Commercial Litigation and Arbitration

Privilege: Intentional Waiver by Predecessor Corp. (1 of 2 Merging Cos.) Extends to Post-Merger Communications on Same Subject Matter by Successor — 502(b) Fairness Is Touchstone — Mandamus Apt for Issue of First Impression

In re OptumInsight, Inc., 2017 U.S. App. LEXIS 13483, 2017 WL 3096300 (Fed. Cir. July 20, 2017):

This petition arises out of an order of the United States District Court for the Northern District of California compelling OptumInsight, Inc. (OptumInsight) to produce documents related to the conception and first sale of its healthcare analytics software. The district court found that OptumInsight's predecessor company intentionally waived privilege over these topics. Because we find the district court did not clearly abuse its discretion in evaluating the proper scope of waiver, we deny the petition for writ of mandamus.


Symmetry Health Data Systems, Inc. (Symmetry) developed healthcare [*2]  analytics software that it marketed as the Symmetry Episode Treatment Group (ETG) Program. In June 1994, Symmetry responded to a request for proposal (RFP) from Aetna Life Insurance Company, and offered to license its healthcare analytics software to Aetna.

More than a year later, Symmetry filed a patent application that claims a computer-implemented method for processing medical claims information and describes the ETG Program. During prosecution, Symmetry did not disclose its RFP response regarding the software license to the patent office. Symmetry's application eventually issued as U.S. Patent No. 5,835,897.

In 2000, Symmetry voluntarily requested reexamination of the '897 patent and asked the PTO to consider whether the RFP response was an invalidating offer for sale under 35 U.S.C. § 102(b). Symmetry submitted an Information Disclosure Statement and a supporting affidavit from its patent attorney. The affidavit asserted that the ETG Program was not ready for patenting at the time of the RFP response because the inventor did not conceive of all the claimed concepts until August 1994. Symmetry successfully persuaded the patent examiner that the RFP response was not an invalidating offer for sale, and Symmetry thereafter filed additional [*3]  patent applications that claimed priority to the '897 patent.

While the reexamination was pending, Symmetry sued OptumInsight. To resolve this litigation, Symmetry sold its outstanding stock to OptumInsight in 2003. The companies merged in 2007, with OptumInsight as the only surviving corporation and owning the rights to the '897 patent.

After the merger, OptumInsight sued Cave Consulting Group, Inc. (Cave Consulting) for infringement of multiple healthcare analytic patents, including the '897 patent. The '897 patent was eventually dismissed from the lawsuit on April 28, 2014.

In July 2015, Cave Consulting filed a complaint alleging that OptumInsight violated federal antitrust law by knowingly asserting a fraudulently procured patent. Specifically, Cave Consulting contends that Symmetry intentionally misrepresented the conception date for the '897 patent during reexamination to avoid the on-sale bar.

During discovery, Cave Consulting moved to compel OptumInsight to produce materials concerning the conception date and first sale of the ETG software. Cave Consulting argued that any privilege over those materials had been intentionally waived during the PTO reexamination proceeding. OptumInsight responded that Symmetry could waive privilege over [*4]  pre-merger materials, but not over post-merger communications between OptumInsight and its counsel.

The district court granted the motion to compel in part, and ordered OptumInsight to produce materials concerning the conception date and first sale of the ETG Program. To allow OptumInsight to effectively defend itself, the court limited waiver to communications before April 28, 2014, which is the date OptumInsight dismissed the '897 patent from its infringement suit.

At the request of OptumInsight, the district court certified the order for interlocutory appeal under 28 U.S.C. § 1292(b), finding that "[t]he effect of a corporate merger on the scope of waiver of attorney-client privilege caused by one party to the merger's disclosure of privileged material appears to be a novel question of law," and that "absent interlocutory review, post-judgment appeal of the [c]ourt's previous order would be of little value to OptumInsight, as disclosure of the material at issue to an adversary cannot be undone." J.A. 57. We denied interlocutory appeal because not all of the § 1292(b) jurisdictional requirements had been met, but left open the door to seeking mandamus relief. This petition followed, and we stayed production of the documents pending [*5]  review.

