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Microsoft Corporation v. Acacia Research Corporation

United States District Court, S.D. New York

November 17, 2014

MICROSOFT CORPORATION, Plaintiff,
v.
ACACIA RESEARCH CORPORATION, Defendant.

OPINION & ORDER

PAUL A. CROTTY, District Judge.

Plaintiff Microsoft seeks an order compelling the production of Defendant Acacia's communications with third parties who sold patents to Acacia. Acacia's assertion of the common interest privilege to justify its refusal to produce the requested documents is DENIED. Acacia is directed to comply with Microsoft's discovery request.

BACKGROUND

Acacia is a non-practicing entity which purchases patents for subsequent licensing to third parties. As part of its acquisition process, Acacia solicits information regarding possible infringements from the sellers. See e.g., ECF No. 74, Ex. 2 (a patent questionnaire containing the following question: "Does [the patent holder] know of or suspect infringement of these Patents? Who do you think infringes/where/how?"). After the parties sign the patent purchasing contract, a period of due diligence commences. Acacia claims that during this period, it produces various legal documents and legal analyses, which are covered by the attorney-client privilege. Acacia, however, shares these documents with the patent sellers Acacia is negotiating with. Notwithstanding its disclosure to third party sellers, Acacia argues that its attorney-client privilege remains intact due to the common interest doctrine. Acacia's argument is rejected: disclosures to the patent sellers waives the attorney-client privilege and the common interest doctrine is not applicable to Acacia's commercial relationship with the sellers.

DISCUSSION

I. Legal Standards

"The attorney-client privilege protects communications (1) between a client and his or her attorney (2) that are intended to be, and in fact were, kept confidential (3) for the purpose of obtaining or providing legal advice." U.S. v. Mejia, 655 F.3d 126, 132 (2d Cir. 2011).[1] Typically, disclosing information protected under the attorney-client privilege to third parties waives the privilege. In re Horowitz, 482 F.2d 72, 81 (2d Cir. 1973). There is, however, an important exception when third the party recipient shares a common legal interest. To trigger the application of this doctrine and preserve the privilege, the disclosing party must demonstrate that (1) the parties had a common legal, rather than commercial, interest; and (2) the disclosures were made in the course of formulating a common legal strategy. Schaeffler v. U.S., No. 13 CIV. 4864 GWG, 2014 WL 2208057, at *8 (S.D.N.Y. May 28, 2014). The burden of establishing the privilege falls on the party asserting it, see Doe (In re Grand Jury Proceedings), 219 F.3d 175, 182 (2d Cir. 2000), and must be based on "competent evidence, such as affidavits, deposition testimony, or other admissible evidence." Schaeffler, 2014 WL 2208057, at *8. Moreover, "the Second Circuit has warned that expansions of the attorney-client privilege under the common interest rule should be cautiously extended.'" In re F.T.C., No. M18-304 (RJW), 2001 WL 396522, at *4 (quoting United States v. Weissman, 195 F.3d 96, 100 (2d Cir. 1999)).

II. Application

A. Attorney Client Privilege

Both parties agree that the materials sought in discovery - comprised of draft claim charts and pre-suit analyses - reflect confidential legal advice between Acacia and its legal team. See In re County of Erie, 473 F.3d 413, 419 (2d Cir. 2007).

B. Common Interest Doctrine

Acacia argues that the materials remain privileged, notwithstanding their disclosure to third party sellers, because a common legal interest exists and because the disclosures were made in the course of formulating a common legal strategy. The argument is rejected. Acacia is pursuing its own commercial interest in attempting to ascertain whether the patents at issue are fertile with the possibility of infringement.

Acacia points to (i) the privilege clause contained in each patent sale contract, [2] (ii) the timing of the disclosure, and (iii) the royalty entitlements. The privilege clause, Acacia argues, provides that the disclosure of privileged information between Acacia and the seller "in furtherance of their common legal interest" does not diminish or waive attorney-client privilege. See Ex. A, § 8.2. But mere recital is hardly conclusive or compelling on whether such an interest exists. Schaeffler, 2014 WL 2208057, at *12.

While the disclosures were made during the due diligence period - after the parties had signed an agreement - in reality that timing does not establish a common interest. The disclosures were not contingent on the signed agreement; they were contingent on Acacia finding satisfactory information during the investigation process, otherwise "(i) [Acacia] shall have no payment obligations or liability to [the seller]; and (ii) this Agreement shall automatically terminate upon completion of the Investigation period." Ex. A, § 1.3. Therefore, a ...


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