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The Scope Of Waiver When A Party Relies On An Advice of Counsel Defense To An Allegation Of Willful Patent Infringement:  Various Judicial Approaches, And Steps To Limit The Impact Of The Waiver

Eliot Williams *

Parties accused of patent infringement face a difficult dilemma when they have procured an opinion of patent counsel as to their grounds for believing that they do not infringe the patentee’s patent(s). Those who choose to rely on the opinion and invoke the advice of counsel as a defense against a claim of willful infringement (and potential triple damages and attorney fees) must waive the attorney-client privilege -- and perhaps work product protection -- with respect to the subject matter of the advice received. On the other hand, alleged infringers who choose not to produce the opinion letter may preserve the attorney-client privilege, but they may also forego one of the best ways to counter an allegation of willfulness.

For example, while the U.S. Court of Appeals for the Federal Circuit has declared that “[a]n adverse inference that a legal opinion was or would have been unfavorable shall not be drawn from invocation of the attorney-client and/or work product privileges or from failure to consult with counsel,” Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337, 1347 (Fed. Cir. 2004), juries may as a practical matter find a party unsympathetic (and might rule adversely on the issue of willfulness) when the party has no opinion or chooses not to produce one.

The dilemma faced by defendants considering whether to rely on an opinion of counsel, and risk the consequent waiver, is exacerbated by the lack of a unified approach among the federal courts as to the scope of the waiver associated with the advice of counsel defense. In some jurisdictions, accused infringers may be deemed to waive only the attorney-client privilege with respect to the subject matter of the opinion; in other jurisdictions, they may be found to have waived all work product immunity as well, even for documents never communicated to the client. Even though district courts are in disagreement over the scope of privilege waiver and a harmonizing decision by the Federal Circuit does not appear to be in the immediate offing, prudent parties who may become patent infringement defendants, and their patent counsel, can take steps to limit the potential adverse impact of electing an advice of counsel defense.

Various Judicial Approaches To The Scope Of Waiver

When a party asserts the advice of counsel defense, it is clear that it waives, at a minimum, the attorney-client privilege as to the subject matter of the advice received. If privileged communications are placed “in issue” by virtue of claims or defenses in litigation, then a broad subject matter waiver of the privilege as to all communications on the subject matter of such claims or defenses may be effected. The basis for such waiver is that it is required to prevent the unfairness that would occur if a party were allowed to disclose opinions that support its position and simultaneously conceal those that are adverse. Saint-Gobain/Norton Indus. Ceramics Corp. v. Gen Elec. Co., 884 F. Supp. 31, 33 (D. Mass. 1995).

When an advice of counsel defense is asserted, courts agree that it is the alleged infringer’s subjective state of mind that is relevant, and courts accordingly focus their inquiry on whether the infringer’s reliance on the opinion of counsel was reasonable. Evidence that the infringer sought and justifiably relied on legal advice from counsel on the issue of infringement is relevant to whether an infringer acted willfully.

While it is well-established that assertion of the advice-of-counsel defense creates a subject matter waiver with respect to all privileged communications as to the issue of infringement, the case law is inconsistent as to whether the waiver extends to an opinion counsel’s work product. One narrow view of the scope of waiver holds that work product protection is waived only with respect to material disclosed to the client. An intermediate position of waiver holds that the scope of waiver extends to undisclosed factual work product, and that the plaintiff may discover the working papers of opinion counsel if they relate to the garnering of factual bases for the opinions that are expressed in the opinion letter. A still-broader view of waiver holds that the scope of waiver extends to all work product related to the subject matter of the opinion, whether communicated to the client or not.

The courts that favor a narrow approach to waiver find that an attorney’s work product is not relevant unless it is communicated to the client, because the primary focus in an advice of counsel defense should be on the client’s state of mind. Access to work product information is, accordingly, not necessary (in these courts’ view) in order to examine the competence of the attorney’s opinion, because the actual competence of the opinion is not strictly relevant to the willful infringement issue. Thorn EMI N. Am., Inc. v. Micron Tech., Inc., 837 F. Supp. 616, 622 (D. Del. 1993).

