Grimm's Guide to Asserting Attorney-Client Privilege

Posted on June 12, 2008 by Brian Wm. Higgins

     In Victor Stanley, Inc. v. Creative Pipe, Inc., No. 06-2662 (D. Md. May 29, 2008), U.S. Chief Magistrate Judge Grimm describes the proper means for asserting that documents are protected or immune from discovery because of the attorney-client privilege or attorney work product doctrine. Judge Grimm's explanation comes at the end of his opinion in Victor Stanley, published two weeks ago.

The Issue

     Because a party responding to a Rule 34 request for the production of discovery is entitled to refuse to produce documents if they are privileged or work product protected, Judge Grimm pointed out that the Federal Rules of Civil Procedure require that when doing so, the responding 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.” The most common way to do this, he wrote, is by using a privilege log, which identifies

  1. Each document withheld,
  2. Information regarding the nature of the privilege/protection claimed,
  3. The name of the person making/receiving the communication,
  4. The date and place of the communication, and
  5. The document’s general subject matter.

What Really Happens?

     In actuality, Judge Grimm, who in his position as Magistrate referees all kinds of discovery disputes, found that lawyers infrequently provide all the basic information called for in a privilege log, and if they do, it is usually so cryptic that the log falls far short of its intended goal of providing sufficient information to the reviewing court to enable a determination to be made regarding the appropriateness of the privilege/protection asserted without resorting to extrinsic evidence or in camera review of the documents themselves. Few judges, he said, find that the privilege log is ever sufficient to make the discrete fact-findings needed to determine whether a privilege/protection was properly asserted and not waived.

What Should Lawyers Be Doing? 

     According to Judge Grimm, parties should be wary of filing a response to a Rule 34 document production request that asserts privilege/protection as a basis for refusing to make requested production without having a factual basis to support each element of each privilege/protection claimed for each document withheld, because doing so is a sanctionable violation.

     Insuring that a privilege or protection claim is properly asserted in the first instance and maintained thereafter involves a several step process, Judge Grimm wrote.

(1)  First, pursuant to FRCP 26(b) (5), the party asserting privilege/protection must do so with particularity for each document, or category of documents, for which privilege/protection is claimed.

(2)  After that, if the requesting party challenges the sufficiency of the assertion of privilege/protection, the asserting party may no longer rest on the privilege log, but bears the burden of establishing an evidentiary basis–by affidavit, deposition transcript, or other evidence– for each element of each privilege/protection claimed for each document or category of document. A failure to do so warrants a ruling that the documents must be produced because of the failure of the asserting party to meet its burden.

(3)  If the asserting party makes this showing, and the requesting party still contests the assertion of privilege/protection, then the dispute is ready to submit to the court, which, after looking at the evidentiary support offered by the asserting party, can either rule on the merits of the claim or order that the disputed documents be produced for in camera inspection.

Result

     In Victor Stanley, Judge Grimm said that had he not ruled that Defendant's 165 inadvertently produced documents waived the privilege/protection status of the documents, then the effect of a failure by the Defendants to comply with the court’s order regarding the proper manner in which to assert privilege/protection would have warranted an order to produce the materials for failure to carry the burden of demonstrating the existence of the privilege/protection claimed. 

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Sanctions Result in Summary Judgment of No Invalidity; No Liability for Letters Sent to Defendants' Customers

Posted on February 8, 2008 by Brian Wm. Higgins

     A year ago, West Chester, OH-based Contech Stormwater Solutions sued Mount Airy, MD-based BaySaver Technologies, Inc. and AccuBid Excavation, Inc., for allegedly infringing its U.S. Patents Nos. 5,707,527 and 6,027,639 (see related post here). After finding in favor of defendants on the question of liability, the U.S. District Court for the District of Maryland considered defendants’ business tort, and patent invalidity and unenforceability counterclaims in connection with the parties’ summary judgment motions.

Rule 37(c)(1) Sanctions

     At the outset, the court limited defendants’ use of certain evidence as a sanction under Rule 37(c)(1), “because [defendants] failed timely to disclose prior art or the underlying basis for their invalidity claims, and because they failed to demonstrate causation and damages on their business tort claims.” In particular, the court found that,

"[Defendants] did not provide a claim chart or any reasoned analysis showing where in the prior art each element of each allegedly invalid claim is located. Defendants merely attached alleged prior art references to their Opposition without any explanation of why any claim of the asserted patents is invalid over the referenced prior art. Without more, [defendants] have quite simply failed to produce specific facts showing that there is a genuine issue for trial, especially under a clear and convincing standard."

     Without evidence to support the counterclaims, the court granted plaintiff’s summary judgment motion.

