Thought, Inc. v. Oracle Corporation et al

Filing 112

Discovery Order re: 111 Discovery Letter Brief. Signed by Judge Maria-Elena James on 8/11/2014. (cdnS, COURT STAFF) (Filed on 8/11/2014)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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THOUGHT, INC.,

Case No. 12-cv-05601-WHO (MEJ)

Plaintiff,
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DISCOVERY ORDER

v.

Re: Dkt. No. 111

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ORACLE CORPORATION, et al.,
Defendants.

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BACKGROUND

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The Court is in receipt of the parties’ joint discovery dispute letter, filed August 6, 2014.

United States District Court
Northern District of California

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Dkt. No. 111. Defendant Oracle Corporation Oracle challenges Plaintiff Thought, Inc.’s claims of

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privilege over communications with third-parties Acacia Research Corp. (“Acacia”) and

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Rembrandt IP Management, LLC (“Rembrandt”). Acacia and Rembrandt are non-practicing

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entities (“NPEs”) with business models directed at acquiring and licensing patents. Jt. Ltr. at 1.

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Thought negotiated with Acacia in 2009 to jointly monetize the patents-in-suit, signing a tentative

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agreement to assign the patents in exchange for $2.5 million, plus enforcement royalties. Id.

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Acacia, however, reserved the right to investigate the technical merits of the patents, and to

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terminate all obligations if it concluded that the patents were not viable. Id. After months of

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investigation and correspondence with Thought, Acacia terminated the deal. Id. The next year,

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Thought entered into a similar tentative assignment agreement with Rembrandt. Id. After

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conducting a due diligence evaluation of the patents, it appears that Rembrandt also terminated the

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agreement. Id.

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Oracle served on Thought discovery requests that encompass all communications between

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Thought and the NPEs. Id., Ex. A at Request Nos. 21, 30, 50, and 52. Thought produced some

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limited correspondence with the NPEs and a privilege log that identifies other responsive

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correspondence. Id., Ex. B. Oracle asserts that all correspondence between Thought and the

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NPEs made pursuant to the respective due diligence evaluations is discoverable and seeks an order

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(1) compelling Thought to produce the correspondence and (2) permitting Oracle to question

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Thought witnesses in deposition on the subject matter of the correspondence. Jt. Ltr. at 1.

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Thought resists production, claiming that this correspondence relates to joint litigation planning

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and is therefore protected under a common-interest privilege. Id.
In support of its request, Oracle argues that Thought voluntarily placed its patents on the

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intellectual property market, and Oracle should therefore be permitted to explore the market’s

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reasons for rejecting them. Id. Oracle maintains that Thought’s correspondence with the NPEs is

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highly relevant to Oracle’s defenses. As examples, Oracle points to an email from John Garland

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of Rembrandt to Thought founder Ward Mullins in which he cautioned that the prior art was a

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“crowded field.” Id. Another email between Mullins and Garland speculated whether the
“Toplink product from 1997-8 has a specific feature” because of concerns about Toplink’s status

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United States District Court
Northern District of California

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as prior art. Id. at 1-2. TopLink is asserted as both invalidating prior art and as an accused

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product. Id. at 2. There is also correspondence between Mullins and former Acacia Vice

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President Jeffrey Anderson that identified the “data packing” claim term of the asserted ’197

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Patent as potentially problematic, with Anderson expressing apprehension about “some terms in

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the claims and the equivalent terms in JPA.” Id. Oracle argues that this correspondence is

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indicative of the invalidity of the patents-in-suit. Id.
Thought maintains that it has already produced all documents in its possession reflecting

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its commercial, arm’s length communications with Acacia and Rembrandt, and has only withheld

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communications with Acacia and Rembrandt reflecting legal advice on the scope, validity and

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infringement of the patents-in-suit, based on the common interest doctrine, attorney-client

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privileged, and work product doctrine. Id. at 4. Thought argues that these communications were

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in furtherance of a common legal interest pursuant to a non-disclosure/purchase agreement

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between Thought on one hand and Acacia and Rembrandt on the other. It contends that such

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communications can be protected by the common-interest doctrine because the communications

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reflect a common goal and the withheld communications further that common goal. Id. at 4-5.
LEGAL STANDARDS

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A.

Discovery Generally
Under Federal Rule of Civil Procedure 26(b), “[p]arties may obtain discovery regarding
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any nonprivileged matter that is relevant to any party’s claim or defense.” Fed. R. Civ. P. 26(b).

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“Relevant information need not be admissible at the trial if the discovery appears reasonably

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calculated to lead to the discovery of admissible evidence.” Id. “Relevancy, for the purposes of

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discovery, is defined broadly, although it is not without ultimate and necessary boundaries.”

