Phoenix Solutions Inc v. Wells Fargo & Company

Filing 108

MEMORANDUM AND ORDER:IT IS ORDERED that Phoenix shall produce all responsive documents within the scope of waiver of attorney-client privilege as defined herein; IT IS FURTHER ORDERED that the parties, in preparing a stipulated protective order, shal l prohibit dissemination of highly confidential information pertaining to the subject matter of the patents-in-suit to attorney Gross, unless he agrees to cease prosecuting Phoenix patent applications during the pendency of this case and for one year after the conclusion of this litigation, including any appeals. The parties are also ordered to rely to the greatest extent possible on this courts form protective order; IT IS FURTHER ORDERED that Phoenix shall immediately produce (1) all document s related to the negotiation of licenses of, and licensing of, the patents-in-suit with any third party including, but not limited to, the parties listed in Phoenix's privilege log; and (2) all documents related to Phoenix's stipulation with Intervoice in the related Phoenix v. Sony action, 3:07-cv-002112-MHP; Signed by Judge Marilyn Hall Patel on 10/22/2008. (awb, COURT-STAFF) (Filed on 10/22/2008)

1 2 3 4 5 6 7 8 9 10

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
PHOENIX SOLUTIONS INC., Plaintiff, v. WELLS FARGO BANK, N.A., and WELLS FARGO FUNDS MANAGEMENT, LLC., Defendants. / No. C 08-00863 MHP MEMORANDUM & ORDER Re: Matters Related to Discovery Motions

United States District Court

11
For the Northern District of California

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Phoenix Solutions, Inc. ("Phoenix") brought this action against Wells Fargo Bank, N.A. ("Wells Fargo") for infringement of U.S. Patent Nos. 6,633,846, 6,665,640, 7,050,977, and 7,277,854 (collectively, "patents-in-suit") directed to "speech recognition software." During the course of discovery, Phoenix voluntarily produced documents relating to the drafting of the patentsin-suit, including communications between a named inventor and the prosecuting attorney. Phoenix later requested that the prosecuting attorney be permitted access to confidential material under the protective order. Wells Fargo requested that Phoenix produce all documents related to the prosecution of the patents-in-suit, as well as certain "warning" or "cease and desist" letters sent to third parties and Phoenix refused on privilege grounds. Now before the court is the issue of the scope of waiver of attorney-client privilege, the appropriate protective order provisions, and any applicable "settlement" privilege as to the requested documents. Having considered the parties' arguments and briefs, and for the reasons detailed below, the court enters the following memorandum and order. This order serves to memorialize and supplement the court's partial oral ruling on the appropriate scope of waiver during the telephonic conference with the parties on September 11, 2008.

1 2 3 4 5 6 7 8 9 10

BACKGROUND I. The Scope of Waiver Issue The facts relevant to the instant motion were reviewed in part during the September 11th telephonic conference and therefore, only a summary is necessary here. Several months ago, Phoenix served its Initial Disclosures on Wells Fargo pursuant to Federal Rule of Civil Procedure 26(a). Contained within that production were several drafts of the specification of the patents-in-suit prior to the filing date of the applications in the U.S. Patent and Trademark Office ("USPTO") and several documents reflecting communications between a named inventor on the patents and Phoenix's principal, Dr. Ian Bennett, and J. Nicholas Gross, outside patent counsel, relating to the drafting of the applications prior to filing, which eventually issued as the patents-in-suit. Trojan Dec. Re Scope of Waiver ("First Trojan Dec."), ¶ 2, Exh. 1. The communications included emails discussing the receipt of documents to consider when drafting the patent application, emails discussing drafts and revisions of the specification portion of the application, and comments in the drafts that suggest making reference to certain patents, articles and prior art references. Id. at PHO006213­6216, PHO006219-6351. As a result of that production, Wells Fargo requested that Phoenix produce all such

United States District Court

11
For the Northern District of California

12 13 14 15 16

17 communications between Dr. Bennett and attorney Gross. Joint Case Management Statement 2:1718 21. Phoenix refused, on the grounds of attorney-client privilege. Id. Wells Fargo now claims that 19 Phoenix has waived the privilege for all communications on the subject matter of the substance of the 20 disclosed documents, including that which relates to: (1) the drafting and editing of the specification 21 of the patents, including the scope and content of the prior art; (2) the inventorship of the patents; (3) 22 the novelty of the patents; (4) how to uncover prior art, (5) how prior art applies to the invention; and 23 (6) how to draft the claims to avoid prior art. See First Trojan Dec. ¶ 3, Exh. 2; Maitra Dec., Exh. 5. 24 Phoenix argues that Wells Fargo's request should be denied because it is overly broad and

25 seeks waiver for documents that are clearly privileged and outside the scope of any subject matter 26 waiver of such privilege. Specifically, Phoenix contends that attorney-client communications after 27 the filing date of the patent applications that issued as the patents-in-suit and drafts of the patent 28 claims (either pre-filing drafts of claims or post-filing claim amendments made during prosecution) 2

1 are outside the scope of any subject matter waiver based on the original production of 2 communications that predated the filing of the patent applications. Phoenix contends that the scope 3 of waiver should be limited to documents that relate to the drafting and editing of the specification of 4 the patents-in-suit and related communications that deal with matters prior to the filing of the patent 5 applications. Wells Fargo disagrees with any proposed temporal limitation to the subject matter 6 waiver. Maitra Dec., Exhs. 5-7. 7 II. 8 The Protective Order Issue A second issue raised by Wells Fargo during the September 11, 2008 telephonic conference

9 concerns the terms of a stipulated protective order. The parties have come to an impasse on one 10 provision of a protective order proposed by Wells Fargo and request court intervention. During

United States District Court

11 negotiations of a stipulated protective order, Phoenix requested that its outside patent prosecution
For the Northern District of California

12 counsel be granted access to all information, including "attorney's eyes only" highly confidential 13 information. Joint Case Management Statement 1:18-20. Gross has been Phoenix's only counsel on 14 patent matters for the past nine years: he prosecuted the four patents-in-suit as well as other related 15 patents and he continues to prosecute continuation applications of the patents-in-suit. Id., 1:20-21, 16 26-28; Gross Dec. ¶ 2; Paige Dec. Re Protective Order ("First Paige Dec.") ¶¶ 2-3. 17 Phoenix's position is that Gross' input is needed to provide assistance in making strategic

18 decisions about this litigation. Gross Dec. ¶ 4. Phoenix asserts that it would be greatly prejudiced if 19 denied the ability to meaningfully rely on the service of its sole patent prosecutor. Bennett Dec. ¶ 3. 20 Phoenix contends that Wells Fargo would not be prejudiced because it purportedly has no intellectual 21 property in the area of speech recognition that could be compromised by Gross' involvement and that 22 Wells Fargo's ability to compete in the banking industry would not be impacted by granting Gross 23 access to its confidential information in this case. See Trojan Dec. Re Protective Order ("Second 24 Trojan Dec."), Exh. 2; Gross Dec. ¶ 5. 25 Wells Fargo opposes Phoenix's request and argues that the protective order should have a

