October 2018 Ethically Speaking - A Decade After Seagate, Uncertainty Over the Scope of Privilege Waiver in IP Cases Remains

by Lisa S. Glasser and Kelsey L. Schuetz

In intellectual property disputes, entities frequently engage “opinion counsel,” an attorney who analyzes whether a product or activity infringes upon third-party rights. When the opinion is favorable, but the entity is nonetheless sued for infringement, it may elect to waive privilege and present the opinion as evidence that it did not act “willfully” (for example, to support an argument that it should not be eligible for enhanced damages). Invoking the principle that the attorney-client privilege cannot be wielded as both a sword and a shield, the plaintiff may, in turn, seek discovery of other attorney-client communications on the topics addressed by the opinion. One issue that has been heavily litigated for years is whether, and if so under what circumstances, waiver can extend to separate trial counsel engaged to defend the infringement action. In August 2007, the Federal Circuit provided significant guidance on this issue, holding that although there is no “absolute rule” against waiver applying to trial counsel, because of the “significantly different functions of trial counsel and opinion counsel,” disclosure of trial counsel’s communications is generally not appropriate. In re Seagate Tech., LLC, 497 F.3d 1360, 1373, 1374 (Fed. Cir. 2007), abrogated in part on other grounds by Halo Elec., Inc. v. Pulse Elec., Inc., 136 S. Ct. 1923 (2016) (hereinafter “Seagate”). However, the Federal Circuit held that “trial courts remain free to exercise their discretion in unique circumstances to extend waiver to trial counsel, such as if a party or counsel engages in chicanery.” Id. at 1374-75.

Unfortunately, more than a decade after Seagate, clients and counsel still face some uncertainty regarding whether waiver of communications with separate trial counsel could result from use of an opinion to defend against an allegation of willful infringement. This lingering uncertainty was highlighted by a recent district court decision requiring disclosure of trial counsel’s communications without a clear identification of “chicanery” or any other unique circumstances. In Zen Design Group, Ltd. v. Scholastic Inc., No. 16-12936, 2018 WL 3096705, at *1 (E.D. Mich. June 22, 2018), the defendant, Scholastic, had engaged an attorney years before litigation to address the plaintiff’s accusation that Scholastic was selling an infringing product. This attorney assisted Scholastic in reaching a settlement agreement with plaintiff. Id. Five years later, the plaintiff contacted Scholastic to express its belief that a different Scholastic product infringed the same patent, and Scholastic engaged the same attorney to represent it in discussions with the plaintiff. Id. Ultimately, the plaintiff filed an infringement complaint, and the attorney represented Scholastic in the litigation. Id. Meanwhile, Scholastic retained a different attorney as opinion counsel to provide an independent opinion as to whether the Scholastic product infringed the plaintiff’s patent. Id.

After Scholastic produced the opinion as evidence of non-willfulness in the litigation, the court granted a motion to compel. The court ordered production not only of Scholastic’s communications with opinion counsel, but also all of Scholastic’s litigation counsel’s pre-litigation communications and work product regarding infringement-related issues. Id. at *6. The court’s stated rationale was that, prior to filing suit, litigation counsel’s role was more akin to opinion counsel because his work “sought to avoid the adversarial process and engage in voluntary alternative dispute resolution.” Id. at *7. However, that rationale does not clearly distinguish the situation from the typical engagement of litigation counsel. Defendants often hire litigation counsel long before the start of litigation, and most disputes settle before trial (sometimes even before a complaint is filed). Thus, litigation counsel frequently evaluates whether the client’s interests would be best served by voluntary alternative dispute resolution, and what the client’s settlement options may be. As the Seagate court noted, to advance the goals of our adversarial system, including “‘promot[ing] justice’” and protecting “‘the interests of the clients,’” “‘it is essential that a lawyer work with a certain degree of privacy.’” Seagate, 497 F.3d at 1373 (quoting Hickman v. Taylor, 329 U.S. 495 at 510-11). The degree of privacy required is not lessened merely because the work ultimately results in a settlement, rather than a trial.

