For all the protection the attorney-client privilege offers, it presents a bevy of potential pitfalls that may lead to the ultimate disclosure of the privileged documents. For example, disclosing confidential attorney-client privileged documents during patent license negotiations may result in the loss of the privilege. Similarly, intentionally disclosing some documents regarding patent-related advice may result in a loss of privilege for the entire subject matter of the documents.

Recently, United States Magistrate Judge Franklin L. Noel highlighted the importance of remembering these two ways in which the attorney-client privilege can be lost. See Luminara Worldwide, LLC v. Liown Elecs. Co. Ltd, No. 14-3103 (SRN/FLN), Dkt. No. 292 (D. Minn. October 2, 2015).

The dispute in Luminara involves several patents related to the Artificial Flame Technology developed by Disney Enterprises, Inc. (Disney). In 2008, Luminara’s predecessor signed a license agreement with Disney for the Artificial Flame Technology. Luminara now holds the exclusive license to the technology. In a motion to compel documents from Disney’s privilege log, Liown argued that Disney waived any privilege for documents disclosed to Luminara’s predecessor during negotiations for the license to the patents now at issue in the litigation. Some of the documents apparently related to the enforceability of the patents.

Judge Noel noted the principles behind the attorney-client privilege and highlighted its expansion through the “common interest doctrine,” which in certain limited circumstances protects communications between two or more clients and their attorneys. Patent negotiations for an exclusive license can be one of those situations. See, e.g., In re Regents of the Univ. of Cal., 101 F.3d 1386, 1389-90 (Fed. Cir. 1996).

In Luminara, Judge Noel did not need to resolve the dispute of whether the Disney negotiations were protected by the common interest doctrine because even if they were, Judge Noel found Disney waived any such protection by disclosing some of the documents pertaining to the negotiations.

Under Federal Rule of Evidence 502, in the interest of fairness, certain limited disclosures of privileged documents may lead to a much broader waiver of all documents pertaining to the same subject matter:

When [a] disclosure is made in a federal proceeding or to a federal office or agency and waives the attorney-client privilege or work-product protection, the waiver extends to an undisclosed communication or information in a federal or state proceeding only if:

  1. the waiver is intentional;
  2. the disclosed and undisclosed communications or information concern the same subject matter; and
  3. they ought in fairness to be considered together.

Fed. R. Civ. P. 502(a). As Judge Noel explained, the Rule serves to prevent a party from using the privilege as a sword—by disclosing favorable documents—and as a shield—by withholding unfavorable documents.

In the instant dispute, Judge Noel found that fairness required a waiver of all documents related to the same subject matter. Both the documents disclosed by Disney in discovery (the original license and a PowerPoint presentation sent to Disney’s inside counsel outlining how the license agreement could be “optimized”) were protected by the attorney-client privilege. However, by intentionally disclosing them to Liown during discovery, Disney waived protection for not just those two documents but any other documents regarding the same subject matter. Recognizing there is no bright line test for determining the scope of the subject-matter waiver, Judge Noel held the waiver applied for any responsive, relevant documents that relate to the license agreement negotiations for the patents in the suit.

The decision is an important reminder on the informed and strategic decision attorneys must carefully make before sharing privileged documents with any third party, whether in negotiations or litigation.

A copy of the order can be found here.