26 prosecution bar. Wells Fargo asserts that Gross performs the functions that an in-house patent 27 prosecution counsel would perform for Phoenix. First Paige Dec., Exh. A at 3:5-12, 5:12-17. Wells 28 Fargo also asserts that Gross has written several letters to Wells Fargo seeking to induce Wells Fargo 3

1 to take a license to the Phoenix patents and stating that several of Phoenix's pending patent 2 applications appear to have claims that read upon the system Wells Fargo uses. Id., Exh. B at 3. 3 Wells Fargo's position is that Phoenix should not be granted access to confidential information about 4 its system that Gross could use in his continued prosecution of Phoenix patents, e.g., to try to draft 5 claims in pending patent applications expressly to cover Wells Fargo's system, so as to assert future 6 Phoenix patents against Wells Fargo. Wells Fargo indicated that it would be willing to allow Gross 7 access to the requested documents if Gross agreed to cease prosecuting patents for Phoenix during the 8 litigation and for a period of one year thereafter. Joint Case Management Statement 2:14-16; Def.'s 9 Brief on Appropriate Protective Order Provisions 7:2-5; Second Trojan Dec., Exh. 1. 10 III. The "Settlement" Privilege Issue Wells Fargo initially raised a supplemental issue in its scope of waiver brief concerning the

United States District Court

11
For the Northern District of California

12 nondisclosure and asserted privilege by Phoenix relating to communications between Phoenix and 13 various third parties, namely, communications accusing third parties of infringing the patents-in-suit. 14 See Maitra Dec., Exh. 3. Wells Fargo does not believe there is any basis to exclude such "dunning 15 letters" or "cease and desist letters" from production and requested that the court order that Phoenix 16 turn over such documents, as well as all documents with third-party companies relating to license 17 negotiations concerning the patents-in-suit, including Phoenix's stipulation with Intervoice, Inc. 18 ("Intervoice") in the related Phoenix v. Sony case, 3:07-cv-002112-MHP. During the September 11, 19 2008 telephonic conference with the parties, the court ordered that Phoenix turn over the initial 20 letters, along with a privilege log and requested that the parties brief the issue with respect to other 21 documents. 22 Shortly thereafter, Phoenix timely produced a privilege log to Wells Fargo. Paige Dec. Re

23 Settlement Privilege ("Second Paige Dec.") ¶ 5, Exh. 4. Phoenix also timely produced various letters 24 to third parties reflecting offers to license certain of Phoenix's patents. Id., ¶¶ 6-7, Exh. 5. Wells 25 Fargo asserted that Phoenix should disclose all other communications between Phoenix and third 26 parties relating to Phoenix's enforcement of the patents-in-suit currently listed as privileged in 27 Phoenix's log, including all aforementioned responsive communications with Intervoice. Wells 28 Fargo contends that all of the withheld documents that share the same privilege log description of 4

1 "letter re: license offer" or "email re: license offer" with the asserted privilege of "settlement" should 2 be ordered disclosed, barring any evidence that any of the withheld documents differ from the 3 already produced invitations to negotiate.1 4 Phoenix states that it is in negotiations with over thirty companies regarding license offers

5 related to the patents-in-suit. Trojan Dec. Re Settlement Privilege ("Third Trojan Dec.") ¶ 2, Exh. 1. 6 Phoenix states that it has already produced the only license agreement relating to its patents-in-suit, 7 signed by Sony. Id., ¶ 3. Phoenix draws a distinction between license/settlement agreements and 8 settlement negotiations, and asserts that documents relating to the negotiations of settlement do not 9 impact on substantive patent issues and have no probative value. Phoenix asserts that it need only 10 produce the license agreements from the cases it has settled and that it has no obligation to disclose

United States District Court

11 communications from any other third parties prior to reaching an agreement and signing a license
For the Northern District of California

12 with such parties. Third Trojan Dec. ¶ 3. Phoenix's position is that all documents relating to 13 settlement negotiations are: (1) protected from discovery based on a "settlement privilege," whose 14 policy is embodied in Federal Rule of Evidence 408; and (2) generally not relevant to other litigation 15 because any positions taken by the parties prior to any final agreement are insignificant and intrusive 16 and will likely not constitute admissible evidence. 17 18 LEGAL STANDARD 19 I. 20 Scope of Discovery "Parties may obtain discovery regarding any matter, not privileged, that is relevant to the

21 claim or defense of any party . . . ." Fed. R. Civ. P. 26(b)(1). The Rule goes on to state that "[f]or 22 good cause, the court may order discovery of any matter relevant to the subject matter involved in the 23 action. Relevant information need not be admissible at the trial if the discovery appears reasonably 24 calculated to lead to the discovery of admissible evidence." Id. The scope of discovery permissible 25 under Rule 26 should be liberally construed; the rule contemplates discovery into any matter that 26 bears on or that reasonably could lead to other matter that could bear on any issue that is or may be 27 raised in a case. Board of Trustees of Leland Stanford Junior University v. Roche Molecular 28 Systems, Inc., 237 F.R.D. 618, 621 (N.D. Cal. 2006) (Patel, J.). However, the broad scope of 5

1 permissible discovery is limited by any relevant privileges, including the attorney-client privilege. 2 See Fed. R. Civ. P. 26(b)(1). Any proposed privilege must promote a public interest that is 3 "sufficiently important . . . to outweigh the need for probative evidence." Trammel v. United States, 4 445 U.S. 40, 51 (1980). The recognition of a privilege should be judged on a case-by-case basis and 5 weighed against the public interest. Jaffee v. Redmond, 518 U.S. 1, 8 (1996). 6 The scope of discovery is also constrained by Rule 26(c), which explicitly authorizes the

7 district court to protect parties from "undue burden or expense" in discovery by ordering "that a trade 8 secret or other confidential research, development, or commercial information not be disclosed or be 9 disclosed only in a designated way." Fed. R. Civ. P. 26(c)(7). To obtain a protective order, the party 10 resisting discovery or seeking limitations must show "good cause" for its issuance. Fed. R. Civ. P.

