E-Discovery: Inadvertent Disclosure of Privileged Documents May Waive Attorney-Client Privilege

Posted on June 8, 2008 by Brian Wm. Higgins

     U.S. Chief Magistrate Judge Paul W. Grimm is a leading jurist in the field of electronic discovery. In Victor Stanley, Inc. v. Creative Pipe, Inc., No. 06-2662 (D. Md. May 29, 2008), Judge Grimm discusses the approach the U.S. District Court for the District of Maryland may take when deciding whether the inadvertent production to an adversary of attorney-client privileged or work-product protected materials constitutes a waiver.

Background

     In Victor, the parties entered into a joint protocol to search and retrieve relevant ESI responsive to Plaintiff’s Rule 34 requests.  After the protocol was used to retrieve responsive ESI, Defendants reviewed the documents to locate any that were privileged or attorney work-product prior to production to Plaintiff. Defendants had previously expressed concern that privilege review of the responsive documents would delay production unnecessarily and cause undue expense. To address this concern, Defendants gave their computer forensics expert a list of keywords to be used to search and retrieve privileged/protected documents. However, Defendants also acknowledged the possibility of inadvertent disclosure of privileged/protected documents, and requested that the court approve a “clawback agreement.” Later, Defendants notified the court that because Judge Garbis had extended the discovery deadline by four months, Defendants would be able to conduct a document-by-document privilege review, thereby making a clawback agreement unnecessary.

     After receiving Defendants’ ESI production in September, 2007, Plaintiff began their review of the materials. They soon discovered documents that potentially were privileged or work-product protected, and immediately segregated this information and notified Defendants.

Applicable Law

     As noted by Judge Grimm, courts have taken three different approaches when considering inadvertent production. The Fourth Circuit Court of Appeals has yet to decide which approach it will follow, although individual district courts within the circuit, Grimm notes, have adopted the intermediate balancing approach. Under the intermediate approach, the court balances a number of factors to determine whether the producing party exercised reasonable care under the circumstances to prevent against disclosure of privileged/protected information, and if so, there is no waiver. The intermediate test requires the court to balance the following factors to determine whether inadvertent production of attorney-client privileged materials waives the privilege:

(1) the reasonableness of the precautions taken to prevent inadvertent disclosure;

(2) the number of inadvertent disclosures;

(3) the extent of the disclosures;

(4) any delay in measures taken to rectify the disclosure; and

(5) overriding interests in injustice.

     Judge Grimm commented that decisions of the Fourth Circuit suggest that it is inclined to adopt the strict approach. Under the strict approach, there is a waiver because once disclosed there can no longer be any expectation of confidentiality.

Discussion

    Under the strict approach, Judge Grimm found there was no legitimate doubt that Defendants’ production of 165 asserted privileged/protected documents waived the attorney-client privilege and work-product protection.

     However, even under the intermediate test, the result would be the same, he said. Below are some of the key points in Victor.

     Keyword searches: Selection of the appropriate keyword search and information retrieval technique requires careful advance planning by persons qualified to design effective search methodology, Judge Grimm wrote. The implementation of the methodology selected should be tested for quality assurance; and the party selecting the methodology must be prepared to explain the rationale for the method chosen to the court, demonstrate that it is appropriate for the task, and show that it was properly implemented. Compliance with the Sedona Conference Best Practices for use of search and information retrieval will go a long way towards convincing the court that the method chosen was reasonable and reliable, which, in jurisdictions that have adopted the intermediate test for assessing privilege waiver based on inadvertent production, may very well prevent a finding that the privilege or work-product protection was waived.

     In Victor, Judge Grimm found that the Defendants failed to demonstrate that the keyword search they performed on the text-searchable ESI was reasonable. Defendants failed to provide the court with information regarding the keywords used; the rationale for their selection; the qualifications of Defendant and attorneys to design an effective and reliable search and information retrieval method; whether the search was a simple keyword search, or a more sophisticated one, such as one employing Boolean proximity operators;  or whether they analyzed the results of the search to assess its reliability, appropriateness for the task, and the quality of its implementation.

     Non-Waiver Agreement: As noted above, Defendants voluntarily abandoned their request for a court-approved non-waiver agreement, and advised the court that they did not need this protection. Instead, they elected to do a document-by-document privilege review. According to Judge Grimm, had Defendants not abandoned their request, they would have been protected from waiver. When they undertook an individualized review of the context-searchable ESI and determined that they could only review the title pages, they neither sought an extension of time from the court to complete an individualized review, nor did they reinstate their request for a court-approved non-waiver agreement, despite their awareness of how it would have provided protection against waiver.

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Court Allows Discovery of Communications Between Trial and Opinion Counsel

Posted on February 12, 2008 by Brian Wm. Higgins

     David Donoghue at the Chicago IP Lit. Blog reports today about a discovery matter in a Northern District of Illinois patent case: Se-Kure Controls, Inc. v. Diam USA, Inc., No. 06 C 4857, 2008 WL 169029 (N.D. Ill. Jan. 17, 2008) (Cox, Mag. J.). According to David, Magistrate Judge Cox "granted in part a motion to compel discovery regarding defendant’s advice of counsel defense. The Court ordered defendants to product a technical witness that provided opinion counsel information because opinion counsel was unable to remember the substance of conversations between the two. The Court also ordered production of communications between opinion counsel and trial counsel related to the patent in suit. These communications were within the scope of defendant’s waiver, even though a deposition of trial counsel would not have been allowed." 

