Privilege Considerations When Engaging in Transactions for Patents Likely to be Litigated

A district court recently compelled production of numerous documents over a party’s privilege and work product claims. Although the case is not specific to Hatch-Waxman litigation, it serves as an important reminder of the standards necessary to establish privilege and work product protections. The case also highlights how transactional work, tangential to a litigation, may result in waiver.

In Midwest Athletics and Sports Alliance LLC v. Ricoh USA, Inc., Civ. No. 2:19-cv-514 (E.D. PA. Sept. 16, 2020), Midwest Athletics and Sports Alliance LLC (“MASA”) acquired patents from Eastman Kodak (“Kodak”) and then asserted them against Ricoh USA, Inc. (“Ricoh”). Prior to the lawsuit, MASA and Kodak negotiated a patent-purchase agreement (“PPA”). After the PPA was executed, the same firm represented both Kodak and MASA with respect to extending the PPA so that MASA could obtain funding to purchase the patents. MASA directly engaged Brickell Key Asset Management (“Brickell”) for funding purposes while MASA’s attorneys hired Ocean Tomo to help facilitate MASA’s acquisition.

In the litigation, Ricoh sought documents from MASA relating to MASA’s purchase of Kodak’s patents and analyses or valuations of the asserted patents. MASA refused to produce a number of documents on the basis of privilege and/or work product. Upon Ricoh’s motion to compel, the court ordered MASA to produce a privilege log so it could analyze MASA’s claims.

Before its analysis, the court recited the operable legal standards:

  • Burden

To assert privilege, a party must “describe the nature of the documents, communications, or tangible things not produced or disclosed–and do so in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the claim.” Fed. R. Civ. P. 26(b)(5)(A)(ii); see also SmithKline Beecham Corp. v. Apotex Corp., 232 F.R.D. 467, 482 (E.D. Pa. 2005). Although the movant “bears the initial burden of proving the relevance of the requested information,” “the burden shifts to the objecting party to establish the grounds for its objection; where, as here, a party objects on the grounds of attorney-client privilege or work product protection, the objecting party bears the burden of establishing that the privilege or work product protection applies.” In re Avandia Mktg., Sales Practices & Prod. Liab. Litig., 415 F. Supp.3d 498, 505 (E.D. Pa. 2019) (quotation omitted).

  • Attorney-Client Privilege

The attorney-client privilege applies to documents that are “(1) … communication[s] (2) made between privileged persons (3) in confidence (4) for the purpose of obtaining or providing legal assistance for the client.” In re Teleglobe Commc ‘ns Corp., 493 F.3d 345, 359 (3d Cir. 2007) (quotation omitted). Speaking with an attorney alone does not render the communication privileged. See FTC v. Abbvie, Inc., No. 14-cv-5151, 2015 WL 8623076, at *3 (E.D. Pa. Dec. 14, 2015) (“[T]he involvement of an attorney in the communication does not mean that the privilege must apply.”). “[T]o successfully assert the attorney-client privilege, the corporation ‘must clearly demonstrate that the communication in question was made for the express purpose of securing legal … advice[.]”‘ SodexoMA GIC, LLC v. Drexel Univ., 291 F. Supp.3d 681, 684 (E.D. Pa. 2018) (quotation omitted).

“[I]f persons other than the client, its attorney, or their agents are present, the communication is not made in confidence, and the privilege does not attach.” In re Teleglobe, 493 F .3d at 361. But the privilege still applies when a client communicates with a third party who is “acting as the agent of a duly qualified attorney under circumstances that would otherwise be sufficient to invoke the privilege.” SodexoMAGIC, 291 F. Supp. 3d at 684 (quotation omitted).

Two exceptions apply to the rule concerning third parties. First, the joint representation or co-client doctrine “applies when multiple clients hire the same counsel to represent them on a matter of common interest[.]” In re Teleglobe, 493 F.3d at 359. “When co-clients and their common attorneys communicate with one another, those communications are ‘in confidence’ for privilege purposes.” Id. at 363. Second, the “the common interest doctrine protects parties, with shared interest in actual or potential litigation against a common adversary, from waiving their right to assert privilege when they share privileged information.” Gelman v. W2 Ltd., No. 14-cv-6548, 2016 WL 8716248, at *3 (E.D. Pa. Feb. 5, 2016) (quotation omitted). The common interest exception, unlike joint representation, “comes into play when clients with separate attorneys share otherwise privileged information in order to coordinate their legal activities.” In re Teleglobe, 493 F.3d at 359. To invoke the common interest doctrine, “members of the community of interest must share at least a substantially similar legal interest.” Id.

