Key Lessons From the Recent Precedential Order by Federal Circuit – Jurisdiction, Mandamus, and Privilege

by Proskauer - Minding Your Business
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On November 17, 2016, the United States Court of Appeals for the Federal Circuit published a precedential order denying a petition for a writ of mandamus to overturn a district court’s determination. In In re: Rearden LLC, Rearden MOVA LLC, MO2, LLC, MOVA, LLC, the defendants in the underlying case had petitioned for a writ of mandamus to challenge the district court’s order compelling them to produce allegedly privileged documents.

Background

The underlying dispute in the case surrounded ownership of visual effects technology secured by trademarks, copyrights, trade secrets, and patents. A newly formed entity acquired the technology and related assets but the two parties disputed the nature and control of the new entity. In February 2015, the plaintiffs filed a complaint in the United States District Court for the Northern District of California, alleging that the defendants made false or misleading representations regarding ownership of the technology and seeking a declaration that it owned the technology in question. The defendants counterclaimed, seeking their own declaration that they owned the technology in question and damages for patent infringements.

During discovery, the plaintiffs moved to compel the defendants to produce documents exchanged between a corporate attorney and the entity that had originally acquired the patented technology. The magistrate judge disagreed with the defendants’ assertion of attorney-client privilege protection and granted the request to compel. Further, the district court affirmed the magistrate court’s order, while declining to consider an additional declaration from the defendants that had not been presented to the magistrate judge. In turn, the defendants petitioned for a writ of mandamus. The Federal Circuit answered three core questions in a short precedential order.

Jurisdiction

First, the Federal Circuit concluded that it had jurisdiction to decide this petition. Under 28 U.S.C. § 1295(a)(1), the Federal Circuit has appellate jurisdiction in any civil action arising under or with a compulsory counterclaim arising under any Act of Congress relating to patents. The Court found that here, the claims and counterclaims involve the same patents and share overlapping legal and factual issues and logical relation. Also, substantially the same evidence could refute both the claims of ownership and counterclaims of infringement. Moreover, unlike a case where a counterclaim of infringement may mature after the filing of the complaint, the defendants in this case counterclaimed that the plaintiff infringed the same patents in question and the alleged infringing activity was known by the defendants at the time of filing. Therefore, the counterclaim was found compulsory, establishing appellate jurisdiction for the Federal Circuit.

Appellate Review for a Writ of Mandamus

Second, a relief by writ of mandamus calls for a deferential review and requires a showing of a “clear and indisputable” right to relief and that no adequate alternative legal channels exist through which the petitioners may obtain the same relief. Kerr v. U.S. Dist. Court. The Federal Circuit held that the petitioners failed to meet this high standard.

The petitioners argued that the district court erred by not accepting a supplemental declaration and not holding an evidentiary hearing on the issue. However, this did not establish a clear and indisputable right to relief, according to the Federal Circuit; an evidentiary hearing or supplementation is one of discretion—not a requirement—of a district court. Also, the petitioners did not establish that the district court abused its discretion because they failed to explain why they could not have submitted any additional information to the magistrate judge or explain why an additional hearing was necessary.

Privilege or Disclosure

Third, the Federal Circuit disagreed with the petitioners’ argument that the district court and the magistrate judge should have deferred ruling on the privilege issue until the control over the disputed entity was conclusively determined. Rather, the Court showed deference to the district court and magistrate judge’s preliminary factual determinations.

The Federal Circuit further declined to consider extra-record declaration regarding the entity’s control and denied a mandamus relief on the preliminary factual findings regarding privilege. Lastly, the Court noted that the petitioners have an alternative avenue to obtain meaningful review of these arguments, citing a U.S. Supreme Court case which held that appellate courts can effectively remedy the improper disclosure of privileged material post-judgment by vacating an adverse judgment and remanding for a new trial in which the protected material and its fruits are excluded from evidence. See Mohawk Indus., Inc. v. Carpenter.

Conclusion

As noted (and cited by the petitioners) in United States v. Mett, “hard cases should be resolved in favor of the privilege, not in favor of disclosure.” However, a mandated disclosure of alleged privileged material does not necessarily mean that a collateral appeal is the best strategic decision. Moreover, parties considering to petition for a writ for mandamus should be prepared to meet the high burden of proof.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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