The opinion of the court was delivered by: Judge Sargus
This order addresses the third in a series of discovery-related motions which the parties filed on January 4, 2007. The subject of this order is Roxane's motion to compel production of improperly withheld documents (#86). For the following reasons, the motion will be denied.
In one of its discovery requests, Roxane requested that Nabi provide documents which it obtained from Braintree Laboratories. Nabi has claimed the attorney-client privilege for some of those documents. Roxane does not dispute that the documents were privileged when initially created but contends that any privilege was vitiated when Braintree disclosed the documents to Nabi in connection with Nabi's purchase of, among other assets, the patents involved in this case (or the pending patent applications which ripened into the '665 and '445 patents).
The facts relating to this issue are not seriously in dispute. Before Nabi acquired assets relating to the sale of PhosLo(r) calcium acetate products, Braintree owned the original patent for the PhosLo(r) gelcap. It is that patent which expires this year. Subsequently, Braintree either applied for or acquired additional patents for calcium acetate products. It then sold the entire product line to Nabi, including any patent applications which were then pending. At least one of those applications ripened into a patent which is at issue in this suit.
As is customary, during the course of its application for these patents, Braintree communicated with attorneys. Those communications are concededly covered by the attorney-client privilege.
After the asset purchase agreement between Braintree and Nabi was completed, Nabi continued to pursue the patent applications which were pending. Although it hired its own patent attorneys to prosecute those patent applications, it was given copies of certain communications between Braintree and prior patent counsel in order to assist it in the process. Roxane requested those documents during discovery and Nabi refused to produce them, or portions of them, on grounds of the attorney-client privilege. Roxane has now moved to compel production of the documents.
Roxane's motion raises two somewhat independent issues. The first is whether Nabi, by virtue of the transfer of assets from Braintree, including the pending patent applications, somehow "acquired" the attorney-client privilege in question. If that were so, Nabi would simply stand in Braintree's shoes for purposes of asserting the privilege. The second issue is whether the privilege survived the disclosure of the documents to Nabi. Ordinarily, of course, disclosure of privilege documents to a third party is a waiver of the privilege, but an exception exists where the third party and the privilege holder are engaged in some type of common enterprise and the legal advice relates to the goals of that enterprise. Under those circumstances, the parties are permitted to share privileged information without a waiver occurring.
The parties' memoranda devote considerable discussion to the question of how and when an asset purchase or other transfer of some or all of an ongoing business also effects a transfer of the attorney-client privilege which originally belonged to the transferring party. Roxane, relying on decisions such as Yosemite Investment v. Floyd Bell, Inc., 943 F.Supp. 882 (S.D. Ohio 1996), contends that such a transfer occurs only if the second party essentially assumes the complete business of the first so that it is in fact, if not in law, a successor-in-interest. On the other hand, Nabi, citing decisions such as Soverain Software LLC v. The Gap, 340 F.Supp.2d 760 (E.D. Tex. 2004), asserts that it is not necessary for the transferring party to dissolve or discontinue business altogether in order to transfer its attorney-client privilege and documents relating to the transferred assets. Roxane also argues that, even if the transfer involved in this case might ordinarily have carried with it the attorney-client privilege, the Asset Purchase Agreement entered into between Braintree and Nabi specifically reserves that privilege to Braintree. The Court need not reach these arguments because it concludes that, even if Braintree reserved the attorney-client privilege for these documents (and it is not clear from section 5.3 of the Asset Purchase Agreement that Braintree did so), the "community of interest" doctrine applies here and precludes a finding that Braintree's disclosure of these documents to Nabi waived the applicable privilege.
The "community of interest" or "common interest" doctrine is a well-established concept within the law applicable to claims of attorney-client privilege. It typically arises in the context of litigation when two parties are either represented by the same attorney or are independently represented but have the same goal in the litigation. Under those circumstances, they may freely share otherwise privileged communications without waiving the privilege. Thus, for example, when an insurer and an insured are both represented by the same attorney in the context of litigation against the insured by an injured party, both the insurer and the insured may communicate with the same attorney, and the attorney with each of them, without any waiver occurring vis-à-vis the plaintiff. See Netzley v. Nationwide Mutual Insurance Co., 34 Ohio App. 2d 65 (Montgomery Co. 1971); see also Simpson v. Motorists Mutual Insurance Co., 494 F.2d 850 (7th Cir. 1974). As explained in In re Regents of University of California, 101 F.3d 1386, 1389 (Fed. Cir. 1996), the purpose of the doctrine is to permit persons with similar legal interests, but represented by different counsel, to enjoy the same ability to communicate confidentially about their common interests with multiple attorneys that each client enjoys separately. Such communications foster the furtherance of the common interest and encourage the parties to make full and adequate disclosure to the attorneys who, jointly, have been tasked with accomplishing the legal interests of their respective clients.
As the same court recognized, the community of interest doctrine is not limited to litigation situations but may also apply "in connection with patent rights." Id., citing Baxter Travenol Labs v. Abbott Labs, 1987 WL 12919 (N.D. Ill. June 19, 1987) and SCM Corp. v. Xerox Corp., 70 F.R.D. 508 (D. Conn. 1976). In the Regents case, the court concluded that two totally independent parties, Eli Lilly and the University of California, shared a common legal interest in the advancement of certain patent applications because the University was the patent applicant and Lilly was a potential licensee of the patent. Even applying a restricted view of the attorney-client privilege, the court "conclude[d] that the legal interest between Lilly and UC was substantially identical because of the potentially and ultimately exclusive nature of the Lilly-UC license agreement.
Both parties had the same interest in obtaining strong and enforceable patents." Id. at 1390. Although the clear purpose of the parties' joint activity was "to support commercial activity," Id., the court held that in situations where both commercial and legal interests are intertwined, the legal interest is sufficient to establish the legal requisite community of interest. See also Mass. Eye and Ear Infirmary v. QLT Photothreapeutics, 167 F.Supp.2d 108 (D. Mass. 2001)(potential licensee who pays the cost of patent prosecution for the inventor shares a common legal interest with the inventor and the attorney-client privilege is not waived by disclosure of privileged documents between the parties).
Although these cases strongly suggest that Braintree and Roxane shared a common legal interest in the prosecutions of the patents, Roxane, citing to Libbey Glass v. Oneida, Ltd., 197 F.R.D. 342 (N.D. Ohio 1999), contends that the two parties did not have any common legal interests but rather only a commercial interest. Libbey declined to recognize a community of interest between the parties in that case. However, that case did not involve the assumption of the prosecution of a patent application though an asset purchase agreement, but rather a situation where potential infringers of the plaintiff's design for glassware consulted attorneys about whether they might be susceptible to suit if they marketed the potentially infringing products. Libbey stands only for the proposition that a joint concern about litigation in the context of a commercial transaction is not a sufficient legal interest to implicate the "community of interest" doctrine.
Clearly, in this case, Braintree and Nabi did not share legal documents out of some ephemeral concern that litigation might be instituted by some third party if they completed their asset purchase. Rather, as the above cases hold, their interest in obtaining a strong and enforceable patent is a legal interest which, although it furthers a commercial transaction, is also the proper subject of communication with attorneys for purposes of seeking and obtaining legal advice. Further, that legal interest clearly survived the execution of the Asset Purchase Agreement, so that the fact the documents may have been exchanged only after closing does not preclude application of the common interest doctrine. Thus, the requirements of this doctrine have been ...