United States: Federal Circuit Clarifies the Scope of Waiver of Attorney-Client Privilege and Work-Product Immunity in Patent Infringement Litigation

On May 3, 2006, the United States Court of Appeals for the Federal Circuit issued a precedential order outlining the precise nature and extent of the waiver of attorney-client privilege and attorney work-product immunity when an accused infringer asserts an advice-of-counsel defense. While this order resolves years of conflicting district court rulings, it also has serious implications for both plaintiffs as well as defendants in patent infringement litigation.

Prior to the Federal Circuit’s opinion in In re EchoStar Communications Corp., Misc. No. 803 (Fed. Cir. May 3, 2006), district courts did not uniformly agree on the proper scope of the waiver of the attorney-client privilege and work-product immunity following an infringer’s assertion of an advice-of-counsel defense. It is well-settled that a party asserting an advice-of-counsel defense waives the attorney-client privilege as to communications and documents relating to the advice. What was unclear, however, was (1) whether and to what extent a party asserting an advice-of-counsel defense waived work-product immunity for documents never communicated to the client, and (2) whether that waiver extended to communications and documents provided by litigation counsel, when litigation counsel was affiliated with a different law firm than opinion counsel. Some courts followed a narrow scope of waiver approach, while other courts followed a broader scope approach.

Courts taking the narrow approach required the defendant to produce only those documents shared with the client. See Steelcase Inc. v. Haworth Inc., 954 F. Supp. 1195 (W.D. Mich. 1997); Thorn EMI N. Am., Inc. v. Micron Tech., Inc., 837 F. Supp. 616 (D. Del. 1993). Courts adopting this approach noted that the willfulness of an alleged infringer rests upon a determination of the infringer’s state of mind. Accordingly, what the alleged infringer did not know, such as information contained in documents circulated amongst the attorneys but not communicated to the alleged infringer, was deemed irrelevant to the willfulness inquiry and undiscoverable.

Thorn is a 1993 case from the District of Delaware in which the court rejected the plaintiff’s attempt to discover opinion counsel’s work product. In Thorn, the plaintiff argued that it needed "access to the work product information in order to test and examine the mental impressions and legal theories" the opinion counsel disclosed in the opinions. Thorn, 837 F. Supp. at 621. Additionally, plaintiff contended that the information was necessary to "review and evaluate the competence of the firm’s work and the opinions." Id. The court rejected both arguments, noting that the information sought by the plaintiff was not relevant to the question of whether the infringer acted willfully or wantonly. Id. Because the determination of willfulness is a question that rests on a determination of the infringer’s state of mind, "[c]ounsel’s mental impressions, conclusions, opinions or legal theories are not probative of that state of mind unless they have been communicated to that client." Id. at 622. Accordingly, Judge McKelvie found that an assertion of the advice-of-counsel defense did not waive any work-product immunity.

In stark contrast, other courts, including several within the Ninth Circuit as well as in the District of Delaware, adopted a broad approach, wherein all documents related to the opinion, irrespective of client awareness of their content or even existence, are discoverable and bear on the willfulness inquiry. See Mushroom Assoc. v. Monterey Mushrooms, Inc., 24 U.S.P.Q.2d 1767 (N.D. Cal. 1992); Mosel Vitelic Corp. v. Micron Tech. Inc., 162 F. Supp. 2d 307 (D. Del. 2000); Dunhall Pharm. Inc. v. Discus Dental Inc., 994 F. Supp. 1202 (C.D. Cal. 1998); Hoover Universal, Inc. v. Graham Packaging Corp., 44 U.S.P.Q.2d 1596 (C.D. Cal. 1996); Irwin Indus. Tool Co. v. Orosz, 72 U.S.P.Q.2d 1442 (N.D. Ill. 2004). These courts noted that the narrow approach provides an incentive to keep secret facts or analysis that would negatively impact a client. In addition, they suggested that there is a relationship between what an attorney knows or thinks and what is actually communicated to the client.