United States District Court

11 26(c). The burden of demonstrating the need for protection from discovery is placed on the party
For the Northern District of California

12 seeking a protective order, not on the party opposing the order. Id. 13 II. 14 Attorney-Client Privilege Confidential information disclosed by a client to an attorney to obtain legal assistance is

15 protected by the attorney-client privilege. Fisher v. U.S., 425 U.S. 391, 403 (1976); American 16 Standard Inc. v. Pfizer Inc., 828 F.2d 734, 745 (Fed. Cir. 1987). An attorney's communications to a 17 client may also be protected by the privilege, to the extent that they contain or are based on 18 confidential information provided by the client, or legal advice or opinions of the attorney. U.S. v. 19 Margolis, 557 F.2d 209, 211 (9th Cir.1977). The purpose of the attorney-client privilege is to 20 encourage "full and frank communication between attorneys and their clients and thereby promote 21 broader public interests in the observance of law and the administration of justice." Upjohn Co. v. 22 United States, 449 U.S. 383, 389 (1981). As a general matter, "[a] party is not entitled to discovery 23 of information protected by the attorney-client privilege." Navajo Nation v. Confederated Tribes & 24 Bands of the Yakama Indian Nation, 331 F.3d 1041, 1046 (9th Cir. 2003), citing Wharton v. 25 Calderon, 127 F.3d 1201, 1205 (9th Cir. 1997). 26 The attorney-client privilege is not absolute. It may be waived "either implicitly, by placing

27 privileged matters in controversy, or explicitly, by turning over privileged documents." Gomez v. 28 Vernon, 255 F.3d 1118, 1131 (9th Cir.), cert. denied, Beauclair v. Puente Gomez, 534 U.S. 1066 6

1 (2001). "The doctrine of waiver of the attorney-client privilege is rooted in notions of fundamental 2 fairness." Tennenbaum v. Deloitte & Touche, 77 F.3d 337, 340 (9th Cir. 1996). "Its principal 3 purpose is to protect against the unfairness that would result from a privilege holder selectively 4 disclosing privileged communications to an adversary, revealing those that support the cause while 5 claiming the shelter of the privilege to avoid disclosing those that are less favorable." Id. at 340­41 6 (citing 8 J. Wigmore, Evidence § 2327, at 636 (McNaughton rev. 1961)). The disclosure of 7 confidential information resulting in the waiver of the attorney-client privilege constitutes waiver of 8 privilege as to communications relating to the subject matter that has been put at issue. See Winbond 9 Electronics Corp v. Int'l Trade Comm'n, 262 F.3d 1363, 1376 (Fed. Cir. 2001). 10 III. Scope of Waiver When either privilege is waived, its scope extends to "all communications on the same subject

United States District Court

11
For the Northern District of California

12 matter . . . so that a party is prevented from disclosing communications that support its position while 13 simultaneously concealing communications that do not." Stanford v. Roche, 237 F.R.D. 618, 625 14 (N.D. Cal. 2006) (Patel, J.). This court has further stated that "[t]here is no bright line test for 15 determining what constitutes the subject matter of a waiver, rather courts weigh the circumstances of 16 the disclosure, the nature of the legal advice sought and the prejudice to the parties of permitting or 17 prohibiting further disclosures." Id. The burden of establishing the existence of the privilege 18 remains on the person asserting it. See In re Grand Jury Investigation No. 83-2-35, 723 F.2d 447, 19 450 (6th Cir. 1983) (collecting citations). 20 21 DISCUSSION 22 I. 23 Scope of Waiver Wells Fargo seeks the following categories of documents, relating to the subject matter of: (1)

24 editing and drafting of the specification of the patents, including the scope and content of the prior 25 art; (2) inventorship of the patents; (3) novelty and/or innovation of the patents; (4) how to uncover 26 prior art; (5) how prior art applies to the invention; and (6) how to draft the claims to avoid prior art. 27 Phoenix acknowledges that it produced the original documents, i.e., drafts of patent

28 applications and related communications, voluntarily and not inadvertently and that attorney-client 7

1 privilege as to those documents had been waived as a result. The court appreciates that the parties are 2 in agreement that the voluntary disclosure of the attorney communication constituted a waiver of the 3 privilege as to all other such communications on the same subject matter. This is, of course, black 4 letter law. However, Phoenix disputes the scope of the subject matter waiver, arguing that it was 5 narrowly constrained to those documents that had already been produced and those documents alone. 6 Phoenix asserts that Federal Circuit law controls a determination of the proper scope of waiver. 7 Indeed, because drafts of patent applications and communications relating to the preparation of filing 8 patent applications concern discovery issues that occur in the unique context of patent litigation, the 9 court finds that Federal Circuit law appropriately applies to the scope of waiver of this particular 10 subject matter. See In re EchoStar Communs. Corp., 448 F.3d 1294, 1298 (Fed. Cir. 2006).

United States District Court

11 However, the issue of waiver itself and the scope of that waiver as it applies to other documents does
For the Northern District of California

12 not fall exclusively in the realm of patent law and therefore the court will consider Ninth Circuit law 13 for that determination. See GFI, Inc. v. Franklin Corp., 265 F.3d 1268, 1272 (Fed. Cir. 2001) 14 (holding that waiver of privileged information is not a substantive patent issue and regional circuit 15 law applies). 16 Wells Fargo argues that Phoenix has attempted to use the disclosed drafts and other

17 documents as both a shield and a sword, that is, to reveal a limited aspect of privileged 18 communications in order to gain a tactical advantage in litigation. If this were the case, Phoenix 19 would have broadly waived the privilege as to all other communications relating to the same subject. 20 See, e.g., Fort James Corp. v. Solo Cup Co., 412 F.3d 1340, 1351 (Fed. Cir. 2005), citing In re Grand 21 Jury Proceedings, 78 F.3d 251, 255 (6th Cir. 1996) and Matter of Continental Illinois Securities 22 Litigation, 732 F.2d 1302, 1314 n.18 (7th Cir. 1984). However, it is not apparent on these facts that 23 Phoenix made the initial disclosures to obtain any advantage or that such disclosure has advantaged 24 Phoenix in any manner. Moreover, the authorities on which Wells Fargo relies only confirm the 25 general premise that the waiver applies to the rest of the communications on the same subject matter; 26 they do not define the scope of the subject matter, which is the issue at hand. 27 Phoenix's attorney argument that it did not subjectively intend to waive the privilege as to any

28 documents beyond those which have been already disclosed is unpersuasive to make out the 8

1 necessary element of nonwaiver. It is well settled that a party's failure to protect its privilege can 2 result in a loss or conscription of that privilege. Fort James Corp, 412 F.3d at 1351, citing Dellwood 3 Farms, Inc. v. Cargill, Inc., 128 F.3d 1122, 1126 (7th Cir. 1997). This court finds the objective fact 4 that Phoenix voluntarily disclosed certain drafts of patent applications dispositive in determining that 5 there has been a subject matter waiver as to all drafts of those patent applications. See id., citing In re 6 Martin Marietta Corp., 856 F.2d 619, 623 (4th Cir. 1988) (stating that "if a client communicates 7 information to his attorney with the understanding that the information will be revealed to others, that 8 information as well as `the details underlying the data which was to be published' will not enjoy the 9 privilege"). Phoenix's assertions that: (1) it had already produced all written communications 10 relating to the drafting of the written description and (2) "it is clear from the documents produced that

United States District Court

11 Phoenix made no attempt to conceal unfavorable documents" are inadequate. See Pl.'s Brief Re
For the Northern District of California

