The Federal Circuit Court of Appeals has determined that a district court in California erred by failing to consider issues of fairness when it (i) determined that pre-litigation disclosure of a letter protected by attorney-client privilege waived discovery beyond the four corners of the letter; and (ii) entered contempt sanctions against the law firm which authored the letter and failed to comply with discovery orders relating to the letter’s subject matter in a patent dispute between the law firm’s client and the company to which the letter had been disclosed. Wi-LAN, Inc. v. LG Electronics, Inc., No. 2011-1626 (Fed. Cir., decided July 13, 2012).
The law firm’s client, Wi-LAN, had disclosed to LG Electronics a confidential letter containing counsel’s analysis of Wi-LAN’s patent rights and counsel’s opinion that LG Electronics was practicing Wi-LAN’s technology and thus owed royalties on its license. According to the court, “Apparently, Wi-LAN hoped that the letter’s reasoning would convince LG to revise its position and begin paying royalties.” When the letter did not have the desired effect, Wi-LAN sued LG for patent infringement, and LG subpoenaed the law firm, seeking documents and testimony relating to the letter’s subject matter. The firm unsuccessfully sought to quash the subpoena, claiming that “fairness does not compel a subjectmatter waiver.” The firm was also found in contempt for not complying with the district court’s discovery orders.
While the Federal Circuit agreed that the letter was privileged and that Wi-LAN’s disclosure waived the privilege as to the letter itself, the court concluded that in the Ninth Circuit, where the discovery dispute arose, a fairness balancing test as to the scope of the waiver would likely be applied. Thus, the court remanded the matter for the district court to evaluate “whether LG would be unfairly prejudiced by Wi-LAN’s assertion of privilege against discovery into attorneyclient communications beyond the four corners” of the letter when assessing the scope of the waiver. The court also vacated the sanctions imposed against the firm for contempt, but did not rule them out, noting that the firm “had options that it did not pursue” when disputing the subpoena’s lawful scope.