  • Work Product

The work product doctrine protects from discovery “documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party’s attorney, consultant, surety, indemnitor, insurer, or agent).” It applies to documents that “were (1) created in reasonable anticipation of litigation by or for a party and (2) prepared primarily for the purpose of litigation.” FTC, 2015 WL 8623076 at *4 (citation omitted).

In Midwest Athletics and Sports Alliance LLC, the court categorized the documents MASA sought to protect based on privilege and/or work product into six groups: (1) communications that did not include an attorney; (2) communications with Brickell (MASA’s funding agent); (3) communications with Ocean Tomo (consultants retained by MASA’s lawyers); (4) communications with other third parties; (5) communications involving Kodak (the patent seller); and (6) communications between only MASA and its lawyers. To decide each, the court analyzed MASA’s privilege log.

With respect to communications that did not include an attorney, the court ruled that, although communications without attorneys may be privileged if the non-attorneys relay privileged information, MASA’s privilege log failed to show this to be the case and ordered MASA to produce them.

With respect to communications with Brickell, the court noted that Brickell provided funding to MASA but did not acquire any ownership interest in the asserted patents. The court held that type of relationship was insufficient to create a common interest. Any privilege that MASA may have had for the substance of those communications had been waived by disclosure to Brickell. The court ordered MASA to produce them.

With respect to communications with Ocean Tomo, the court held that MASA’s lawyers retention of Ocean Tomo to help MASA obtain funding to acquire the Kodak patents did make Ocean Tomo an agent of MASA’s attorneys. An attorney agent must help the attorney render legal advice. In this instance, MASA’s attorneys retained Ocean Tomo to facilitate a business transaction and not to help with legal advice. The court noted that merely having an attorney sign the Ocean Tomo retainer agreement does not change the analysis. The court therefore compelled MASA to produce these communications.

With respect to communications with other third parties, the court noted that MASA’s privilege log failed to explain what role the other third parties had, who hired them, or why the disclosure preserved the privilege. Since MASA failed to substantiate its privilege claim, the court compelled MASA to produce such communications.

With respect to communications involving Kodak, the patent seller, the court noted that they took place after MASA and Kodak executed the PPA but before the deal closed. During this timeframe, MASA and Kodak signed three extensions to the PPA and were jointly represented by counsel. The court held that the joint representation might apply but found MASA’s privilege log failed to demonstrate the communications contained privileged information. With respect to these documents, the court allowed MASA to supplement its privilege log to substantiate its privilege claim.

With respect to communications between only MASA and its attorneys, the court noted that the privilege-log descriptions for several documents failed to establish they involved legal advice. The court allowed MASA to supplement its privilege log with respect to these documents.

With respect to the majority of MASA’s work product claims, the court ruled that MASA failed to establish the doctrine applied. The court drew a line with respect to documents that were transactional in nature and rejected MASA’s argument that “everything” MASA did was in contemplation of litigation. The court noted that it was possible that the documents had some indirect connection to the litigation—because MASA was formed to monetize patents through litigation—but stressed a showing of “a more direct relationship” is required. MASA was ordered to produce these documents.

With respect to the remaining work product claims, the court ruled that MASA failed to establish they were protected but granted MASA one final opportunity to supplement its privilege log.

Finally, the court noted that MASA had withheld communications with potential funders other than Brickell. Although the record was insufficient for the court to evaluate whether those documents were relevant, the court ruled that any documents that “shed any light on the valuation of the patents at issue” were relevant to damages and not privileged.

The takeaway: Attorney-client privilege and the work product doctrine are narrow protections that can easily be inadvertently waived by involving third parties. Clients and potential litigants need to remain vigilant about what information they relay to third parties and under what circumstances, including potential business partners. With third-party funding on the rise, including in the Hatch-Waxman space, clients should consider involving litigation counsel in negotiations and transactional work to ensure that privilege and work product protections are kept intact whenever possible.