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Parties Involved:
Federal Trade Commission
Appellee
GlaxoSmithKline
Appellant

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 22, 2002 Decided July 2, 2002

No. 01-5391

Federal Trade Commission,

Appellee

v.

GlaxoSmithKline,

Appellant

Appeal from the United States District Court

for the District of Columbia

(No. 01ms00163)

Melvin A. Schwarz argued the cause for appellant. With

him on the briefs were Stephen A. Saltzburg and Stephen A.

Stack Jr.

Melvin H. Orlans, Special Litigation Counsel, Federal

Trade Commission, argued the cause for appellee. With him

on the brief was John F. Daly, Deputy General Counsel for

Litigation.

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Before: Ginsburg, Chief Judge, and Henderson and

Rogers, Circuit Judges.

Opinion for the Court filed by Chief Judge Ginsburg.

Ginsburg, Chief Judge: In the course of investigating

whether a manufacturer of drugs listed its patents properly in

the compilation maintained by the Food and Drug Administration, the Federal Trade Commission issued a subpoena

directing the company to produce documents relating to a

particular drug. When the company resisted, claiming the

attorney-client privilege shields the documents, the Commission repaired to the district court, which enforced the subpoena. We reverse the decision of the district court because the

court both relied upon an argument to which the company

had no opportunity to respond and ruled erroneously that, by

failing to keep confidential the contents of the documents, the

company had waived the attorney-client privilege.

I. Background

GlaxoSmithKline manufactures paroxteine hydrochloride

hemihydrate under the brand name Paxil, the annual sales of

which in the United States exceed $1 billion. See FTC v.

GlaxoSmithKline, 203 F.R.D. 14, 15 (D.D.C. 2001). Several

companies have applied to the Food and Drug Administration

for permission to sell generic versions of Paxil when GSK's

patents expire. The Federal Trade Commission is investigating whether GSK, in an attempt to prevent or delay competition from generic versions of Paxil, has abused the process

for listing its patents in the FDA's compilation of "Approved

Drug Products with Therapeutic Evaluations." Id. at 16.

The Commission issued a subpoena directing GSK to produce two types of documents. First, the Commission sought

all documents concerning Paxil that the United States District Court for the Northern District of Illinois had directed

GSK to disclose when GSK had sued two manufacturers of

generic pharmaceuticals for infringement of its patents -- the

so-called Chicago documents, see SmithKline Beecham Corp.

v. Apotex Corp., 193 F.R.D. 530, aff'd, No. 98C3952, 2000 WL

1310669 (Sept. 13, 2000). Second, the Commission wanted all

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"documents related to the manufacturing and marketing of

Paxil, the listing and use of any patents regarding Paxil, and

any filings with the FDA regarding Paxil." GlaxoSmithKline, 203 F.R.D. at 16. GSK and the Commission resolved their differences over the inclusion or exclusion of

thousands of documents, but because GSK declined to produce hundreds of others -- primarily on the ground that they

were shielded by the attorney-client privilege -- the Commission petitioned the district court to enforce the subpoena.

The parties then agreed upon a procedure for presenting

their positions to the district court. See Stipulation Establishing Schedule & Procedure for Resolving FTC's Enforcement Pet. (April 20, 2001). First, each would submit its

contentions about the Chicago documents. See id. p 1. If the

court compelled GSK to produce those documents, then the

parties would contest the second category of documents as

follows. The Commission would "identify for GSK ... every

responsive (and allegedly privileged) document that the Commission [sought] to have produced and the reason(s) why each

privilege claim [was] invalid." Id. p 3(a). GSK would then

either produce the document or list it in a "privilege log

identifying any documents as to which it continue[d] to assert

privilege." Id. p 3(b). Accordingly, only after the Commission had informed GSK of its objections to the Company's

claims of privilege would the parties seek judicial resolution.

See id. p 3(c). At that final stage the court would either call

for oral argument or resolve summarily "[a]ny issues submitted to [it] in connection with the FTC's enforcement petition."

Id. p 5.

