Patent Opinion Letters:
Privilege Waivers after Knorr

Knorr-Bremse: The Federal Circuit Changes the Role of Options of Counsel in Patent Cases

In September 2004, the en banc opinion of the Federal Circuit Court in Knorr- Bremse System Fuer Nutzfahrzeuge Bmbh v. Dana Corp., held that neither the absence of an attorney opinion nor the refusal to waive the attorney-client privilege and disclose and opinion, once given, creates a presumption that patent infringement is willful. Presumably, of a well-reasoned opinion still may create a legal presumption that any infringement is not willful. Nevertheless, after Knorr, parties accused of patent infringement may feel more free not to obtain an opinion or make the tactical decision not to reveal an opinion’s content. With this newfound freedom, whether to waive the attorney-client privilege and the scope of that waiver may, therefore, become more important in making these decisions.

The Court in Knorr concluded as follows:

We now hold that no adverse inference that an opinion of counsel was or would have been unfavorable flows from an alleged infringer’s failure to obtain or produce an exculpatory opinion of counsel. Precedent to the contrary is overruled. We therefore vacate the judgment of willful infringement and remand for re-determination, on consideration of the totality of the circumstances but without the evidentiary contribution or presumptive weight of an adverse inference that any opinion of counsel was or would have been unfavorable.

Citing the importance of the attorney-client privilege and the deference given to the privilege in other areas of the law, the court writes: “We conclude that a special rule affecting attorney-client relationships in the patent cases is not warranted.”

In it’s discussion, the court states, almost as an afterthought, “A defendant may of course choose to waive the privilege and product the advice of counsel.” Absent from the opinion is any discussion of the scope of the waiver or whether the opinion of counsel, if disclosed, continues to carry the same weight described in previous ruling of the Federal Circuit. Presumably it does.

Attacking the Opinion Letter

Once a patent opinion is obtained and decision is made to rely upon it and to disclose it to the patentee, the patentee may attempt to negate the effect of the opinion letter by several means. The second and the third methods require discovery from the patentee and its counsel.

1.      Facially Incompetent Letter. An accused infringer is not required to be able to evaluate the legal competence of it’s attorney’s advice to avoid a finding of willfulness, but the accused infringer’s relevance first may be evaluated on the whether the opinion is competent on it’s face. An opinion letter is competent on it’s face if it discussed case law and analyzes the particular facts. The opinion letter cannot be used to disapprove willfulness if the letter is so conclusory and deficient that the infringer could not have reasonably relied on it.

2.      Failure to Reasonably Rely on the Opinion. Another means of attack is to show that the alleged infringer failed to reasonably rely on the opinion. The patentee can establish lack of reasonable reliance with testimony from the alleged infringer’s management or patent counsel.

3.      Alleged Infringer Withholds Material Information. The party charged with infringement has the duty to make all important information available to the attorney preparing the opinion. If the claimed infringer intentionally withholds important information from it’s counsel, then the opinion is inaccurate and there is no good faith reliance on the opinion. In other words, once charged with the duty of due care to avoid infringement, if the accused infringer intentionally fails to make the best information available  to counsel during the preparation of the opinion, “the opinion can no longer serve its prophylactic purpose of negating a finding of willful infringement.” Similarly, if the alleged infringer knows that its attorney was operating under a misconception as to the product and he fails to correct the misconception, the infringer cannot reasonably rely upon the opinion.

Discovery of the Opinion and Related Documents
Privilege and Waiver

            Under the attorney-client privilege, confidential communications made by a client to an attorney to obtain legal assistance are privileged. However, courts narrowly and strictly construe the attorney-client privilege because it is a “derogation of the search for truth.” Courts afford work product higher protection. Under the work product protection, material obtained and prepared by an attorney or its agent in anticipation of litigation or preparation of trial may be immune from discovery. This prevents one party from “exploiting the other party’s efforts to prepare for litigation.”

   As noted supra, when a party relies on the advice of counsel defense, the assertion of that defense generally waives the attorney-client privilege and work product protection. Many courts note that the scope of the waiver is governed by a rule of fairness to the party seeking the discovery.” As one court states,

Practical reasons exist for this rule. The exercise of due care requires a potential infringer to act reasonably. The infringer may not pick and choose between what opinions may be relied upon and which will be discarded. The totality of the circumstances test requires that all knowledge gained by the infringer must be revealed so that the fact finder can make its own determination as to whether the reliance was reasonable.

Accordingly, the “attorney-client privilege and work product immunity ‘may not be used both as a sword and a shield. When a party raises a claim which in fairness requires disclosure of the protected communication, [these protections] may be implicitly waived.’”