Inequitable Conduct

     The sole basis of defendants’ inequitable conduct counterclaim, the court found, was a "brief segment of testimony taken from a deposition that, as offered by the defendants, allegedly raised a disclosure issue concerning U.S. Patent No. 4,643,836 (“the ‘836 patent’”)," which was never disclosed to the PTO. The testimony, the court concluded, “revealed nothing about the materiality of the ‘836 patent and fails to raise even an inference of an intent to deceive or relevance or mislead the USPTO.” The court found that the ‘836 patent had in fact been indirectly disclosed on a brochure cited to the PTO. Moreover, the court found that defendants “made no showing that the ‘836 patent was even material to the prosecution of the ‘527 and ‘639 patents.” Accordingly, Plaintiff’s summary judgment motion on the inequitable conduct counterclaim was granted.

Letters to Defendants’ Customers and Regulators

    Defendants’ state law counterclaims, which included allegations of defamation, were based on a letter sent by Contech in February 2007 to a select group of potential customers and regulators notifying them of Contech’s infringement claim against the accused BaySaver product. The court noted that Defendants’ allegations were based on a belief that “the letter was not intended to be informative, but rather was filed for the sole purpose of harassing the defendants and disrupting their business dealings.” In its memorandum, the court wrote,

"[F]ollowing discovery, there is some evidence that Contech sent its letters in a targeted manner to BaySaver’s prospective clients with the intent of disrupting potential business dealings. While some of this conduct may cross the line between fair competition and subjective bad faith, Contech is still entitled to summary judgment on the tort counterclaims for two reasons: (1) [Defendants] have failed to provide evidence that Contech’s underlying suit was objectively baseless, and (2) [Defendants] failed to provide sufficient evidence of causation and damages, at least until well after the close of discovery."

     The court found that the underlying content of Contech’s February letter did not appear to be untruthful or as inflammatory or threatening as other infringement notice letters held to be protected under federal law. “Communication of accurate information about patent rights, whether by direct notice to potential infringers or by publicity release, does not support a finding of bad faith,” the court found (citing cases).

Comments/Notes:

  • Citation: Contech Stormwater Solutions, Inc. v. BaySaver Technologies, Inc. and AccuBid Excavation, Inc., No. 07 Civ. 358 (D. Md. Jan. 15. 2008)

  • It is not clear if the outcome of this case would have been different had the late evidence offered by defendants not been excluded by the Judge as a sanction. Unfortunately for defendants, a decision to exclude is within the discretion of the court, and will be overturned only if there is a finding of an abuse of discretion.

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Federal Circuit Considers FDA Research Exemption

Posted on July 30, 2007 by Brian Wm. Higgins

In Integra Lifesciences I, Ltd. v. Merck KGaA, No. 02 Civ. 1052, 1065 (Fed. Cir. 2007) (Rader, J., dissenting), the Court of Appeals for the Federal Circuit addressed the Food & Drug Administration (FDA) pharmaceutical research exemption (i.e., "safe harbor") provision under 35 U.S.C. 271(e)(1), which states that,

"It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention . . . solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products."

The research exception was intended to encourage the development of new drugs by allowing researchers to collect information for FDA submissions, such as Investigational New Drug applications, New Drug Applications, and Abbreviated New Drug Applications, without fear of liability to patent holders.

The research at issue in this case involved studies of the efficacy, mechanism of action, pharmacology, pharmacokinetics, and safety of three structurally related RGD peptides, included the following testing:

  • αvβ3 receptor binding assay (efficacy);
  • angiogenesis chick chorioallantoic membrane (CAM) assay (efficacy, mechanism of action, and pharmacokinetics);
  • angio-matrigel tests (efficacy and mechanism of action);
  • cell adhesion assay (efficacy);
  • chemotaxis assay (efficacy and mechanism of action);
  • chick embryo pharmacokinetics assay (pharmacokinetics);
  • fluorescence-activated cell sorting (FACS) analysis (mechanism of action and efficacy); and
  • rabbit pharmacokinetics assay (pharmacokinetics)

At the trial, a jury found that the research infringed Integra's patents. The district court sustained the verdict, describing the experiments as "insufficiently direct to qualify" for the FDA exemption. On appeal, a split panel of the Federal Circuit affirmed, holding that the work "was not clinical testing to supply information to the FDA, but only general biomedical research to identify new pharmaceutical compounds." At the Supreme Court, the issue on appeal was,

"[W]hether uses of patented inventions in preclinical research, the results of which are not ultimately included in a submission to the [FDA], are exempted from infringement by 35 U.S.C. 271(e)(1)."

The Supreme Court provided examples of different types of research that qualifies for the research exemption:

"At least where a drugmaker has a reasonable basis for believing that a patented compound may work, through a particular biological process, to produce a particular physiological effect, and uses the compound in research that, if successful, would be appropriate in a submission to the FDA, that use is "reasonably related" to the "development and submission of information under . . . Federal law."   * * *

"Basic scientific research on a particular compound, performed without the intent to develop a particular drug or a reasonable belief that the compound will cause the sort of physiological effect the researcher intends to induce, is surely not 'reasonably related to the development and submission of information' to the FDA."  * * *

"It does not follow from this, however, that 271(e)(1)'s exemption from infringement categorically excludes either (1) experimentation on drugs that are not ultimately the subject of an FDA submission or (2) use of patented compounds in experiments that are not ultimately submitted to the FDA."

