Northern District of California finds that Certain Subjective Beliefs Place Attorney-Client Communications At Issue in Pay-for-Delay Antitrust Case

It is axiomatic that the attorney-client privilege “promotes public policy by recognizing that sound legal advice and advocacy depends on the client's frank and complete communication with its attorney.”  Lopes v. Vieira, 688 F. Supp. 2d 1050, 1058 (E.D. Cal. 2010) (citing Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)).  However, the privilege is not absolute.  It is also long-settled that when a party places the substance of legal advice “at issue” in a case to support a claim or defense, the party may impliedly waive privilege.  Hunt v. Blackburn, 128 U.S. 464, 470-71 (1888) (“When Mrs. Blackburn entered upon a line of defence which involved what transpired between herself and [her attorney] . . . she waived her right to object to his giving his own account of the matter.”).  Recently, the Northern District of California found that certain subjective beliefs that the defendants intended to assert at trial – covering a wide variety of topics – would create an at-issue waiver if defendants chose to continue to rely on them.  See In re Lidoderm Antitrust Litig., No. 14-md-02521-WHO, 2016 U.S. Dist. LEXIS 105619 (N.D. Cal. Aug. 9, 2016).  

In In re Lidoderm, plaintiff wholesalers and retailers have challenged a reverse-payment agreement that drug manufacturers Endo and Teikoku reached with generic manufacturer, Watson, in a patent infringement case concerning the pain relief patch Lidoderm. Under the agreement, Watson was given $96 million worth of free branded Lidoderm patches that it could sell for its own benefit, as well as a promise that Endo would not launch an authorized generic version of Lidoderm for seven and one-half months after Watson launched its product.  Such settlements “can sometimes violate the antitrust laws.” FTC v. Actavis, Inc., 133 S. Ct. 2223, 2227 (2013).

In the fall of 2015, the Lidoderm plaintiffs first argued that defendant Endo put attorney client communications “at issue” by relying on subjective beliefs informed by its counsel with respect to testimony Endo gave to the Federal Trade Commission (“FTC”).  In re Lidoderm Antitrust Litig., 2016 U.S. Dist. LEXIS 105619, at *37.  At that point, depositions in the case had not been taken and the court declined to find a broad at issue waiver after Endo disclaimed any intent to rely on the subjective beliefs in its FTC testimony.  Id. However, as the case progressed the plaintiffs were invited to reassert the waiver issue with respect to specific documents or communications.  Id. at *37-38.

As further discovery disputes arose, and while depositions were underway, the court ordered the defendants to disclose all subjective beliefs that they intended to introduce or rely on at trial with regard to several key topics, including the defendants’ assessment of the underlying patent litigation, explanations for the settlement payments, and Watson’s ANDA approval for generic Lidoderm.

Collectively, the three defendants disclosed 68 subjective beliefs they intended to rely upon at trial.  Id. at *48.  On August 9, 2016, the court found that the defendants should be precluded from offering many of their disclosed subjective beliefs absent a waiver of attorney-client privilege.

First, the court held that the Ninth Circuit standard for determining whether an implied waiver has occurred is set out in Hearn v. Rhay, 68 F.R.D. 574, 581 (E.D. Wash. 1975). Under Hearn, an implied waiver of the attorney-client privilege occurs when “(1) the party asserts the privilege as a result of some affirmative act, such as filing suit; (2) through this 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 Indem. Co. v. Lane Powell Moss & Miller, 43 F.3d 1322, 1326 (9th Cir. 1995).

The court carefully examined each subjective belief articulated by the defendants.  The court was persuaded by the plaintiffs’ citation to specific deposition testimony from defense witnesses demonstrating that many of their asserted subjective beliefs were based upon attorney advice.  Of note, the court found that subjective beliefs related to the likelihood of success of Watson’s ANDA for generic Lidoderm, the resolution of a Citizen Petition filed by Endo, and the likelihood of an at-risk launch by Watson would result in an at issue waiver if defendants continued to rely on them.  For example, the court concluded that “the record . . . demonstrates that the contents, strategy, status, and likelihood of success of both Watson's ANDA and Endo's Citizen Petition were the subject of attorney-client advice and these topics were not merely discussed in the settlement negotiations, but were central to those negotiations and, thus, the merits of this case.”  In re Lidoderm Antitrust Litig., 2016 U.S. Dist. LEXIS 105619, at *76.

Furthermore, regarding Watson’s likelihood of launching “at risk,” the court noted that an at risk launch “is defined as launching a generic drug on the market before ‘a final court decision’ in the underlying Paragraph IV patent litigation.  By its very definition, the concept requires reference to the status and strength of the patent litigation and necessarily implicates legal advice.”  Id. at *90 (citation omitted).

That the court chose to find an at issue waiver with regard to these topics, among others, makes logical sense.  As it noted from the outset of its opinion, “[a]ttorney-client privilege issues lie at the heart of litigation over a settlement alleged to be anticompetitive when a party's lawyers are the principal negotiators and advisors regarding the agreement.”  Id. at *36.  If defendants want to put on evidence at trial about subjective beliefs that were informed by attorney-client communications, then they must live with that choice in discovery by opening the foundations of those beliefs to discovery.  Whether the court’s decision creates a wider impact for reverse-payment cases beyond the Ninth Circuit remains to be seen.

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About David Calvello

David Calvello is an Associate in the firm’s New York office and focuses his practice on antitrust issues in the pharmaceutical industry.  Faruqi & Faruqi, LLP serves as Interim Co-Lead Counsel for the proposed Direct Purchaser Class in In re Lidoderm.  David worked on the briefing in connection with the above decision.       


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