Uusi, LLC v. United States , 2015 U.S. Claims LEXIS 545 ( 2015 )

In the United States Court of Federal Claims
No. 12-216C
(Filed: May 5, 2015)1
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Patent Infringement; Laches; Attorney-
UUSI, LLC, and OLDNAR CORP., *
* Client Privilege; “At-issue” Waiver;
Plaintiffs, * Equitable Defense.
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v. *
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THE UNITED STATES, *
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Defendant, *
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GHSP, INC., *
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Third-Party Defendant, *
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AM GENERAL, LLC., *
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Third-Party Defendant. *
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Donald R. Dunner, Finnegan, Henderson, Farabow, Garrett, & Dunner, LLP, 901 New
York Avenue, NW, Washington, D.C., 20001, for Plaintiffs.
Conrad J. DeWitte, Jr., Department of Justice, Civil Division, Commercial Litigation
Branch, Washington, D.C., 20530, for Defendant. John Fargo, Gary L. Hausken, Joyce R.
Branda, Department of Justice, Washington, D.C., 20530, Of Counsel.
William C. Bergmann, Baker & Hostetler, LLP, Washington Square, Suite 1100, 1050
Connecticut Avenue, NW, Washington, D.C., 20036, for Third-Party Defendant, GHSP, Inc.
Charles E. Burpee and Kevin G. Dougherty, Warner Norcross & Judd, LLP, 900 Fifth Third
Center, 111 Lyon, NW, Grand Rapids, MI 49503, Of Counsel.
1
The Court issued this opinion under seal on April 24, 2015, and directed the parties to
file proposed redactions by May 1, 2015. Plaintiffs have no proposed redactions, and
Defendants have not filed any notice concerning proposed redactions.
Robert K. Huffman, Thomas P. McLish, Troy D. Cahill, Akin Gump Strauss Hauer &
Feld, LLP, 1333 New Hampshire Avenue, NW, Washington, D.C., 20036, for Third-Party
Defendant, AM General, LLC.
______________________________________________________________________________
OPINION AND ORDER GRANTING PLAINTIFFS’ MOTIONS TO COMPEL
______________________________________________________________________________
WILLIAMS, Judge.
This matter comes before the Court on Plaintiffs’ motions to compel the production of
two attorney-client privileged documents from Third-Party Defendant GHSP, Inc. (“GHSP”).
Plaintiffs contend that GHSP waived the privilege by placing confidential attorney-client
communications on the same subject matter as these two documents “at issue” in this suit in
support of its laches defense. The Court agrees and orders production of the documents.
Background2
The Engine Electrical Start System and Nartron’s Administrative Infringement Claim
In 1997, the United States Army Tank-automotive and Armaments Command
(“TACOM”) assigned AM General, LLC (“AM General”), the task of soliciting proposals for
prototypes of the Engine Electrical Start System (the “EESS”), an engine starter device to be
used in the production of High Mobility Multipurpose Wheeled Vehicles (“HMMWV”). Pls.’
Am. Compl. (“Am. Compl.”) ¶¶ 17, 20. AM General solicited proposals from several vendors,
including Nartron Corporation (“Nartron”) – the predecessor in interest of Plaintiffs UUSI, LLC,
and Oldnar Corporation3 (collectively, “Plaintiffs”) – and KDS Controls (“KDS”) – the
predecessor in interest of Third-Party Defendant, GHSP, Inc. (“GHSP”). KDS, founded by
electrical engineer Stanley Kasiewicz in October 1977, specialized in the design and
manufacture of electronic control devices, including the EESS. Kasiewicz Aff. ¶ 1, May 24,
2013. From KDS’ formation to the date it was sold on May 14, 2004, Stanley Kasiewicz was the
president and sole officer and director of KDS. Kasiewicz Dep. 33:6-18.4 On December 6,
1999, Nartron learned that AM General, on behalf of TACOM, was purchasing the EESS from
KDS for the manufacture of HMMWVs. Id. at 20.
2
This background is derived from Plaintiffs’ amended complaint, Plaintiffs’ motion to
compel, GHSP’s motion for summary judgment, and the January 30, 2014 deposition testimony
of Stanley Kasiewicz. Citations to “Tr., Jul. 30, 2014” refer to the transcript from oral argument
on Defendants’ motion for summary judgment. Citations to “Tr., Mar. 18, 2015” refer to the
transcript from oral argument on Plaintiffs’ motion to compel.
3
Oldnar was known as “Nartron Corporation” until 2010. Id. at ¶ 1.
4
Mr. Kasiewicz and his two daughters owned all of the KDS stock before selling all of
the shares to GHSP on May 14, 2004. Id. at 32:21-33:5.
2
On May 26, 1998, Nartron filed an administrative claim challenging the Department of
the Army’s procurement of KDS’ EESS and alleging that the United States Government and its
suppliers infringed U.S. Patent No. 5,570,666 (“the ‘666 patent”). Def.’s Mot. for Summ. J.
(“Mot. for Summ. J.”), Ex. 4. On February 28, 2000, TACOM denied Nartron’s administrative
claim, and stated that at a minimum, the U.S. Government had “a royalty free license to practice
the invention or have it practiced on its behalf” and that the ‘666 patent “may well be invalid as a
result of an ‘on-sale’ bar.” Id.
