Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-05429/USCOURTS-cand-4_04-cv-05429-24/pdf.json

Parties Involved:
Celtrix Pharmaceuticals, Inc.
Counter-claimant
Genentech, Inc.
Counter-defendant
Insmed Incorporated
Counter-claimant
Insmed Therapeutic Proteins
Defendant
Tercica, Inc.
Counter-defendant

Document Text:

United States District Court

For the Northern District of California

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Plaintiff Tercica, Inc. does not join in the objection.

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

GENENTECH, INC. a Delaware

Corporation, TERCICA, INC., a

Delaware Corporation,

Plaintiffs,

 v.

INSMED INCORPORATED, a Virginia

Corporation, CELTRIX PHARMACEUTICALS,

INC., a Delaware Corporation, and

INSMED THERAPEUTIC PROTEINS, a

Colorado Corporation,

Defendants. /

No. 04-5429 CW

ORDER SUSTAINING

PLAINTIFF’S

OBJECTION TO

MAGISTRATE

JUDGE’S MARCH 9,

2006 ORDER

Plaintiff Genentech, Inc.1 objects to the Magistrate Judge’s

February 23, 2006 Order Granting in Part and Denying in Part

Defendants’ Motion to Compel Documents for In Camera Review

(February 23, 2006 Order), which directed Plaintiff to produce for

in camera review two documents that were protected by the attorneyclient privilege, and the Magistrate Judge’s March 9, 2006 Order Re

Plaintiff’s Motion for Leave to File a Motion for Reconsideration

(March 9, 2006 Order), which denied Plaintiff’s motion for

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reconsideration and ordered production of a portion of one of the

privileged documents. Defendants oppose the objection. The matter

was taken under submission. Having read all the papers, the Court

sustains Plaintiff’s objection and overrules the Magistrate Judge’s

order for the production of a privileged document.

BACKGROUND

Genentech sued Defendants for patent infringement. As one

defense, Defendants alleged that the patent is unenforceable due to

inequitable conduct before the United States Patent and Trademark

Office (PTO) during patent prosecution. Specifically, Defendants

alleged that Genentech inventors Dr. Ross Clark and Dr. Venkat

Mukku and prosecuting attorney Janet Hasak purposely withheld from

the PTO information about two scientific abstracts that constituted

material prior art and that these abstracts contradicted statements

made in the specification of the patent or during its prosecution. 

Defendants filed a motion for production of documents, which was

heard by a Magistrate Judge. In their motion, Defendants asserted

that they were entitled to certain privileged documents because Dr.

Clark impliedly waived the attorney-client privilege by placing his

state of mind in issue when, during his deposition, he denied

knowing who wrote a paragraph in the patent specification that

related to wound healing. 

The relevant deposition testimony, as summarized in the

Magistrate Judge’s February 23, 2006 Order at 8-9, is as follows:

Dr. Clark was then asked a series of questions to

determine his understanding of what was reported in [one

of the abstracts regarding] rat wound healing. In a

series of answers, Dr. Clark responded:

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A. As I said, I’ve never studied wound healing,

so to understand whether this was a real effect

which did affect wound healing, I would have to

read many documents and familiarize myself with

wound healing . . . That’s outside my area of

expertise. I’m sorry . . . 

A. So I’ll answer the question again in that

I’m not familiar with wound healing, which is a

completely different field than I’ve worked in

. . . I’m sorry. I can’t help you about –-

make any judgment on this document, as I don’t

understand the area.

Thus, with respect to the abstract, Dr. Clark essentially

asserts lack of knowledge because the abstract was not,

in his view, within or material to his expertise.

After showing Dr. Clark the ‘151 patent, Insmed’s counsel

asked:

Q. The paragraph that beings [sic] at Line 43,

do you know who rote [sic] that paragraph in

the specification?

A. No. I’ve got no knowledge of who wrote

that.

Q. Who else involved with the patent

application, other than you, do you believe

might have been the source of this information

that’s in this paragraph?

A. Anybody else who had something to do with

drafting the application.

Q. Who were the people that might include aside

from yourself?