Standard of Review

"The remedy of mandamus is available only in extraordinary situations to correct a clear abuse of discretion or usurpation of judicial power." In re MSTG, Inc., 675 F.3d 1337, 1341 (Fed. Cir. 2012). The petitioner must show "that its right to issuance of the writ is clear and indisputable" and that it "lacks adequate alternative means to obtain the relief sought." Id. (quoting In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 804 (Fed. Cir. 2000).

Choice of Law

The district court applied Federal Circuit instead of Ninth Circuit law. Procedural issues such as attorney-client waiver are governed by Federal Circuit law "if the issue pertains to patent law, if it bears an essential relationship to matters committed to our exclusive [jurisdiction] by statute, or if it clearly implicates the jurisprudential responsibilities of [the Federal Circuit] in a field within its exclusive jurisdiction." Spalding Sports, 203 F.3d at 803. Otherwise, procedural issues are governed by the law of the regional circuit. In re Regents of Univ. of California, 101 F.3d 1386, 1390 n.2 (Fed. Cir. 1996).

OptumInsight contends that Federal Circuit law regarding attorney-client privilege applies. CC Group does not challenge this assertion on appeal. Accordingly, we apply Federal Circuit precedent. But like the district court, we see no reason why the outcome here would be different under Ninth Circuit law.


"It is generally [*6]  inappropriate to review discovery orders by mandamus." MSTG, 675 F.3d at 1341. There are limited instances, however, in which we may review a district court's discovery order. Mandamus may be appropriate if "(1) there is raised an important issue of first impression, (2) the privilege would be lost if review were denied until final judgment, and (3) immediate resolution would avoid the development of doctrine that would undermine the privilege." In re Seagate Tech., LLC, 497 F.3d 1360, 1367 (Fed. Cir. 2007) (en banc), abrogated on other grounds by Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 195 L. Ed. 2d 278 (2016).

Mandamus review is appropriate here. The attorney-client privilege "encourage[s] full and frank communication between attorneys and their clients and thereby promote[s] broader public interests in the observance of law and administration of justice." Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981). Whether a predecessor company's attorney-client privilege waiver can extend to post-merger communication is a matter of first impression before this court. And "[w]ithout mandamus review, litigants might be compelled to disclose documents that are protected from disclosure by strong public policy." MSTG, 675 F.3d at 1342. Indeed, OptumInsight alleges the district court's discovery order implicates years of potentially privileged communications. Under these circumstances, mandamus is proper as a "means of immediate appellate [*7]  review of orders compelling the production of documents claimed to be protected by privilege." Id.


We find the district court did not clearly abuse its discretion by extending a predecessor company's privilege waiver to post-merger communications. Federal Rule of Evidence 502 governs privilege waiver. The rule contemplates two types of disclosures: intentional and inadvertent. Inadvertent disclosures do not operate as a waiver so long as the "holder of the privilege or protection took reasonable steps to prevent disclosure; and . . . promptly took reasonable steps to rectify the error." Fed. R. Evid. 502(b).

By contrast, intentional waivers will extend to undisclosed communication if "the disclosed and undisclosed communications or information concern the same subject matter; and they ought in fairness to be considered together." Id. 502(a). The rule prevents parties from selectively disclosing privileged information as an affirmative legal strategy, but falling back on the privilege to conceal inconsistent information. Seagate, 497 F.3d at 1372. Hence, the rule reflects the maxim that attorney-client privilege cannot be used as both a sword and a shield. Id.

OptumInsight urges this court to accept "the general principle that a predecessor's privilege waiver is [*8]  not attributed to a successor entity." Pet. Br. at 21 (emphasis in original). We decline to adopt such a categorical rule. Although Rule 502 is silent on the effect of corporate mergers, it makes clear that the scope of intentional waiver is based on subject matter, and should be analyzed "through a fairness lens." Wi-LAN, Inc. v. LG Elecs., Inc., 684 F.3d 1364, 1371 (Fed. Cir. 2012). And in the absence of express guidance from Rule 502, "[t]he common law — as interpreted by United States courts in the light of reason and experience — governs a claim of privilege." Fed. R. Evid. 501.

