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Crane Security Technologies, Inc. v. Rolling Optics, AB

United States District Court, D. Massachusetts

February 3, 2017

ROLLING OPTICS, AB Defendant /Plaintiff-in Counterclaim



         I. Introduction

         Crane Security Technologies, Inc., is the exclusive licensee of the five U.S. patents at issue in this case.[1] The patents “relate generally to optical systems that project synthetic images that ‘move' and that include image icons formed as voids or recesses.” #79 ¶ 1. Crane “is the exclusive supplier of banknote paper for United States currency and also supplies other counterfeit-deterrent banknote papers and security devices used around the world.” Id. ¶ 2. Crane asserts that an “optical system” that is made using the patents - which, for example, on a $100 bill appears as a small strip of metallic-blue paper with images in it that appear to move around when the bill is moved - is difficult to copy, and so is “extremely useful as [an] anti-counterfeiting feature[] on currency.” Id. ¶ 1.

         Defendant Rolling Optics (RO) describes itself as a nanotechnology company that “makes and sells innovative 3D micro-optic foils. Typical applications for these foils are for use on product labels or packaging, to enhance or create brand impact or to assure the genuineness of a branded product.” #13 ¶ 3. Crane claims that the foils that RO makes and sells, “intended for use on security labels and stickers for certain consumer goods such as fashionable footwear, cognac, wine, champagne, and business cards, ” infringe its patents. #79 ¶ 14.

         Plaintiffs seek a declaration that Visual Physics is the owner and Crane is the exclusive licensee of the five patents, that each patent is valid and enforceable, and that RO is infringing on each of the patents. They also seek monetary and injunctive relief. Id. ¶¶ 53-59.

         RO initially counterclaimed for, among other things, declaratory judgment of invalidity and non-infringement of the five patents. #87.[2] In August 2016 Judge Sorokin allowed RO's motion to add an inequitable conduct counterclaim. #245. In short, RO claims that the patents are invalid, because when applying for the patents, Crane (together with the company from which Crane purchased the patents, Nanoventions (NV)), withheld information from the Patent and Trademark Office that would have established that the inventors had violated the “on-sale bar” in 35 U.S.C. § 102(b).[3] See #245, Judge Sorokin's Order, and #254, answer to plaintiffs' amended complaint and counterclaim.[4]

         RO filed a motion to compel production of documents improperly withheld as privileged. ##192, 198 (unredacted memorandum in support). Crane opposed the motion, ##220, 221 (unredacted), and RO responded, ##225, 243-3 (unredacted). Judge Sorokin referred the motion to this court on August 29, 2016. #246. On October 31, this court held a hearing on the motion and after argument ordered the parties to confer and Crane to revise its privilege log. #261. On December 1, 2016 this court held a telephone conference and ordered Crane to file the revised log and copies of the documents still in dispute for ex parte review, and the parties to file any post-hearing memoranda, by December 19, which they did. ##269, 276, 276-1 (unredacted), 278, 278-1 (unredacted). Then the parties filed replies. ##283, 285, 289 (unredacted). On January 9, 2017, the court held a telephone conference at which the court sought to clarify which documents RO was disputing; asked Crane to provide certain additional documents; and asked Crane to provide additional declarations regarding certain documents.[5] #290. Crane provided the requested documents and declarations. ##291-94. The parties filed letters with the court concerning the telephone conference. ##297, 298. On January 30, 2017, the court ordered Crane to further justify its claim of privilege as to certain documents and on February 2, Crane responded ex parte. ## 299-301.[6]

         II. Factual background

         In August 2002 Crane entered into a Confidentiality Agreement with NV, because Crane was interested in using NV's optical system as a security device on currency. See #222-1. NV had not patented the technology at that time. Thereafter, the parties entered into the following additional agreements: in September 2003, Crane and NV entered into a Non-Disclosure Agreement in order to negotiate Crane's obtaining a license to use NV's technology, #222-3; in April 2004, they entered into a License Agreement in which NV granted Crane a license to use the technology, which by that time had been patented, #222-2; in September 2007, they entered into another Non-Disclosure Agreement, #222-4; and in September 2008 they signed a Unit Purchase Agreement, which finalized Crane's purchase of the patents-in-suit, effectuated through Crane's aquiring a subsidiary of NV, Visual Physics. #222-7.