Courts that adopt an intermediate approach to waiver (extending the scope of waiver to include undisclosed, factual work product) focus on the client’s awareness of opinion counsel’s assumptions. These courts hold that, if the opinion turns on assumptions made by the attorney that the client had reason to know were incorrect, the client’s reliance would be unreasonable even if the attorney did not explicitly reveal his assumptions to the client. Cordis Corp. v. SciMed Life Sys., Inc., 980 F. Supp. 1030, 1034 (D. Minn. 1997). These courts hold that the results of any experimentation or other factual development should be discoverable so as not to reward incompetence or willful artifice by insulating opinions from scrutiny. Id. at 1034 n.1.

A small number of courts have offered various rationales for extending the scope of waiver to include all attorney work product, factual or legal, whether communicated to the client or not. Some courts taking this approach reason that opinion counsel’s work product could reveal circumstantial evidence of conflicting or contradictory opinions that were in fact communicated to the client. Other courts adopting a broad waiver position have concluded that, without disclosure of all work product, the relationship between the client and the opinion writer has the potential to be premised upon the understanding (whether explicit or implicit) that only favorable information should be communicated to the client. Still other courts maintain that evidence about “what really was in the lawyer’s mind could be relevant to the issue of what really was in the client’s mind.” Electro Scientific Indus., Inc. v. Gen. Scanning, Inc., 175 F.R.D. 539, 546 (N.D. Cal. 1997). In Novartis Pharmaceuticals Corp. v. EON Labs Manufacturing, Inc., 206 F.R.D. 396, 398 (D. Del. 2002), the court adopted the dictionary definition of waiver (“the voluntary, intentional relinquishment of a known right”) and found that the alleged infringer’s waiver of the attorney-client privilege should be considered absolute, encompassing all materials relating to the subject matter of counsel’s advice.

Courts have adopted two approaches to the waiver of trial counsel’s work product protection. Most cases make no distinction between trial counsel and opinion counsel, holding that any legal advice related to the subject matter of the opinion must be produced, even if that advice came from trial counsel. Other courts hold that trial counsel’s work product is not discoverable, reasoning that a waiver of work product protection would inappropriately chill communications between trial counsel and client and impair trial counsel’s ability to give the client candid advice regarding the merits of the case. Motorola, Inc. v. Vosi Techs., Inc., 2002 WL 1917256, at *2 (N.D. Ill. Aug. 19, 2002). Factors that increase the likelihood that trial counsel’s work product will be deemed discoverable include an appearance by opinion counsel as a member of the trial team, circumstances that frustrate the court’s efforts to differentiate between opinion and trial counsel, and, in at least one court in Delaware, an arrangement in which opinion and trial counsel are from the same law firm. Novartis, 206 F.R.D. at 399.

The courts generally agree that a defendant who invokes an advice-of-counsel defense to a claim of willfulness waives the attorney-client privilege for communications that occurred before the suit was filed and that relate to the subjects addressed in the advice relied upon. However, courts disagree on whether the temporal scope of waiver is limited to communications preceding the filing of the complaint. Some courts find that only pre-complaint communications are discoverable because the ultimate issue is the accused infringer’s state of mind at the time of the alleged infringement, and documents created after litigation has commenced are not relevant to this state of mind nor reasonably calculated to lead to the discovery of admissible evidence. Hoover Universal Inc. v. Graham Packaging Corp., 44 U.S.P.Q.2d 1596, 1598 (C.D. Cal. 1997). Other courts hold that post-complaint communications may also be discoverable, reasoning that the requirement to seek and receive advice is a continuing duty because infringement is a continuing activity. AKEVA L.L.C. v. Mizuno Corp., 243 F. Supp. 2d 418, 423 (M.D.N.C. 2003). Courts adopting a broad waiver position may also reason that a party cannot preserve any privilege in the face of an explicit, voluntary waiver. McCormick-Morgan, Inc. v. Teledyne Indus., Inc., 765 F. Supp. 611, 613-14 (N.D. Cal. 1991).

Opinions concerning patents not in suit but related to the patents in suit are usually held to be privileged, but under certain conditions they may be deemed discoverable. Most courts find that defining the scope of the waiver to exclude those portions of the opinion letter that do not concern the asserted patent balances the defendant’s privilege against the plaintiff’s right to discovery on the issue of reasonable reliance. However, a few courts have found that opinions concerning other related patents are discoverable when the defendant’s asserted ability to avoid infringement of one patent may be inconsistent with its ability to avoid infringement of another, and information concerning the defendant’s reaction to this inconsistency would be relevant to its good faith reliance on opinion of counsel. Viskase Corp. v. Am. Nat’l Can Co., 888 F. Supp. 899 (N.D. Ill. 1995).