On May 10, 2001, Nartron sent a letter to TACOM contracting officer Marie Gapinski,
challenging the procurement of KDS’ EESS and advising that Nartron’s patents “covered
significant development effort and large expenditures to develop EESS systems for the
HMMWV.” Am. Compl. ¶ 23. On June 11, 2001, TACOM’s counsel from the Chief
Intellectual Property Law Division sent Nartron a letter, advising Nartron of the procedure for
filing an administrative claim. Mot. for Summ. J., Ex. 8.
In 2007, TACOM and AM General began replacing the EESS with the Smart Start
System (“S3”), produced by KDS with all of the features of the EESS in addition to a starter
lockout and a serial bus networking system. Am. Compl. ¶¶ 27, 32, 35.
Correspondence Between Nartron Corporation and KDS’ Patent Counsel, Paul Ethington,
Regarding KDS’ Alleged Infringement
In 2000, KDS retained the services of the law firm Reising Ethington and attorney Paul
Ethington to handle KDS’ intellectual property matters.5 Def.’s Resp. to Pls.’ Mot. to Compel
1. According to Mr. Kasiewicz, KDS deferred to Mr. Ethington’s expertise in assessing any
patent infringement claims brought against KDS because Mr. Ethington was KDS’ designated
patent counsel. Kasiewicz Dep. 57:7-58:3, Jan. 30, 2014.
On December 14, 2000, Mr. Kasiewicz received a letter from Nartron’s chief executive
officer, Norman Rautiola, alleging that KDS’ EESS infringed on various Nartron patents,
including U.S. Patent Nos. 6,148,258 (“the ‘258 patent”), 6,009,369 (“the ‘369 patent”), and
5,729,456 (“the ‘456 patent”), and stating that Nartron “may have an interest in licensing your
company for such product.” Mot. for Summ. J., Ex. 1A. Mr. Kasiewicz forwarded this letter to
KDS’ patent counsel, Mr. Ethington, for his assessment of Nartron’s claims. Kasiewicz Dep.
57:7-58:3, 142:19-143:1, 146:7-13.
On January 26, 2001, Mr. Ethington responded on behalf of KDS to Nartron’s December
14, 2000 letter, requesting that Nartron identify the “features or aspects of KDS products that
[Nartron] consider[s] to be covered by [its] patents” and that it also “identify which of the patents
and patent claims [Nartron] consider[s] to be applicable.” Mot. for Summ. J., Ex. 1B.
On August 17, 2003, Paul Ethington died. Pls.’ Opp. to Defs.’ Mot. for Summ. J., Ex.
5
Reising Ethington has not represented KDS since 2004, and has never represented
KDS’ successor, GHSP. Hoffman Aff. ¶ 3, Aug. 8, 2014.
3
36.
KDS’ Counsel’s Memorandum and KDS’ Engineer’s Notes
On January 29, 2001, Mr. Ethington sent Mr. Kasiewicz a memorandum, which is the
subject of the instant motion to compel. Mr. Ethington’s memorandum is entitled “NARTRON
PATENTS 5,570,666; 5,729,456; 6,009,369; and 6,148,258,” and was prepared in response to
Mr. Kasiewicz’s request for a brief statement on each of the main claims of Nartron’s patents in
issue. Pls.’ Mot. to Compel (“Mot. to Compel”), Ex. C. The memorandum summarizes the
elements of the claims of the ‘258 patent, the ‘369 patent, the ‘456 patent, and the ‘666 patent
but does not contain any infringement analysis.
In the introduction to the memorandum, Mr. Ethington states:
[t]his memorandum will give a summary statement of what each
patent stands for, i.e. the invention covered by the patent. The
summary statement is developed by paraphrasing each independent
claim in each patent. The first three listed patents were cited in the
Nartron letter of December 14, 2000. The fourth patent [the ‘666
patent] is cited in the cover sheet of the 5,729,456 [patent].
Id.
In response to Mr. Ethington’s January 26, 2001 request that Nartron identify how KDS
infringed its patents, Nartron, in a letter of April 10, 2001, stated that KDS was at a minimum
infringing on claims 1 and 48 of the ‘258 patent and directed KDS to “immediately cease and
desist all such activities.” Mot. for Summ. J., Ex. 1C.
On May 24, 2001, Larry Lieb, a KDS engineer significantly involved in the design and
building of the EESS for TACOM, authored handwritten notes (the “Lieb Notes”) analyzing
each claim of the ‘258 patent, the ‘369 patent, the ‘456 patent, and the ‘666 patent. Mr. Lieb
testified:
I am the author of the notes dated May 24, 2001 attached hereto . .
. and numbered GHSP 141138 to GHSP 141140. I advised Kevin
Dougherty [GHSP’s lead counsel] on July 25, 2014, that I was the
author of these notes. The notes were made at the request of Mr.
Kasiewicz, Mr. Telmet [manager of KDS’s engineering
department], and/or Mr. Ethington for the purpose of discussing
patent infringement claims with Mr. Ethington in a meeting, which
my notes indicate was scheduled for the next Wednesday, May 30,
2001 at 9:30 a.m.
Lieb Aff. ¶ 4, Sept. 24, 2014. These notes are also at issue in Plaintiffs’ motion to compel.