The Supreme Court explained that the criterion of whether the experimental investigation of a patented compound is reasonably related to the development of information for submission to the FDA is established at the time of the experiment, and does not depend on the success or failure of the experimentation or actual submission of the experimental results.

Upon returning to the Federal Circuit for further consideration, the Federal Circuit concluded that all of the research work at issue was done after the initial recognition of the "particular biological process" whereby the RGD peptide blocks the cell surface receptors, and the recognition of the "particular physiological effect" of angiogenesis inhibition.

"All of the experiments charged with infringement were conducted for the purposes of determining the optimum candidate angiogenesis inhibitor and proceeding with commercial development of the selected candidate in compliance with regulatory procedures, initially using three structurally related RGD peptides."

The Federal Circuit concluded that the RGD compound experiments that were not taken to clinical trials did not become infringing when the specific drug was selected as the drug candidate for clinical trials, because studies of compounds that are not ultimately proposed for clinical trials are within the FDA exemption when there is a reasonable basis for identifying the compounds as working through a particular biological process to produce a particular physiological effect.

Comments:

  • The dissent stated that the FDA exemption covers activities that develop information that will ultimately be submitted to the FDA, not patented processes and tools beyond the scope of the "patented compounds" that the Supreme Court placed within the statutory exemption (two of the patents-at-suit were related to "research tools")

  • See related post here

  • This case raises evidentiary questions related to documenting the circumstances surrounding a researcher's initial recognition of a drug's "particular biological process" and a "particular physiological effect"
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Use of Advertising Materials to Prove Direct Infringement of Patents Backfires

Posted on July 19, 2007 by Brian Wm. Higgins

          In PharmaStem Therapeutics, Inc. v. Viacell, Inc., No. 05 Civ. 1490 and 1551 (Fed. Cir. July 9, 2007) (Newman, J., dissenting), the Court of Appeals for the Federal Circuit (CAFC) affirmed a district court’s judgment that PharmaStem's evidence of direct infringement failed to show that six defendants had infringed the claims of PharmaStem's patents. Id., slip. op. at 5. At issue were two patents--U.S. Patent No. 5,004,681 and U.S. Patent No. 5,192,553--that are directed to compositions and methods of treating persons with compromised blood and immune systems using hematopoietic stem cells, particularly cells obtained from umbilical cord blood. To prove direct infringement, PharmaStem was required to adduce evidence that the defendants’ cord blood units contained a sufficient supply of stem cells to effect successful reconstitution of an adult. Id.

          To establish the sufficiency of the defendant's blood units, PharmaStem introduced at trial defendants' own advertising materials by way of expert opinion testimony. Upon defendants' motion for JMOL, the trial court excluded the expert's testimony, concluding that while PharmaStem's expert was "an accomplished stem cell biologist," she was not qualified as an expert in marketing or advertising and "her so-called analysis of the defendants’ marketing materials was well within the jury’s common knowledge, common sense and common experience." Id. at 6. The court then explained that PharmaStem had not attempted to prove by testing or by reference to data collected by the defendants that at least some of the cord blood samples preserved by the defendants satisfied the sufficiency requirement. Instead, the trial court noted, PharmaStem "adopted the strategy of trying to prove, principally through representations made by the defendants in their marketing materials and other documents, that all of the preserved cord blood samples infringed." Id. at 6-7.

          The CAFC agreed with the district court, stating that PharmaStem's expert's "testimony [was] unhelpful to the jury, and not an appropriate subject for expert evidence, because it consisted almost entirely of her quoting from the promotional information and other materials in which the defendants described their business operations for potential customers and investors, and drawing inferences from those materials." Id. at 17. The CAFC also recognized PharmaStem's failure to establish through experimental evidence that any of the preserved cord blood samples contained sufficient stem cells to reconstitute an adult, stating:

"Because of the manner in which PharmaStem sought to prove infringement, it committed itself to a course that had 'all-or-nothing' consequences. The district court was correct to conclude that, having chosen not to try to prove that particular cord blood samples or categories of samples contained sufficient stem cells to effect hematopoietic reconstitution of an adult, PharmaStem took the risk that the court would conclude that it had failed to prove that any of the defendants’ cryopreserved samples infringed. The district court’s narrow disposition of the JMOL issue simply held PharmaStem to the consequences of the strategy it adopted at trial." Id.

Comments:

  • The justifications for not conducting experiments to prove direct infringement are many, and often are based on a risk-benefit analysis involving, for example, the level of damages at stake in the litigation, the perceived strength of one's case-in-chief, the perceived validity or enforceability of the patents-at-suit, and the perceived value of the patents to the patentee. Other factors may include the cost and time needed to find and hire experts and conduct experiments, a recognition that experiments are often unpredictable (especially in the chemical arts), and the time investment relating to managing experts, which, if resources are limited, can distract from other matters needing attention.
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