In a decision with significant ramifications for attorneys and their outside advertising agencies, the 7th Circuit rejected an argument that attorney-client privilege protected Whirlpool from disclosing communications between the company’s attorneys and its outside ad agencies relating to allegedly false advertising.

Advertisers typically work closely with their agencies to produce ad campaigns. During the design and review process, counsel for the advertiser will often be asked to comment on the legality of ad claims. Typically, these exchanges will occur between the agency staff working on the project and the advertiser’s lawyer and businesspeople via e-mail.

In the 7th Circuit case, LG Electronics filed suit against Whirlpool alleging trademark infringement of a dryer that used steam to reduce wrinkles. During the pre-trial discovery process, Whirlpool refused to produce communications between its attorneys and its outside advertising agencies relating to the dryer.

LG contended that the communications were not privileged, because the ad agency was a third party to whom the attorney-client privilege does not apply. Whirlpool argued that the agency account team worked so closely with its in-house counsel and businesspeople that they were like “de facto” employees. Some of the agency employees actually worked at Whirlpool offices or had Whirlpool security clearance. But the court rejected Whirlpool’s argument, ordering that all of the communications be turned over to LG.

The court said that the agency had its own counsel and its own obligation to review ads, so its employees did not rely completely on the advice of Whirlpool in-house counsel in the same way that Whirlpool’s own employees would. Further, the court rejected Whirlpool’s argument that the communications should be privileged because it shared a “common interest” with its advertising agency to produce lawful advertisements. That interest amounted to a desire not to be sued, the court said, which was not enough to transform their mutual commercial interest in an advertising campaign into a coordinated legal strategy, especially because when the correspondence took place there was no litigation on the horizon.

Why it matters: In the past, many advertisers have routinely treated such communication as part of its attorney-client privilege or attorney work product material, such that if the advertiser was later sued for false advertising, they would not have to turn such internal deliberation materials over in litigation to the other side. The decision now casts a serious shadow over the common working style of advertisers and their agencies, and places them in a more cautious position regarding the sharing of information and advice. The advertiser will not be able to share “legal advice” without fear of later disclosure, while the agency will have to make sure its own counsel exercises independent oversight. This will place agencies and advertisers more at arm’s length in their communications with one another.