In his handwritten notes, Mr. Lieb listed the claims of each patent and the elements
thereunder, including his impressions next to each element. Mr. Lieb wrote “yes” next to every
4
element of two claims – claims 1 and 17 concerning the composition and control of the glow
plug controller – of the ‘369 patent. Mot. to Compel, Ex. E; Pls.’ Mot. to Compel Infringement
Analysis, Ex. A. According to Plaintiffs, because the purpose of the notes was to facilitate KDS’
assessment of the merits of Nartron’s patent infringement claims by providing relevant
information to KDS’ patent counsel, the “yes” next to every element of claims 1 and 17 suggests
that Mr. Lieb believed that the EESS meets all of these elements and therefore infringes on the
‘369 patent. Mr. Lieb was not deposed, and his affidavit is his only testimony in the record
concerning his notes. In Mr. Lieb’s affidavit, which was submitted by GHSP, he does not
explain what the “yeses” mean, but he does say that KDS management directed him to draft the
notes in preparation for a meeting with counsel Ethington on Nartron’s infringement claims.
KDS’ Contact With TACOM About Nartron’s Infringement Claims
Sometime between April 10, 2001, and June 6, 2001, Mr. Kasiewicz had one telephone
conversation with Marie Gapinski, a nonlawyer contracting officer at TACOM, about Nartron’s
infringement claims. Kasiewicz Dep. 186:5-8, 191:11-15. According to Mr. Kasciewicz, during
this conversation, Ms. Gapinski said that she was aware of Nartron’s claims, that TACOM
believed there was no basis for the infringement claims, and that any correspondence from
Nartron concerning its patent infringement claims should be forwarded to her. Kasiewicz Dep.
153:21-154:1-16. In his deposition, which occurred well over 13 years after this conversation,
Mr. Kasiewicz recounted his conversation with Ms. Gapinski as follows:
So at that point we then contacted TACOM and spoke to Marie
Gapinski. I explained to her what was going on, and she explained
to me that they were aware of the Nartron claims, and it was their
belief that this had no merit and that Nartron did not have a valid
claim for two reasons. One is that the specifications that evolved,
that was the genesis for these control boxes to evolve, were written
by TACOM, and information with the development of the EESS
was a part of the TACOM involvement. The second thing was that
they had paid [Nartron and KDS] for the development of this
product, and in doing so, that they had no obligation for any
patents that might arise from this. She then further told me that I
should just have any issues that relate to this be directed to her and
they would take care of it, which we did.
Id. at 153:25-154:16.
After Mr. Kasiewicz’s telephone conversation with Ms. Gapinski, KDS’s counsel, Paul
Ethington, sent Nartron a letter on June 6, 2001, instructing Nartron to forward all
correspondence regarding patent infringement allegations concerning the EESS to Ms. Gapinski.
Mot. for Summ. J., Ex. 1D; Kasiewicz Dep. 191:11-15. This June 6, 2001 letter was the final
communication between KDS and Nartron concerning Nartron’s infringement claims. Nartron
neither sent KDS additional correspondence regarding its infringement claims nor initiated any
patent infringement litigation against KDS. See Kasiewicz Aff. ¶ 10.
5
GHSP Acquires KDS
On May 14, 2004, GHSP acquired all shares of KDS stock for $7 million in cash, a $2
million promissory note, and up to $4 million in contingencies dependent on KDS’ financial
results during any given “Earn Out Period.”6 Mot. for Summ. J., Ex. 9-1. Under Sections 3.6,
3.10, and 3.18 of the Stock Purchase Agreement that governed this acquisition, KDS was
required to disclose to GHSP existing or threatened liabilities, claims, or litigation, including any
threats of infringement upon intellectual property rights of third parties by the closing date, May
31, 2004. Mot. for Summ. J. 16. KDS did not disclose any of the patent infringement claims
Nartron raised in its letters to KDS in 2000 and 2001.
Under Section 7.7 of the Stock Purchase Agreement, no claim for indemnification could be
asserted “unless written notice stating in reasonable detail the nature of the claim [was] given to
the party against whom such claim [was] asserted within three (3) years after the Closing Date.”
Mot. for Summ. J., Ex. 9-1 (emphasis added). GHSP had until May 2007, to assert claims for
indemnification against KDS. Mot. for Summ. J. 17.
Under Sections 3.9, 5.3, and 5.9 of the Stock Purchase Agreement, and according to Mr.
Kasiewicz’s deposition testimony, GHSP had access to all of KDS’ records during the pre-
purchase inspection and after the closing date, including the four letters exchanged between
Nartron and Paul Ethington concerning Nartron’s patent infringement allegations. Mot. for
Summ. J., Ex. 9-1; Kasiewicz Dep. 31:8-14, 144:4-7, 182:14-20, 187:11-15, 192:12-17, 222:25-
223:23, 263:10-23. According to Mr. Kasiewicz, these four letters – dated December 14, 2000,
January 26, 2001, April 10, 2001, and June 6, 2001 – were likely stored in KDS’ file cabinet and
maintained by KDS’ bookkeeper, Rita Ayar. Kasiewicz Dep. 143:18-144:3, 181:21-23, 187:8-
10, 192:8-11. Also according to Mr. Kasiewicz, KDS granted GHSP access to these records for
its review prior to the acquisition and transferred these records to GHSP after the acquisition. Id.
at 144:4-7, 181:24-182:16, 187:11-15, 192:12-17. After the May 14, 2004 acquisition, KDS
continued to operate as its own entity under the ownership and control of GHSP until January 1,
2009, when it officially merged into GHSP.
Nartron’s Assignment of Patents to UUSI
On or around December 17, 2009, Nartron assigned U.S. Patent Nos. 5,287,831 (“the
‘831 patent”), 5,327,870 (“the ‘870 patent”), 5,413,072 (“the ‘072 patent”), and 5,507,255 (“the
‘255 patent), as well as the ‘456 patent, the ‘369 patent, and the ‘258 patent to UUSI. Am.