The district court did enforce the subpoena with respect to

the Chicago documents. FTC v. GlaxoSmithKline, 202

F.R.D. 8, 12 (D.D.C. 2001). The parties then resolved

through negotiation their disputes about the disclosure of

hundreds more documents, leaving unresolved the status of

only 91. GSK asserted that all 91 documents were protected

by the attorney-client privilege and that 34 of them were

protected also by the privilege for attorney work product.

The Commission told GSK it considered the assertions of

privilege invalid for two reasons: (1) GSK had forfeited its

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claim to confidentiality by disseminating all 91 documents

widely both within GSK and to consultants and other thirdparties; and (2) the decision in Apotex estopped GSK from

asserting that the 34 documents were attorney work product,

that is, were prepared in anticipation of litigation. In response to these objections, GSK compiled a privilege log

describing each of the 91 documents, and the parties presented their arguments to the district court.

In its opening brief to the district court, the Commission

raised the two objections it had previously presented to GSK.

The Commission also introduced in that brief a new argument: Regardless whether Apotex foreclosed the Company's

claim of attorney work product, GSK's privilege log "fail[ed]

to provide facts demonstrating that the document[s] w[ere]

created in anticipation of litigation." When GSK objected

that the Commission had not made this argument during premotion negotiations, the Commission withdrew the argument.

It explained in a Stipulation approved by the district court

that it had "inadvertently failed to provide GSK with the

agreed advance notice regarding the grounds for challenging

the documents." Stipulation & Order with Respect to Certain Docs. in FTC's Req. for Enforcement (Sept. 6, 2001) at

p 1.

GSK submitted its responsive brief to the district court and

attached thereto the Company's privilege log and the affidavit

of Charles Kinzig, GSK's Vice President and Director of

Corporate Intellectual Property. For each document, the log

described the contents; listed the author, intended recipients,

and date of creation; and noted whether the author or

intended recipients were attorneys. A supplement to the log

indicated the title or titles of each person therein named who

was not an attorney. The Kinzig Declaration stated that the

documents had been disseminated to various "teams" of company employees and contractors, and explained the duties of

each team. According to Kinzig, all the teams were "involved

in seeking or giving legal advice and/or gathering and recording information in anticipation of or preparation for litigation." The Kinzig Declaration states also that every employee and contractor named in the privilege log was "bound not

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to disclose confidential information to persons outside [GSK]"

without receiving permission from a high-ranking official of

the Company.

The Commission then filed a reply brief in which it made

yet another argument for the first time: The attorney-client

privilege does not shield the documents because they contain

no confidential information.

The district court ordered GSK to produce the 91 documents. The court rejected GSK's claims of attorney-client

privilege on the grounds that (1) "GSK ha[d] not sustained its

burden of demonstrating that the relevant documents were

distributed on a 'need to know' basis or to employees that

were 'authorized to speak or act' for GSK," 203 F.R.D. at 19,

and (2) the Company had "failed to provide sufficient evidence that the information contained therein is confidential,"

id. at 20. The court rejected GSK's claims of attorney work

product for the reason withdrawn by the Commission, namely, that "GSK fail[ed] to set forth objective facts that support

the corporation's assertion that the relevant documents were

created in anticipation of litigation." Id. at 21. Having

determined that "even if GSK is not precluded from asserting

the privilege [for attorney work product], it has failed to

satisfy its burden of showing the applicability of the doctrine

to the relevant documents," the district court found it unnecessary to resolve whether the decision in Apotex estopped

GSK from claiming otherwise. Id. at 22 n.3. GSK sought

and we granted a stay pending appeal.

II. Analysis

GSK contends the district court erred both by rejecting its

claims of privilege based upon arguments the Commission did

not raise properly and by misapplying the standard for

determining whether a corporation has kept confidential the

contents of a communication. The Commission defends the

decision of the district court and argues that GSK is collaterally estopped in any event, by reason of the Apotex litigation,

from claiming the 34 documents are attorney work product.

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Preliminarily, the parties disagree about the proper standard of review. The Commission claims we should defer to

the district court unless it committed a clear error, whereas

GSK argues that because the circumstances of this case "are

procedurally identical to an appeal of a ruling on a motion for

summary judgment," we should review the decision of the

district court de novo. This debate need not detain us long;

our standard of review is well established. We review a

decision to enforce a subpoena "only for arbitrariness or

abuse of discretion." In re Sealed Case, 146 F.3d 881, 883

(D.C. Cir. 1998). We will affirm the decision unless it "rests

upon a misapprehension of the relevant legal standard or is

unsupported by the record." In re Subpoena Served upon

the Comptroller of the Currency, 967 F.2d 630, 633 (D.C. Cir.