The Supreme Court has explained that "when control of a corporation passes to new management, the authority to assert and waive the corporation's attorney-client privilege passes as well." Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 349, 105 S. Ct. 1986, 85 L. Ed. 2d 372 (1985). Logically, if a successor company can assert privilege over its predecessor's communications, the flipside of that principle is that a successor company can also be subject to its predecessor's intentional waiver in certain circumstances.

OptumInsight contends that allowing waiver to reach post-merger communications would effectively preclude successor companies from having privileged discussions about the waived subject matter. However, courts have noted similar concerns regarding prospective waivers generally (i.e., waivers [*9]  that apply to communications after the intentional disclosure) because they can deter privileged communications. See, e.g., Duplan Corp. v. Deering Milliken, Inc., 397 F. Supp. 1146, 1191 (D.S.C. 1974). But instead of imposing categorical rules, courts have evaluated the proper scope of waiver on a case-by-case basis to determine whether it would be fair to impose a prospective waiver. See, e.g., Bd. of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 237 F.R.D. 618, 627 (N.D. Cal. 2006); see also McCormick-Morgan, Inc. v. Teledyne Indus., Inc., 765 F. Supp. 611, 613-14 (N.D. Cal. 1991) (holding that subject matter waiver should not be limited to the time period prior to the voluntary waiver).

We also reject OptumInsight's suggestion that the district court could not support its waiver determination by relying on Delaware state merger law. A court applying traditional common law techniques can borrow from state law background rules unless otherwise prohibited. Fed. Deposit Ins. Corp. v. N.H. Ins. Co., 953 F.2d 478, 481 (9th Cir. 1991). The Delaware statute reflects the widely accepted notion that a successor company ordinarily stands in the shoes of the previously merged corporations. The district court's reliance on Delaware law is not an abuse of discretion.

Nor do our precedents prohibit extending a pre-merger waiver to a successor company's communications. OptumInsight cites to Honeywell International, Inc. v. United States, which held that a corporate merger does not transform an unauthorized sale into an [*10]  authorized sale under the first-sale doctrine. 609 F.3d 1292 (Fed. Cir. 2010). In that case, Honeywell sold display systems to the U.S. government. Id. at 1303-04. Later, Honeywell merged with another company and acquired patents that covered those same display systems. Id. at 1295. Honeywell then sued the government for infringing its newly acquired patents, even though its predecessor sold those same systems to the government. We held the first-sale doctrine did not preclude Honeywell from recovering damages because its prior sale was not authorized by the patent owner at the time of sale. Id. at 1303-04.

Honeywell is distinguishable. Before the merger, Honeywell did not own the patents and could not "author-ize" the sale for purposes of the first-sale doctrine. And the later merger could not transform Honeywell's unauthorized sale into an authorized sale. By contrast, Symmetry already waived attorney-client privilege before the merger. Thus, the merger did not "create" a waiver that would not otherwise exist.

OptumInsight's reliance on Seagate is also misplaced. Seagate held that "asserting the advice of counsel defense and disclosing opinions of opinion counsel do not constitute waiver of the attorney-client privilege for communications with trial [*11]  counsel." 497 F.3d at 1374. Accordingly, OptumInsight argues that Symmetry's privilege waiver during reexamination should not extend to later communications with trial counsel. Our holding in Seagate, however, stemmed from the fact that opinion of counsel was only relevant to willfulness, which finds its basis in pre-litigation conduct. Id. Thus, we held that opinions of trial counsel had "marginal value" to willful-ness. Id.

By contrast, the district court found that Symmetry's waiver of attorney-client privilege was not limited to pre-litigation conduct. Symmetry petitioned for reexamination during a litigation campaign against its competitors. The district court determined that "[i]n light of the deluge of infringement litigation that commenced soon after Symmetry successfully obtained the '897 Patent and continued through and beyond Symmetry's successful reexamination . . . both the application and the reexamination were conducted with an eye towards litigation." J.A. 048 (emphasis added). Because the court found Symmetry's intentional waiver during reexamination was part of an ongoing litigation strategy, Symmetry's waiver is not comparable to disclosing opinion of counsel.


It Is Ordered That:

The [*12]  petition is denied, the stay is lifted, and OptumInsight is directed to produce the materials in accordance with the district court's order.


Costs to neither party.


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