     This opinion is one of many to be published post-Seagate, and further illustrates the extent to which courts will allow discovery once the opinion of counsel defense is raised by defendants in patent litigation matters. Click here for summaries of other post-Seagate cases.

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Waiving Attorney-Client Privilege: Patent Opinions Developed by In-House Engineers, Patent Agents and Attorneys

Posted on February 1, 2008 by Brian Wm. Higgins

     By now, those who follow patent issues in this country will undoubtedly have heard of In Re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007), in which the Federal Circuit heightened the standard for establishing willful patent infringement to a recklessness standard, and clarified the scope of the waiver of attorney-client privilege and work product immunity with regard to opinions of counsel relied on by defendants accused of willfully infringing. Several courts have since addressed the Seagate opinion in some detail, including the U.S. District Court for the Southern District of New York, which is presiding over the original Seagate matter (Convolve, Inc. v. Compaq Computer Corp., No. 00-civ-5141). 

     In the Convolve case, Seagate opposed Convolve's claims of willful patent infringement by relying on an opinion generated by its engineering staff together with its in-house counsel and a patent agent (they also relied on outside counsel’s opinion). Convolve then moved for an order compelling Seagate to allow discovery from Seagate's in-house counsel. The court didn't buy Seagate’s argument that the opinion was simply an engineering report, and instead found that Seagate had waived the attorney-client privilege as to all documents within the scope of the waiver as defined in In re Echostar Communs. Corp. It ordered Seagate to produce not just emails concerning the in-house opinion, which Seagate previously had produced, but any letters, memorandum, conversations, or the like between the Seagate's attorney and his client, as well as any documents referencing the communications between attorney and client concerning the opinion.  Memorandum and Order (Jan. 22, 2008).

     This ruling would have been different had Seagate not conducted its own internal patent infringement investigation before engaging outside counsel, and then relied on that investigation to establish that its actions did not rise to the level of recklessness. Companies that use in-house employees to investigate patent infringement claims (which is common), and then help in-house attorneys to develop an opinion regarding patent infringement, should not expect documents and conversations about that investigation to remain protected under the attorney-client privilege or work product doctrine, even if the company later procures and relies on an opinion from outside counsel. You just never know how far a judge will go with a waiver under In re Echostar.

     Check back later for a summary of what other courts are saying about In re Seagate.

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Seagate vs. Patent Reform Act of 2007

Posted on August 29, 2007 by Brian Wm. Higgins

Summary:  Don't get too comfortable with Seagate's "objective recklessness" standard for determining willfulness in patent litigation: the Patent Reform Act of 2007 could change everything.

 

     35 U.S.C. § 284, enacted in 1952, provides that a court "may increase damages up to three times the amount found or assessed" in the case of willful patent infringement. In 1983, the Federal Circuit established the standard for evaluating willfulness: 

“Where . . . a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.”

Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389-90 (Fed. Cir. 1983)(emphasis added).  Thus, an accused infringer could establish that its continued accused activities were done in good faith if it reasonably relied on advice from counsel. The duty of care standard survived until just recently, when the Federal Circuit overruled the standard and held that:

"Proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness." 

In re Seagate Technology, LLC, Civ. No. 830 (Fed. Cir. 2007) (en banc) (Newman, J., Garjarsa, J., concurring).  Under Seagate, a patentee must show by clear and convincing evidence "that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent."  Once the threshold objective standard is satisfied, the patentee "must also demonstrate that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer." According to the Federal Circuit, the state of mind of the accused infringer is not relevant to this objective inquiry.

     The Patent Reform Act of 2007, if enacted, would include a new § 284 concerning willful patent infringement (see Senate and House bills S.1145 and H.R.1908, respectfully; see also related posts here).  The new law would allow a court to find willfulness only if the patent owner presented clear and convincing evidence that the accused did one of the following three things:

"(A) after receiving written notice from the patentee...alleging acts of infringement...the infringer, after a reasonable opportunity to investigate, thereafter performed one or more of the alleged acts of infringement;

"(B) the infringer intentionally copied the patented invention with knowledge that it was patented; or

"(C) after having been found by a court to have infringed that patent, the infringer engaged in conduct that was not colorably different from the conduct previously found to have infringed the patent, and which resulted in a separate finding of infringement of the same patent."

     Part of the new law, if enacted in its current form, would limit willfulness damages where the infringer has an informed good faith belief that the patent was invalid or unenforceable, or would not be infringed by the conduct later shown to constitute infringement of the patent.  An "informed good faith belief" may be established by:

(1) "reasonable reliance on advice of counsel;"

(2) "evidence that the infringer sought to modify its conduct to avoid infringement once it had discovered the patent;" or

(3) "other evidence a court may find sufficient to establish such good faith belief."

     Under the new law, there is no requirement, like in Seagate, to perform an objective risk of infringement assessment or establish that an accused infringer knew or should have known of the risks.  However, like in Seagate, the new law would also not impose a requirement that infringers obtain advice of counsel as a prerequisite to making, using, or selling a product or performing a method.  As William Lafuze and Michael Valek noted in their recent article [1]:

"If [patent reform is] enacted, the advice-of-counsel defense will remain an option, but accused infringers will not face the same pressure to waive privilege over such advice because there will be additional, statutorily defined limits and defenses to willfulness." 

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