         When executives at Crane first became interested in NV's technology, they were concerned that it was not protected by a patent. See, e.g., #183-38 (Crane executive explains in email dated October 28, 2003 that he and patent counsel for Crane “are zeroing in on the IP right now since almost nothing is more important than that.”) Crane began to investigate licensing or acquiring NV's technology, see #276-1 at 7, and began exchanging legal advice with NV concerning acquiring patents on the technology. See, e.g., privilege log nos. 37-47 (emails dated November 2003, between patent counsel for Crane, Mary Bonzagni, patent counsel for NV, Todd Deveau, and the inventor of the technology, Richard Steenblik, concerning patent prosecution.) Over the next several years Crane continued to cooperate with NV concerning further patenting the technology and eventually, after negotiating with NV for many months, purchased the intellectual property from NV in 2008. ##276-1 at 7; 279-2 at 2.

         RO challenges approximately 600 entries on Crane's privilege log totaling about 4, 000 pages of privileged documents.[7] ##276-1 at 1; 283 at 2 n.1. The documents can be divided into four categories. First, there are documents dated before April 16, 2004, which is when the License Agreement between Crane and NV took effect. #278-1 at 14. Second, RO seeks documents between Crane and NV from the time of the License Agreement in April 2004, up to the time Crane agreed to purchase the patents-in-suit in 2008. Id. at 15. Third, RO seeks communications between Crane and an investment banking firm that Crane retained to assist with the acquisition of the patents-in-suit. Id. at 16. Finally, RO seeks documents that Crane shared with non-parties; communications between non-attorneys; and attorneys' memoranda to the file. Id. at 17-20.

         The court has read all of the challenged documents and the privilege log. The court finds that all of the documents are privileged, for the reasons set out below.

         III. The law pertaining to privilege

         Fed. R. Civ. P. 26(b)(1) provides that parties may obtain discovery “regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case.” Plaintiffs assert attorney-client privilege and also argue that the community of interest exception to third-party waiver applies to certain challenged documents. Plaintiffs bear the burden of establishing that the privilege applies. State of Maine v. United States Dep't of the Interior, 298 F.3d 60, 71 (1st Cir. 2002). “If the privilege is established and the question becomes whether an exception to it obtains, the devoir of persuasion shifts to the proponent of the exception.” FDIC v. Ogden Corp., 202 F.3d 454, 460 (1st Cir. 2000).

         While this is a patent case, the issues raised here pertaining to privilege and waiver are not unique to patent law and thus First Circuit law concerning privilege applies.[8] See In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 804 (Fed. Cir. 2000) (because issue whether “licensor and a licensee are joint clients for purposes of privilege under the community of interest doctrine...[is] not unique to patent law, ” regional circuit law applies).

         A. Attorney-client privilege - in general

         Wigmore set out the elements of the attorney-client privilege:

‘(1) Where legal advice of any kind is sought (2) from a professional legal advisor in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser (8) except the protection be waived.'

Cavallaro v. United States, 284 F.3d 236, 245 (1st Cir. 2002) (quoting 8 J. H. Wigmore, Evidence § 2292, at 554 (McNaughton rev. 1961)). The privilege is limited in that it “applies only to the extent necessary to achieve its underlying goal of ensuring effective representation between lawyer and client.” In re Grand Jury Subpoena (Custodian of Records, Newparent, Inc.), 274 F.3d 563, 571 (1st Cir. 2001) (citing Fisher v. United States, 425 U.S. 391, 403 (1976)); see also In re Keeper of Records (Grand Jury Subpoena Addressed to XYZ Corp.), 348 F.3d 16, 22 (1stCir. 2003) (attorney-client privilege is narrowly construed because it “stands as an obstacle of sorts to the search for truth”).