The issue for the court or jury to consider in determining whether or not infringement is willful is the alleged infringers state of mind-not that of the alleged infringers attorney. Theoretically, an opinion which appears competent, from counsel and is relied upon in good faith by the client satisfies that factor of due care, even if the opinion were legally incorrect.

Scope of the Waiver

General Rule

When the accused infringer relies on an attorney opinion letter as a defense to willfulness, it waives the attorney-client privilege and work product protections to the subject matter of the advice received. The policy behind the general rule suggests that if privileged communications are placed in issue by an affirmative defense, then a waiver is affected.

“[T]he scope must necessity be broad and is, in fact, a ‘subject matter’ waiver-i.e., a waiver of all communications on the same subject matter.” However, a subject matter waiver “does not mean all opinions as to all possible defenses, but does mean all opinions of the specific issue of advice asserted as a defense to willfulness, be it infringement, validity, enforcement or a combination.”

Therefore, recognizing that the proper focus is on the accused infringer’s state of mind, the patent holder is entitled to discover, at a minimum, facts relating to (1) when the accused infringer sought the advice; (2) what the accused infringer knew about counsel’s independence, skill, and competence to provide the opinion; (3) what the accused infringer knew about the nature and extent of analysis performed by counsel; and (4) what the accused infringer knew or had concluded about the credibility, value, and reasonableness of the opinion. The waiver has been applied to entitle the patent holder to obtain production of (1) all documents with the alleged infringer provided to the author of the opinion letter; (2) all documents which the author of the opinion letter furnished to his client at least up until the time that the author wrote the letter; (3) all documents in the custody, control, or possession of the alleged infringer which are either documents generated by or documents received by it, relating to the opinion and the subject matter of the opinion, up to the date of the opinion letter. However, beyond these categories, there is some disagreement among the federal courts regarding the breadth of the discovery allowed from the waiver.

Moving beyond communications and documents exchange between opinion counsel and the client leading up to the formal opinion letter, court decision s begin to disagree about the effect of the waiver on: (1) materials in the file of the attorney and no the communicated to the client; (2) work product of the opinion counsel and trial counsel relating to the defense that is the subject matter of the opinion letter; and (3) documents and communications produced after the formal opinion letter has been  sent to the client, whether before or after a lawsuit has been filed. Although some commentators (and courts) have divided these district court opinion into “broad waiver” opinion and “narrow waiver” positions such bright lined do not always exist. Any court attempting to define the scope of discovery permitted after there has been a waiver of the attorney-client privilege by the production of an opinion letter will attempt to balance the work-product privilege against the need of the patent holder for discovery. The Knorr case provides little guidance, for while it emphasizes the importance of the attorney-client privilege, it does not discuss what happens when the attorney-client privilege is waived.

Broad Waiver

A number of courts describe a broad waiver of the attorney-client privilege and work product protection. With some exceptions, these courts have generally held that invoking the advice of counsel defense waives the attorney-client privilege and work product protection to the broadest possible extent. As a result, these courts would order the disclosure of communications and documents concerning the subject matter of the opinion through trial, regardless of whether they were communicated or disclosed to the client.

In adopting a broad waiver, courts “reason that the patentee should be allowed to explore that state of mind of the alleged infringer’s attorney as well as the mind of the alleged infringer.” Furthermore, courts argue that “fairness dictates that a party cannot withhold damaging communications claiming attorney-client privilege while disclosing other self-serving communications.” “[I]t would fundamentally be unfair to allow a party to disclose opinions which support its position, and simultaneously conceal those which are adverse.” Courts adopting the broad waiver position hold that the balance of fairness requires complete disclosure to the patentee, despite the chilling effect that a broad waiver may have on the alleged infringer’s relationship with its counsel.

In Akeva, the US District Court for the Middle District of North Carolina largely adopted a broad waiver. Akeva claimed that Mizuno willfully infringed two patents covering athletic shoes featuring flexible heel plates that improve cushioning and stability. Mizuno denied infringement and argued that, even if there was infringement, it was not willful because Mizuno relied on the advice of counsel.