The most well-known and broadest of these cases is Mushroom Associates. In this case, the court stated that in an advice-of-counsel case, "[t]he work product is directly at issue. For example, knowing what the attorney thought about infringement bears directly on the defendants’ advice of counsel defense in this case. Also, …the only way plaintiff can attack the defendants’ advice of counsel defense is by having access to circumstances and factors surrounding the advice. Discovery of mental impression work product may be the only way to have access to the circumstances and factors surrounding the advice." Mushroom Assoc., 24 U.S.P.Q.2d at 1771. Thus, the Mushroom Associates court held that the defendants waived work-product immunity and that all documents containing work-product relevant to the issue of infringement were to be produced. Id.

EchoStar came before the Federal Circuit on a writ of mandamus from the Eastern District of Texas. In the case below, Judge Folsom issued orders compelling EchoStar to produce attorney work-product documents from Merchant & Gould. EchoStar and Merchant & Gould petitioned for mandamus, which the Federal Circuit granted.

TiVo sued EchoStar alleging patent infringement. During the course of the litigation, EchoStar asserted an advice-of-counsel defense, based on its reliance upon the advice of in-house counsel obtained prior to the filing of the action. After the action was filed, however, EchoStar obtained an additional opinion of counsel from Merchant & Gould, but elected not to rely on the Merchant & Gould opinion. TiVo sought the production of all documents regarding infringement (EchoStar did not rely upon an invalidity opinion.) Over EchoStar’s and Merchant & Gould’s objections, the district court held that the defendants waived work-product immunity relating to advice of any counsel regarding infringement, regardless of whether the work product was communicated to the client. The court reasoned that the documents could be relevant or lead to the discovery of information that was conveyed to EchoStar, even if the documents themselves were not communicated.

EchoStar first challenged the district court’s ruling that the attorney-client communications between EchoStar and Merchant & Gould were the same subject matter as the communications between EchoStar’s management and its in-house counsel. EchoStar asserted that "an internal investigation involving in-house engineers and in-house counsel is simply a different subject matter from legal opinions commissioned at a later date from outside lawyers." EchoStar at 6. The Federal Circuit rejected this position, stating that "[w]hether counsel is employed by the client or hired by outside contract, the offered advice or opinion is advice of counsel or an opinion of counsel." Id. Thus, once a defendant asserts an adviceof- counsel defense, the waiver of attorney-client privilege and work-product immunity extends to all advice on that subject matter, regardless of when the opinion was offered or who offered it. Thus the Federal Circuit makes no distinction between advice rendered by "opinion" counsel and advice rendered by "litigation" counsel, irrespective of whether the opinion counsel and the litigation counsel are or are not affiliated with the same firm.

In EchoStar, the court discussed in general terms the legal theory underlying the waiver of privilege upon a party’s assertion of an advice-of-counsel defense. Noting that a selective waiver of attorney-client privilege "may lead to the inequitable result that the waiving party could waive its privilege for favorable advice while asserting its privilege on unfavorable advice," the court explained that the subject matter waiver is designed to prevent the use of an opinion of counsel as both a sword and a shield. Id. at 9-10. Thus, the court reaffirmed that a party asserting an advice-of-counsel defense waives all attorney-client communications regarding the subject matter of the opinion. Id.

The court then recognized that the waiver of work-product immunity presented similar "sword and shield" issues, and set out to resolve whether such documents are discoverable. The court identified three categories of work-product potentially relevant to an advice-of-counsel defense: "(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." Id. at 12. The first category of documents are clearly waived, as they represent attorney-client communications. The second and third categories, however, are not as clear, as the court noted when it acknowledged the divergent district court opinions on this matter.

With regard to work-product that is never communicated to the client, the court held that it is not discoverable, and deserves the highest protection from disclosure. Id. at 14. The court reasoned that "if a legal opinion or mental impression was never communicated to the client, then it provides little if any assistance to the court in determining whether the accused knew it was infringing, and any relative value is outweighed by the policies supporting the work-product doctrine." Id. Thus, the court implicitly overruled the Mushroom Associates line of cases.