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Gonzales v. Google, Inc., 234 F.R.D. 674, 679-80 (N.D. Cal. 2006). “[T]he party opposing

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discovery has the burden of showing that discovery should not be allowed, and also has the burden

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of clarifying, explaining and supporting its objections with competent evidence.” La. Pac. Corp.

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v. Money Mkt. 1 Institutional Inv. Dealer, 285 F.R.D. 481, 485 (N.D. Cal. 2012). Rule 26 also

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provides that a party withholding information under a claim that it is privileged or subject to
protection as trial preparation material must: (i) expressly make the claim; and (ii) describe the

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United States District Court
Northern District of California

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nature of the documents, communications, or tangible things not produced or disclosed in a

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manner that, without revealing information itself privileged or protected, will enable the parties to

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assess the claim. Fed. R. Civ. Proc. 26(b)(5)(A).

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B.

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Attorney-Client Privilege and Work Product Doctrine
The attorney-client privilege protects from discovery “confidential communications

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between attorneys and clients, which are made for the purpose of giving legal advice.” United

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States v. Richey, 632 F.3d 559, 566 (9th Cir. 2011) (citation omitted). The privilege attaches when

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“(1) legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such,

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(3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at

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his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8)

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unless the protection be waived.” Id. (internal quotations omitted). The privilege is strictly

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construed. United States v. Ruehle, 583 F.3d 600, 607 (9th Cir. 2009).

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The work product doctrine protects “from discovery documents and tangible things

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prepared by a party or his representative in anticipation of litigation.” Richey, 632 F.3d at 567.

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The party seeking work product protection must show that the document was (1) prepared in

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anticipation of litigation or for trial, and (2) they must be prepared by or for another party or by or

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for that other party’s representative. Id. The doctrine provides an attorney working on a case

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“with a certain degree of privacy” so that he may “prepare his legal theories and plan his strategy
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without undue and needless interference.” Hickman v. Taylor, 329 U.S. 495, 511 (1947).

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C.

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Common Interest Doctrine
The common interest doctrine is a narrow exception to the general rule that disclosing

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information to a third party constitutes a waiver of privilege. Integrated Global Concepts, Inc. v.

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j2 Global, Inc., 2014 WL 232211, at *2 (N.D. Cal. Jan. 21, 2014) (citing United States v.

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Bergonzi, 216 F.R.D. 487, 495 (N.D. Cal. 2003)). It applies where “(1) the communication is

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made by separate parties in the course of a matter of common interest; (2) the communication is

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designed to further that effort; and (3) the privilege has not been waived.” Pulse Eng’g, Inc. v.

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Mascon, Inc., 2009 WL 3234177, at *3 (S.D. Cal. Oct. 2, 2009). It applies “where allied lawyers
and clients work together in prosecuting or defending a lawsuit so that they may exchange

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United States District Court
Northern District of California

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information among themselves without waving the privilege[.]” Elan Microelectronics Corp. v.

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Apple, Inc., 2011 WL 3443923, at *2 (N.D. Cal. Aug. 8, 2011). “[A]lthough it may, in rare cases,

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be extended to situations where there is anticipated joint litigation, but nothing pending

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imminently,” Integrated Global, 2014 WL 232211, at *2 (citing Elan Microelectronics, 2011 WL

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3443923, at *2), it “does not extend to communications about a joint business strategy that

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happens to include a concern about litigation.” Elan Microelectronics, 2011 WL 3443923, at *2

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(citation omitted). “[T]he doctrine applies to cases where ‘allied lawyers and clients’ work

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together in prosecuting or defending a lawsuit so that they may exchange information among

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themselves without waving the privilege.” Id. (quoting United States v. Mass. Inst. of Tech., 129

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F.3d 96, 100 (2d Cir. 1999)).

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DISCUSSION
Here, there appears to be no dispute that the documents are relevant. Thus, as the party

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asserting the privilege, Thought has the burden of proving that the documents are indeed

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privileged. MediaTek Inc. v. Freescale Semiconductor, Inc., 2013 WL 5594474, at *2 (N.D. Cal.

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Oct. 10, 2013). While Thought may be able to establish privilege for certain documents based on

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attorney-client or work product, it cannot rely on the common interest doctrine “to shield

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communications with two entities when it faced no litigation, no impending threat of litigation,

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and which do not provide any form of legal service as their business.” Integrated Global, 2014
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WL 232211, at *2. The decision to purchase (and therefore to sell) patents is “indisputably related

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to a business purpose.” MediaTek, 2013 WL 5594474, at *2. Thought argues that the

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communications with Acacia and Rembrandt reflect “legal advice on the scope, validity and

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infringement of the patents-in-suit.” Jt. Ltr. at 4. “Thus, the question is whether the privilege

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applies to so-called ‘dual purpose’ communications, documents which serve both legal and

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business purposes.” MediaTek, 2013 WL 5594474, at *2.

