How Recent Appellate Decisions Have Changed the Landscape of Privilege Waiver

The privilege that exists between attorney and client allows for open communication and robust representation. But the possibility of waiving privilege—and opening the floodgates to sensitive client information—is a cloud that constantly looms in litigation. Attorneys should be mindful of how the substantive legal theories in a case intersect with the waiver doctrine. This is because certain legal theories, by their nature, encroach on privileged information, which can result in waiver. Recent developments at the U.S. Supreme Court, U.S. Court of Appeals for the Federal Circuit, and federal district courts bear on this issue.

First, the Supreme Court recently abolished the defense of laches in patent cases, which eliminates a significant risk of waiver for plaintiffs because laches theories often targeted sensitive communications between attorneys and patent owners about litigation strategy. At the other end of the spectrum is a recent Supreme Court decision on enhanced patent damages, which places defendants in the unenviable position of deciding whether to affirmatively waive privilege by asserting advice-of-counsel defenses, or preserving privilege by foregoing advice-of-counsel defenses. Finally, a recent Federal Circuit decision shows the importance of monitoring waiver issues across multiple, related litigation matters.

Laches Disappears and, with It, One Avenue for Waiving Privilege

The Supreme Court, in SCA Hygiene Products Aktiebolag, et al. v. First Quality Baby Products., LLC, et al., [No. 15-927, slip op. (Mar. 21, 2017). The Court based much of its reasoning on its previous decision in Petrella v. Metro-Goldwyn-Mayer 134 S. Ct. 1962 (2014), where the Court abolished the defense of laches in copyright law] recently abolished the laches defense in patent cases. This defense dates back to the 1800s and was meant to offset the fact that there was no statute of limitations in patent cases that prevented plaintiffs from unreasonably delaying in filing patent suits. [See, e.g., Mahn v. Harwood, 112 U.S. 354, 361 (1884); Petrella 134 S. Ct. at 1985(2014).] A successful laches defense limited the damages a patent owner could collect. Many argue that the need for the laches doctrine ended in 1952 after Congress adopted a statute of limitations of sorts that barred plaintiffs from recovering damages more than six years before the complaint or counterclaim for infringement was filed. [35 U.S.C. § 286 (1952).] But the Federal Circuit continued allowing parties to assert laches even after this provision was enacted. [Auckerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 1028 (Fed. Cir. 1992).]

In SCA Hygiene, however, the Supreme Court struck down the laches defense. The Court explained first that because Congress permitted a plaintiff to collect damages six years before the complaint was filed, allowing laches to undermine that statutory grant would violate the separation of powers between the judicial and legislative branches of government. [SCA Hygiene, No. 15-927, slip op. at 4.] Second, the original laches doctrine was meant to apply only in the absence of a statute of limitations, and the Court concluded that Congress adopted a statute of limitations of sorts when it passed Section 286. After this statute was enacted, laches was no longer necessary. [Id. at 4–5.]

In abolishing the laches doctrine in patent cases, the Supreme Court eliminated a major avenue patent infringement defendants had for gaining access to their opponent’s privileged materials. A defendant raising laches had to show that the plaintiff unreasonably delayed in bringing suit and that this delay prejudiced the defendant. [Auckerman, 960 F.2d at 1028.] The nature of this theory often gave defendants access to potentially privileged communications between a plaintiff and plaintiff’s counsel regarding why or why not to file a lawsuit, when a party became aware of infringement, and what a party believed about the strength of its case. Because of SCA Hygiene, patent owners no longer have to worry about these problems in the laches context.

New Enhanced Damages Analysis Drives Need for Opinions of Counsel, Which Can Implicate Waiver

The Supreme Court’s recent decision in Halo Electronics, Inc. v. Pulse Electronics, Inc. [136 S. Ct. 1923 (2016)] changed the standard for determining enhanced damages. The Supreme Court rejected the Federal Circuit’s Seagate standard, which required the patent owner to show that the defendant was objectively reckless with respect to others’ patent rights and that the accused infringer subjectively "knew or should have known" about the infringement risk. [Id. at 1930.] The Court replaced the Seagate test with a more flexible one allowing enhanced damages when the defendant committed "egregious infringement behavior." [Id. at 1932.] The new test focused on what the accused infringer knew at the time of infringement—post-complaint noninfringement and invalidity arguments crafted by litigation counsel were no longer a defense to willful infringement. The Court also replaced the clear and convincing evidence standard with the lower preponderance of the evidence standard. [Id. at 1934.]