The court next turned its attention to the third category, documents that discuss an attorney-client communication but which are work-product. These documents might include, for example, e-mails between attorneys discussing a conversation between an attorney and the client or a memorandum-to-file discussing an attorney-client communication. Because these documents "will aid the parties in determining what communications were made to the client and protect against intentional or unintentional withholding of attorney-client communications from the court," these documents are discoverable. Id. at 16. The court recognized, however, that these documents might also contain pure work-product (i.e., legal analysis or mental impressions that were not communicated to the client), and the producing party would therefore be entitled to redact the non-communicated work-product prior to production.

In sum, the court in EchoStar made clear that "when an alleged infringer asserts its advice-of-counsel defense regarding willful infringement of a particular patent, it waives its immunity for any document or opinion that embodies or discusses a communication to or from it concerning whether that patent is valid, enforceable, and infringed by the accused." Id.

First, the party asserting an advice-of-counsel defense waives attorney-client privilege as to all work product related to the subject matter of the opinion. Thus, there seems to be no compelling legal advantage to having different firms represent a party as opinion counsel and litigation counsel, although doing so might be advisable to maintain the appearance of objectivity. Because any communication regarding infringement that is rendered by the litigation counsel will be discoverable once the defense is asserted, a party cannot shield itself from waiving communications with litigation counsel by having a different opinion counsel. Although this case does not resolve what the best practice might be, it does indicate that there is no specific legal advantage to a party in retaining separate opinion and litigation counsel. (Another consideration in determining whether to retain separate opinion counsel is the risk of disqualification of litigation counsel. Such risk has significantly diminished in most jurisdictions, however, and should be considered on a case-by-case basis.)

Second, litigation counsel must exercise caution in its communications to the client if the client will be asserting an advice-of-counsel defense to a charge of willfulness. As an initial matter, litigation counsel will need to determine early on whether it may assert such a defense. If it may assert an advice-of-counsel defense, litigation counsel must be aware that any communications to the client which are related to the subject matter of the opinion are discoverable. In this regard, it would be advisable for litigation counsel to explain to the client the scope of the waiver of privilege so that the client may fully appreciate the extent of confidentiality to which it may be entitled.

Third, both litigation and opinion counsel need to be mindful that the work-product immunity is not absolute. E-mails, internal memoranda, and even attorney notes which would typically be entitled to work-product immunity are potentially discoverable if they discuss attorney-client communications regarding the subject matter of the opinion. Thus, the work-product immunity protecting an attorney’s teleconference notes describing a conference with the client in which issues of infringement or validity were discussed can be waived.

The EchoStar decision also has several implications for counsel opposing the party waiving privilege. First, once a party asserts an advice-of-counsel defense, plaintiff’s counsel should specifically request all attorney-client communications on the subject of the opinion, as well as any work-product describing such communications. Because the advice-of-counsel defense is generally not asserted until sometime after discovery begins, it may be necessary for plaintiff’s counsel to make supplemental document requests directed toward these documents.

In addition, the availability of these documents may alter the nature and content of the parties’ privilege logs. Often, the parties will come to an agreement that attorney-client communications occurring after a certain date (for example, attorney-client e-mails dated after the filing of the complaint) do not need to be reflected on a privilege log. After EchoStar, however, this may not be an advisable practice. Because plaintiff’s counsel should refer to the defendant’s privilege logs to determine whether all discoverable materials have been produced, the privilege log should reflect all such communications which are discoverable, a category which includes communications occurring after the inception of the litigation.

Finally, defendant’s privilege logs may need to contain more information than is often provided in order to allow a plaintiff to ascertain whether defendant is entitled to its claim of privilege. Currently, many privilege logs contain subject lines to the effect of "legal advice." Although this may be enough information to determine that the document is properly designated as privileged if there is no subject matter waiver of privilege, it will not be enough information to determine whether the document is discoverable following the waiver of privilege with respect to certain subjects. Thus, a plaintiff should demand that the defendant include sufficient information on its privilege log to enable the plaintiff to assess the applicability of the privilege, as required by FED. R. CIV. P. 26(b)(5), which may require a defendant to include fairly specific descriptions of the document.

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.