Compl. ¶ 3. This assignment “included the right to assert infringement actions and to collect
damages or seek other remedies regardless of when the infringement occurred, including past
infringement.” Id.
Plaintiffs’ Patent Infringement Litigation
On April 3, 2012, Plaintiffs filed the instant action alleging that Defendant infringed on
6
The “Earn Out Periods” included the period from May 15, 2004, through December 31,
2004, each of fiscal years 2005, 2006, and 2007, and the period from January 1, 2008, through
May 31, 2008. Mot. for Summ. J., Ex. 9-1.
6
the ‘831, ‘870, ‘456, ‘369, and ‘258 patents based on Defendant’s use or manufacture of the
EESS and the S3. On March 17, 2014, Plaintiffs filed an amended complaint alleging that, in
addition to infringing these patents, Defendant also infringed on the ‘072 patent and the ‘025
patent. Neither the Ethington Memorandum nor the Lieb Notes addresses the ‘072 patent or the
‘255 patent. Specifically, Plaintiffs allege that the S3 infringes all of these patents and that the
EESS infringes all of these patents except for the ‘831 patent. Am. Compl. at Counts I-IV.
In January 2013, Plaintiffs sent GHSP a request for the production of documents. On
April 12, 2013, at the request of the parties, this Court entered a Protective Order that provided in
part:
Any discovery documents produced in this litigation may later be
designated as “Attorney-Client Privileged,” “Attorney Work
Product” . . . . In such an instance, no waiver of privilege . . . shall
be deemed to have occurred. Upon such designation, the receiving
attorney shall promptly collect all copies of such documents and
return them to the producing party, or sequester such documents,
summaries of such documents, and notes relating to such
documents for further review of the [C]ourt.
Order of April 12, 2013. On July 22, 2013, GHSP responded and produced 11,831 documents
labeled GHSP000001 to GHSP152935. Dougherty Aff. ¶¶ 3, 12, Aug. 11, 2014. This document
production included the Lieb Notes, marked GHSP 141138 to GHSP 141140, as well as two
copies of the Ethington Memorandum, marked GHSP 141141 to GHSP 141154. Mot. to
Compel, Ex. E; Pls.’ Mot. to Compel Infringement Analysis 2; Lieb Aff. ¶ 4. When lead counsel
for GHSP, Kevin Dougherty, reviewed documents KDS provided GHSP, Mr. Dougherty located
and withheld a copy of the Ethington Memorandum on the basis of the attorney-client
privilege. Dougherty Aff. ¶ 11.
GHSP’s Motion for Summary Judgment on Laches and Estoppel Grounds
GHSP filed a motion for summary judgment on laches and estoppel grounds, arguing that
Plaintiffs’ infringement claims should be dismissed. Specifically, GHSP argued that Plaintiffs
unreasonably delayed filing suit until 2012, despite having actual and constructive knowledge of
their infringement claims as early as December 14, 2000, when Nartron sent KDS its initial letter
asserting patent infringement claims. According to GHSP, because Plaintiffs unreasonably “sat
on their rights,” GHSP suffered economic and evidentiary prejudice – it was exposed to liability,
it could no longer seek timely indemnification from KDS, and it lost the input of former KDS
engineers involved in the design and manufacture of the EESS, in addition to the legal advice of
KDS’ patent counsel, Paul Ethington. Motion for Summ. J. 16-18.
GHSP relied upon the affidavit of Mr. Kasiewicz – in particular his determination that
Nartron’s infringement claims had no merit – to assert prejudice due to Plaintiffs’ delay in filing
their complaint. In this affidavit, Mr. Kasiewicz testified:
As a result of receiving Nartron’s December 14, 2000,
correspondence, I had discussions with my patent counsel, Paul J.
Ethington. I also had discussions with Marie Gapinski, who was
7
one of KDS’s contacts at TACOM. As a result of these
discussions, I concluded that Nartron’s patent infringement claims
had no merit.
Kasiewicz Aff. ¶ 5. Mr. Kasiewicz further testified that KDS did not disclose Nartron’s
infringement claims to GHSP in the Stock Purchase Agreement because of “these discussions”
and because he had heard nothing more from Nartron concerning its infringement claims:
After June 6, 2001, I never received any notice or information
regarding Nartron pursuing any patent infringement claims against
KDS . . . . I did not disclose to GHSP anything relating to
Nartron’s patent infringement allegations. Due to the passage of
time, and having heard nothing about any alleged infringement for
more than three years, I assumed that Nartron did not intend to
pursue its claim and I simply forgot about it.
Kasiewicz Aff. ¶¶ 5, 10, 12.
Production of the Privileged Ethington Memorandum and Lieb Notes
On January 27, 2014, Plaintiffs issued a subpoena directing Reising Ethington to produce
documents that included opinions relating to the patents in issue and any documents concerning
the Ethington Memorandum. Hoffman Aff., Ex. A. On February 3, 2014, counsel for GHSP
advised Reising Ethington that GHSP, as the successor in interest to KDS, had not waived the
attorney-client privilege between KDS and Reising Ethington, and later objected to the
production of any privileged documents. Nonetheless, on February 26, 2014, Reising Ethington
produced 17 pages to Plaintiffs in response to the subpoena, including the Ethington
Memorandum. Id. at ¶ 8.
