Southwire Co. v. Essex Group, Inc., 81 C 3313.

• Decision Date: 12 September 1983
• Docket Number: No. 81 C 3313.,81 C 3313.
• Citation: 570 F. Supp. 643
• Parties: SOUTHWIRE COMPANY, Plaintiff, v. ESSEX GROUP, INC., Defendant.
• Court: U.S. District Court — Northern District of Illinois

570 F. Supp. 643

SOUTHWIRE COMPANY, Plaintiff, v. ESSEX GROUP, INC., Defendant.

No. 81 C 3313.

United States District Court, N.D. Illinois, E.D.

September 12, 1983.

Steven H. Noll, Hill, Van Santen, Steadman, Chiara & Simpson, Chicago, Ill., Victor M. Wigman, Wigman & Cohen, Arlington, Va., for plaintiff.

Sheldon W. Witcoff, Daniel A. Boehnen, Allegretti, Newitt, Witcoff & McAndrews, Ltd., Chicago, Ill., for defendant.

MEMORANDUM OPINION

PRENTICE H. MARSHALL, District Judge.

This case presents a question of considerable practical importance to litigants in patent infringement actions. Defendant Essex Group, Inc. ("Essex") has filed a motion for summary judgment asserting that plaintiff Southwire Company ("Southwire") is estopped from enforcing its patent because of Essex' detrimental reliance on Southwire's non-action. Plaintiff urges that by making this argument, Essex has waived the attorney-client privilege as to any documents that tend to show that Essex relied not on plaintiff's failure to act but rather on the advice of its lawyers that plaintiff's patent was invalid and not infringed by Essex. The parties have not cited any authority directly on point, nor have we found any. The question therefore appears to be one of first impression.

The case is before the court on Essex' motion for reconsideration of our May 24, 1983 ruling granting Southwire discovery of the privileged documents. Southwire had filed a motion to compel production of the documents, arguing that it could not respond to Essex' motion for summary judgment without first having access to the material that Essex claimed was privileged. Our order granting discovery was based in part on the assumption that Essex had abandoned its claim of privilege as to the documents in question. Southwire Co. v. Essex Group, Inc., No. 81 C 3313, slip op. at 8 (N.D.Ill. May 24, 1983). In its motion for reconsideration, Essex asserts that it never abandoned its claim of privilege and that none of its conduct in the course of this lawsuit constituted a waiver of the claim. We ordered the parties to brief the question of waiver.

For present purposes, the parties appear to agree that A.C. Aukerman Co. v. Miller Formless Co., Inc., 693 F.2d 697 (7th Cir.1982) correctly states the law with respect to estoppel and laches in patent cases.¹ To prove laches, a defendant must show that the plaintiff unreasonably and inexcusably delayed enforcement of its rights, and that the delay prejudiced the defendant. Proof of estoppel requires that an alleged infringer establish the elements of laches, affirmative conduct by the patentee inducing the belief that it had abandoned its claims against the alleged infringer, and detrimental reliance by the infringer. Id. at 699, 701. Proof of laches bars the patentee from recovery of damages for pre-suit infringement; proof of estoppel bars that and also prospective injunctive relief and damages for post-suit infringement. Id.

In making its claim of estoppel, Essex made the following argument:

Southwire remained absolutely silent for seven years even though Southwire knew in 1974 that Essex was expanding its business significantly and would likely continue to do so. Essex had expressed its position to Southwire as early as 1969 that Southwire's patents were not infringed. Southwire's conduct indicated an affirmative acquiesence sic in this position; its actions told Essex and any other reasonable party that it had abandoned any claim of patent infringement against Essex. Essex's action in reliance was enormous and detrimental. It started five additional plants during Southwire's period of delay.

Motion of Defendant, Essex Group, Inc., for Summary Judgment at 11-12. Rather than responding to the motion for summary judgment, Southwire moved to compel production of documents relating to advice given to Essex by its attorneys as to the validity of the patents in suit and as to infringement of those patents by Essex. Southwire stated:

It is Southwire's position, inter alia, that Essex did not rely on any such delay by Southwire, but rather relied essentially upon the opinions of attorneys that it was not infringing any Southwire patents and/or that such patents were invalid.

Plaintiff's Combined Motion to Compel Production of Documents and to Extend Briefing Schedule on Defendant's Motion for Summary Judgment at 3.

The narrowest ground on which we could rule that Essex had waived the attorney-client privilege is that, even apart from its assertion of the defense of estoppel, it has through other conduct waived the privilege. Southwire argues that Essex has waived the privilege by stipulating, in connection with another issue in this action, that it relied in part on the advice of its lawyers in building the new plants, or alternatively that the privilege was waived by Essex' former president in a deposition. We begin with the latter argument.