12 Scope of Waiver at 4. Phoenix has already produced pre-filing drafts of the written description 13 portions of the patents-in-suit, not just communications relating to those drafts. Accordingly, 14 Phoenix must produce all drafts of those applications, irrespective of whether they contain additional 15 written comments on them. This includes all drafted and edited (e.g., red-lined) portions of the 16 patent specification, including the background section, the summary of the invention, the figure 17 legends and the detailed description section, up to the date of filing the patent application(s) with the 18 USPTO. Because Phoenix's voluntary production was limited to the specification portion of the 19 applications which contained no patent claims, however, the court will not order Phoenix to produce 20 any pre-filing drafts of the claims themselves. 21 Phoenix must also produce all written communications relating to the drafting of the patents-

22 in-suit. The court is unclear as to the intended impact of Phoenix's position that it has already 23 produced all of its pre-filing communications since "most of the information found in the 24 communications was already disclosed to the public in the patent application." Id. at 4:4-5. If this 25 statement is Phoenix' way of attempting to circumvent the production of the actual e-mails between 26 the prosecuting attorney and the inventor concerning the drafts, it is unacceptable. The court knows 27 of no authority supporting Phoenix' proposition made during the September 11 telephonic conference 28 that drafts of patent applications become part of the public record when a patent application is filed. 9

1 See Transcript of Proceedings, Docket No. 82 ("Tr."), at 9:5-7. Accordingly, the court finds it 2 necessary to make clear that those drafts must be produced because of a waiver of the attorney-client 3 privilege in this case and not any alleged and ill-founded public disclosure requirement. 4 The court likewise fails to comprehend Phoenix's nonsensical argument that the already

5 produced documents make clear that Phoenix has not attempted to conceal unfavorable documents. 6 One action does not speak to the other, unless Phoenix is trying to make an admission that it 7 considers the already disclosed documents to be harmful to Phoenix, which the court doubts. 8 However, neither does the court agree with the other end of the spectrum, asserted by Wells Fargo, 9 that Phoenix's disclosure of the specification drafts without the claim drafts shows that Phoenix has 10 chosen to produce only those communications that favor Phoenix.2 To reiterate, the court does not

United States District Court

11 find, on these facts, that Phoenix made the initial disclosures to obtain any benefit or that such
For the Northern District of California

12 disclosure has benefitted or will benefit Phoenix in this litigation and will not extend the scope of 13 waiver on that basis. 14 In addition to patent application drafts, the court finds that Phoenix's voluntary disclosure of

15 communications between the inventor Bennett and the patent prosecutor Gross discussing specific 16 references waived the attorney-client privilege by placing those communications at issue in this 17 litigation. The voluntarily produced communications refer to the prior art and the relevance of the 18 prior art to specific portions of the specification of the patents-in-suit. See, e.g., First Trojan Dec., 19 Exh. 1 at PHO006274 ("Here we might mention Dragon, Via-Voice, etc.") and PHO006274 ("Here 20 we should talk about Qualcomm and GTE prior art on distributed processing."). Given those prior 21 disclosures, it would be unreasonable for counsel to have reasonably expected that subsequent 22 communications concerning those specific references would be assumed to have remained in 23 confidence. See, e.g., Weil v. Investment/Indicators, Research & Management, Inc., 647 F.2d 18, 2424 25 (9th Cir. 1981) (explaining the general principle that disclosure does not necessarily amount to 25 waiver of the privilege but it does extinguish the element of confidentiality that one must show in 26 order to claim the privilege). The court finds that the subject matter waiver, in terms of a loss of 27 expected confidentiality, reasonably extends to all further documents or communications between the 28 named inventor and the prosecuting attorney pre- and post-filing, i.e., throughout the prosecution of 10

1 the patent applications, concerning any of the prior art documents specifically identified by name in 2 the previously disclosed documents. This waiver extends to all references that are discussed or 3 mentioned in patent application drafts or other communications between Dr. Bennett and Gross. The 4 mention need not qualify as a substantive discussion of that prior art for the waiver to apply; a mere 5 listing of the document by name in a sentence is enough to waive that communication and any direct 6 responses thereto. However, if said references were named merely by being listed as an attachment 7 to a written communication and are not discussed elsewhere in the communication, the waiver does 8 not extend to those communications or attachments. 9 Aside from specifically named references, the subject matter waiver is of limited temporal

10 nature. The court is mindful that too broad an application of the rule of waiver requiring unlimited

United States District Court

11 disclosure could very well destroy the purpose of the privilege itself. See, e.g., Weil, 647 F.2d at 25
For the Northern District of California

12 (finding waiver "only as to communications about the matter actually disclosed"). The court will not 13 hold the waiver to extend to all communications relating to prior art references between the inventor 14 and the attorney. At issue, therefore, is the temporal scope of the partial waiver. The court finds it is 15 a reasonable belief that the disclosure of communications and documents related to the prosecution of 16 the patents-in-suit between the inventor and the attorney be made within the confines of the attorney17 client relationship and under circumstances from which it may reasonably be assumed that the 18 communication will remain in confidence. Accordingly, Phoenix did not waive any privilege with 19 respect to post-filing materials, including communications regarding the prosecution of the patent 20 applications, analysis of the rejections by the Examiner, strategies for claim amendments, drafts of 21 actual claim amendments and related arguments, etc. Although such documents may well be at the 22 heart of one of the disputes between the parties, as Wells Fargo contends, that fact is not dispositive. 23 There is a fundamental divide between patent drafting and patent prosecution that cannot reasonably 24 be bridged by the extension of a waiver, at least on the facts in this case. 25 With respect to the other categories of documents for which Wells Fargo asserts the privilege

26 has been waived, the court does not find waiver as to any documents that specifically relate to the 27 inventorship of the patents or the novelty and/or innovation of the patents. The court does find a 28 waiver, however, of documents relating to general methodology for uncovering prior art and 11

1 processes for searching and discovering prior art and how to draft the claims to avoid prior art, based 2 on the voluntary disclosure of documents relating to this subject matter. See, e.g., First Trojan Dec., 3 Exh. 1 at PHO006215. This waiver does not open the door, however, to substantive discussions of 4 how a particular prior art reference applies to the invention unless that specific reference has been 5 identified by name, and then all communications regarding that prior art reference must be disclosed. 6 In summary, the court finds that Phoenix did not waive any privilege with respect to either

7 pre- or post-filing drafts of the claims themselves, nor did Phoenix waive any privilege with respect 8 to post-filing strategy and analysis regarding the prosecution of those claims, except for specific 9 instances in which the previously disclosed named prior art is discussed or referenced. The court 10 hereby orders Phoenix to produce all responsive documents within the scope of the waiver so defined.