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“Although courts occasionally state that the client’s communications to the attorney must

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be ‘solely’ for the purpose of seeking legal advice for the privilege to apply, there is general

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agreement that the privilege applies where the primary or predominant purpose of the attorneyclient consultation is to seek legal advice or assistance.” Id. (emphasis in original) (citing N.

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United States District Court
Northern District of California

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Pacifica, LLC v. City of Pacifica, 274 F. Supp. 2d 1118, 1127 (N.D. Cal. 2003)). A document

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should be “deemed prepared in anticipation of litigation” if “in light of the nature of the document

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and the factual situation in the particular case, the document can be fairly said to have been

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prepared or obtained because of the prospect of litigation.” In re Grand Jury Subpoena (Mark

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Torf/Torf Envtl. Mgmt.), 357 F.3d 900, 907 (9th Cir. 2004) (citation omitted); In re CV

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Therapeutics, Inc. Sec. Litig., 2006 WL 1699536, at *4 (N.D. Cal. June 16, 2006).

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In this case, Thought has not met this burden. As Oracle points out, the contractual

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obligations that gave rise to the correspondence between Thought and the NPEs made no mention

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of litigation – they only called for patent background investigations or evaluations. Jt. Ltr. at 2.

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The Acacia agreement stated that “[Acacia] shall undertake a due diligence investigation of the

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patents” in order to determine whether “the Patents are acceptable[.]” Id. (quoting Acacia

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Agreement §§ 1.2, 1.3). The Rembrandt agreement called for a “pre-closing due diligence and

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analysis of the Assigned Patents.” Id. (quoting Rembrandt Agreement § 2.5). Thus, the parties’

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communication appears to be primarily for business, not litigation, functions. This finding is

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supported by Diagnostics Systems Corp. v. Symantec Corp., 2008 WL 9396387 (C.D. Cal. Aug.

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12, 2008), aff’d, 328 F. App’x 621 (Fed. Cir. 2008). In that case, the court examined Acacia’s

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patent acquisition process and found that “Acacia’s business is to acquire rights and patents and

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monetize them.” Id. at *5. As such, “evaluating patents to acquire and targets to assert those
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patents against” are “clearly business functions, and documents resulting from these functions

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cannot be categorized in sweeping assertions of privileges[.]” Id. at 6; see also SanDisk Corp. v.

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Round Rock Research LLC, 2014 WL 691565, at *2-4 (N.D. Cal. Feb. 21, 2014). The Court must

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draw the distinction between documents created when employees were functioning primarily as

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attorneys and documents created when employees were functioning in the capacity of furthering

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business goals. Diagnostics Sys. Corp., 2008 WL 9396387, at *5 (C.D. Cal. Aug. 12, 2008).

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Further, even if some of the NPE communications are privileged, the dominant interests
between Thought and the NPEs were deciding whether to become business partners in monetizing

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the patent portfolio. As the negotiations were not made in an effort to formulate a joint defense,

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this is a non-privileged business decision. See Corning Inc. v. SRU Biosystems, LLC, 223 F.R.D.

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United States District Court
Northern District of California

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189, 190 (D. Del. 2004). This is true even if the correspondence had potential relevance to a

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hypothetical litigation – such interest is secondary to the immediate business decision of whether

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to purchase the patents. See Nidec Corp. v. Victor Co. of Japan, 249 F.R.D. 575, 580 (N.D. Cal.

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2007) (no common interest in assessment of patent infringement claim where specifically used to

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further a potential commercial transaction rather than the joint defense of the actual litigation).

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The interests of the parties were thus commercial and not eligible for common-interest privilege.
CONCLUSION

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Based on this analysis, the Court GRANTS Oracle’s request to compel Thought to produce

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the correspondence and permit Oracle to question Thought witnesses in deposition on the subject

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matter of the correspondence. However, as it appears that some correspondence listed in

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Thought’s log may be subject to a privilege apart from the common interest doctrine, Thought

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shall serve on Oracle all non-privileged documents and a revised privilege log by September 2,

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2014. If Oracle contends that any withheld documents are not privileged, the parties shall meet

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and confer in compliance with the undersigned’s Discovery Standing Order.

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IT IS SO ORDERED.
Dated: August 11, 2014
______________________________________
MARIA-ELENA JAMES
United States Magistrate Judge
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