Strategies To Limit The Adverse Impact Of Waiver

Waiver of privilege cannot be avoided in most cases involving a charge of willful infringement when the defendant wishes to invoke the defense of advice of counsel; still, the following steps can be taken to minimize the impact of waiver.

Assume that information will end up in the adversary’s possession.

The opinion writer should gather facts, write the opinion, and conduct all discussions with the client regarding the subject of the opinion, assuming (as a worst-case scenario) that all of that information may one day wind up in the hands of an adversary. Both the opinion writer and litigation counsel should think carefully before committing to paper any conclusions or other thoughts about the subject matter of an opinion, even if they do not intend to communicate those writings to the client. Under the case law of some district courts, even these uncommunicated writings could be deemed discoverable.

Screen the opinion writer from the litigation team.

When litigation counsel and opinion counsel are from the same firm, consideration should be given to screening the opinion writer from the litigation team. This may help avoid the result reached in cases such as Novartis, where the court found waiver of privilege for all trial counsel advice at least in part because the opinion writer was part of the trial team. Id.

Avoid cross-referencing other opinions or documents in an opinion.

Referring to other documents or opinions within an opinion letter will increase the chances the court will find waiver as to those documents as well. Id.

Don’t take redaction for granted -- write separate opinions on validity, infringement, and enforceability.

Because some cases hold that an opinion cannot be redacted or only partially produced when used as part of an advice of counsel defense, the opinion writer should, whenever possible, write separate opinions on validity, infringement, and enforceability. Id. The opinion writer should also be careful to write separate opinions on discrete patents or patent families.

Before recommending an advice of counsel defense, analyze decisions on the scope of waiver and review all potentially waived documents.

The litigator must be cognizant of the above-discussed disparate district court decisions on the scope of waiver, and should first consider all categories of potentially-waivable documents. Id. Counsel should be aware that even within a single district, there may be multiple approaches. For example, in Delaware, four recent cases illustrate the diversity of opinion regarding the scope of waiver. In Thorn, 837 F. Supp. at 620 (D. Del. 1993), the court limited the scope of discovery to communications between counsel and the accused infringer, and did not permit inquiry into counsel’s work product. In Mosel Vitelic Corp. v. Micron Technology Inc., 162 F. Supp. 2d 307, 312 (D. Del. 2000), the court permitted discovery into opinion counsel’s work product, as well as any communications between counsel and the accused infringer. And in Novartis, 206 F.R.D. at 398 (D. Del. 2002), the court found absolute waiver of the attorney-client privilege with respect to the subject matter of counsel’s advice and permitted discovery of trial counsel’s work product. However, in Rhodia Chimie v. PPG Industries, Inc., 218 F.R.D. 416, 418 (D. Del. 2003), the court followed the approach in Thorn, indicating that Novartis has not established a unanimous broad-waiver position in the Delaware district courts, but rather that individual judges within the district may adopt the narrow, intermediate, or broad view of waiver.

Once the decision to rely on an advice of counsel defense is made, neutralize the impact of waiver by seeking bifurcation of the willful infringement issue from the infringement issue.

Once the election to rely on advice of counsel has been made, the primary step the litigator can take to neutralize the impact of waiver is to seek bifurcation of discovery and/or trial of the willful infringement issue from the infringement issue. Id. This type of bifurcation is authorized by Fed. R. Civ. P. 42(b) and was suggested by the Federal Circuit almost fifteen years ago as a solution to the dilemma facing the accused infringer. Quantum Corp. v. Tandon Corp., 940 F.2d 642, 644 (Fed. Cir. 1991). That said, however, many courts have refused to allow bifurcation either because they are reluctant to empanel a second jury to hear the willfulness issue, or because they have concluded after reviewing documents in camera that no real dilemma exists.

Conclusion

The advice of counsel defense remains a valuable tool for defendants seeking to avoid a finding of willful infringement. However, until the courts have resolved the issue of the scope of waiver that is to be effected when this defense is invoked, potential defendants should be aware of the risks posed by the inconsistent law on waiver, which in the broadest instances may threaten to impose an unanticipated and highly disadvantageous surrender of otherwise-applicable attorney-client and work product privilege protection.

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*Summer Associate Todd T. Smith (New York) provided substantial assistance in the preparation of this article.

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