United States District Court

11 II.
For the Northern District of California

Protective Order Rule 26(c) of the Federal Rules of Civil Procedure governs protective orders. In the Ninth

12

13 Circuit, issues concerning the scope of protective orders for confidential information entails a 14 balancing test of the conflicting interests between the protection of Rule 26(c) and the broad mandate 15 of the admissibility of information in discovery conferred by Rule 26(b)(1) of the Federal Rules of 16 Civil Procedure. See, e.g., Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1472 (9th Cir. 17 1992), cert. denied, 506 U.S. 869 (1992) (holding that courts must balance the risk of inadvertent 18 disclosure of trade secrets to competitors against the risk that the protection of such confidential 19 information will impair prosecution of plaintiff's claims). In this case, Phoenix argues that denying 20 its prosecution counsel from access to documents designated as highly confidential under the terms of 21 the protective order will greatly hinder Phoenix's ability to prosecute its claims. Phoenix contends 22 that granting its prosecution counsel access to confidential information will not compromise Wells 23 Fargo's competitive advantage because the parties are not in direct competition in any industry 24 related to the patents-in-suit. Phoenix further argues that because Wells Fargo has not asserted any 25 proprietary position, in terms of having its own patents in the area of speech recognition, it is highly 26 unlikely that any confidential information accessed by Gross would be usable by Gross to harm Wells 27 Fargo. See Trojan Dec., Exh. 2; Gross Dec. ¶ 5. 28 12

1

Setting aside the issue of prejudice to Phoenix for the moment, the court first considers the

2 substantive argument that Wells Fargo essentially has no basis for asserting the protective order 3 against Phoenix's outside prosecution counsel. This argument fails to withstand scrutiny for a 4 number of reasons. First, because Gross is currently involved in prosecuting continuation 5 applications of the patents-in-suit, the court finds it unrealistic to expect Gross to be able to wholly 6 compartmentalize his knowledge of Wells Fargo's confidential information and not let it influence 7 his current and ongoing prosecution duties to Phoenix. To hold otherwise would place Gross in the 8 "untenable position" of having to limit his counsel to his client with respect to ongoing prosecution 9 strategies lest he improperly or indirectly reveal information obtained from Wells Fargo concerning 10 its alleged infringement of the patents-in-suit. See Brown Bag, 960 F.2d at 1471.

United States District Court

11
For the Northern District of California

Second, the fact that Wells Fargo and Phoenix are not direct competitors hardly forecloses the

12 inquiry. Phoenix's allegation that Wells Fargo does not make or sell speech recognition systems 13 awkwardly sidesteps the fact that Wells Fargo uses speech recognition systems. It is for this very 14 reason that Wells Fargo has been brought to the table in this litigation. Thus, the very fact that Wells 15 Fargo is being sued by Phoenix for infringement of the patents-in-suit indicates that Phoenix believes 16 the parties have at least some overlapping interest in the same industry. This belief, be it meritorious 17 or not, is one that could certainly affect the competitive nature of Wells Fargo's business, as 18 discussed further below. At a minimum, the court finds that Wells Fargo's concern that Gross could 19 use the knowledge gained in this litigation to prosecute future related patents to Wells Fargo's 20 disadvantage is valid and deserving of protection. 21 Phoenix's reliance on U.S. Steel Corp. v. United States, 730 F.2d 1465 (Fed. Cir. 1984) to

22 conclude that there is no automatic exclusion of prosecution counsel from assisting in the litigation of 23 a prosecution client serves to set up a straw man. In U.S. Steel, the Supreme Court concluded that a 24 court should examine the factual circumstances of any counsel's relationship, outside and in-house 25 counsel alike, to the party demanding access. Id. at 1468. Wells Fargo never sought to disqualify 26 Phoenix's prosecution counsel from an active role in this litigation as a matter of course. Wells 27 Fargo's brief explicitly stated that it was not advocating a per se bar on patent prosecutors assisting 28 with litigation but rather a selective and specific bar based on the factual circumstances surrounding 13

1 Gross' involvement with Phoenix in the relevant field of the present litigation and his continued 2 prosecution of patents claiming priority and benefit from the patents-in-suit, all of which is consistent 3 with the case law cited by Phoenix.3 4 Furthermore, a crucial factor in the U.S. Steel case was whether in-house counsel was

5 involved in "competitive decision-making;" which the Court explained meant advising on business 6 decisions "made in light of similar or corresponding information about a competitor." Id. at 1468 n. 3. 7 In this case, Wells Fargo's concern is that Gross' ongoing involvement in the prosecution of 8 continuation applications of the patents-in-suit leave open the door to permitting him to tailor the 9 claims in the continuation applications to cover specific, known activities that are revealed to him 10 through the course of discovery in this litigation. The court is well aware that continuation

United States District Court

11 applications allow patentees and their prosecution counsel the opportunity to monitor the marketplace
For the Northern District of California

12 and respond by drafting and prosecuting claims that cover discovered activities. In this vein, several 13 courts have concluded that patent prosecution is, by its very nature, a form of competitive decision14 making because patent attorneys can control the nature and scope of a patented invention. See, e.g., 15 In re Papst Licensing, 2000 WL 554219, *3 (E.D. La. 2000); Mikohn Gaming Corp. v. Acres Gaming 16 Inc., 50 U.S.P.Q.2d 1783, 1784 (D. Nev. 1998). Other courts have extended the conclusion to hold 17 that patent counseling is also a form of competitive decision-making if it relates broadly to the scope 18 of a patented invention. See, e.g., Chan v. Intuit, Inc., 218 F.R.D. 659, 661-662 (N.D. Cal. 2003) ("if 19 advice related to patent prosecution is defined as competitive decision-making . . . then advice on the 20 scope of patent claims must also be defined as competitive decision-making."). 21 Based on the foregoing logic, the court finds that Gross is indubitably involved in the sort of

22 decision-making that disqualifies him from having access to Wells Fargo's confidential information. 23 This inquiry is far simpler on the present facts than in cases that grapple with the risk of inadvertent 24 disclosure, such as Brown Bag and Mikohn. Here, the court need not consider how realistic it may or 25 may not be to expect the prosecutor's knowledge of the defendant's technology will not influence his 26 current and ongoing prosecution duties to his client, because of Phoenix's explicit acts. Phoenix has 27 already crossed the line and used Gross for more than just patent prosecution in this case--Gross 28 wrote several letters to Wells Fargo seeking to induce Wells Fargo to take a license to the Phoenix 14

1 patents, stating that "[s]everal of [Phoenix's] pending publications also appear to have claims which 2 read on your system. . . ". See First Paige Dec., Exh. B at 3. Pending publications contain patent 3 claims that are in the midst of prosecution and can be amended at any time up until patent issuance. 4 Phoenix has effectively stipulated that it is trying to get future issued claims that read upon the 5 technology used by Wells Fargo. Under these circumstances, the court finds disingenuous Phoenix's 6 argument that Brown Bag and other cases relied on by Wells Fargo are inapposite because they 7 involve direct competitors, where the fear of inadvertent disclosure is warranted. Gross' letters 8 provide a formal and explicit written assurance that the fear of disclosure is warranted in this case and 9 so the case law applies. 10 Having determined that Wells Fargo has a valid risk of harm concerning the disclosure of its