On May 6, 2014, in their opposition to GHSP’s motion for summary judgment, Plaintiffs
included the Lieb Notes as evidence of willful infringement, arguing that the notes placed KDS
and GHSP on notice that their product infringed Nartron’s patents. Pls.’ Opp. to Mot. for Summ.
J. 25. In response to Plaintiffs’ willful infringement claim, GHSP argued that KDS had a good-
faith belief that the EESS did not infringe Nartron’s patents.
Larry Lieb, the author of the Lieb Notes, Dougherty Aff. ¶ 16, confirmed the following:
 The name Paul, which appears at the top right corner of the first page of the Lieb Notes,
refers to KDS’ patent counsel, Paul Ethington. Mot. to Compel 5-6.
 KDS management directed Larry Lieb to prepare the Lieb Notes for the purpose of
discussing Nartron’s infringement allegations against KDS with Paul Ethington. Lieb
Aff. ¶¶ 4-5.
 Larry Lieb used the Lieb Notes in a meeting with Paul Ethington held on May 30, 2001,
shortly after the notes were written. Id.
8
On July 30, 2014, this Court denied GHSP’s motion for summary judgment because the record
was not sufficiently developed to warrant a judgment on either laches or equitable estoppel, but
did not strike the laches or estoppel defenses, and permitted the parties to amplify the record on
these defenses. Tr. 135:9-22, Jul. 30, 2014.
Plaintiffs’ Challenge to GHSP’s Assertions of Privilege with Respect to the Ethington
Memorandum and the Lieb Notes
On July 17, 2014, Plaintiffs filed a motion to compel, challenging GHSP’s assertion of
the privilege with respect to the Ethington Memorandum, and arguing that the Lieb Notes were
linked to the Ethington Memorandum because the notes alluded to a meeting with Paul Ethington
and contained an analysis of the same four patents-in-suit summarized in the Ethington
Memorandum. Mot. to Compel 5-6. On August 11, 2014, GHSP filed its response to Plaintiffs’
motion to compel and argued that there was no waiver of privileged material pursuant to the claw
back provision of the Court’s Protective Order and Federal Rule of Evidence 502(b).
On September 10, 2014, Plaintiffs filed a motion challenging GHSP’s assertion of
privilege regarding the Lieb Notes, arguing that the Lieb Notes were not privileged and that,
even if they were, any privilege had been waived because GHSP selectively relied on certain of
KDS’ communications with Paul Ethington to assert its laches defense in its motion for summary
judgment. Pls.’ Mot. to Compel Infringement Analysis 8.
On February 18, 2015, after obtaining new counsel, Plaintiffs filed a supplemental brief,
arguing that because GHSP disclosed and relied on communications with counsel to assert its
laches and estoppel defense in its motion for summary judgment, GHSP waived any privilege by
placing these communications “at issue.” Pls.’ Supp. Brief 6. Plaintiffs contended:
GHSP cited the affidavit by Mr. Kasiewicz during summary
judgment as evidence of prejudice suffered, including with respect
to the Stock Purchase Agreement and GHSP’s remedies under that
Agreement. Through this summary judgment briefing and
supporting affidavit, GHSP disclosed the existence of the
discussions with Attorney Ethington and what GHSP believed at
the time of briefing was the substance of the discussions. When
KDS’s former president Mr. Kasiewicz stated that “[a]s a result of
those discussions [with counsel], I concluded that Nartron’s patent
infringement claims had no merit,” he represented that Attorney
Ethington counseled him that the patents did not infringe . . . .
Id. at 2-5 (alterations in original). On March 3, 2015, GHSP responded that there was no
subject-matter waiver, that GHSP was not wielding privileged documents as both a sword and a
shield, and that the privileged documents were irrelevant to the issues raised in its motion for
summary judgment because GHSP did not rely on the substantive contents to advance its laches
defense.
On March 18, 2015, this Court held a hearing on Plaintiffs’ motion to compel challenging
9
GHSP’s assertions of privilege with respect to the Ethington Memorandum and the Lieb Notes.
Discussion
GHSP Waived the Attorney-Client Privilege By Placing the Ethington
Memorandum and the Lieb Notes “At Issue” In this Litigation
Plaintiffs claim that GHSP impliedly waived the attorney-client privilege with respect to
the Ethington Memorandum and the Lieb Notes when it placed these privileged documents “at
issue” by invoking its laches defense. The Court agrees.
The Federal Circuit has recognized the implicit waiver of the attorney-client privilege
when privileged information is “at issue.” This concept was first articulated in Hearn v. Rhay, 68
F.R.D. 574, 581 (E. D. Wash. 1975) and later adopted by the Federal Circuit in Zenith Radio
Corporation v. United States, 764 F.2d 1577, 1579 (Fed. Cir. 1985). Under Hearn, an implied
waiver of the attorney-client privilege occurs when:
(1) assertion of the privilege was a result of some affirmative act,
such as filing suit, by the asserting party; (2) through this
affirmative act, the asserting party put the protected information at
issue by making it relevant to the case; and (3) application of the
privilege would have denied the opposing party access to
information vital to his defense.
Hearn, 68 F.R.D. at 581. An “at-issue” waiver can be invoked “when a party makes the content
of his attorney’s advice relevant to some claim or defense in the case. Even if the party does not
expressly disclose the advice received, but only alludes to it, the privilege can be deemed waived
by implication.” Wi-LAN, Inc. v. LG Elecs., Inc., 684 F.3d 1364, 1370 (Fed. Cir. 2012).
