United States: Best Practices For Atty-Client Privilege In Patent Litigation

Under Title 35 of the U.S. Code, Section 284, a victorious patent owner in a patent infringement suit may seek an award of up to three times the damages award — treble damages — if the patent owner proves the infringer's conduct was willful.

In 2016, the U.S. Supreme Court's ruling in Halo Electronics, Inc. v. Pulse Electronics, Inc. brought significant changes to the landscape of willful infringement.¹

Halo underscored the importance of the accused infringer's post-discovery actions concerning a competitor's patent, highlighting the critical role of timing in determining willfulness.

To mitigate the risk of treble damages, companies often seek legal opinions, such as noninfringement and invalidity opinions, to demonstrate that they acted in good faith to avoid infringement.

However, relying on these opinions presents a challenge. Presenting an opinion of counsel waives the attorney-client privilege for communications relating to the opinion on the theory that a party cannot use privilege as a sword and a shield.

The Halo decision raised new considerations for the timing of this waiver, changing the calculus for obtaining and presenting opinions of counsel. Since Halo, the law of privileged waiver has shaped itself around the types of opinions useful for avoiding willfulness findings, and best practices for preserving privilege have evolved out of this law.

This article discusses the diverse approaches taken by courts when determining the scope of waiver and offers best practices for companies seeking to leverage opinions of counsel as a defense to willful infringement allegations, while simultaneously safeguarding their attorney-client privilege.

The Scope of Waiver: Impact on Protections for Other Evidence

The scope of waiver is the extent to which a party waives its attorney-client privilege and work-product immunity when asserting an advice-of-counsel defense. Simply put, a party cannot selectively disclose favorable advice while concealing unfavorable advice.

By invoking an advice-of-counsel defense, the accused infringer obviously does not automatically grant their opponent unrestricted access to all their files and litigation strategies, but there is some waiver of privilege. Courts differ in their interpretation of the scope of this waiver, leading to uncertainty and inconsistent outcomes.

There are three key considerations when deciding the scope of waiver.

First, courts address whether asserting the advice-of-counsel defense waives work product immunity concerning the subject matter of the defense. This distinction is crucial, as the attorney-client privilege and work product immunity offer different but potentially overlapping protections.

While the attorney-client privilege safeguards communications between a client and their attorney, work product immunity safeguards materials prepared in anticipation of litigation. Some district courts have held that producing an opinion of counsel or relying on advice of counsel may waive the attorney-client privilege regarding other opinions on the same subject matter.

But, courts have also acknowledged that the work product immunity, codified in the Federal Rule of Civil Procedure 26(b), may still protect certain information from disclosure, even if the advice-of-counsel defense is invoked and privilege waived on that basis.²

Second, courts diverge on whether the waiver extends to any evidence related to the asserted defense, regardless of whether it was communicated to the defendant.

In the 1998 Dunhall Pharmaceuticals Inc. v. Discus Dental Inc. decision, the U.S. District Court for the Central District of California ruled that the waiver includes any evidence related to the subject matter of the waived privilege, regardless of whether the evidence was communicated to the accused infringer.³

The Dunhall court raised concerns that allowing a distinction between evidence communicated to the accused infringer and evidence never communicated to the client might enable defendants to selectively use favorable opinions while concealing unfavorable evidence. Conversely, in the 1999 Solomon v. Kimberly-Clark Corp. decision, the U.S. District Court for the Northern District of Illinois rejected the notion that all evidence related to the defense should be subject to waiver.⁴

Instead, it emphasized that the relevant issue is the accused infringer's state of mind, not that of counsel. The court reasoned that discovery should focus on the accused infringer's mental impressions and thought processes, rather than extending to all evidence connected to the defense. Uncommunicated evidence does not implicate the accused infringer's state of mind, so waiver does not apply to it.

Third, there is a temporal limitation aspect to the scope of waiver. In the 1991 McCormick-Morgan Inc. v. Teledyne Industries Inc. decision, the U.S. District Court for the Northern District of California addressed the issue of temporal boundaries for the waiver.⁵

The accused infringer had initially waived the attorney-client privilege — until a specific date — concerning advice related to patent validity, enforceability and infringement.

