Common Interest Privilege Did Not Shield Merger and Acquisition Information From Discovery in Delaware Litigation

Abstract

A Delaware court permitted discovery about an acquisition agreement, finding a non‑binding pre-acquisition letter of intent did not provide parties with the requisite shared legal interest that would justify the confidentiality afforded by the common interest privilege.

Background

10x Genomics sued Celsee for patent infringement in Delaware. While the case was pending, Bio-Rad Laboratories acquired Celsee and the acquisition agreement included provisions related to the pending litigation.

10x Genomics sought to obtain information about communications between Celsee and Bio-Rad that occurred after a non‑binding letter of intent to engage in acquisition negotiations was signed. Relying on the common interest privilege and the work product doctrine, Celsee refused to provide that information and 10x Genomics moved to compel.

The 10x Genomics Decision

The common interest privilege extends the attorney-client privilege to shield from disclosure information that is shared amongst parties having a common legal cause.  Its purpose is to encourage full and frank communication between attorneys and their clients. For example, multiple, unrelated defendants in a litigation will enter into a joint defense agreement to allow them to coordinate their defenses without concern of those communications being discoverable.

Here, Celsee failed to establish or even contend it and Bio-Rad shared an identical legal interest. The communications between Celsee and Bio-Rad were not made for the purpose of securing, advancing, or supplying legal representation, but rather for negotiating a commercial transaction from opposite sides of the table. Although Celsee and Bio-Rad signed a letter of intent, it was non-binding, and the acquisition still needed due diligence review, a definitive agreement, and further approvals. The letter was also not a joint defense letter nor did it result in Bio-Rad assuming liability for infringement. Thus, the court found the non-binding letter did not create the requisite shared legal interest that would justify the confidentiality afforded by the common interest privilege.

To support its position, Celsee primarily relied on the California case Hewlett-Packard Co. v. Bausch & Lomb, Inc., where common interest privilege was found to protect a lawyer's patent opinion letter the defendant had previously shared with a prospective buyer. Hewlett-Packard's chief concern was the effect that a broad application of waiver might have on the sort of business transaction where the defendant and prospective buyer were engaged.

While some courts have adopted this expansive view of the common interest doctrine from Hewlett-Packard, the vast majority of courts have declined to adopt that view. Here, the court rejected the reasoning from Hewlett-Packard for two reasons:

First, encouraging more openness in business transactions did not advance the common interest privilege's purpose of encouraging full and frank communication between attorneys and their clients. Parties in merger and acquisition negotiations would invariably retain counsel to ensure that their own interests, and not those of the other party, were protected. Any communications with such counsel would already be protected by attorney-client privilege.

Second, the court expressed concern about the impact that such an extension of the common interest privilege would have on truth seeking in criminal and civil proceedings. It found the individual interest in the confidentiality of merger and acquisition negotiations was not sufficiently substantial to outweigh the public interest in the search for truth.

On that basis, the court ordered Celsee to produce documents and a witness for deposition regarding communications between Celsee and Bio-Rad about 10x's lawsuit and the provisions in the acquisition agreement concerning 10x's lawsuit. It exempted any documents or testimony would directly reveal the mental impressions of Celsee's attorneys.

Strategy and Conclusion

Communications during negotiations of merger or acquisition can later become discoverable in litigation. The common interest privilege varies by jurisdiction, so communications that are protected in one jurisdiction may be discoverable in another.

Further Information

The 10x Genomics decision can be found here.