1992).

The district court held that GSK failed to establish either

of two prerequisites for recognition of the attorney-client

privilege -- that the documents contain confidential information and that they have been kept confidential. See GlaxoSmithKline, 203 F.R.D. at 17-18. As the Company points

out, during the parties' negotiations the Commission did not

dispute that the documents contain confidential information.

The Commission did not even raise the argument in its

opening brief before the district court, waiting instead until

its reply brief and thereby depriving GSK of any opportunity

to respond.

The Commission had agreed, pursuant to the Scheduling

Stipulation approved by the district court, to inform GSK of

its reasons for disputing the Company's claims of privilege

before asking the court for a ruling. The Commission therefore was bound not to put before the district court any

objection not first raised with its adversary. Accordingly, the

district court abused its discretion when it ruled against GSK

based upon an argument that was raised not only in violation

of the Scheduling Stipulation but so belatedly that the Company had no chance to respond to it.

The Commission acknowledges that the parties intended

the Scheduling Stipulation to "enable them to narrow,

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through pre-motion negotiations, the claims and documents

that would require judicial resolution," but it contends that

"nothing in the Stipulation barred the Commission from

making -- or the district court from considering -- additional

arguments simply because they had not been presented to

GSK during pre-motion negotiations." On its face, the

Scheduling Stipulation -- which required the Commission to

raise in negotiations with GSK "the reason(s) why each

privilege claim is invalid" -- refutes this claim, as does the

implausibility of the idea that parties would establish elaborate procedures to narrow their dispute through negotiation

with the foreknowledge that their adversary might again

expand the dispute before the district court. It is not surprising, therefore, that the Commission itself had previously

viewed the Stipulation as binding: Recall it withdrew from

the court another objection not raised in pre-motion negotiations because, in its own words, it had "inadvertently failed to

provide GSK with the agreed advance notice regarding the

grounds for challenging the documents." Stipulation & Order (Sept. 6, 2001) at p 1.

Nor is it true, as the Commission claims, that "GSK

suffered no possible prejudice" in having to overcome the

Commission's objections in front of the district court because

GSK bore the burden in any event "to present to the court

sufficient facts to establish the privilege." In re Sealed Case,

737 F.2d 94, 99 (D.C. Cir. 1984). If the district court had

held the Commission to the terms of its agreement, then the

court would not have required GSK to prove that the documents were confidential and had been kept in confidence

because the issue would have been conceded. As we have

held in the analogous context of a pretrial scheduling order

entered pursuant to Rule 16 of the Federal Rules of Civil

Procedure, "[e]ven a prima facie element of the plaintiff's case

may be removed from dispute" pursuant to a stipulation.

Smith v. Washington Sheraton Corp., 135 F.3d 779, 784 (D.C.

Cir. 1998). The concerns underlying Rule 16 compel the

same result for the analogous Scheduling Stipulation agreed

to by the Commission and GSK in this case. Cf. Meadow

Gold Prods. Co. v. Wright, 278 F.2d 867, 869 (D.C. Cir. 1960)

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(pretrial procedures aimed at "eliminating unnecessary proof

and issues, lessening the opportunities for surprise and thereby expediting the trial"); D.D.C. Local Civ. Rule 7.1(m)

(requiring parties to consult in advance of filing nondispositive motion "in a good-faith effort ... to narrow the

areas of disagreement").

The question that remains is whether the district court

erred in ruling that GSK failed to satisfy the second prerequisite for attorney-client privilege--that the documents have

been kept confidential. GSK contends that this issue, too,

was raised in a manner that deprived the Company of an

opportunity to respond. We think not. The Commission

took the position in its negotiations with GSK that the

Company had lost its claim of privilege by disseminating the

documents widely. This argument put the Company on

notice that it needed to establish it had kept the documents

confidential. The Commission renewed the point in its opening brief to the district court thus: "In view of the breadth of

distribution and GSK's failure to carry its burden of establishing that each and every recipient had a demonstrable 'need to

know,' ... GSK's assertions of attorney-client privilege must

fail...." And the Company joined this argument on the

merits before the district court. Having defended as sufficient the evidence it submitted to the district court on this

point, GSK may not now claim it was unfairly surprised by

the argument.