United States District Court

11 confidential information to Phoenix, the court must now balance this against the risk that the
For the Northern District of California

12 protection of such confidential information will impair the prosecution of Phoenix's claims. Phoenix 13 argues that such terms would effectively preclude Gross from assisting Phoenix with this litigation 14 and Phoenix asserts it would be greatly prejudiced if denied the ability to rely on the service of its 15 only patent prosecution attorney for the remainder of the case. Phoenix counters that Wells Fargo 16 would not suffer anything more than minor or speculative harm because the parties are not in direct 17 competition and whatever information Gross receives could not be used for anticompetitive purposes 18 to harm Wells Fargo. Phoenix further argues that because Wells Fargo has not asserted any 19 proprietary position, in terms of having its own patents in the area of speech recognition, it is highly 20 unlikely that any confidential information accessed by Gross would be usable by Gross to harm Wells 21 Fargo. 22 The court is not persuaded by any of these arguments. The case law requires restricting

23 Gross' access to confidential information in this litigation. Moreover, Phoenix has put itself in harms 24 way by using Gross for more than patent prosecution already. This is not a case that hinges on the 25 extent of good faith Gross might exercise in parceling out his knowledge of Wells Fargo's secret 26 technology from his prosecution and related counseling duties to Phoenix. Pandora's Box has 27 already been opened and Phoenix cannot continue to rely on Gross in the manner to which it has been 28 come accustomed. The court finds the potential harm to Wells Fargo from inadvertent or advertent 15

1 disclosure of its confidential information outweighs the hardship that would befall Phoenix if its 2 prosecution counsel were disqualified or restricted to some extent in this case. 3 The court leaves the choice to Phoenix. If it wishes to continue to retain the services of Gross

4 as patent prosecution counsel, a prosecution bar must be inserted in the protective order. However, if 5 Phoenix firmly believes it would be unduly depriving itself of the ability to press its claims in this 6 litigation without the assistance of Gross, Phoenix has the option to have Gross cease prosecuting 7 patents for Phoenix during the litigation and for a period of one year thereafter, as has been proposed 8 by Wells Fargo. The court finds this length of time reasonable and its subject matter scope 9 appropriate given the size of the company and the related field of Phoenix's other patents and patent 10 applications. See, e.g., Chan, 218 F.R.D. at 662 (limiting bar to prosecution activities for counsel

United States District Court

11 receiving confidential information until two years after trial); Interactive Coupon Marketing Group,
For the Northern District of California

12 Inc. v. H.O.T! Coupons, L.L.C., 1999 WL 618969 at *4 (N.D. Ill. 1999) (limiting prosecution bar 13 until one year after conclusion of the litigation); Davis v. AT&T Corp., 1998 WL 912012 at *3 14 (W.D.N.Y. 1998) (limiting bar to prosecuting patents in the subject field until two years after 15 termination of the litigation); Medtronic, Inc. v. Guidant Corp., 2001 WL 34784493 at *5 (D.Minn. 16 2001) (limiting prosecution bar for one year). 17 III. 18 Settlement Privilege Phoenix has produced to Wells Fargo over thirty letters Phoenix sent to third-party companies

19 reflecting initial offers to license certain of Phoenix's patents. Phoenix asserts that it is currently 20 engaged in licensing negotiations with several of those companies and has refused to produce further 21 documentation relating to settlement discussions. Wells Fargo seeks to compel production of all of 22 Phoenix's communications with the third-party companies relating to license/settlement negotiations 23 concerning the patents-in-suit, including documents relating to Phoenix's enforcement of the patents24 in-suit that are currently listed as privileged in Phoenix's privilege log as well as responsive 25 communications relating to Phoenix's stipulation with Intervoice, which are not logged. Phoenix 26 contends that the information sought is not discoverable because it is protected under a settlement 27 privilege. 28 16

1

The scope of discovery permitted by the Federal Rules of Civil Procedure is very broad.

2 Hickman v. Taylor, 329 U.S. 495, 507 (1947). Discovery is only limited to information that is not 3 privileged and that is relevant to the claim or defense of any party. Fed. R. Civ. P. 26(b)(1). 4 "Relevant information need not be admissible at trial if the discovery appears reasonably calculated 5 to lead to the discovery of admissible evidence." Id. Phoenix argues that the information sought by 6 Wells Fargo is both privileged and not relevant to this litigation. Phoenix's position is that it has no 7 obligation to disclose communications from any other third parties prior to reaching an agreement 8 and signing a license with such parties, because all documents relating to settlement negotiations are: 9 (1) protected from discovery based on a "settlement privilege," whose policy is embodied in Federal 10 Rule of Evidence 408; and (2) generally not relevant to other litigation because any positions taken

United States District Court

11 by the parties prior to any final agreement are insignificant and intrusive and will likely not constitute
For the Northern District of California

12 admissible evidence. Because the issue of relevance is a simpler one in this case, the court addresses 13 Phoenix's arguments in reverse order. 14 15 A. Relevance

Phoenix draws a distinction between license/settlement agreements and settlement

16 negotiations, and asserts that documents relating to the negotiations of settlement do not impact on 17 substantive patent issues and have no probative value. Wells Fargo disagrees, arguing that Phoenix's 18 correspondences with third parties that it has accused of infringement and made offers to license its 19 patents are relevant because they could be material to several aspects of the merits of this case. 20 Specifically, Wells Fargo argues that Phoenix's communications are relevant to show what Phoenix 21 believes infringes the patents-in-suit, what Phoenix would consider a reasonable royalty rate for the 22 patents-in-suit, and that third-party responsive communications could potentially reveal evidence of 23 prior art systems that existed before Phoenix filed its patents. In its supplemental brief Wells Fargo 24 also argues that Phoenix's communications could also possibly contain admissions against interest if 25 Phoenix makes infringement assertions to third parties in a manner that contradicts its assertions in 26 this litigation. 27 Based on the record at hand, the court is hard pressed to conclude that the information sought

28 by Wells Fargo is not reasonably calculated to lead to the discovery of admissible evidence and, 17

1 hence, is irrelevant to the litigation. There are a multitude of ways in which Phoenix's 2 correspondences with third parties related to license negotiations could be relevant to this litigation, 3 as so noted by Wells Fargo. Fundamentally, the third-party negotiations could help Wells Fargo 4 ascertain the extent of its liability to Phoenix and to formulate an appropriate litigation strategy. This 5 court is not persuaded by Phoenix's arguments that licensing or settlement negotiations themselves 6 are not relevant because the final agreement reflects the culmination of the negotiations and that 7 positions taken by the parties prior to reaching a final agreement are therefore insignificant. Nothing 8 in the record before the court suggests that the information contained in negotiation communications 9 would be duplicative or cumulative of other discovery that Phoenix has already provided to Wells 10 Fargo. Indeed, Phoenix admits it has only reached a final agreement with one party. What is more,