However, the court overturned this temporal limitation, ruling that the accused infringer's explicit waiver extended even to documents that might be protected under the work product doctrine and had not been communicated to the client.

The court based its decision on the precedent set by the U.S. Court of Appeals for the Ninth Circuit, which holds that voluntary disclosure of a privileged attorney-client communication constitutes a waiver of the attorney-client privilege for all communications on the same subject matter, regardless of whether those communications occurred before or after the waiver.⁶

What Constitutes an Opinion: Advice of In-House Counsel and Fact vs. Opinion

Applying its own law, the U.S. Court of Appeals for the Federal Circuit has decided the scope of waiver when relying on advice of counsel in the 2006 In re: EchoStar Communications Corp. decision.⁷ The accused infringer, EchoStar, asserted a defense of reliance on the advice of counsel in response to allegations of willful infringement.

EchoStar had sought advice of both in-house and outside counsel — before and after filing of the litigation, respectively. But, in the district court proceedings, it elected to rely solely on the opinion of its in-house attorney.

Nevertheless, the district court held that EchoStar had waived its attorney-client privilege and work-product immunity relating to the advice of any counsel regarding infringement.

The district court thus ordered production of all communications made before and after filing of the complaint, as well as any work product, whether or not it was communicated to EchoStar. In response, EchoStar produced its communications with outside counsel, but petitioned for a writ of mandamus as to outside counsel's work product not provided to EchoStar.

The Federal Circuit reversed in part. It ruled that, when EchoStar chose to rely on the advice of its in-house counsel, it waived the attorney-client privilege concerning all attorney-client communications on the same subject matter, including communications with outside counsel.

The Federal Circuit held that the waiver also extended to post-filing advice and work product if the advice was relevant to the ongoing willful infringement at issue in the litigation and was communicated to the client.

Furthermore, the waiver encompassed any document or opinion that referenced, embodied, or discussed a communication to or from EchoStar concerning the validity, enforceability and infringement of the patent. However, if a document from the external law firm was not communicated to EchoStar or did not reference a communication between the firm and EchoStar, there would be no waiver of privilege regarding that specific document.

Since EchoStar, courts have distinguished between "factual work product" and "opinion work product."

In the June 14 Wisk Aero LLC v. Archer Aviation Inc. decision, for example, Archer hired a forensic expert to search for Wisk's trade secrets and confidential information on its systems.⁸

During discovery, Archer revealed that the expert found no evidence of trade secrets on its system, but redacted, under the work product doctrine, the expert's search of employees' personal devices.

The Northern District of California court found that the defendant's partial production waived certain work product protections, as to the redacted portions of the investigation. But, the court found that a waiver of the facts found during this investigation did not extend to "counsel's mental impressions, conclusions, opinions, or legal theories."

Opinion by Trial Counsel and Limitations to Discovery

The EchoStar decision did not resolve the uncertainty and inconsistency among district courts regarding the application of the attorney-client privilege waiver concerning trial counsel.

The EchoStar case specifically addressed the waiver of attorney-client privilege with respect to communications and advice from opinion counsel, but did not reach the scope of waiver as to trial counsel. Some courts have extended the scope of waiver to include trial counsel. Others, though, found a middle ground, permitting discovery only when trial counsel's communications contradicted or cast doubt on earlier opinions.

In the 2007 In re: Seagate Technology, LLC. decision, the Federal Circuit resolved this uncertainty by establishing that waiver generally does not extend to trial counsel if they operate separately and independently of opinion counsel.⁹

The Federal Circuit recognized the significantly different functions of trial counsel as advocates and opinion counsel as providers of objective assessments for informed business decisions. When a clear distinction exists between these roles, subject matter waiver is not mandated by the concerns of using attorney-client privilege as both a sword and a shield.

Recent decisions have followed the Seagate approach. In the 2021 Sunoco Partners Marketing & Terminals LP v. U.S. Venture, Inc. decision, U.S. Venture redesigned its gasoline blending processes to avoid a finding of infringement in a Northern District of Illinois lawsuit by Sunoco.¹⁰

In response, Sunoco filed suit in the U.S. District Court for the Southern District of Texas and sought discovery of litigation counsel's handwritten notes and follow-up emails from a meeting discussing the switch to the redesigned process.