A. Jan Hasak, the patent lawyer who drafted it,

and it appears that there were marking [sic] on

other copies possibly from a third party, so

there could have been multiple people that had

found these documents and included them in the

patent. But these ones, they’re the type of

reference that I would be highly unlikely to

know about or have asource [sic] to since I

believe back in those times, there was no

electronic access to patents.

On a separate occasion Dr. Clark was asked if he recalled

providing Ms. Hasak any documents prior to the filing of

the application for the ‘151 patent. Dr. Clark answered:

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A. I don’t recall. It’s 15 years ago. I don’t

recall specific incidences of supplying

documents to Janet Hasak, no.

February 23, 2006 Order at 8-9. 

LEGAL STANDARD

A magistrate judge's order on a non-dispositive pre-trial

matter shall be modified or set aside only if the reviewing

district court finds that the order is clearly erroneous or

contrary to law. Fed. R. Civ. P. 72(a). An order is clearly

erroneous when, "although there is evidence to support it, the

reviewing court on the entire evidence is left with the definite

and firm conviction that a mistake has been committed." United

States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948). 

DISCUSSION

I. Waiver of Attorney Client Privilege

An implied waiver of the attorney-client privilege occurs when

(1) the party asserts the privilege as a result of an affirmative

act, such as filing suit; (2) through the affirmative act, the

asserting party puts the privileged information at issue; and

(3) allowing the privilege would deny the opposing party access to

information vital to its defense. Home Indemnity Co. v. Lane

Powell Moss and Miller, 43 F.3d 1322, 1326 (9th Cir. 1995). Of

paramount importance is whether allowing the privilege to protect

against disclosure of the information would be manifestly unfair to

the opposing party. Id. A plaintiff may put his or her attorney’s

advice in issue by filing a malpractice action against the lawyer

or a defendant may assert reliance on the advice of counsel as an

affirmative defense. Rhone-Poulenc Rorer, Inc. v. Home Indemnity

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Co, 32 F.3d 851, 863 (3rd Cir. 1994). “Advice is not in issue

merely because it is relevant, and does not necessarily become in

issue merely because the attorney’s advice might affect the

client’s state of mind in a relevant manner.” Id. Waiver is not

likely to be found when the statements alleged to constitute waiver

do not disclose the contents of a specific communication between

client and attorney. Laser Indus. v. Reliant Technologies, 167

F.R.D. 417, 446 (N.D. Cal. 1996). The mere denial of intent is

insufficient to establish waiver of the privilege. Id. 

II. Analysis

In his deposition testimony, Dr. Clark merely denied knowledge

of wound healing and denied remembering what documents he had given

his attorney because the events about which he was being questioned

occurred over fifteen years ago. His testimony does not refer to

any attorney-client communications. Dr. Clark’s testimony does not

waive the attorney-client privilege because he did not put any

attorney-client communication in issue nor did he do more than

merely deny intent. This result does not create manifest

unfairness to Defendants. Plaintiff is not planning to offer Dr.

Clark’s testimony into evidence. If at trial Plaintiff offers

testimony that puts attorney-client communications into issue, it

will have to disclose any confidential communications that may

verify or disprove the truth of such testimony.

The Magistrate Judge correctly cited the above-mentioned legal

standard for implied waiver of the attorney-client privilege,

focusing on the proposition that “mere denial of intent, without

more, is insufficient to constitute waiver.” February 23, 2006

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Order at 4. The Magistrate Judge then analyzed several cases to

determine “what constitutes the ‘more’ that is sufficient to

constitute a waiver.” Id. The Magistrate Judge discussed several

cases from various district courts which came to different

conclusions about whether the privilege was waived. Id. at 4-6. 

The Magistrate Judge opined that these cases were difficult to

reconcile and that “the line between what constitutes ‘a mere

denial of intent’ and a substantiated denial sufficient to

constitute an implied waiver appears illusive [sic].” Id. at 7. 

The Magistrate Judge concluded that 

it appears that the key to these cases lies in the fact

that in camera review was sought in General Electric and

Starsight but not in Laser and Derrick. As Judge Brazil

pointed out in Laser, where in camera review rather that

[sic] outright disclosure is sought, a less stringent

standard under Zolin applies. Application of a less

stringent standard is appropriate because in camera

review provides a significant procedural safeguard of the

privilege. The privilege is maintained unless the

opponent of the privilege makes a satisfactory threshold

showing, and the court concludes in camera review is

warranted after considering a number of factors

identified in Zolin.

