Think Your Correspondence With Litigation Funders Is Protected From Discovery? Think Again …
Many patent owners require participation of litigation funding companies in order to pursue licensing and litigation enforcement programs. Litigation funders need to study the merits, strengths, and weaknesses of the key aspects of any patent infringement case – infringement, validity, and damages – before they decide to provide funding. Discussions between the patent owner and the funding company, and their respective lawyers as well, must be very carefully planned and controlled if the documents -- including correspondence and even legal opinions -- are to remain shielded from compelled disclosure to opposing parties in any subsequent patent enforcement litigation.
The likelihood of obtaining litigation funding often depends on the extent of substantive discussions between a patent owner and potential litigation funders. Unfortunately, increased likelihood of funding also increases the likelihood that those substantive discussions – both oral and written – will be discoverable in any subsequent litigation. This is particularly so where the patent owner had discussions with funders that did not result in any litigation funding deal. In those circumstances, it may be difficult to shield the correspondence and discussions from disclosure on the basis of either the attorney-client privilege or the doctrine of attorney work product immunity. Extreme care must be exercised in these situations because litigation funders sometimes tend to understate or downplay the risk of subsequent compelled disclosure in litigation. Statements like “courts almost universally apply the work-product doctrine to protect your litigation funding materials” or “funding is more likely when robust substantive attorney-client privileged discussions are conducted” or “our funding discussions and shared documents are shielded by the common interest doctrine” must be viewed as suspect, and motivation of the sources of such assertions must be considered.
Stressing the risks would tend to hamper a litigation funder’s ability to obtain potentially crucial information from the patent owner, and thus may not serve the litigation funders’ purposes. Thus, patent owners should be especially wary of assertions by litigation funders that their substantive discussions about the strengths and weaknesses of a given infringement claim are covered by the attorney-client privilege, or the attorney work product doctrine, or the common interest doctrine. A brief review of these different legal doctrines reveals their limitations in the litigation funding discussion context.
First, there is no doubt that confidentiality of the substantive funding discussion is irrelevant to the issue of discoverability, i.e., compelled disclosure to an adversary, in subsequent litigation. U.S. courts enter protective orders specifically to enable discovery of confidential, and even highly confidential “attorney’s eyes only” information.
Second, the attorney-client privilege is generally inapplicable because there is no attorney-client relationship between a patent owner and any prospective litigation funding company. The parties are simply separate entities negotiating a possible arm’s-length commercial transaction between them; typically, the patent owner and litigation funder have their own separate counsel. Bear in mind that the attorney-client privilege applies only to communications (both oral and written) that are: (1) made by an attorney to a client, or a client to an attorney; (2) in confidence (in the sense that it is strictly and only between the attorney and client); (3) for the purpose of obtaining or providing legal advice. This narrow scope of what is protected by the privilege raises some obvious issues in the litigation funding context. For example, the patent owner may not share a legal opinion obtained from its lawyer with a prospective litigation funder without violating the “in confidence” requirement, and thereby waiving any claim of privilege that may have been possible. Conversely, a legal opinion rendered to a litigation funding company may not be shared with the patent owner without likewise effecting a waiver of the attorney-client privilege.
Sometimes one lawyer represents multiple clients and, in this case, may advise both without any resulting waiver of privilege. However, at the investigation and negotiation stage of a litigation funding deal, the patent owner and funder have potentially adverse interests and such joint representation is exceedingly rare, even if it can be arranged within the constraints of all applicable rules of ethics governing attorney conduct.
Third, while reliance on the common interest doctrine to facilitate sharing of otherwise privileged litigation funding materials without causing a waiver of the attorney-client privilege is sometimes possible, courts do not always accept this legal theory. When a court rejects it, the consequences can be severe where the discoverable communications include unfavorable statements or information. The common interest doctrine protects parties having shared interests in actual or potential litigation against a common adversary, from waiving their right to assert privilege when they share attorney-client privileged materials. Unlike joint representation of multiple clients by a single attorney, the common interest doctrine arises when clients with their own respective attorneys share privileged materials in order to coordinate their legal activities.
The rules, requirements, and limitations of the common interest doctrine vary from individual state to state and among the twelve separate federal judicial circuits of the United States, and there are splits of authority even within states or judicial districts. Circumstances supporting application of the doctrine in one court in a particular state or federal jurisdiction within the U.S. may not support it in another court even in the same state or federal district. For example, some courts limit applicability of the common interest doctrine to information shared between the separate parties’ attorneys, and not to materials shared with the clients themselves, stressing that the purpose of the exception to regular waiver-of-privilege rules is to allow for the lawyers to coordinate their activities on behalf of their separate clients.
Most courts require that the members of the community of interest share at least a substantially similar legal interest, and not merely a common commercial interest. Some courts require the legal interests of the parties to be closer to “legally identical” than “legally similar” – and this requirement can be problematic, as the litigation funder’s interest is purely commercial, and not legal at all. The litigation funder owns no patent rights, has no legal right to sue for infringement, and no legal right to collect damages from infringers, generally speaking. Thus, in jurisdictions where the common interest doctrine is only available to parties who share identical or nearly-identical legal interests, the doctrine is of limited use in protecting shared litigation funding materials and correspondence from compelled disclosure in subsequent litigation.
Fourth, successful use of the attorney work product immunity against compelled disclosure is also not guaranteed. Under Federal Rule of Civil Procedure 26(b)(3)(A) and similar state law procedural rules, documents prepared in anticipation of litigation or for trial by or for a litigant, prospective litigant, or its representative are protected from discovery by litigation adversaries. Some courts require that the documents must have been created “primarily” for the purpose of litigation. This requirement can present an insurmountable obstacle when the court views the documents as having been created “primarily” for the purpose of obtaining litigation funding, and not for the litigation itself – an observation that is necessarily accurate in every case. While it is true that some courts do not adhere to this perspective of the litigation funding situation, it is also true that some do; how the scenario will unfold in the future is difficult to predict.
Of course, in order for litigation funding materials to be discoverable, they must contain relevant information in the context of the infringement litigation. However, documents analyzing the key issues of infringement, validity, and damages are more likely than not relevant, and even highly relevant, in this context.
In sum, the best way to avoid compelled disclosure of litigation funding materials is to avoid sharing them in the first place. Experienced patent owners and litigation funders typically have their own separate lawyers who can (and do) independently evaluate the strengths and weaknesses of a particular patent enforcement litigation plan. The funder and patent owner may negotiate as they see fit, armed with the opinions obtained from their own counsel, without needing to share any materials that would normally be protected against discovery in the anticipated litigation. In all other circumstances where the funder does not obtain legal advice from separate counsel, extreme care must be exercised in the planning and sharing of otherwise privileged or discovery-shielded materials, because failure to do so may result in surprising, unexpected, and at least embarrassing disclosures to litigation adversaries later And such disclosures may in some cases be far worse than merely embarrassing – they may even be case-dispositive in extreme situations.[1]
[1] The views expressed in this article are solely those of the author and not necessarily of Osha Bergman Watanabe & Burton LLP.