The Court’s adoption of a new and more flexible willfulness standard focusing on the time of infringement has led some to speculate that potential defendants may begin to increasingly seek and rely on freedom-to-operate opinions from counsel. [See, e.g., Virginia Carron & Jeffrey Totten, "How Patent Clearance Strategy Might Change Post-Halo," Law360 (July 13, 2016) https://www.law360.com/articles/815943, available at www.finnegan.com.] This strategy can implicate privilege, however, because using an opinion from counsel as a sword in litigation often opens the door for the other side to access the privileged information underlying that opinion. Put differently, reliance on an opinion letter invokes greater risk of waiver.

A recent case from the Eastern District of North Carolina shows this. In Krausz Industries Ltd. f/k/a/Krausz Metal Industries Ltd. v. Smith-Blair, Inc., et al., [No. 5:12-CV-00570, slip op. (E.D.N.C. Dec. 13, 2016)] the plaintiff accused the defendant of ongoing, willful patent infringement. The defendant relied on the advice-of-counsel defense in the form of a noninfringement opinion obtained from its attorneys before the litigation. The plaintiff sought discovery of attorney-client communications from both before and after the complaint was filed that related to this opinion letter. In granting much of Krausz’s discovery request, the district court relied on Halo to allow discovery of any materials related to whether the accused product infringed the asserted patent. [Id. at 17.] If the Krausz decision is any indication of the impact that Halo can have on the privilege waiver doctrine, defendants may want to carefully consider whether to raise to an advice-of-counsel defense when rebutting willful infringement allegations.

Parties Should Be Mindful of How Strategic Decisions on Waiver Can Impact Related Proceedings

As described above, the decision to assert certain legal theories often comes with a risk of waiving privilege. This concern is compounded by the fact that strategic decisions in one case can result in privilege waiver in other related cases. A recent order from the Federal Circuit, In re Comcast Cable Communications, LLC, et al. [No. 2017-114, slip op. (per curiam) (Fed. Cir. Mar. 3, 2017)] shows this.

Two different, but related, district court cases were at issue in In re Comcast: (1) Comcast Cable Communications, LLC v. Sprint Communications Co. [No. 12-859 (E.D. Pa.)] (Pennsylvania case); and (2) Sprint Communication Co. v. Comcast Cable Communications, LLC, et al. [No. 11-2684 (D. Kan.)] (Kansas case). In the Pennsylvania case, Comcast produced certain documents to Sprint related to Comcast’s patent acquisition strategy. [Sprint Commc’ns Co. v. Comcast Cable Commc’n, LLC, et al., No. 11-2684, slip op. at 2 (D. Kan. Feb. 23, 2017).] These documents were produced under a no-waiver agreement. [Id. at 6.]

In the Kansas case, however, Sprint moved to obtain all documents related to Comcast’s patent acquisition strategy and preparation for litigation with Sprint. [Id. at 7–8.] Despite the no-waiver agreement in Pennsylvania, the Kansas court found that Comcast’s production in the Pennsylvania case waived privilege, and Comcast was ordered to produce any documents that mention the patent acquisition and Sprint as well as any documents regarding Comcast’s then-anticipated Sprint litigation. [Id. at 6.] The Federal Circuit denied Comcast’s petition for a writ of mandamus to vacate the district court’s production order.

In re Comcast shows the importance of viewing all related litigation proceedings together and understanding the impact that a strategic decision on privilege in one case may have on other cases. While the production of a few documents may help the proffering party’s cause in one case, that same production may waive privilege for an entire subject matter area in another case. Attorneys working on multiple related litigations, or in house counsel supervising multiple law firms working on related litigations, cannot work with blinders on, even for seemingly mundane discovery issues. 

Conclusion

The Supreme Court’s recent SCA Hygiene and Halo decisions, despite not being privilege cases per se, significantly changed the landscape of the waiver doctrine for patent cases. Patent litigators should be aware of how SCA Hygiene and Halo intersect with the waiver doctrine because they often are asked to make judgment calls on whether to assert legal theories that implicate privilege. While these can be complex and difficult decisions to make (especially in situations with multiple, related proceedings), at a minimum, an informed decision cannot be made unless the nexus between the relevant legal issue and waiver is understood. Attorneys should be constantly mindful of this dynamic area of law.