Although the district court was correct to entertain the

Commission's second argument, it erred in resolving the legal

issue. The applicable standard is, as the district court recognized, whether the "the documents were distributed on a

'need to know' basis or to employees that were 'authorized to

speak or act' for the company." 203 F.R.D. at 19 (quoting

Coastal States Gas Corp. v. DOE, 617 F.2d 854, 863 (D.C. Cir.

1980)). The Company's privilege log and the affidavit of

Charles Kinzig establish that GSK circulated the documents

in question only to specifically named employees and contractors, most of whom were attorneys or managers and all of

whom "needed to provide input to the legal department

and/or receive the legal advice and strategies formulated by

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counsel." The affidavit also states that each intended recipient was bound by corporate policy or, in the case of the

contractors, by a separate understanding, to keep confidential

the contents of the documents. The Company's submission

thus leads ineluctably to the conclusion that no document was

"disseminated beyond those persons who, because of the

corporate structure, need[ed] to know its contents." Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 609 (8th Cir. 1978)

(en banc).

The district court faulted GSK for not having explained

"why any, let alone all, of the employees received copies of

certain documents," 203 F.R.D. at 19, and the Commission

likewise claims on brief that GSK should have shown why

each individual in possession of a confidential document

"needed the information [therein] to carry out his/her work."

These demands are overreaching. The Company's burden is

to show that it limited its dissemination of the documents in

keeping with their asserted confidentiality, not to justify each

determination that a particular employee should have access

to the information therein. Not only would that task be

Herculean -- especially when the sender and the recipient

are no longer with the Company -- but it is wholly unnecessary. After all, when a corporation provides a confidential

document to certain specified employees or contractors with

the admonition not to disseminate further its contents and the

contents of the documents are related generally to the employees' corporate duties, absent evidence to the contrary we

may reasonably infer that the information was deemed necessary for the employees' or contractors' work. Compare

Coastal States, 617 F.2d at 863 (confidentiality lost when

organization "admitted that it does not know who has had

access to the documents, and there is undisputed testimony

that ... copies of the memoranda were circulated to all area

offices"). We do not presume, therefore, that any business

would include in a restricted circulation list a person with no

reason to have access to the confidential document--that is,

one who has no "need to know." Id.

Moreover, we can imagine no useful purpose in having a

court review the business judgment of each corporate official

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who deemed it necessary or desirable for a particular employee or contractor to have access to a corporate secret. It

suffices instead that the corporation limited dissemination to

specific individuals whose corporate duties relate generally to

the contents of the documents. As we have seen in this case,

the privilege log and the Kinzig Declaration together establish that GSK did just that, and the Company thereby demonstrated its entitlement to the attorney-client privilege. The

FTC has proffered nothing to the contrary.

Our conclusion that the documents are protected by the

attorney-client privilege extends also to those communications

that GSK shared with its public relations and government

affairs consultants. The Kinzig affidavit notes that GSK's

corporate counsel "worked with these consultants in the same

manner as they d[id] with full-time employees; indeed, the

consultants acted as part of a team with full-time employees

regarding their particular assignments" and, as a result, the

consultants "became integral members of the team assigned

to deal with issues [that] ... were completely intertwined

with [GSK's] litigation and legal strategies." In these circumstances, "there is no reason to distinguish between a

person on the corporation's payroll and a consultant hired by

the corporation if each acts for the corporation and possesses

the information needed by attorneys in rendering legal advice." See In re Copper Market Antitrust Litig., 200 F.R.D.

213, 219 (S.D.N.Y. 2001).

III. Conclusion

Because we hold the 91 documents are protected by the

attorney-client privilege, we have no occasion to address

GSK's other arguments, including its claim that a subset of

those 91 documents are attorney work product. For the

foregoing reasons, the order of the district court enforcing

the subpoena is

Reversed.

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