Zen Design is arguably inconsistent with other cases applying Seagate, which typically find no waiver with respect to trial counsel’s communications absent truly unique circum­stances. See, e.g., Johns Hopkins Univ. v. Alcon Labs. Inc., No. 15-525-SLR/SRF, 2017 WL 3013249, at *3 (D. Del. July 14, 2017) (“broad subject-matter waiver of work-product protection and attorney-client privilege relating to the opinion of counsel as to non-infringement and invalidity of an asserted patent” does not extend to communications with trial counsel); Wisconsin Alumni Research Found. v. Apple, Inc., No. 14-cv-062-wmc, 2015 WL 5009880, at *1-2 (W.D. Wis. Aug. 20, 2015) (denying motion to compel production of communications between defendant and trial counsel regarding the substance of an opinion letter created by another firm; noting that this conclusion “should hardly be of surprise,” as it “falls squarely within the guidance provided by the Federal Circuit” in Seagate); Trading Techs. Int’l v. CQG, Inc., No. 05-cv-4811, 2014 WL 1977029, at *8 (E.D. Ill. May 9, 2014) (declining to read Seagate as creating a “roving exception” to the inherent privilege in communications between a defendant and its trial counsel, and finding no “unique circumstances” to warrant broad waiver).

For example, most prior cases have found waiver with respect to trial counsel only where there was substantial interaction or integration between trial counsel and opinion counsel, such as where the author of an opinion letter was also part of the trial team and participated “actively” in formulating trial strategy. Tyco Healthcare Grp. LP v. E-Z-Em, Inc., No. 2:07-CV-262 (TJW), 2010 WL 2079920, at *1 (E.D. Tex. May 24, 2010). In Tyco, the court found that the defendant’s decision to ask opinion counsel to join the trial team had “cast doubt” on the credibility of the opinion letter, and that while waiver is “ordinarily not extended to trial counsel,” that is because they “typically serve separate and distinct functions.” Id. at *3. Because the defendant “blurred” that distinction by having opinion counsel “actively participat[e] in the trial efforts,” the Court found the “unique circumstances” envisioned by Seagate to be present. Id.; see also Viskase Cos., Inc. v. World Pac. Int’l, No. 09-cv-5022, slip op. at 1 (N.D. Ill. Oct. 15, 2010) (granting motion to compel plaintiff’s production of documents concerning pre-suit communications with trial counsel where there was evidence that trial counsel played an active role in opinion counsel’s drafting); see also Krausz Indus., Ltd. v. Smith-Blair, Inc., No. 5:12-CV-00570-FL, 2016 WL 10538004, at *9-10 (E.D. N.C. Dec. 13, 2016) (waiver found where defendant’s opinion counsel was actively involved in “developing and implementing” its litigation strategy, which “call[ed] into question” defendant’s reasonable reliance on the opinion); but cf. Ranir, LLC v. Sunstar Ams., Inc., No. 09-cv-03061, slip op. at 2 (N.D. Ill. Apr. 7, 2010) (finding that even though plaintiff’s trial counsel and opinion counsel worked in tandem, the sanctity of the attorney-client privilege as it relates to trial counsel advises against extension of the waiver).

In summary, clients and litigation counsel must be aware of the still-uncertain landscape governing waiver. In 2007, the Seagate court observed that district courts were reaching “varying results” regarding the scope of the privilege waiver as applied to trial counsel. Seagate, 497 F.3d at 1372. Seagate succeeded in bringing a measure of clarity to practitioners, and most subsequent decisions generally interpret it as shielding trial counsel’s communications from discovery absent truly unusual circumstances. Further, post-Seagate decisions emphasize that, to minimize the possibility of waiver, it is important for opinion counsel to be truly separate from litigation counsel. To minimize the risk that a party will waive the privilege over communications with or documents prepared by its trial counsel, practitioners thus should take care that opinion counsel works entirely separately from trial counsel. However, as Zen Design illustrates, there remains a possibility that a given court may interpret Seagate’s “unique circumstances” exception in unexpected ways, triggering waiver. Practitioners should therefore be wary of these issues when asserting an advice of counsel defense, especially in courts that may not have extensive experience overseeing patent litigation.

Lisa S. Glasser is a partner and trial attorney at Irell & Manella LLP. She can be reached at lglasser@irell.com. Kelsey L. Schuetz is a third-year law student at the University of California, Berkeley, and was a 2018 summer associate at Irell & Manella.