Think Twice Before Sharing Privileged Documents with a Potential Patent Licensee

January 22, 2016

By Nikola L. Datzov

You May be Making It Easier for a Party to Later Invalidate the Patent 

It is not uncommon for a party seeking to license or acquire a patent to request information from the patent holder regarding the patent’s validity and strength. Often, this includes highly confidential documents between the patent holder and attorneys, which are generally privileged and protected from disclosure. However, disclosing privileged documents to a third party usually constitutes a waiver of the privilege. In limited circumstances, the “common interest doctrine” allows two or more entities with a joint interest to share privileged information without waiving its protection. This can include, for example, communications between separate parties negotiating a patent license. Before disclosing any privileged communications to a potential licensee, though, a patent holder should carefully consider whether they may be discoverable in subsequent litigation by a party seeking to invalidate the patent.

A prior blog post discussed a recent order from the District of Minnesota highlighting the complexity of ensuring privileged documents stay privileged during patent license negotiations. In the order, the magistrate judge granted the moving party’s (Liown) request for discovery of patent license negotiation communications. The magistrate judge reasoned that even if the common interest doctrine applied, the party asserting privilege (Luminara/Disney) waived the privilege by disclosing two documents from those negotiations during the litigation. The two documents disclosed were a draft of the original patent license between Disney and Candella (Luminara’s predecessor) and a PowerPoint presentation sent from Candella to Disney’s inside counsel.

On appeal, the Honorable Susan Nelson, reversed the magistrate judge’s decision, holding that Disney did not waive its privilege. Although both disclosed documents involved legal topics, Judge Nelson found that neither the draft agreement nor the PowerPoint presentation were privileged or protected by the common interest doctrine. There was simply “no indication that legal advice or services were being sought or provided by exchanging the Email and Presentation.” Luminara Worldwide, LLC v. Liown Elecs. Co. Ltd, No. 14-3103 (SRN/FLN), Dkt. No. 332, at 12 (D. Minn. Nov. 30, 2015). Because disclosed documents must themselves be privileged to be the basis of a waiver, see id. at 9-10, Disney’s disclosure during the litigation could not be a waiver of any privileged negotiation documents. Of course, this did not necessarily shield the documents from disclosure. If the remaining documents given to Disney were not protected under the common interest doctrine, they, too, were likely discoverable.

On remand, the magistrate judge found Disney’s documents and communications sent to Candella were discoverable.1 After explaining that Disney carried the burden to show the documents and or communications were protected under the common interest doctrine, the magistrate judge found that “there [was] nothing in the record that any common interests between Disney and Candella/Luminara during the negotiations of the licensing agreement were in fact legal. Rather, … the negotiations were strictly commercial in nature.” Luminara Worldwide, LLC v. Liown Elecs. Co. Ltd, No. 14-3103 (SRN/FLN), Dkt. No. 355, at 5 (D. Minn. Jan. 11, 2016).

Thus, the basis that saved Disney from a waiver (lack of privilege) was also the reason for requiring disclosure of the remaining documents. Disney obviously believed that the two documents it disclosed were not privileged, whereas the documents it withheld were privileged. The magistrate judge disagreed, and at least for the time being, Disney must produce all those documents.

Drawing the line of privilege is a fact-specific and context-driven task. Anticipating where a court might draw the line in advance can be difficult. But it should not be disregarded. Before voluntarily disclosing favorable and privileged documents to a potential patent licensee, a patent holder should carefully consider the risks for loss of privilege not only for the documents disclosed but also those relating to the same subject matter. Inadvertently, it may also be disclosing unfavorable privileged documents to a party later seeking to invalidate its patent.

A copy of the most recent order can be found here.


1 At the time this post was written, Disney’s time to appeal the magistrate judge’s order had not yet expired.

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