Sunoco termed these documents an opinion of counsel and argued that U.S. Venture had relied on them during the Illinois trial and before the Texas court to counter Sunoco's willfulness allegations, and that U.S. Venture had waived privilege by relying on another opinion, by opinion counsel.

First, the Texas court rejected Sunoco's assertion that U.S. Venture had relied on the advice of its trial counsel and waived privilege simply because a witness testified that the meeting took place but could not remember what happened during it.

Then, the court held that obtaining a noninfringement opinion from opinion counsel did not waive privilege for communications between the accused infringer and trial counsel in the prior related litigation.

Under Seagate, a privilege waiver extends to trial counsel in "unique circumstances" left to the trial court's discretion.

The court found no such circumstances existed where privilege was not being used as a sword and a shield, and so declined to order production of trial counsel's notes about litigation strategy.

Best Practices for Protecting Attorney-Client Privilege

To safeguard attorney-client privilege while relying on the opinions-of-counsel defense, companies should consider the following best practices.

Segregate Opinion Counsel

It is crucial to clearly distinguish between opinion counsel and trial counsel. Opinion counsel should be responsible for providing legal advice and drafting the opinion, while trial counsel focuses on litigation strategies. This separation helps maintain the integrity of the attorney-client privilege.

Limit Access to the Opinion

Restrict access to the opinion to internal personnel who genuinely require access to fulfill their roles. This limitation reduces the risk of broader waiver and ensures that the privilege is only disclosed to those with a need to know.

Minimize Involvement of In-House Counsel

By providing opinions used during litigation, in-house counsel may waive the attorney-client privilege as to related subject matter. To avoid this waiver, the client can have outside opinion counsel perform the analysis for an opinion.

Seek Separate Opinions

Obtaining separate validity and noninfringement opinions from counsel can be beneficial. This approach allows companies to confine the scope of waiver to the specific issues addressed in each opinion, thereby limiting potential disclosure.

Plan for Litigation

Companies should proactively prepare for potential litigation, even if they have obtained an opinion of counsel. Adequate planning, including engaging outside counsel with expertise in intellectual property litigation, can help narrow the scope of waiver and protect sensitive communications.

Balancing Opinion Practice with Privilege Waivers

The opinions-of-counsel defense can serve as a valuable tool for companies accused of willful patent infringement. However, it is crucial to carefully manage the scope of waiver to protect the attorney-client privilege. By following best practices, such as segregating opinion counsel, limiting access to the opinion, and planning for potential litigation, companies can strike a balance between relying on legal advice and preserving privilege.

These measures enable companies to safeguard the attorney-client privilege while still leveraging the benefits of the opinions-of-counsel defense in patent litigation.

Footnotes

1. 579 U.S. 93 (2016).

2. See e.g., Mushroom Assocs. v. Monterey Mushrooms, Inc., No. C-91-1092 TEH (PJH), 1992 WL 442892, at *5 (N.D. Cal. May 19, 1992).

3. 994 F. Supp. 1202, 1205 (C.D. Cal. 1998).

4. No. 98 C 7598, 1999 WL 89570, at *3 (N.D. Ill. Feb. 12, 1999).

5. 765 F. Supp. 611, 613 (N.D. Cal. 1991).

6. Id. at 613–614 (citing Weil v. Investment/Indicators, Research & Management, 647 F.2d 18, 24 (9thCir. 1981)).

7. 448 F.3d 1294, 1296 (Fed. Cir. 2006).

8. No. 21-cv-02450-WHO (DMR), 2023 WL 4029892 (N.D. Cal. June 14, 2023).

9. 497 F.3d 1360 (Fed. Cir. 2007) (abrogated on other grounds by Halo Elecs., Inc. v. Pulse Elecs., Inc., 579 U.S. 93 (2016)).

10. No. 4:19-CV-1145, 2021 WL 4242368, *4 (S.D. Tex. 2021).

Originally published by Law360.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.