Id.

The Magistrate Judge concluded that Dr. Clark’s deposition

testimony “implies more than a lack of recollection; it suggests

something more affirmative about his state of mind –- the

likelihood that if he saw the prior art, he would have ignored it.” 

Id. at 9. The Magistrate Judge did not find the privilege waived,

but determined that this was sufficient “to trigger an inquiry into

the appropriateness of in camera review under Zolin,” and concluded

that in camera review was warranted. Id. at 10. The Magistrate

Judge reviewed the documents in camera.

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Then, in his March 9, 2006 Order, the Magistrate Judge ordered

the production of two paragraphs in one of the documents he

reviewed in camera. March 9, 2006 Order at 1. The Magistrate

Judge did not explicitly discuss his reason for ordering the

production of these two paragraphs. That is, he still did not find

that the privilege had been waived. The Magistrate Judge ordered

that the remainder of the first document and all of the second

document need not be produced because “the slight probative value,

if any, of this document does not justify overcoming the attorneyclient privilege,” and “the redacted notes appears to have little

probative value as to the issues of Dr. Clark’s state of mind and

knowledge raised by Defendants.” Id. at 1 and 2.

United States v. Zolin, 491 U.S. 554, 556 (1989), relied on by

the Magistrate Judge for the proposition that a lesser showing is

appropriate to justify in camera review of privileged material,

addressed the crime-fraud exception to the attorney-client

privilege. Defendants did not claim a crime-fraud exception to the

attorney-client privilege; they claimed waiver. Zolin did not

provide for in camera review of privileged documents to determine

waiver of the attorney-client privilege. Nor did Zolin establish

an inequitable conduct exception to the attorney-client privilege. 

Inequitable conduct is not the same as fraud. “To invoke the

crime-fraud exception, a party challenging the attorney-client

privilege must make a prima facie showing that the communication

was made in ‘furtherance of’ a crime or fraud.” In re Spalding,

203 F.3d 800, 807 (Fed. Cir. 2000). Fraud requires findings of (1)

a representation of a material fact; (2) the falsity of that

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representation; (3) the intent to deceive or a state of mind so

reckless as to the consequences that it is held to be the

equivalent of intent; (4) justifiable reliance upon the

misrepresentation by the deceived party which induces the party to

act in reliance thereon; and (5) injury to the deceived party as

result of that reliance. Id. Inequitable conduct is a broader,

more inclusive concept than common law fraud; it includes conduct

less serious than knowing and willful fraud. Id. An omission such

as the failure to cite a piece of prior art would support a finding

of common law fraud only if it were accompanied by evidence of

fraudulent intent; a mere failure to cite a reference to the PTO

will not suffice. Id.

The standard for establishing the crime-fraud exception to the

attorney-client privilege is different from the standard required

to establish waiver of the attorney-client privilege. The party

asserting the crime-fraud exception must establish a prima facie

case that the privileged communication was made in furtherance of a

crime or fraud. This is a threshold question which is hard to

answer without knowing the substance of the privileged

communication. Therefore, the showing to obtain in camera review

of documents allegedly subject to the crime-fraud exception is less

than that necessary to overcome the privilege. On the other hand,

the party asserting waiver of the attorney-client privilege must

establish that the opposing party has placed in issue privileged

communications with his attorney; a threshold showing that the

privileged communications were in furtherance of inequitable

conduct is not required. Thus, in camera review to determine

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waiver of the privilege would not serve any purpose; examination of

the privileged material in camera for its evidentiary value in

establishing inequitable conduct would not yield any useful

information regarding whether the privilege had been waived in the

first place. 

Here, after the Magistrate Judge undertook in camera review of

the documents without actually finding that the attorney-client

privilege had been waived, he then ordered the documents produced,

but still did not actually find that the privilege had been waived. 

This was incorrect. The privilege had not been waived.

CONCLUSION

Based on the foregoing, the Court sustains Plaintiff’s

objection to the Magistrate Judge’s order (Docket # 337) and

overrules the Magistrate Judge’s order for disclosure of privileged

documents.

6/30/06

Dated 

CLAUDIA WILKEN

United States District Judge

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