The documents at issue were certain ones generated by the petitioner patent holder’s in-house counsel. The respondents argued that the documents revealed in-house counsel’s views about the baselessness of a related, previously brought lawsuit in which the district court concluded that its sole purpose was to impose expense and delay. The district court reviewed the documents in camera and ordered the petitioners to produce 19 of them, after finding it was reasonable to infer from in-house counsel’s legal research and analysis that the attorneys knew the filing of the litigation would be a sham, and thus, it was reasonable to conclude that “they used their own legal research and analysis—the documents at issue here—in furtherance of fraud.” Id. at *3.
To satisfy the Supreme Court's two-part definition of sham litigation:
(1) the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits, and
(2) the baseless lawsuit must conceal an attempt to interfere directly with the business relationships of a competitor through the use of the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon.
Id. at *4. In searching for guidance on the issue, the Third Circuit found no binding precedent deciding whether sham litigation is the type of fraud that may form the basis for a party to invoke the crime-fraud exception to the attorney-client privilege. Thus, the court determined that the lower court’s conclusion in the affirmative was not clear and indisputable abuse of discretion or error of law.
Previous decisions of the Supreme Court or Third Circuit have recognized that the crime-fraud exception applies when the attorney’s advice refers to future wrongdoing, and that “wrongdoing” may include torts. Moreover, the Third Circuit had previously explained that “[a]ll that is necessary is that the client misuse or intend to misuse the attorney’s advice in furtherance of an improper purpose. When this occurs, the purpose of the privilege, to promote the fair administration of justice, has been undermined and the privilege no longer applies.” Id. at *5.
The court clarified that not all frivolous litigation would fall under the crime-fraud exception to the attorney-client privilege. And while frivolous litigation may trigger Rule 11 sanctions, it will not, by itself, allow access to material otherwise protected by the attorney-client privilege. However, here the court found that the lawsuit’s baselessness, combined with the client’s subjective intent to interfere with the administrative and judicial procedures associated with patent rights, required a finding that the crime-fraud exception was triggered.
Attorneys should be mindful to always protect the attorney-client privilege and remind their clients to do the same. Thus, it is important to avoid conduct that would threaten its protections. This case is a lesson that a client's misuse of an attorney's advice, in furtherance of wrongdoing undertaken for an improper purpose, may result in a loss of privilege protection. Litigants should be aware of this broadened view of the crime-fraud exception and not expect a limited application of the same to their communications with counsel or attorney’s work product.