United States District Court

11 Phoenix's position fails to acknowledge that licensing and infringement positions may be taken and
For the Northern District of California

12 discarded or otherwise changed over time based on a myriad of extrinsic factors that could well be 13 relevant to another party accused of infringement. See, e.g., In Georgia-Pacific Corp. v. U.S. 14 Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970) (including as evidentiary facts relevant in 15 royalty determinations for patent licenses the patentee's marketing program to maintain his 16 monopoly, the royalties received by the patentee from other licensees and the non-exclusive bounds 17 of the license). 18 Phoenix appears to be conflating the standard for relevance as a discovery threshold with the

19 standard for the admissibility of evidence at trial. "Relevancy for discovery is flexible and has a 20 broader meaning than admissibility at trial." See Eggleston v. Chicago Journeymen Plumbers' Local 21 Union No. 130, U.A., 657 F.2d 890, 903 (7th Cir. 1981). The court considers this further in its 22 privilege analysis, below. But, even if the third-party negotiations addressing the amount of liability 23 were to be protected by a privilege, the court is still unwilling to close the door to the reasonable 24 possibility that admissible evidence will be generated by the dissemination of third-party 25 licensing/settlement negotiations. See, e.g., U.S. v. American Soc. of Composers, Authors and 26 Publishers, 1996 WL 157523, *2 (S.D.N.Y. 1996) (noting the extensive use at trial of documents 27 concerning past fee negotiations and finding such third-party information "potentially relevant under 28 the liberally read standards of Fed. R. Civ. P. 26(b)(1)"). The court need not determine at this time 18

1 whether the evidence will actually end up being admissible in this litigation. See Abbott Diabetes 2 Care Inc. v. Roche Diagnostics Corp., 2007 WL 4166030, *3 (N.D.Cal. 2007) ("The question before 3 the Court today is the discoverability, not the admissibility, of the settlement agreement.") This court 4 finds that, at a minimum, discovery of licensing/settlement negotiations is reasonably calculated to 5 lead to relevant, admissible evidence. Accordingly, the requested documents are discoverable so 6 long as they are not privileged. 7 8 B. Privilege

The court disagrees with Phoenix's contention that Federal Circuit law controls this inquiry.

9 Because this discovery issue is not one that occurs in the unique context of patent litigation, and 10 because settlement discussions are themselves not a substantive patent law issue, the court finds that

United States District Court

11 the law of the Ninth Circuit sets the standard to evaluate the adequacy of the asserted privilege. See,
For the Northern District of California

12 e.g., Dorf & Stanton Communs., Inc. v. Molson Breweries, 100 F.3d 919, 922 (Fed. Cir. 1996) 13 ("Because an order compelling discovery is not unique to patent law, we agree that [regional circuit] 14 law must be considered."). Phoenix's admission that settlement negotiations themselves "do not 15 impact on substantive patent issues" corroborates this finding. Pl.'s Brief Re Settlement Privilege 16 3:27-4:1. 17 In the Ninth Circuit, a broad scope of discovery is favored because "wide access to relevant

18 facts serves the integrity and fairness of the judicial process by promoting the search for truth." 19 Epstein v. MCA, Inc., 54 F.3d 1422, 1423 (9th Cir. 1995). According to Phoenix, several courts 20 have held that negotiations leading up to settlement are not discoverable, the rationale being that 21 allowing disclosure could chill settlement negotiations and ultimately settlement. Phoenix argues that 22 under the "settlement privilege," parties in negotiation should be allowed to engage in an open 23 discussion without fear that the negotiations will be discoverable. Phoenix's argument, essentially, is 24 that the settlement negotiations are presumptively inadmissible at trial under Rule 408 of the Federal 25 Rules of Evidence.4 However, the cases on which Phoenix relies are distinguishable from the instant 26 case involving third-party patent license negotiations, in that they involve situations where the parties 27 held a legitimate and explicit expectation that the settlement documents would remain confidential. 28 See, e.g., Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, 978 (6th Cir. 19

1 2003) (holding privileged settlement negotiations that occurred under a confidentiality order); Abbott 2 Diabetes Care, 2007 WL 4166030 at *1 (holding that portions of a settlement agreement could be 3 redacted to preserve the parties' expectation of confidentiality); American Soc. of Composers, 1996 4 WL 157523 at *2 (holding that third-party license negotiating statements must be produced but could 5 be partially redacted to address the confidentiality expectations of all parties and third-party concerns 6 about the context of disclosure in another action). A bilateral (or multilateral) expectation of 7 confidentiality is what forms the essential basis of the pro-settlement policies underlying Rule 408 8 and is currently absent from the present record involving licensing negotiations with third-party 9 companies. 10 Rule 408 of the Federal Rules of Evidence states that evidence of statements made in

United States District Court

11 compromise negotiations are "not admissible on behalf of any party, when offered to prove liability
For the Northern District of California

12 for, invalidity of, or amount of a claim that was disputed as to validity or amount, or to impeach 13 through a prior inconsistent statement or contradiction . . . ." Fed. R. Evid. 408(a). The prohibition 14 on using compromise negotiations is therefore limited and the rule does not bar the admission of such 15 negotiations for other permissible purposes. Indeed, subdivision (b) of the rule provides that "[t]his 16 rule does not require exclusion if the evidence is offered for purposes not prohibited by subdivision 17 (a)" and thereafter provides examples of various permitted uses, including proving a witness's bias or 18 prejudice and negating a contention of undue delay. Fed. R. Evid. 408(b). Thus, at least some 19 communications made in furtherance of licensing/settlement negotiations are discoverable, as Rule 20 408 permits their use in some aspects of trial. 21 The court recognizes the right of parties to contract for confidential settlement terms and the

22 important policies underlying Federal Rule of Evidence 408 to encourage settlement. However, Rule 23 408 does not warrant protecting settlement negotiations from discovery. On its face, the rule applies 24 to the admissibility of evidence at trial, not to whether evidence is discoverable. See, e.g., 25 Morse/Diesel, Inc. v. Fidelity and Deposit Co., 122 F.R.D. 447, 449 (S.D.N.Y. 1988) (holding that 26 Rule 408 only applies to the admissibility of evidence at trial and does not protect such evidence from 27 discovery). Even the cases Phoenix cites acknowledge this basic distinction. See, e.g., American 28 Soc. of Composers, 1996 WL 157523 at *1 ("The rule limits the admissibility of settlement terms or 20

1 proposals and of other representations made in the course of settlement discussions, but it does not 2 purport to preclude discovery of such agreements or statements.") 3 The Advisory Committee Notes to Rule 408 explain that "evidence, such as documents, is not