The “at-issue” waiver is grounded in principles of fairness; the waiver applies when a
party relies on advice of counsel to assert a claim or defense that in fairness requires the
examination of privileged material. See In re EchoStar Commc’n Corp., 448 F.3d 1294, 1301
(Fed. Cir. 2006) (“[S]elective waiver . . . may lead to the inequitable result that the waiving party
could waive its privilege for favorable advice while asserting its privilege on unfavorable
advice.”); Cormack v. United States, 118 Fed. Cl. 39, 43 (2014) (“In particular, courts are
concerned with basic notions of fairness, aiming to prevent a party from disclosing
communications supporting its position while simultaneously withholding communications that
do not.”).
The “at-issue” waiver applies where the privilege holder makes assertions, the truth of
which can only be assessed by the examination of the privileged communications. See Eden Isle
Marina, Inc. v. United States, 89 Fed. Cl. 480, 502 (2009) (“A client may also waive the
privilege by implication if the communication is necessary to establish its claim or defense.”)
(citing Blue Lake Forest Prods., Inc. v. United States, 75 Fed. Cl. 779, 783 (2007)).
Plaintiffs’ “at-issue” waiver claim in this case relates exclusively to GHSP’s laches
defense – GHSP claims that Plaintiffs’ delay in filing suit prejudiced it because the company it
10
acquired, KDS, never advised it of potential patent infringement claims that Nartron had raised
as early as 2000, and GHSP’s right to seek indemnification from KDS for alleged patent
infringement had expired by the time this suit was filed.
In this Court’s view, based upon the existing record, attorney-client privileged
information shared between KDS and its counsel, Mr. Ethington, was at least part of the reason
KDS did not believe it had any obligation to disclose Nartron’s potential patent infringement
claims to GHSP in the acquisition. Specifically, KDS’ founder and president, Mr. Kasiewicz,
testified that as a result of discussions with his counsel, Mr. Ethington, and a nonattorney
TACOM contact, he “concluded that Nartron’s patent infringement claims had no merit.”
Kasiewicz Aff. ¶ 5. Because Nartron did not notify KDS that it was pursuing patent
infringement claims for over three years – from June 6, 2001, until the acquisition on May 14,
2004 – Mr. Kasiewicz “assumed Nartron did not intend to pursue its claim” and “simply forgot
about it.” Id. at ¶¶ 10, 12. According to GHSP, by the time Plaintiffs filed this action in 2012,
GHSP was contractually time-barred from seeking indemnification from KDS under the terms of
the Stock Purchase Agreement.
A crucial underpinning of GHSP’s laches defense is that Mr. Kasiewicz’s discussions
with counsel informed KDS’ conclusion that Nartron’s patent infringement claims had no merit,
thus causing KDS’ management to believe that Nartron was not pursuing infringement claims
and Mr. Kasiewicz to “simply [forget] about it.” Kasiewicz Aff. ¶ 12. GHSP proffered Mr.
Kasiewicz’s affidavit on that point and placed that privileged information squarely “at issue.”
However, during the course of discovery, two other documents surfaced which appear to
contradict Mr. Kasiewicz’s testimony that Mr. Ethington advised KDS that Nartron’s patent
infringement claims were meritless. The Ethington Memorandum summarizing the claims of
Nartron’s patents-in-suit coupled with the notes of KDS engineer, Larry Lieb, prepared at KDS’
management’s direction for his meeting with Mr. Ethington about Nartron’s claims, facially
suggest that Mr. Lieb and Mr. Ethington believed that there was infringement. In the notes, Mr.
Lieb wrote “yes” next to every element of claims 1 and 17 of the ‘369 patent, suggesting that
after comparing the EESS with Nartron’s patents-in-suit, he found that the EESS meets all the
elements of claims 1 and 17 of the ‘369 patent and therefore infringes on Nartron’s ‘369 patent.7
These two privileged documents cover the same subject matter as the attorney-client
privileged discussions between Mr. Kasiewicz and Mr. Ethington referenced in paragraph five of
the Kasiewicz affidavit. Mr. Kasiewicz’s rendition of his discussions with Mr. Ethington reflects
that Mr. Ethington opined that there was no infringement, while the Ethington Memorandum
coupled with the Lieb Notes suggest the opposite – that there was infringement. It would be
unfair for GHSP to waive the attorney-client privilege with respect to the Ethington-Kasiewicz
discussions on Nartron’s claims of patent infringement but then invoke the privilege to shield
documents authored by counsel and a KDS engineer that also reflect their discussions on
Nartron’s infringement claims.
Laches is an equitable defense. Integrated Tech. Corp. v. Rudolph Tech., Inc., 734 F.3d
1352, 1361 (Fed. Cir. 2013). A party seeking an equitable remedy from the Court is subject to
7
This Court recognizes that Mr. Lieb was not deposed, and he did not directly address in
his affidavit what the “yeses” in his notes meant or whose input prompted them. Thus the Court
makes no finding as to what Mr. Lieb’s notes actually mean, only what they suggest.
