processes.

Prior to Seagate, a patent holder seeking to prove that a defendant willfully infringed (which opens the door for treble damages) had a pretty low burden to satisfy; the court even suggested that it was as low as a negligence standard. Infringers who had actual knowledge of the patent at issue had an affirmative duty to “exercise due care,” which most sought to satisfy by way of an opinion of patent counsel.  See Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983). In fact, because of Underwater Devices, a whole new market opened for patent lawyers, the drafting of patent opinions. (This also raised numerous knotty privilege issues during discovery of these opinions, as one might imagine.)

The landscape changed last year with Seagate. There, the Federal Circuit overturned Underwater Devices, and abandoned the defendant’s affirmative duty to demonstrate it had exercised “due care.” Instead, the Court imposed a more stringent burden on patent holders to demonstrate that the defendant had willfully infringed. Under Seagate, a plaintiff now must show “by clear and convincing evidence” that the infringer acted “despite an objectively high likelihood that its actions constituted infringement of a valid patent,” and that this objectively-defined risk was known (or should have been known) to the infringer.

So with the sweep of the pen (a click of the keys?) twenty-four years of precedent was wiped out, along with the need for patent counsel opinion letters (and some of the thorny privilege issues).

Needless to say, patent holders were less than thrilled, and the matter was taken to the U.S. Supreme Court.

To no avail. On Monday, the Supremes allowed the Federal Circuit opinion to stand as-is, without further review by the Court.

So what does this have to do with ADR?

Plenty. Assuming courts apply the new standard properly, the ability to trigger treble damages has just been significantly curtailed in patent cases. There is less of an upside to taking a flyer at trial. Which should meant that there is more of an upside in trying to work out a resolution that is based on the actual value of the dispute in question.

The dispute can be settled by the application of objective standards of value or other measures without having the settlement process derailed by the wish to achieve (or avoid) the home run treble damage award.

This cries out for a more cost effective resolution process, be that mediation or arbitration. Or some hybrid of the two.

                        author

Michael Young

Michael D. Young is a mediator with Judicate West in Southern California, focusing on the resolution of intellectual property, employment, and other complex business and commercial disputes.  He is also an intellectual property and employment litigator with the national law firm of Alston & Bird, a Distinguished Fellow with the International… MORE >

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