4 rendered inadmissible merely because it is presented in the course of compromise negotiations if the 5 evidence is otherwise discoverable. A party should not be able to immunize from admissibility 6 documents otherwise discoverable merely by offering them in a compromise negotiation." See Fed. 7 R. Evid. 408, advisory committee's note. Moreover, evidence of facts disclosed during compromise 8 negotiations is not inadmissible by virtue of having been first disclosed in the compromise 9 negotiations. Accordingly, facts regarding the very occurrence of Phoenix's threats to third parties 10 are not inadmissible, nor is the substance of settlement discussions per se irrelevant to a proceeding

United States District Court

11 in federal court, because Rule 408 itself authorizes the admission into evidence of such materials
For the Northern District of California

12 except for limited purposes. Indeed, courts have reasoned that Rule 408 "does not require any special 13 restriction on Rule 26 because discovery rules do not affect admissibility." Bank Brussels Lambert v. 14 Chase Manhattan Bank, 1996 WL 71507, *3 (S.D.N.Y. 1996). Notably, the 2006 amendment to Rule 15 408 was made with the intent to retain the extensive case law finding the rule inapplicable when 16 compromise evidence is offered for a purpose other than to prove the validity, invalidity, or amount 17 of a disputed claim. See Fed. R. Evid. 408, advisory committee's note, citing, e.g., Coakley & 18 Williams v. Structural Concrete Equip., 973 F.2d 349 (4th Cir. 1992) (evidence of settlement is not 19 precluded by Rule 408 where offered to prove a party's intent with respect to the scope of a release); 20 Athey v. Farmers Ins. Exchange, 234 F.3d 357 (8th Cir. 2000) (admitting evidence of settlement offer 21 by insurer to prove insurer's bad faith); Uforma/Shelby Bus. Forms, Inc. v. NLRB, 111 F.3d 1284 22 (6th Cir. 1997) (threats made in settlement negotiations were admissible; Rule 408 is inapplicable 23 when the claim is based upon a wrong that is committed during the course of settlement 24 negotiations). 25 The cases upon which Phoenix relies to argue that the public policy behind Rule 408 is to

26 favor compromise and settlement of disputes by shielding a party's negotiating strategies or tactics do 27 not comport with the present facts. In this case, Wells Fargo is seeking production of documents 28 reflecting licensing negotiations between Phoenix and other third-party companies accused of 21

1 infringing the patents-in-suit. The potential that damaging disclosures may interfere with the 2 third-party negotiators' candor in such discussions or otherwise discourage third-parties from 3 venturing into licensing/settlement talks is not sizeable. If anything, the disclosure of such 4 documents could assist the third parties in fostering discussions with other alleged infringers and 5 helping them to ascertain the extent of their own relative liability to Phoenix. 6 In a sleight of hand, Phoenix argues that any and all evidence of settlement negotiations

7 should be protected because its disclosure could interfere with the party's candor or willingness to 8 venture into settlement discussions. However, Phoenix's statement, which was copied verbatim from 9 American Soc. of Composers, 1996 WL 157523 at *2, omitted the beginning of the sentence which 10 reads "[d]epending upon the nature of the information . . . ." The court reminds Phoenix that Wells

United States District Court

11 Fargo seeks the documents during the course of discovery and is not requesting admission of
For the Northern District of California

12 evidence at trial. Phoenix has failed to meet its burden to put forth a persuasive case for a settlement 13 privilege that will protect third-party settlement negotiations from discovery. The court finds no 14 convincing basis for Phoenix's proposition that its licensing negotiation communications are 15 protected from discovery by a settlement privilege, embodied in Federal Rule of Evidence 408. 16 Further, the court lifts its previous oral prohibition on third-party contact made during the

17 September 11, 2008 telephonic conference. If Wells Fargo wishes to seek production of the 18 negotiation documents that reflect any representations or strategies that were considered by the 19 third-party companies in response to Phoenix's license offers, Wells Fargo may request such 20 documents directly from those third parties. 21 Finally, with regard to the Intervoice stipulation, the court reminds Phoenix that it ordered

22 production of the Intervoice stipulation and all communications Phoenix had with Intervoice's 23 counsel regarding that stipulation during the September 11, 2008 telephonic conference and expects 24 Phoenix to comply with this order. 25 26 27 28 22

1 CONCLUSION 2 3 IT IS ORDERED that Phoenix shall produce all responsive documents within the scope of

4 waiver of attorney-client privilege as defined herein. 5 IT IS FURTHER ORDERED that the parties, in preparing a stipulated protective order,

6 shall prohibit dissemination of highly confidential information pertaining to the subject matter of the 7 patents-in-suit to attorney Gross, unless he agrees to cease prosecuting Phoenix patent applications 8 during the pendency of this case and for one year after the conclusion of this litigation, including any 9 appeals. The parties are also ordered to rely to the greatest extent possible on this court's form 10 protective order.

United States District Court

11
For the Northern District of California

IT IS FURTHER ORDERED that Phoenix shall immediately produce (1) all documents

12 related to the negotiation of licenses of, and licensing of, the patents-in-suit with any third party 13 including, but not limited to, the parties listed in Phoenix's privilege log; and (2) all documents 14 related to Phoenix's stipulation with Intervoice in the related Phoenix v. Sony action, 15 3:07-cv-002112-MHP. 16 17 18 Dated: October 22, 2008 19 20 21 22 23 24 25 26 27 28 23 MARILYN HALL PATEL United States District Court Judge Northern District of California

1 2 3 4 5 6 7 8 9 10

ENDNOTES 1. In its supplemental brief on Phoenix's "settlement" privilege claim, Wells Fargo amended its argument to reflect Phoenix's updated privilege log. Wells Fargo still contends that all of the withheld documents with the amended privilege log descriptions of "infringement contentions," "presentation re: license offer" and "chart re: license offer" should still be ordered disclosed because they are not privileged and relevant to this litigation. The court was not moved by Wells Fargo's original objections to the privilege log descriptions supplied by Phoenix and likewise fails to find the supplemental objections of much consequence, but they are so noted nonetheless. 2. Indeed, Phoenix said in so many words during the September 11, 2008 telephonic hearing that the voluntary disclosure of the patent application drafts was "probably bad lawyering." See Tr. 10:5-9. 3. The only other appellate decision on which Phoenix relies to argue that a patent attorney is not involved in competitive decision-making is In re Sibia Neurosciences, Inc., 1997 WL 688174 (Fed. Cir. 1997) (unpublished). Because the Federal Circuit deemed its opinion unsuitable for publication, this court has not considered it and finds improper Phoenix's contention that any "rationale established by the Federal Circuit" in Sibia controls the instant inquiry. 4. At least one of the cases on which Phoenix relies considers a settlement privilege under Rule 501 of the Federal Rules of Evidence, which authorizes the federal courts to determine new privileges by examining "common law principles ... in the light of reason and experience." Fed. R. Evid. 501. However, because Phoenix did not explicitly raise this basis for a privilege in its brief, the court will not consider the alleged privilege on that catchall basis.

United States District Court

11
For the Northern District of California

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

24