Last Month at the Federal Circuit
Last Month at the Federal Circuit

August 2012

Fairness Considerations Required Under Ninth Circuit Law When Determining Scope of Extrajudicial Waiver of Attorney-Client Privilege

Judges:  Moore, Clevenger (author), Reyna (dubitante)
[Appealed from N.D. Cal., Judge Fogel]

In Wi-LAN, Inc. v. LG Electronics, Inc., No. 11-1626 (Fed. Cir. July 13, 2012), the Federal Circuit vacated and remanded the district court’s order requiring Kilpatrick Townsend & Stockton LLP (“Kilpatrick”), counsel for Wi-LAN, Inc. (“Wi-LAN”), to produce certain communications between Kilpatrick and Wi-LAN, holding that the district court applied the improper analysis in determining the scope of waiver of the attorney-client privilege.  The Court also vacated and remanded the district court’s contempt sanctions against Kilpatrick.

In 2006, LG Electronics, Inc. (“LG”) took a license from Wi-LAN on certain patents, but subsequently refused to pay royalties because it claimed that it did not practice those patents.  In an attempt to convince LG to revise its position and pay royalties, Wi-LAN forwarded to LG an opinion letter prepared by its counsel, Kilpatrick.  The letter was marked “CONFIDENTIAL” on every page and contained a detailed analysis of Wi-LAN’s patent rights as applied to LG’s technology.  Wi-LAN did not dispute that its disclosure of the letter to LG was intentional. 

The letter did not convince LG, and Wi-LAN sued LG for patent infringement in the Southern District of New York, identifying Kilpatrick as litigation counsel on its complaint.  During discovery, LG served a subpoena on Kilpatrick’s Palo Alto office for documents and testimony relating to the subject matter of the letter.  Kilpatrick moved the district court to quash the subpoena, arguing that any waiver should be limited to the opinion letter and that fairness does not compel a subject matter waiver.  The magistrate judge and the district court denied the motion and ordered Kilpatrick to produce certain communications between Kilpatrick and Wi-LAN.  Kilpatrick did not, however, timely comply with the order.  Instead, it sought relief by filing a motion for certification of an interlocutory appeal, which was rejected on jurisdictional grounds.  At this point, several months had passed since service of the subpoena, and the district court, after considering the case, found Kilpatrick in contempt and entered sanctions in the amount of LG’s costs and fees.  Kilpatrick appealed.

The question presented on appeal is whether, under the Ninth Circuit law, the fairness consideration, afforded under Fed. R. Evid. 502(a) to a party who expressly waives attorney-client privilege during litigation, should equally be available to one whose disclosure occurred prior to litigation.  Kilpatrick argued that fairness balancing should always be available to one who expressly waives privilege prelitigation and, under such a test, the scope of waiver should be essentially limited to the letter itself without extending it to any other communication between Wi-LAN and Kilpatrick because LG is unable to articulate any prejudice.  LG, on the other hand, argued that fairness balancing must never be available in those circumstances and that an extrajudicial waiver of the attorney-client privilege must always extend beyond the precise matter disclosed.

“As between the two directions put forward by the parties—one requiring fairness balancing for extrajudicial discloses, the other barring it—we conclude that the Ninth Circuit’s cases support the former far better than the latter.  The Ninth Circuit has repeatedly endorsed fairness balancing in a variety of circumstances; more to the point it has never set forth, either expressly or inherently, any rule barring fairness’s application to extrajudicial disclosures.”  Slip op. at 16.

Noting that the Ninth Circuit has not spoken squarely on the issue of whether fairness balancing is either required or proscribed in this case, the Court analyzed relevant Ninth Circuit and other regional circuit case law to determine what the Ninth Circuit would hold, were the question presented to it.  After the analysis, the Court concluded that the Ninth Circuit would find fairness balancing to be required in cases where the waiver of the attorney-client privilege occurred during an extrajudicial setting.  The Court reasoned that the Ninth Circuit has favorably recognized the strong precedent of fairness balancing in the last twenty-five years and that it found nothing in the Ninth Circuit law that would simultaneously require district courts to apply fairness balancing to privilege waivers made during litigation, but blocking them from applying it to extrajudicial waivers.  On the policy consideration, the Court further noted that any rule barring application of fairness balancing to extrajudicial disclosures seemed bad policy and it would decline to adopt it on the Ninth Circuit’s behalf.  For these reasons, the Court concluded that the district court erred by rejecting considerations of fairness—i.e., whether LG would be unfairly prejudiced by Wi-LAN’s assertion of privilege—when assessing the scope of waiver.  The Court, however, declined to evaluate fairness itself and remanded for further proceedings.

Regarding the contempt sanctions, the Court noted that, even though it agreed with Kilpatrick that the district court erred in applying privilege doctrine, that is not the same as excusing failure to comply with a judicial order.  Further, noting that the Ninth Circuit generally defers to a trial court’s finding of contempt, the Court declined to determine whether and to what extent Kilpatrick should pay a penalty for its failure.  Accordingly, the Court vacated the district court’s entry of contempt sanctions against Kilpatrick but noted that the district court would have discretion to revisit the issue on remand.

Judge Reyna filed an opinion dubitante, raising doubts about the majority’s conclusion.  Specifically, Judge Reyna stated that his examination of the trend in law that the majority discerns does not lead to certainty and that “even a route that lies opposite the route charted by the majority is as good a route as any.”  Reyna op. dubitante at 2.