         Communications must “have been intended to be confidential and made for the purpose of giving or obtaining legal advice” to qualify as privileged. Cavallaro, 284 F.3d at 245. Disclosing attorney-client communications to a third party undermines the privilege. Id. at 247.

         B. The common-interest doctrine

         The common-interest doctrine, which is not an independent privilege but is an exception to the rule that the attorney-client privilege is waived when privileged information is disclosed to a third party, applies when parties share a substantially identical interest in the subject matter of a legal communication.[9] See Cavallaro, 284 F.3d at 249-50, citing In re Grand Jury Subpoena, 274 F.3d 563, 573 (1st Cir. 2001). One application of the doctrine as it pertains to patent cases is discussed in the leading case In re Regents of the Univ. of California, 101 F.3d 1386, 1390 (Fed. Cir. 1996). In Regents, the Federal Circuit explained that “[c]onsultation with counsel during patent prosecution meets the criteria of compliance with law and meeting legal requirements, thereby reducing or avoiding litigation, and is within the scope of subject matter that is subject to the attorney-client privilege.” Id. at 1391. The court noted that it had long been held that “‘[a] community of legal interests may arise between parties jointly developing patents; they have a common legal interest in developing the patents to obtain greatest protection and in exploiting the patents.'” Id. at 1389 (quoting Baxter Travenol Labs, Inc. v. Abbott Labs., 1987 WL 12919, at *1 (N.D. Ill. June 19, 1987)) and (citing SCM Corp. v. Xerox Corp., 70 F.R.D. 508, 514 (D. Conn. Feb. 4, 1976) (“Whether the legal advice was focused on pending litigation or on developing a patent program that would afford maximum protection, the privilege should not be denied when the common interest is clear”), appeal dismissed, 534 F.2d 1031 (2nd Cir. 1976)).

         The Regents court, following this precedent, held that communications between a potential licensee and an inventor/patentee were privileged under the common-interest doctrine because “both parties had the same interest in obtaining strong and enforceable patents.” 101 F.3d at 1390. It did not matter that one party had not retained the other party's attorney: “the issue is not who employed the attorney, but whether the attorney was acting in a professional relationship to the person asserting the privilege.” The court concluded that “the legal interest [between the potential licensee and the inventor/patentee] was substantially identical because of the potentially and ultimately exclusive nature” of the license agreement: “Valid and enforceable patents” on the inventions “are in the interest of both parties.” Id.

         The test for application of the doctrine requires that the interest be “identical, not similar, and be legal, not solely commercial.” Id. With regard to what “legal interest” means in the context of patent cases, other courts have followed Regents in finding that communications concerning the strength and enforceability of patents between parties who are negotiating exclusive patent licenses are protected under the common-interest doctrine, even though the communications obviously have a commercial purpose, as well. Regents, 101 F.3d at 1390 (quoting Duplan Corp.v. Deering Milliken, Inc., 397 F.Supp. 1146, 1172 (D.S.C. 1974) (“The fact that there may be an overlap of a commercial and a legal interest for a third party does not negate the effect of the legal interest in establishing a community of interest”)); Hilsinger v. Eyeego, LLC, 2015 WL 11120842, at *2 (D. Mass. Aug. 13, 2015) (approvingly citing Regents for the proposition that communications between parties negotiating licensing agreement were privileged as they were pursuing common legal strategy concerning enforcement of patents-in-suit); Luminara Worldwide, LLC v. Liown Electronics Co., Ltd., Case No. 0:14-cv-03103-SRN-FLN, ECF No. 427, at 15-18 (D. Minn. Mar. 29, 2016) (interests in obtaining and protecting strong and enforceable patent rights are regularly found to be common legal interests held by a patentee and its licensee and communications in further of those interests are protected by the community of interest doctrine); MPT, Inc. v. Marathon Labels, Inc., 2006 WL 314435, at *7 (N.D. Ohio Feb. 9, 2006) (licensee and patent owners have common legal interest).

         C. The doctrine of Unite ...

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