11
equitable principles epitomized by the maxim, “he who seeks equity must do equity,” – it must
act fairly in pursuing equitable relief. See, e.g., Dubinsky v. United States, 44 Fed. Cl. 509, 512-
13 (1999) (“[A]n injunction is an equitable remedy, and requires the court to consider whether
plaintiff has ‘done equity.’”). Here, the application of the “at-issue” waiver is particularly
appropriate so that both Plaintiffs and GHSP can probe the attorney-client discussions and advice
that underlie GHSP’s laches defense. Apparently, KDS never told GHSP about Nartron’s
potential infringement claims in the acquisition, because it believed Nartron’s patent
infringement claims were meritless based at least in part upon counsel Ethington’s advice. In
GHSP’s view, KDS’ failure to provide notice of Nartron’s potential infringement claims in the
acquisition and Plaintiffs’ delay in filing suit, caused GHSP to forfeit its rights under the Stock
Purchase Agreement for indemnification. Stated differently, the crux of GHSP’s economic
prejudice claim underlying its laches defense is its inability to seek indemnification from KDS.
That inability stems from KDS’ failure to disclose Nartron’s infringement claims based on KDS’
alleged belief, informed by discussions with counsel, that Nartron’s infringement claim had no
merit. In order for there to be a fair and level playing field for adjudicating GHSP’s laches
defense, both GHSP and Plaintiffs need to have access to materials reflecting these privileged
communications.
GHSP attempts to retreat from KDS’ apparent reliance on Mr. Kasiewicz’s discussions
with his counsel, Mr. Ethington, to suggest that it was not the advice of counsel, but a
conversation with a TACOM contracting officer, that persuaded Mr. Kasiewicz that Nartron’s
infringement claims were meritless. GHSP challenged Plaintiffs’ interpretation of paragraph five
of the Kasiewicz affidavit, arguing that Mr. Kasiewicz only referenced “discussions” with
TACOM contracting officer Ms. Gapinski, and not “discussions” with patent counsel, in his
affidavit. Tr. 29:8-22, Mar. 18, 2015. Paragraph five states:
As a result of receiving Nartron’s December 14, 2000,
correspondence, I had discussions with my patent counsel, Paul J.
Ethington. I also had discussions with Marie Gapinski, who was
one of KDS’s contacts at TACOM. As a result of these
discussions, I concluded that Nartron’s patent infringement claims
had no merit.
Kasiewicz Aff. ¶ 5. Specifically, GHSP argues that the words “these discussions” in the last
sentence of paragraph five only refer to Mr. Kasiewicz’s discussions with nonattorney Ms.
Gapinski of TACOM. Tr. 28:11-14, 32:6-25, Mar. 18, 2015. A careful reading of the language
in paragraph five of the Kasiewicz affidavit refutes GHSP’s interpretation. In this paragraph,
Mr. Kasiewicz refers to “these discussions” – the discussions that form the basis of his
conclusion on the merits of Nartron’s infringement claims – in the plural. Kasiewicz Aff. ¶ 5. In
his deposition testimony, Mr. Kasiewicz asserted that he only spoke once with Ms. Gapinski
concerning Nartron’s patent infringement claims, so his use of the plural to refer to the
“discussions” that informed his conclusion indicates that he is not only referencing the single
conversation with Ms. Gapinski, but also the conversations he had with counsel Ethington to
conclude that Nartron’s patent infringement claims were meritless. Kasiewicz Dep. 161:11-13,
164:15-17,165:10-13.
12
To support its interpretation of paragraph five, GHSP refers to select excerpts of Mr.
Kasiewicz’s deposition testimony:
[MR. FRANKLIN]: In response to this letter, [paragraph five of
the Kasiewicz affidavit] says you had discussions, and this is the
December 14th, 2000 letter from Norman Rautiola. Did you do
anything else in response to Nartron’s letter of December 14th,
2000 other than having discussions?
A: Well, first of all, I sent this to my patent attorney to review. He
then sent another letter, too, or sent a letter back to Nartron asking
for specifics, how does it infringe? Their response was very
vague. So at that point we then contacted TACOM and spoke to
Marie Gapinski. I explained to her what was going on, and she
explained to me that they were aware of the Nartron claims, and it
was their belief that this had no merit and that Nartron did not have
a valid claim for two reasons . . . .
Q: Did you do anything else other than have discussions in
response to this December 14, 2000 letter from Mr. Rautiola?
A: When you say did I do anything else, meaning what?
Q: Did you do anything other than talk with people?
A: That’s right, I just spoke to people.
MR. LEVINE [Counsel for Mr. Kasiewicz]: Well, let me clarify
the record, because I believe you answered before that you did turn
the letter over to your patent attorney.
A: Yes, I gave it to the attorney. The attorney looked at it, said --
MR. DOUGHERTY: I am going to object and instruct the witness
not to answer as to any attorney-client communications.
MR. LEVINE: I was just making a point that you gave it to your
attorney.
MR. FRANKLIN: Well, did you tell Marie Gapinski what your
attorney said?
A: My attorney didn’t say anything, --
Q: Well, that takes care of that objection.
A: -- other than there wasn’t enough information.
13
MR. DOUGHERTY: I am going to object again and instruct the
witness not to answer as to communications that he had with Mr.
Ethington.
***
Q: Turning back to Exhibit 18, your affidavit in paragraph five, in
this one conversation that you had with Ms. Gapinski, what did she
say with respect to the Nartron letter of December 14th, 2000?
A: When I spoke to her, Ms. Gapinski told me that TACOM was
aware of the Nartron issue . . . . She then went on to explain to me
that it was their feeling that Nartron had no basis for this for two
reasons . . . .
Q: Did she say anything else?
A: That’s all I remember. Well, she did say, the most important
part, not to worry about it, that they would take care of it, and just
have all communications regarding this matter directed to her.
