United States: Legal Advice On Patent Strength And Enforceability May Be Shared During Acquisitions And Licensing Negotiations Without Waiving Attorney-Client Privilege

Under the "common-interest doctrine," attorney-client communications regarding patent strength, prosecution, licensing, and enforceability may remain privileged from discovery during litigation even when shared between companies involved in negotiating an exclusive patent license or acquisition of the patents.

Confidential attorney-client communications can be privileged and withheld from discovery unless they lose confidentiality by being disclosed to a third party. But under the "common-interest doctrine," such communications remain privileged from discovery if the third party shares a substantially identical interest in the purpose of the legal communication.

In the patent infringement litigation Crane Sec. Techs., Inc. v. Rolling Optics, AB, the patent owner, Crane, refused to produce several requested documents relating to the prosecution, licensing, and purchase of the asserted patents, claiming they were privileged attorney-client communications.

The accused infringer, Rolling Optics, asked the court to require Crane to produce the documents, arguing that the requested documents were not privileged because they involved communications with a third party, Nanoventions.

The District of Massachusetts court disagreed, finding that the documents were protected by the common-interest doctrine because the purpose of the communications reflected by the documents was to seek and render legal advice regarding the strength and enforceability of the asserted patents.

Background

Nanoventions developed and patented technology on optical systems that project moving synthetic images used as an anti-counterfeiting feature on currency. Crane became interested in obtaining rights to Nanoventions' technology before the technology was patented and entered into a non-disclosure agreement with Nanoventions to explore obtaining rights to the technology and to facilitate legal advice concerning patenting the technology and patent prosecution. Once the patents issued, Crane and Nanoventions negotiated and entered a license agreement, making Crane the exclusive licensee.

Crane and Nanoventions later entered into a second non-disclosure agreement for the purpose of discussing the strength and enforceability of the patents and negotiating Crane's purchase of the patents. At that time, Crane's outside counsel engaged the financial services firm, Brown Brothers Harriman & Co., to provide legal advice to Crane regarding the purchase.

Crane subsequently purchased the patents by acquiring Visual Physics, a subsidiary of Nanoventions. During a patent litigation between Crane and Rolling Optics, Crane refused to produce several documents, arguing they were covered by the attorney-client privilege. Rolling Optics asked the court to require Crane to produce the documents that it withheld, including: (1) communications and documents exchanged between Crane and Nanoventions dated prior to the license agreement; (2) communications and documents exchanged between Crane and Nanoventions dated from the license agreement until the time Crane purchased the patents; and (3) communications between Crane and Brown Brothers.

The Crane Decision

The court noted that communications between parties negotiating an exclusive patent license are protected under the common-interest doctrine because they share a legal interest of the strength and enforceability of the patent, even though the communications also have a commercial purpose. The court also noted that an attorney may disclose confidential communications to a third party without waiving the attorney-client privilege if that third party's assistance is "nearly indispensable" in facilitating attorney-client communications.

Against this framework, the Court determined that the documents between Crane and Nanoventions dated prior to the license agreement were privileged and that the privilege was not waived. The Court recognized that most of the communications in question were between the inventor and Nanoventions' patent counsel, between the inventor and Crane's patent counsel, or between Nanoventions' patent counsel and Crane's patent counsel. Additionally, all the communications concerned legal advice relating to the prosecution of the patents. Thus, as a potential licensee and the patent owner, the parties shared a common legal interest of successfully prosecuting the patent applications. The court also found that Crane and Nanoventions entered into a mutual confidentiality agreement and were negotiating an exclusive license agreement, thus demonstrating that Crane and Nanoventions were working together to obtain strong patents, and had an expectation that their communications would remain confidential.

The Court also found that documents between Crane and Nanoventions dated from the license agreement until the time Crane purchased the patents were privileged because they involved seeking or discussing legal advice. The Court determined that the communications between Crane and Nanoventions in furtherance of Crane's purchase of the patents were protected under the common-interest doctrine because they concerned the strength and enforceability of the patents and were primarily for a legal purpose, and were therefore. Additionally, the Court noted that communications involving non-lawyers may still be protected under the common-interest doctrine if they seek or discuss legal advice. For example, legal advice sent by a legal assistant on behalf of an attorney was protected, as well as communications between the executives of Crane and Nanoventions regarding the legal advice obtained from Crane's attorney regarding the strength of the patents.

Lastly, the Court found that communications between Crane and Brown Brothers were privileged. In strict confidence, Crane's outside counsel communicated with Brown Brothers regarding the agreements necessary to accomplish the complex acquisition of Visual Physics in order to facilitate the provision of legal advice to Crane. The Court found that the parties intended the communications to be confidential, and the nature of the communication was legal, not business. Additionally, the court found that Brown Brother's role was necessary and nearly indispensable for Crane's outside counsel to render advice to Crane regarding significant corporate transactions like the purchase of Visual Physics.

Strategy and Conclusion

This case demonstrates how courts use the community-interest doctrine to protect documents provided to third parties containing legal advice on the strength and enforceability of patents sought to be licensed or acquired by those third parties.

Further Information
The Crane opinion can be found here.

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