Historically, many courts have been reluctant to construe the attorney-client privilege broadly and have viewed what assists an attorney in rendering legal advice narrowly. However, this approach does not take into account the business realities of how a modern startup company functions in the “gig” economy to both obtain and enforce intellectual property using out-sourced specialists in fields such as engineering and business analysis. Current developments in the law in Delaware regarding the “functional equivalents” doctrine demonstrates a modern approach to update the classic formulation of the requirements of the attorney-client privilege. In Sight Sciences, Inc. v. Ivantis, Inc., et al., the District of Delaware (Mag. Fallon) held in July, 2023 as follows in the context of a motion to compel document production related to the application of the attorney-client privilege:
- The motion is denied with respect to communications that do not include an attorney because the record supports Defendants’ position that these communications reflect the substance of attorney-client communications between employees and/or independent consultants. (D.I. 222, Ex. 13); see Shire Dev. Inc. v. Cadila Healthcare Ltd., C.A. No. 10-581-KAJ, 2012 WL 5247315, at *3 (D. Del. June 15, 2012) (“[A] document does not even need to be addressed to or from an attorney to be privileged—privileged communications may be shared by nonattorney employees[.]”); In re Flonase Antitrust Litig., 879 F. Supp. 2d 454, 459-60 (E.D. Pa. 2012) (explaining that an independent consultant is the functional equivalent of an employee for purposes of the attorney-client privilege).
Civil Action No. 21-1317, ¶ 12 (July 3, 2023) (emphasis added). This extension of the attorney-client privilege to include independent consultants participating with an attorney to provide legal advice to the client is an important recognition that including such consultants in an otherwise privileged communication does not automatically waive the privilege.
In the In re Flonase Antitrust Litig. opinion cited by the District of Delaware above, the E.D. of Pennsylvania explained:
The Eighth Circuit concluded that “just as [m]iddle-level — and indeed lower-level — employees … would have the relevant information needed by corporate counsel if he is adequately to advise the client with respect to … actual or potential difficulties, so too would nonemployees who possess a significant relationship to the [client] and the [client]’s involvement in the transaction that is the subject of legal services.” Id. at 938 (alteration in original) (citation omitted) (internal quotation marks omitted)(emphasis added).
879 F. Supp. 3d 454, 458 (E.D. Pa. 2012). A startup may not have in-house engineers and business advisors to assist in the preparation of patent applications, or the evaluation of potential monetization activities including potential patent litigation. Nevertheless, these “non-employees” certainly possess both a “significant relationship” to the client and to the legal advice that the attorney is seeking to render; even potentially if the attorney is not included in a specific communication. Mag. Fallon in Sight Sciences above upheld privilege “with respect to communications that do not include an attorney because the record support[ed] Defendants’ position that these communications reflect the substance of attorney-client communications between employees and/or independent consultants.”
While the case law in this area continues to evolve, litigators representing smaller entities in patent litigation who are often the plaintiff and patent owner should carefully analyze communications with independent consultants to determine if the “functional equivalents” doctrine can be applied in the relevant jurisdiction.
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Ted Baroody’s practice focuses on intellectual property disputes including patent litigation, Walker Process patent fraud antitrust litigation, trade secret litigation, trademark litigation and other Lanham Act claims, and copyright litigation. Ted has the knowledge and experience to act as lead counsel, co-counsel, or local counsel in the Eastern and Northern Districts of Texas.
He has also been lead counsel in six IPR (Inter Parties Review) proceedings before the Patent Trial and Appeal Board (“PTAB”) at the U.S. Patent and Trademark Office. Ted also has experience as lead counsel in appeals before the Federal Circuit and Fifth Circuit. In addition to his law degree, which he received from Southern Methodist University Dedman School of Law in Dallas (1989), Ted also holds a Bachelor of Science in Chemical Engineering from Rice University in Houston (1986).