After learning of Akiva’s patents, Mizuno entered unsuccessful settlement discussion with Akeva. Once those talks broke down, Mizuno obtained opinion counsel, which rendered an opinion that Mizuno’s products did not infringe either Akiva patent. Mizuno’s opinion counsel rendered the formal opinion approximately four months after the litigation commenced. During discovery, Akiva deposed Mizuno’s corporate representative and asked reliance on any advice of counsel when Mizuno initially manufactured and continued to manufacture the shoes after the suit was filed. In response, Mizuno’s corporate representative testified that the company relied on the advice of its trial counsel up until it the time that it received the formal opinion from separate opinion counsel. Mizuno’s corporate representative further acknowledged that, even after receiving the formal opinion, the company still relied partially on the advice of its trial counsel. Accordingly, Akeva sought to depose Mizuno’s trial counsel and demanded the production of documents from trial counsel regarding patent validity and infringement.

   In finding a broad waiver, the Akeva court noted that the privilege waiver does not, as Mizuno agued, exist only at a particular point and time as in when Mizuno received the opinion from separate opinion counsel. Instead, “because infringement is a continuing activity, the requirement to exercise due care and seek and receive advice is a continuing duty.” Accordingly, the waiver applied to all advice received concerning infringement, whether before or after the opinion letter. Since Mizuno also relied on the opinion of trial counsel, the court found that the attorney-client privilege waiver was not limited solely to opinion counsel. The court concluded that “[t]he totality of the circumstances that all knowledge gained by the infringer relating to the advice subject matter must be revealed so that the fact finder can make its own determination as to whether the reliance was reasonable.

The Akeva court then focused on the issue of whether Mizuno was required to produce trial counsel’s work product, which had not been shared with either opinion counsel or the client. While the court concluded that if trial counsel were the opinion counsel, a “full disclosure of documents” would be required, it stated that under the facts, when there was separate opinion counsel, trial counsel need not produce work product in its files, neither disclose to opinion counsel nor to the client.

Narrow Waiver

Other federal courts have found a narrow waiver of the attorney-client privilege and work product protection. These courts generally would limit the waiver of attorney-client privilege and the work product protection to only those communications and documents created prior to the suit or prior to delivery of the opinion. These courts argue in favor of a narrow waiver by noting that, in patent cases, courts generally construe the scope of the subject matter narrowly. In addition they stress that greater protection should be applied to litigation work product. Dunhall notes that: 

Although defendants have waiver work product protection by asserting the advice of counsel defense, that waiver is not absolute. Once the lawsuit is filed, the waiver of work product protection ends. This temporal limitation follows from the enhanced interest in planning. Following the filing of the lawsuit, defense counsel is engaged in critical trial preparation, often including analysis of the weakness of their client’s case. Such analysis, while likely related to the subject matter of the asserted defense, is fundamentally different from a similar pre-litigation analysis. In comparison to work product procedure prior to the filing of the lawsuit, litigation-related work product deserves greater protection.

In Sharper Image Corp. v. Honeywell International, Inc., the court adopted the narrow waiver of the attorney client privilege. Noting that the Federal Circuit has allowed this issue to remain unresolved, the court reviewed other lower court opinions and arrived at a narrow waiver conclusion. In Sharper Image, the advice of counsel at issue consisted of an opinion letter received from separate opinion counsel addressing the limited issue of the whether a specific product infringement upon a limited number of specifically identified patents. The court noted that the opinion letter did not address validity, enforcement, or pending patent applications. Despite this limited opinion, sharper Image argued that Honeywell had waived the attorney-client privilege and the work product protection with respect to (1) all counsel and firms, (2) all communications and work product, (3) generated before or after the lawsuit filing, (4) relating to infringement, validity, or enforceability, and (5) relating to patent in suit or any patents or patent applications covering related technologies of similar designs.

Rejecting these arguments, the court found a narrower waiver of privileges under the facts at hand. In doing so, the court found that the waiver was limited to communications addressing the specific subject matter of the advice, which discussed only infringement and neither validity or enforceability. The court further found that the waiver did not reach communications and documents related to a Honeywell’s pending patents applications and that the waiver separately retained trial counsel. The court, however, did note that the waiver extended to all communications with opinion counsel relevant to the matter of the advice without and temporal limitation.

As justification for adopting a narrow view of waiver, the Sharper Image court addressed what it called the “role of the sociology of patent litigation.” The court noted specific aspects of “patent litigation life” that it said courts cannot afford to ignore when considering the scopes of the waivers:

The first such fact is that in many patent cases, the parties are competitors or potential competitors. The fact intensifies not only their general incentives to litigate vigorously but also their interest in invading one another’s minds-searching for secrets about how things are done in the present and what plans are for the future.

The second fact is that heavily litigated patent cases often involve very large damage claims and the amount of pressure a defendant is under from exposure to treble damages obviously increases with the magnitude of the compensatory award.

