Privilege Claims and the Common Interest Doctrine
In a recent decision, in the District of Massachusetts, Magistrate Judge M. Page Kelley addressed the validity of privilege claims regarding third party communications under the common interest doctrine. In this case, plaintiffs Crane Security Technologies, Inc. and Visual Physics, LLC, a wholly-owned subsidiary of Crane Technologies, Inc. (collectively, “Crane”) alleged that defendant Rolling Optics, AB (“RO”) infringed the Crane patents that “relate generally to optical systems that project synthetic images that ‘move’ and that include image icons formed as voids or recesses” therefore, “useful as [an] anti-counterfeiting feature on currency.”
Crane is the exclusive licensee to the patents-in-suit from third party, Nanoventions (“NV”). The relationship between the parties began in 2002 when Crane entered into a confidentiality agreement with NV because Crane was interested in using NV’s optical system as a security device on currency. Over the course of the next several years, Crane and NV entered into numerous additional agreements, culminating in Crane’s “purchase [of] the intellectual property from NV in 2008.” During discovery, RO challenged approximately 600 entries on Crane’s privilege log regarding certain communications between Crane and third parties pertaining to the Crane’s transactions with NV, including: (1) communications between Crane and NV dated before the 2004 license agreement, while NV was prosecuting the patents-in-suit; (2) communications between Crane and NV regarding Crane’s 2008 purchase of the patents-in-suit; (3) communications between Crane and an investment banking firm that assisted with the acquisition of the patents-in-suit; and (4) communications Crane shared with non-parties, e.g., communications between non-attorneys and attorneys’ memoranda to the file. Crane objected to RO’s challenge, claiming that the documents were protected by the attorney-client privilege and the common-interest doctrine. RO moved to compel production of the withheld documents.
The court found that all of the challenged communications were protected by the common interest doctrine because all parties involved in the communications shared identical legal interests regarding the patents-in-suit. The court outlined several key factors of the doctrine regarding the categories of communications.
As to the first category – communications between Crane and NV dated before the 2004 license agreement, while NV was prosecuting the patents-in-suit – RO argued, among other things, that these communications were not privileged because there was not any confidentiality agreement, “written or otherwise,” in place that protected communications concerning the patents-in-suit, nor was there a common interest in the patents-in-suit. The court found that at the time of these communications the parties were bound by the 2002 confidentiality agreement and were negotiating an exclusive license agreement. According to the court, the common interest doctrine applied: “[t]he communications themselves demonstrate both that the parties were working together to develop strong patents and an expectation that the communications would be confidential.”
Regarding the second category of communications – between Crane and NV regarding Crane’s 2008 purchase of the patents-in-suit – RO argued that the parties “were negotiating at arms’ length, and so did not have a common legal interest.” The court acknowledged that in certain negotiations the common interest doctrine may not apply, e.g., mergers, but cases involving patent negotiations are special: “as long as the communications between buyer and seller concern the strength and enforceability of the patents, they are primarily for a legal purpose and are protected under the common-interest doctrine.”
For similar reasons, the court found that the third category of communications – between Crane and an investment banking firm that assisted with the acquisition of the patents-in-suit – were also protected by the common interest doctrine. Following the holding of the First Circuit in Cavallaro and relying on a declaration from Crane’s outside counsel, the court found that these communications met the three elements in Cavallaro: the communications were (1) “for the purpose of seeking legal advice,” (2) “indispensable to the provision of legal advice,” and (3) “intended to be confidential.”
Finally, the court noted after careful review that the fourth category of documents was privileged, without any specific link to the common interest doctrine.
This case is particularly useful for any entity contemplating a patent transaction such as a license, an exclusive license, an acquisition of patented technology, or even the joint development of patented technology. In these patent negotiation instances, it is arguable that each entity, although seemingly “negotiating at arms’ length” has a shared identical legal interest regarding the strength and enforceability of the patents of interest thereby protecting all communications between the parties, including some third parties, under the common interest doctrine. With this authority in mind, it should ease the mind of entities sharing information on diligence calls and data rooms.
Gibbons will continue to monitor and report on additional developments of the common interest doctrine as they become available.