In his deposition, Essex' former president Paul W. O'Malley testified, in response to a question asking his opinion whether Essex had infringed Southwire's patent, that he had obtained an opinion of counsel that Essex was not infringing and that the patent was invalid. Deposition of Paul W. O'Malley at 43. However, as Essex has pointed out in its reply brief, O'Malley was neither an officer nor an employee of Essex when he testified at his deposition. Id. at 3-4. Since only the party that holds the attorney-client privilege may waive it, O'Malley's testimony did not constitute a waiver of the privilege.²

Southwire's other argument is considerably stronger. In the final pretrial materials submitted by the parties, Essex stipulated as follows:

The Essex decision to construct additional plants for the continuous production of copper rod relied in part upon the advice of its patent advisors that the Essex system used conventional technology and did not infringe any Southwire patents.

Stipulated Fact No. 91.³ It appears that Essex' purpose in making this stipulation was to aid it in establishing a defense to Southwire's claim of willful infringement. See Essex Memorandum on Waiver of Privilege, etc. at 5. Southwire argues that because Essex has expressly claimed that it relied on opinions of counsel to build the new plants, it cannot be heard to claim that it has not waived the privilege against disclosure that would otherwise apply to those opinions.

It cannot be questioned that by expressly relying on the opinions of its lawyers as a defense in this action, Essex has made those opinions relevant to the case. Reliance on counsel has long been recognized as evidence that rebuts a claim of willful infringement.⁴ However, Southwire has never suggested that it needs access to the privileged information in order to delve into Essex' defense against Southwire's bad faith claim. In fact, since the parties have stipulated that Essex relied on the opinions of its lawyers, it appears that Southwire will not contest that assertion at trial for purposes of making out its claim of bad faith infringement. Rather, Southwire wants the privileged information solely to contest Essex' reliance on the defense of estoppel.

Under Fed.R.Civ.P. 26(b)(1), to be discoverable information must be "relevant to the subject matter involved in the pending action." Moreover, the cases cited by both parties on the question whether Essex' assertion of the estoppel defense constitutes a waiver of the privilege with respect to the requested documents all suggest that in order to be discoverable, the privileged information must pass the threshold test of relevancy to an issue raised by the party claiming the privilege. See Barr Marine Products Co., Inc. v. Borg-Warner Corp., 84 F.R.D. 631 (E.D.Pa.1979) (attorney-client privilege not waived by asserting defense that does not itself raise attorney-client communications as an issue); Connell v. Bernstein-Macaulay, Inc., 407 F.Supp. 420, 422-23 (S.D.N.Y.1976) (where good faith basis to believe that production of attorney-client privileged information would shed light on validity of claim of estoppel, party asserting estoppel deemed to have waived privilege); Hearn v. Rhay, 68 F.R.D. 574, 581 (E.D.Wash.1975) (privilege waived where party asserting it has put protected information at issue by making it relevant and application of privilege would deny opposing party access to information vital to defending claim).⁵See also United States v. Exxon Corp., 94 F.R.D. 246, 247-49 (D.D. C.1981); Pitney-Bowes, Inc. v. Mestre, 86 F.R.D. 444, 447 (S.D.Fla.1980); Haymes v. Smith, 73 F.R.D. 572, 576-77 (W.D.N.Y. 1976). In our earlier decision, relying on what we perceived to be Essex' abandonment of its privilege claim, we declined to address the question whether the evidence sought by Southwire could be pertinent to the estoppel question. Southwire Co. v. Essex Group, Inc., slip op. at 8-10.⁶ While we have no difficulty in ruling that Essex waived the privilege by expressly relying on its lawyers' opinions in Stipulated Fact No. 91, since the documents must also be relevant to a contested issue in order to be discoverable, we cannot avoid addressing the question left open in our earlier decision.

Essex argues that it has relied solely upon "objective" factors in making its claim of estoppel and that Southwire cannot defeat that claim by showing that Essex did not subjectively rely on Southwire's conduct:

Not one of the elements of estoppel relied on by Essex turns upon the advice of Essex's counsel .... The defense of estoppel pleaded by Essex does not rely upon any privileged communications between Essex and its counsel.

Essex Memorandum on Waiver of Privilege, etc. at 3. In order to determine whether Essex' argument has merit, we must examine the nature of the estoppel defense.

The first problem we face is that the parties have relied primarily on the law of the Seventh Circuit, and secondarily on decisions from the other federal courts of appeal. As we noted in our earlier...