The third fact is that in patent litigation a finding of willfulness to a complaint for patent infringement. And since an allegation of willfulness can impose great pressure on defendants and can create unique opportunities for plaintiffs to invade provinces otherwise off limits (confidential communications between client and lawyer and the lawyer’s work product), there are substantial incentives to add such an allegation to a complaint, even if there is no evidentiary foundation for it. As a result, allegations of willfulness have become almost a standard feature of complaints sounding in infringement.

Contrast this discussion with Circuit Judge Dyk’s comment, in his concurring and dissenting opinion in Knorr, referencing and amicus brief which describes: “a cottage industry of window-dressing legal opinions by third party counsel designed to protect the real decision-making process between litigation counsel and the company’s executives.”

Specific Issues Regarding the Scope of the Waiver

Despite a division of cases into “broad” and “narrow” waivers, there are specific issues which arise and are not necessarily decided by a court’s general leanings. A number of these cases have addressed one or more of the following three issues: (1) whether the waiver is subject to a temporal limitation, (2) whether the waiver extends beyond opinion counsel to trial counsel, and (3) whether the waiver extends to undisclosed and to contradictory work product.

Temporal Limitation

There is no general agreement among the federal courts whether any waiver reaches into the time period after the opinion is rendered or after the defendant was served with the complaint. Some courts would end the discovery when the opinion is delivered: “There is necessarily a temporal limit on this aspect of the waiver. It would end when the attorney rendered his opinion.” However, other courts have held that because the duty of care is continuing, documents communicated to the accused infringer commenting on the previously-delivered opinion letter are relevant to its “state of mind” concerning whether the infringement was willful. In Microm, when the opinion was delivered before suit, the court ordered production of all document relating to the issue of infringement up to the date the lawsuit was filed.

Work Product

Recently, in In re EchoStar, the Federal Circuit Court has attempted to answer pending questions addressed by varying district court decisions on the scope of the waiver of attorney work product associated with a disclosed attorney opinion. In its decision, the Court stated: (1) the attorney-client privilege and work-productions are “two distinct concepts and waiver of one does not necessarily waive the other,” and (2) work-product waiver only extends to “factual” or “non-opinion” work product concerning the same subject matter.

The Court recognizes three (3) categories of work-product concerning the subject matter of the case, and concluded that each is to be treated differently:

1.            “Documents that embody a communication between the attorney and the client”-if the advise of counsel defense is utilized, there is waiver for this category;

2.            “Documents analyzing the law, facts, trial strategy that reflect the attorney mental impression but were not given to the client”-there is no waiver; and

3.            “Documents that discuss that discuss a communication between attorney and client but are not themselves communications to or from the client”-some such documents are discoverable and some are not, with the test being whether “it will aid the parties in determining what communications were made to the client and protect against intentional or unintentional withholding of attorney-client communications” Though such a document may be discoverable “legal analysis that was not communicated” may also be redacted.

   There has been considerable division among the federal courts regarding the scope of the waiver applicable to work product that counsel generated pre-suit but di not disclose to the client. Should the attorney rendering the opinion be required to turn over documents from his file which contains information never communicated to the client? Some courts have said “no,” relying on the fact that the most important issue for the court is the client’s state of mind-not whether the attorney was legally correct. Thus, the court in Micron wrote:

[I]t is important to keep in mind that what is relevant is [the infringer’s] state of mind. ‘Counsel’s mental impressions, conclusions, opinion or legal theories are not probative of a client’s state of mind unless they have been communicated to the client.’

   In Themos Co. v. Starbucks Corp., the court stated issue directly. What about the interim work of the attorney prior to rendering the opinion?

Federal courts are split on the issue of whether non-communicated work product must be produced in these circumstances. The rational in our finding is best illustrated in a hypothetical. Consider a company hires counsel to issue an opinion on possible patent infringement. During her research, the retained counsel discovers information not fully supportive o f the company’s position but never communicates the information to her client. Instead, counsel continued researching the relevant issues and ultimately delivers a thorough opinion letter in which she concludes that her client’s proposed activity would not infringe on an existing patent. Defendants need only produce work product communicated on them.

   Other courts at least would order production of those documents in the attorney’s file which contradict the conclusions reached in the opinion letter.

[B]y limiting the waiver of the privilege only to those matters which are communicated to the clients, Thorn and its progeny have effectively encouraged patent counsel to place only the most favorable version of the facts and the law in their opinion letters, even if these attorneys are aware of other information which is far less helpful to their client.

   In Electro Sci. Indus., Inc v. General Scanning, Inc., the rational was that even if the attorney’s state of mind was not directly relevant, documents from the attorney’s file could provide circumstantial evidence of the client’s state of mind.

