Mitts & Merrill, Inc. v. Shred Pax Corp.

Citations: 112 F.R.D. 349; 1986 U.S. Dist. LEXIS 31086Docket: No. 79-C-3379

Court: District Court, N.D. Illinois; March 6, 1986; Federal District Court

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Plaintiff Mitts. Merrill, Inc. seeks a declaration of invalidity for certain patents licensed from defendants Shred Pax Corporation and Alvis Kaczmarek, which pertain to trash shredding and compacting devices. Mitts claims its machines do not infringe on these patents and alleges misrepresentation of the patents' innovations and nondisclosure of a competing manufacturer's similar devices. In response, defendants have counterclaimed against Mitts and its parent company, Walco National Corp., alleging patent infringement, breach of contract, misappropriation of trade secrets, and RICO violations.

Currently, there are three motions before the court. One motion from Shred Pax seeks to compel Mitts to produce documents that Mitts claims are protected by attorney-client privilege and the work product doctrine. The court agrees that most documents are indeed privileged. Shred Pax has also filed two motions to disqualify Mitts' counsel, arguing that attorneys Leonard J. Santisi and William Butler should be witnesses in the case. Both disqualification motions are denied.

Shred Pax argues that Mitts waived attorney-client privilege regarding documents related to a 1978 legal opinion on patent validity since Mitts entered into a license agreement despite that opinion. Shred Pax contends this waiver allows access to documents associated with that legal advice, claiming that Mitts cannot contest patent validity and avoid royalty payments. However, the court references the precedent set in Lear, Inc. v. Adkins, which determined that a licensee may challenge patent validity without being obligated to pay royalties during the process, asserting that this case is analogous to that ruling.

Shred Pax argues that Mitts was aware of the alleged invalidity of patents prior to entering their agreement, which if accepted, could lead to patent holders universally using this defense to circumvent the ruling in Lear v. Adkins. The court clarified that a patent licensee can justifiably obtain a license and subsequently initiate legal action rather than infringe and await litigation. Consequently, Shred Pax's estoppel argument does not allow it to breach attorney-client privilege regarding the documents in question.

Shred Pax contends that Mitts acquired valuable technical know-how and trade secrets through licensing and consultation agreements, asserting that the consideration was not strictly the patents. They further claim it was fraudulent for Mitts to obtain this information while supposedly believing the patents were invalid, arguing for access to Mitts' privileged documents to substantiate these claims. However, Mitts denies that the agreements were intended to secure Shred Pax’s trade secrets and cites the invalidity of the patents and misrepresentation of their advancements as reasons for halting payments.

Shred Pax's ability to challenge Mitts’ attorney-client privilege hinges on Mitts waiving that privilege, which is not the case here. The court notes that mere allegations of fraud do not suffice to breach attorney-client privilege; proof of both untruth and materiality is required. The documents requested by Shred Pax, including various letters and memoranda seeking and providing legal advice, are deemed privileged. Additionally, a communication from a German patent agent to Mitts’ patent counsel is also protected, as it serves as either an agent's communication or involves substantive lawyering that would be privileged under foreign law. Thus, all documents sought by Shred Pax are upheld as privileged.

The attorney-client privilege protects only privileged communications, not general information. Peabody and General Industries are not connected to the plaintiff. The memorandum and attached documents lack privilege; specifically, Exhibit No. 8 contains a non-privileged letter from Al Kaczmarek to Carl Westergaard and "Affidavits for Patent" from 1973, with only the second page held as privileged. Exhibit No. 13 includes a cover letter from attorney Michael D. Markman, which is not privileged as it does not solicit legal advice and lacks clarity regarding attorney authorship. The included D.B report is also non-privileged. Memorandum No. 4, dated July 5, 1979, is a report rather than a request for information and is thus not privileged. 

Shred Pax’s motion to disqualify plaintiff’s counsel is based on the claim that the plaintiff is estopped from disputing patent validity due to prior beliefs and that Mr. Santisi will testify regarding the validity investigation pre-license agreements. However, Mitts has stated Santisi will not testify on its behalf. Under the ABA Code of Professional Responsibility and Model Rules, disqualification of trial counsel is not favored unless the attorney's testimony is likely to be prejudicial to their client. The choice of witnesses is at the discretion of the party and its counsel, not dictated by opposing counsel's expectations.

Mitts has decided not to call Mr. Santisi as a witness, preventing Shred Pax from disqualifying him or his firm based on this decision. Shred Pax’s argument for disqualification hinges on the assumption that Mr. Santisi's testimony would be prejudicial to his clients, but any potentially prejudicial testimony is protected by attorney-client privilege. Consequently, Mitts is not required to disclose Mr. Santisi's written opinion on patent validity or waive its privilege concerning his oral testimony. Without such testimony, Mr. Santisi cannot be deemed a "necessary" witness.

Shred Pax's motion to disqualify attorneys Butler and Geller from Mitts is similarly flawed. It relies on the notion that the testimonies of Butler and former associate Kleinbaum are essential to clarify an ambiguity in a 1978 consultation agreement. However, Mitts has not waived attorney-client privilege, and absent a waiver, its attorneys cannot be compelled to testify about confidential communications. The relevant negotiations for the consultation agreement involved Kleinbaum and the defendants' attorneys, and since Kleinbaum is no longer with Butler, Jablow, Geller, his potential testimony cannot disqualify the other attorneys.

Mitts ceased payments under the consultation agreement not due to ambiguity but because it claims the patents are invalid and that it was misled regarding the patents' disclosures. Thus, Shred Pax has not substantiated the necessity for calling Mr. Butler or Mr. Santisi as witnesses, leading to the denial of its motions. The court has granted the motion for production of non-privileged documents. Additionally, Shred Pax's argument regarding the confidentiality of information in licensing agreements lacks merit, as federal law requires that patent descriptions be clear enough for replication without confidential information. The court noted that Illinois has not yet adopted new Model Rules for attorney conduct, but in the context of this federal patent case, federal law applies. Ultimately, defendants have not demonstrated grounds for disqualifying Mr. Santisi or his firm.