Autobytel, Inc. v. Dealix Corp.

Citations: 455 F. Supp. 2d 569; 2006 U.S. Dist. LEXIS 72032; 2006 WL 2850324Docket: 2:04-cv-00338

Court: District Court, E.D. Texas; October 3, 2006; Federal District Court

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Autobytel, Inc. filed a lawsuit against Dealix Corporation for infringement of U.S. Patent No. 6,282,517 on September 24, 2004, later adding a claim of willful infringement. On June 6, 2006, Dealix provided a non-infringement opinion prepared by Mr. Gard from Carr, Farrell, but redacted work product that had not been communicated to Dealix. Dealix did not produce a privilege log as required by Local Patent Rule 3-8(b). On June 29, 2006, Dealix declined to produce further documents related to the non-infringement opinion, arguing that privilege waiver did not extend beyond opinion counsel. Autobytel subsequently filed a motion to compel, seeking access to communications and documents related to the non-infringement opinion, communications with Cobalt (the entity that acquired Dealix), and opinions from Wilson Sonsini, Dealix's merger counsel. Autobytel clarified it was not seeking trial counsel's work product or communications. It also requested a privilege log for withheld documents related to the defense against the willful infringement claim. The court noted that federal law governs discovery disputes in patent cases, emphasizing that waiver of attorney-client privilege is relevant when a party asserts an advice-of-counsel defense in willful infringement cases, as the reasonableness of the infringer's reliance on counsel's advice is a crucial factor in assessing willfulness. The motion to compel was granted in part and denied in part.

The infringer's belief in the competency of legal advice is crucial for establishing reasonable reliance, focusing on whether the advice was sufficient to lead the infringer to think a court might find the patent invalid, not infringed, or unenforceable. The presence of additional opinions of counsel on the same subject is also significant. When a defendant asserts an advice-of-counsel defense, they waive the attorney-client privilege and work product protection related to that advice, as these documents reveal what the defendant understood about infringement. In EchoStar, the defendant relied on an in-house counsel's opinion but attempted to maintain privilege over an outside counsel's opinion. The lower court ruled that asserting the in-house opinion waived privilege for all related communications about infringement. The Federal Circuit upheld that the waiver includes all attorney-client communications concerning the same subject matter, extending beyond the counsel who provided the relied-upon advice. However, the court distinguished the waiver of work-product privilege, determining it does not cover materials not communicated to the client, as those do not aid in understanding the client's knowledge of infringement. The waiver applies to two categories of work product: documents embodying communications between attorney and client and documents discussing such communications, even if not directly communicated to the client.

The EchoStar ruling establishes that when an alleged infringer invokes an advice-of-counsel defense concerning willful infringement of a patent, it waives attorney-client privilege and work-product immunity for any documents or communications related to the patent’s validity, enforceability, and infringement. This waiver applies to all documents including letters, memoranda, and conversations between attorney and client, while allowing for redaction of unrelated work product. 

In the dispute between Dealix and Autobytel, Dealix contends that the waiver is limited to formal patent-infringement opinions from counsel and does not extend to other communications. Autobytel, however, argues for a broader interpretation, seeking access to communications from Dealix’s in-house and merger counsel related to the same subject matter as the non-infringement opinion. The court recognizes that the reasonableness of Dealix’s reliance on the non-infringement opinion is a factual issue, and that relevant communications from various counsel concerning the '517 patent are pertinent.

The court notes that EchoStar's language indicates that asserting one non-infringement opinion waives privilege for all attorney-client communications on the same subject matter, including those from other counsel. While Autobytel does not seek trial-counsel documents, Dealix has waived privilege for communications and work product related to the same subject matter of its opinion letter. Dealix’s assertion that the waiver is restricted to non-infringement is countered by Autobytel’s position that the waiver extends to all communications about infringement and other related issues. The court clarifies that it does not support a broad interpretation that would waive privilege for any document merely referencing a patent or generated around the same time as the opinion.

