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Motorola, Inc. v. Lemko Corp.

June 1, 2010

MOTOROLA, INC., PLAINTIFF,
v.
LEMKO CORP., XIAOHONG SHENG, SHAOWEI PAN, HANJUAN JIN, XIAOHUA WU, XUEFENG BAI, NICHOLAS LABUN, JINZHONG ZHANG, ANGEL FAVILA, ANKUR SAXENA, RAYMOND HOWELL, FAYE VORICK, AND NICHOLAS DESAI, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly United States District Judge

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge

The defendants have moved under Federal Rule of Civil Procedure 26(b)(5)(B) for a determination that plaintiff Motorola Inc.'s claims of attorney-client and work product protection for certain documents requested in discovery are unfounded. Two of the defendants, Lemko Corp. and Shaowei Pan, have moved to retain the protective order designations of "attorneys' eyes only" or "highly confidential" for certain documents. In this decision, the Court rules on both motions.

1. Motorola's Privilege Claims

The first question on the privilege issue is what law applies. This case includes four federal or arguably federal claims and over a dozen state claims. Motorola's federal claims are count one, a claim under the Computer Fraud and Abuse Act in which Motorola claims that certain defendants obtained proprietary information from Motorola computers in excess of their authorization; count six, a claim in which Motorola seeks a declaratory judgment that certain patents held by and patent applications submitted by various defendants are Motorola's property; and count seventeen, a claim in which Motorola alleges that Lemko has infringed Motorola's copyright in certain source code. Defendant Sheng has asserted a counterclaim whose only remaining count is a federal discrimination claim; Pan has asserted a counterclaim that he is the rightful owner of certain inventions; and Wu and Lemko have asserted counterclaims that arise under state law.

In federal court, matters of privilege are governed by federal common law, except "in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision," on which state law governs. Fed. R. Evid. 501. The rule, by its terms, is claim-specific; the governing law of privilege depends on what claim or defense is at issue.

Defendants argue that Illinois privilege law governs; Motorola argues that the governing law is federal privilege law -- specifically, federal privilege law as interpreted by the Federal Circuit, which hears appeals in patent cases. Given Rule 501's claim-specific focus, the threshold question would appear to be what claim or claims the material on which privilege is asserted concerns. If the material pertains only to state claims, then Illinois law controls. If the material pertains only to federal claims, then federal law controls (which circuit's law would depend on which federal claims the material concerns). If the material pertains to both state and federal claims, the issue is perhaps tougher. Though neither party has addressed the point, there are cases saying in that situation, federal privilege law governs. See, e.g., von Bulow by Auersperg v. von Bulow, 811 F.2d 136, 141 (2d Cir. 1987); Mem. Hosp. for McHenry County v. Shadur, 664 F.2d 1058, 1061 & n.3 (7th Cir. 1981). Both von Bulow and Memorial Hospital, however, were cases in which federal law applied narrower privilege protection than state law. The opposite is true in the present case. The scope of attorney-client privilege protection is arguably narrower under Illinois law than under federal law, based on Illinois' adherence to the "control group" test in the corporate context.

The Court has not located any decisions addressing what law applies when the evidence applies to both federal and state claims and state law applies narrower privilege protection. Motorola does not address this question; it essentially assumes that because there are patent issues in the case, Federal Circuit law applies. Defendants say that the material in question all concerns the state law claims, though they do not spill much ink trying to explain their contention.

The material on which Motorola has claimed privilege appears to involve an "intellectual property review" in connection with a project that it was undertaking with another entity. As best as the Court can determine, the review concerned whether there was a potential for patent infringement. From this, Motorola leaps to the conclusion that Federal Circuit law controls. But given Rule 501's claim-specific focus, the question is not the nature of the underlying work but rather the claim(s) being litigated on which the evidence is relevant. The primary case that Motorola cites, In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 803 (Fed. Cir. 2000), says that Federal Circuit privilege law applies if the case is within the Federal Circuit's exclusive appellate jurisdiction. It is conceivable that appellate jurisdiction in this case may lie with the Federal Circuit, due to the claim for declaratory judgment of ownership of patents and patent applications (though Motorola does not come right out and say that). But in Spalding Sports, the Federal Circuit was dealing with the question of what circuit's privilege law applies, not with a federal-v.-state-law question under Rule 501. There is no reason to believe that the Federal Circuit would disregard Rule 501 and apply its own privilege law with regard to a state-law claim.

Motorola makes no showing -- indeed, it does not attempt to do so -- that any of the material on which it claims privilege concerns the patent-related claims asserted in the case. Nor does it argue that any of the evidence concerns its Computer Fraud and Abuse Act claim, its copyright infringement claim, or defendant Sheng's discrimination counterclaim. Indeed, the issue regarding privilege first arose in connection with litigation over defendant Wu's counterclaim under the Illinois Whistleblower Act, a state-law claim. There is no suggestion that the privilege issue relates to any claims other than that one. For these reasons, the Court concludes that defendants have the better of the argument and that Illinois privilege law governs.

Illinois law confines attorney-client privilege protection in the corporate environment to communications involving the corporation's "control group." The control group includes top management as well as employees "whose advisory role to top management in a particular area is such that a decision would not normally be made without his advice or opinion, and whose opinion in fact forms the basis of any final decision by those with actual authority." Consolidation Coal Co. v. Bucyrus-Erie Co., 89 Ill. 2d 103, 120, 432 N.E.2d 250, 25 (1982); see also, e.g., Sterling Fin. Mgmt., L.P. v. UBS PaineWebber, Inc., 336 Ill. App. 3d 442, 448, 782 N.E.2d 895, 900 (2002).

Motorola, which has the burden of showing the privilege applies on a document-by-document basis, has made no attempt to show that the communications in question involved members of its "control group" thus defined. As a result, it has failed to show the documents are protected by the attorney-client privilege under Illinois law.

Motorola also argues that the documents are protected by the work product doctrine. The parties appear to agree that this question is governed by federal law. See Defs.' Privilege Mot. at 14 & Reply at 9-12 (citing only federal cases); Pl.'s Privilege Resp. at 11-13. Under Federal Rule of Civil Procedure 26(b)(3), "a party may not discover documents . . . that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent)," subject to certain exceptions that are not at issue. Fed. R. Civ. P. 26(b)(3)(A).

Motorola has failed to provide evidence sufficient to carry its burden in this regard. The evidence tends to show that the materials in question concern a review routinely done by Motorola at the outset of new projects to determine the risk of patent infringement. The work product doctrine, however, applies to materials only if they "can fairly be said to have been prepared or obtained because of the prospect of litigation." Logan v. Commercial Union Ins. Co., 96 F.3d 971, 976-77 (7th Cir. 1996) (emphasis added; internal quotation marks and citation omitted). In this regard, courts "distinguish between an investigative report developed in the ordinary course of business as a precaution for the remote prospect of litigation and materials prepared because some articulable claim, likely to lead to litigation . . . ha[s] arisen." Id. at 977 (emphasis in ...


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