The fact that the analyses and conclusions in the lawyer’s private file were clearly at odds with the contents of the disclosed opinion would tend to support an inference that there were additional communications between client and [opinion] counsel and that, in those communications, the client received opinions that were not consistent with the views expressed in the letter.

Opinion Counsel & Trial Counsel

When opinion counsel and trial counsel are separate and their work is conducted without consultation, it is easy enough to apply the waiver to one and not the other. How ever, if a client receives material from trial counsel which contradicts the opinion, it may have to be disclosed. With fairness in mind, these courts argue that a “party should not be allowed to rely on self-serving statements while withholding damaging or contradictory information under the pretense of attorney-client privilege. The courts, however, also note a higher standard for waiver of opinion work product for trial counsel. Accordingly, these courts would extend the waiver of trial counsel only to the extent documents were communicated to the alleged infringer and contained conclusions or advice that contradict or case doubt on the earlier opinions.

In Technitrol, Inc. v. Digital Equip. Corp., the court ordered production of documents received by the accused infringer from counsel other than opinion counsel, reasoning that “if the [waiver] rule were limited to only a particular counsel, a party might get several viewpoints and assert reliance on only one, thus barring an inquiry as to the actuality and reasonableness of that reliance.”

When the attorney rendering the opinion is also trial counsel for the accused infringer, courts nevertheless are reluctant to order production of some documents from trial counsel’s file. The court in Microm refused to order disclosure of any documents of which were disclosed to the alleged infringer when those documents contained the mental impressions, conclusions, opinions, or legal theories which were consistent with the opinion letter and did not contradict the opinion letter or the bases of the opinions contained in the opinion letter. In Akeva, the court ordered limited waiver of trial counsel’s work product, requiring production only of work product revealed to the client or opinion counsel, relating to the subject of the opinion.

Timing: When Is the Patent Holder Entitled to the Opinion Letter and Related Materials?

The timing of when the alleged infringer must produce the opinion letter (and related documents) to the patent holder is influenced be competing interests: (1) the patent holder’s desire to obtain the opinion letter early in the litigation to assess willfulness versus; (2) the alleged infringer’s desire to decide latter in the case whether to produce the opinion and waive its privilege or, even after it has decided to produce the opinion , a perceived need to withhold the opinion letter until later in the litigation because the letter can be, in effect, a “roadmap” to its strategy.

Some federal courts have held that an alleged infringer is entitled to reasonable discovery before making a determination with respect to production of an opinion letter.

If requested, the court may conduct an in camera review of the privileged attorney-client communications to determine if production should be delayed or even if there should be a bifurcation of the willfulness issue.

The consequences of the in camera review have been summarized as follows:

If the [Court] decides that early discovery of defendant’s documents would unfairly prejudice defendant on the liability issue, the [Court] could order the issue of willfulness to be reserved. Defendant would then have the opportunity after a liability determination was reached to decide whether to assert the reliance-upon-the-advice-of-counsel defense. Conversely, if the [Court} determines that a defendant would not be unfairly prejudiced by early discovery of its attorney-client communications, the court would be justified in refusing to sever the issue of willfulness and ordering a unified trial. At this point, defendant would be required to make an election regarding his defenses. If defendant chose to assert the advice-of-counsel defense, plaintiff would be entitled to timely discovery of the attorney-client communications. Otherwise, the attorney-client privilege would be preserved.

The reached the same conclusion in Pittway: “If after in camera review of any attorney-client communications bearing on willfulness, the Court concludes that a unitary trial on the issue of liability and willfulness poses a substantial risk of prejudice to the [defendant], then the Court may order separate trials on the issues of liability and willfulness. Alternatively, the Court may deem it best to require [defendant], after an opportunity to take reasonable discovery on the other aspects of the case, to decide whether it will assert a good faith reliance defense. Then the Court will decide whether to separate liability and willfulness.”

Once court balanced the interests of the parties by delaying discovery of the opinion letter and related documents until just prior to the discovery cut-off in the case.

Conclusion

Opinion letters continue to be an important part of an accused infringer satisfying its duty of due care. The proceedings in Knorr contain hints that the Federal Circuit Court will not tolerate opinion letters not written in good faith nor allow accused infringers to “pick and choose” among different advice of counsel. In EchoStar, the Circuit has now written on the differences in the scope of waiver of attorney-client privilege and attorney work product. These cases provide guidance, but an accused infringer nevertheless must exercise caution in its dealings with counsel in these areas.