The scope of the waiver related to attorney-client communications and work-product protection in the context of willful infringement defenses remains ambiguous. EchoStar established that asserting an advice-of-counsel defense waives immunity for any documents discussing the validity, enforceability, and infringement of a patent. However, it did not clarify if this waiver extends beyond the underlying opinion’s subject matter. Subsequent court decisions reflect divergent interpretations: some limit the waiver to the subject matter of the opinion (Genentech, Informatica Corp.), while others assert broader applicability to any defense against infringement (Affinion Net Patents, Beck Sys., Intex Recreation). Notably, the EchoStar court's ruling did not mandate a broad waiver, as the underlying opinion was focused solely on non-infringement, and the Federal Circuit did not expand this aspect upon review. The purpose of waiving the advice-of-counsel privilege is to assess the infringer's state of mind regarding reliance on counsel’s advice. Since non-infringement, invalidity, and unenforceability are independent defenses, inquiries into these areas not covered by the underlying opinion provide limited insight into the reasonableness of the reliance on that opinion.

The excerpt addresses the interplay between the attorney-client communication privilege, work-product immunity, and the waiver of those privileges in the context of a legal dispute involving Autobytel and Dealix. It clarifies that the EchoStar case does not mandate a broad subject-matter waiver regarding advice-of-counsel, limiting the waiver to issues of potential infringement of the '517 patent. Autobytel is permitted to discover whether Dealix's reliance on its non-infringement opinion is reasonable and to seek communications and work product from Dealix's in-house counsel, provided they contain independent legal advice related to the '517 patent. However, Autobytel cannot obtain in-house counsel communications that merely act as conduits for trial counsel's work product. Dealix argues that certain communications with Cobalt are protected under the common legal interest doctrine (CLI), which extends attorney-client privilege to discussions among potential co-defendants in anticipation of litigation. Although Autobytel did not sue Cobalt, the potential for litigation and the companies' common interests in a merger justify the application of the CLI privilege. Nonetheless, Dealix waived this privilege concerning communications about the '517 patent or the non-infringement opinion by asserting the advice-of-counsel defense. Autobytel also seeks communications from Dealix's merger counsel related to the '517 patent or the merger, further complicating the discovery landscape.

Dealix waived privilege concerning communications or work product from merger counsel related to the potential infringement of the '517 patent and the associated non-infringement opinion, while all other privileged communications remain protected. Autobytel has sought to compel the production of documents pertaining to the waived opinion privilege. Dealix provided the opinion and related documents from its opinion counsel, with some uncommunicated work product redacted. Autobytel is entitled to receive all documents and communications from opinion counsel held by Dealix in unredacted form. The Court referenced Comark Commc'ns v. Harris Corp. regarding the necessity for competent legal advice based on the best available information. Dealix acknowledged Autobytel's right to the unredacted documents. 

Autobytel's motion also sought a privilege log under Local Patent Rule 3-8(a), which Dealix contested, arguing that a separate log was unnecessary since prior agreements existed to not log post-suit privilege information. However, due to the emergence of willful infringement as an issue, the Court determined that a privilege log is essential for understanding Dealix's mindset regarding its non-infringement opinion. The Court ordered Dealix to produce a privilege log for withheld non-trial-counsel documents related to the advice-of-counsel defense. 

In conclusion, the Court partially granted Autobytel's motion to compel, ordering Dealix to produce: 1) all non-trial-counsel attorney-client communications and work product regarding the '517 patent and non-infringement opinion; and 2) all uncommunicated work product referencing attorney-client communications, with allowed redactions. The waiver regarding communication with Cobalt is confined to documents from ninety days before or after receiving the non-infringement opinion. Dealix must also provide an unredacted version of documents received from opinion counsel and a privilege log for non-trial-counsel documents. The Court denied Autobytel's motion in other respects.