Kasiewicz Dep. 153:16-155:19, 163:17-164:14. According to GHSP, these excerpts show that
Ms. Gapinski’s advice was the sole basis for Mr. Kasiewicz’s conclusion that Nartron’s
infringement claims were meritless. However, such a conclusion is not reasonably inferred from
the quoted colloquy given that GHSP’s counsel invoked the privilege to instruct KDS’ founder,
Mr. Kasiewicz, not to testify about what his counsel said about Nartron’s patent infringement
claims, and Mr. Kasiewicz could not address counsel’s discussions or advice.
Moreover, Mr. Kasiewicz’s deposition testimony also suggests that because Mr.
Ethington was KDS’ designated patent counsel, KDS typically deferred to his advice on the
merits of any and all infringement claims, including Nartron’s claims; Mr. Kasiewicz asked Mr.
Ethington for his opinion on the Nartron infringement claims; and Mr. Kasiewicz had ongoing
communications with Mr. Ethington about Nartron’s infringement claims. Mr. Kasiewicz
testified:
[MR. FRANKLIN]: And who at KDS Controls had authority to
make decisions as to whether or not KDS Controls was running the
risk of infringing other’s intellectual property?
A: That decision would be the patent attorney [Paul Ethington].
We would rely on his recommendations, and his counsel would
determine whether we would be in jeopardy or not.
Q: So from your position as president of KDS Controls, in your
decision-making, you were thinking there was no one at KDS
Controls that was qualified to make decisions on intellectual
property issues; is that correct?
14
A: Absolutely. None of us were attorneys.
Q: So as far as intellectual property issues at KDS Controls, if
issues arose, you referred them to your intellectual property
lawyer?
A: That is correct.
Q: And when decisions were to be made on intellectual property
issues at KDS Controls, you deferred to your intellectual property
lawyer, because no one at KDS Controls had the expertise to make
those decisions?
A: That is correct.
***
Q: During the time period that you were at KDS Controls, did
KDS Controls use any intellectual property attorneys other than
Paul Ethington?
A: No.
***
Q: What did KDS do with respect to due diligence concerning
threats of patent infringement?
A: We had threats reviewed by our legal consultant [Paul
Ethington].
***
Q: When you received the December 14th, 2000 letter, did you do
anything else with it other than send it to your patent attorney, Mr.
Ethington?
A: No, I sent it to him for his opinion.
***
Q: Did this letter from Mr. Rautiola [chief executive officer of
Nartron] of December 14th, 2000 generate any conversations?
A: Only between myself and my patent attorney.
***
Q: And whether or not the EESS infringed any of the Nartron
patents, and I am talking about the KDS EESS, you are leaving
that to your patent attorney?
A: Yes.
15
Kasiewicz Dep. 57:7-58:3, 61:6-9, 94:25-95:4, 142:23-143:1, 146:7-9, 151:10-13. This excerpt
from Mr. Kasiewicz’s deposition suggests that any conclusion KDS made about infringement
would be based upon the advice of its patent counsel, Mr. Ethington.
While the record at this juncture is not a model of clarity,8 in this Court’s view, it is most
reasonably interpreted to mean that Mr. Kasiewicz relied on the advice of both Ms. Gapinski and
Paul Ethington to conclude that Nartron’s infringement claims were meritless. Because GHSP
affirmatively injected attorney-client privileged communications between KDS and its patent
counsel on the merits of Nartron’s infringement claims in pressing its laches defense, Plaintiffs
deserve access to additional privileged communications on this same subject to provide them a
fair opportunity to rebut GHSP’s laches defense.
The attorney-client privilege generally ceases to exist upon waiver, so GHSP’s assertion
that the claw back provision of the Court’s Protective Order preserves the privilege will not
resurrect the privilege as it applies to the Ethington Memorandum and the Lieb Notes. See
Genentech, Inc. v. U.S. Int’l Trade Comm’n, 122 F.3d 1409, 1416-17 (Fed. Cir. 1997) (stating
that once the attorney-client privilege is waived, it ceases to exist for all purposes and can no
longer be invoked to prevent access to the communications in question) (citing Epstein and
Martin, The Attorney-Client Privilege and the Work-Product Doctrine 76 (5th ed. 2007 and 2012
Supp.)). For this reason, the Court does not analyze whether GHSP’s disclosures were
inadvertent and subject to claw back under the Protective Order.
Conclusion
GHSP placed attorney-client communications between KDS and its counsel Paul
Ethington regarding the merits vel non of Nartron’s patent infringement claims “at issue” in this
litigation by describing them in the Kasiewicz affidavit. As such, GHSP waived the privilege for
two other privileged documents on this subject, the Ethington Memorandum and the Lieb Notes.
Plaintiffs’ Motions to Compel Challenging GHSP’s Assertions of Privilege are GRANTED.9
The Court will convene a telephone status call on May 6, 2015, at 4:00 p.m. EDT to
schedule further proceedings.
s/Mary Ellen Coster Williams
MARY ELLEN COSTER WILLIAMS
Judge
8
At the hearing on Plaintiffs’ motion to compel, the Court questioned whether it should
conduct an evidentiary hearing on the question of “at-issue” waiver to enable the Court to hear
and observe Mr. Kasiewicz’s testimony concerning his assertions in paragraph five of his
affidavit. The parties requested that the Court rule on Plaintiffs’ motion to compel based on the
existing record. Tr. 41:5-12, Mar. 18, 2015.
9
This opinion addresses Plaintiffs’ motions filed under docket entry numbers 133 and
142.
16