Free Designation of Deposition Testimony - District Court of Colorado - Colorado

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I N T HE U NITED S TATES D ISTRICT C OURT F OR T HE D ISTRICT O F C OLORADO Civil Action No. 03-CV-02579-RPM-BNB VARCO, L.P., Plaintiff, vs. PASON SYSTEMS USA CORP., Defendant. PLAINTIFF VARCO'S DESIGNATION OF DEPOSITION TESTIMONY

Pursuant to the Court's order at the November 17, 2006 motions hearing, Plaintiff Varco, L.P. ("Varco"), by its counsel, respectfully submits these deposition designations regarding Defendant Pason Systems USA Corp.'s ("Pason's") partial waiver of the attorney-client and work product privileges in connection with Pason's "reliance on advice of counsel" defense. INTRODUCTION Although Pason asserts that any infringement of Varco's `142 patent is not willful because it is relying on the advice of counsel in producing and marketing the Pason AutoDriller, Pason has failed to disclose any materials establishing that its reliance on the advice of counsel is reasonable. Pason has disclosed only two documents ­ both opinions from its Canadian opinion counsel, Terry Leier ­ that purportedly support its "reliance on advice of counsel" defense. However, the opinions state that they do not analyze infringement under U.S. law, do not address the 1

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infringement of Claim 11 of the `142 patent, and do not address the validity or infringement of Claim 14 of the patent. Pason's reliance on these two opinions is surprising, particularly because at least three events would have caused a reasonable company to reconsider its decision to market the AutoDriller ­ and, presumably, to communicate with counsel as part of its reconsideration. First, the U.S. Patent and Trademark Office ("PTO") rejected Pason's argument that the `142 patent was invalid ­ the very argument that Pason's opinion counsel earlier stated would provide Pason with its best chance of challenging the `142 patent. Second, the Federal Circuit rejected Pason's unduly restrictive interpretation of the `142 patent, undercutting any reassurance Pason may have received from this Court's denial of Varco's motion for a preliminary injunction. Third, Mr. Leier informed Pason ­ in an e-mail following up on his formal opinions ­ that the operation of the AutoDriller falls within the scope of at least one of the claims of the `142 patent, casting doubt on whether Pason should continue marketing the AutoDriller in reliance on Mr. Leier's earlier opinions. If, in connection with any of these three events, Pason's counsel offered new formal ­ or informal ­ opinions on the validity or infringement of the `142 patent, Pason must produce them, because it has waived the attorney-client and work product privileges for materials that fall within the scope of the "advice of counsel" defense. However, Pason has failed to produce any notes or other documentary evidence of such communications. If there are no such communications, or the communications undercut Pason's continued reliance on Mr. Leier's two formal opinions, such evidence lends

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further support to Varco's contention that Pason's reliance on Mr. Leier's written opinions is unreasonable. For this reason, Pason should be ordered to produce all documents embodying or discussing Pason's communications with counsel concerning whether the `142 is valid or infringed by the AutoDriller ­ whether such documents are or are not listed on Pason's privilege log. DEPOSITION DESIGNATIONS To determine whether Pason's infringement of the `142 patent is willful, the finder of fact must determine whether Pason's reliance on the two opinions that it received from Mr. Leier is reasonable. See Graco, Inc. v. Binks Mfg. Co., 60 F.3d 785, 793 (Fed. Cir. 1995). The issue is not whether the opinions are legally correct, but rather whether Pason has fulfilled its duty to exercise due care by choosing to rely on the opinions. See Studiengesellschaft Kohle, m.b.H. v. Dart Indus., Inc., 862 F.2d 1564, 1578 (Fed. Cir. 1988). I. Pason's Reliance on the Leier Opinions Pason's reliance on the Leier opinions is far from reasonable. The opinions address only the Canadian analogue of Varco's `142 patent, not the `142 patent itself, and they do so only from the perspective of Canadian law. Mr. Leier's first opinion cautions, "This opinion is necessarily limited to Canada, as this is the jurisdiction that we practice in and where Pason carries on business." (Letter from Terry Leier to H. Ronald Hansford at 4 (Feb. 8, 2000)) (Ex. 1). Mr. Leier's second opinion provides, "Since infringement is country specific, I have addressed the matter of infringement

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from a Canadian perspective only as we are a Canadian law firm." (Letter from Terry Leier to Jim Hill at 1 (Oct. 29, 2002)) (Ex. 2). The second opinion goes on to state: [P]lease note that . . . this opinion is limited to the Canadian patent and the law in Canada. While the principles of patent law are generally similar between Canada and the US, there are differences in what is prior art and in the requirements for patentability . . . . Moreover, these differences have changed over the years with changing laws. Furthermore, the principles of construction applied to US patent claims by US courts is not identical to the principles used in Canada. (Id. at 9); see also (Leier Dep. 58:11-24, 61:9-62:2, Sept. 8, 2006) (Ex. 3); (Hill Dep. 133:1-134:22, Sept. 20, 2006) (Ex. 4). 1 Mr. Leier never provided any other formal opinions to Pason, (Leier Dep. 64:1965:1), and Mr. Hill testified that Pason never asked any lawyer for an opinion on the issue of infringement or invalidity under U.S. law. (Hill Dep. 72:6-74:3, 100:13101:17, 109:8-110:16, 111:16-22). Neither Mr. Leier's two written opinions, nor any other formal opinions, address whether Pason's AutoDriller infringes Claim 11 of the `142 patent. (Leier Dep. 54:11-55:15, 56:23-57:7); (Hill Dep. 97:15-99:3, 119:13121:13). The Leier opinions also do not address whether Claim 14 of the `142 patent is valid, or whether the AutoDriller infringes the claim. (Leier Dep. 57:16-23, 62:3-22). Rather, the opinions state that more technical information from Pason is necessary

For ease of reference and to eliminate extraneous material, Varco has attached transcript excerpts that omit objections and other dialogue between counsel, so that each answer may be read together with its respective question. In case the Court wishes to view the objections, Varco also has included unredacted versions of the cited pages from each transcript. These unredacted pages are located at the end of each exhibit that consists of deposition testimony.

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before Mr. Leier can address whether Claim 14 is valid or infringed. (Id.); (Hill Dep. 130:24-132:22). Thus, as Mr. Hill acknowledged in his deposition: Q Pason made a deliberate decision to market their auto driller in the United States without having a U.S. attorney analysis of the Bowden U.S. patent, correct? A Yes.

Q Pason willfully marketed their auto driller in the United States without having any lawyer, Canadian or American, analyze Claim 11 of the Bowden patent in comparison with the Pason product, correct? ... A Yes.

Q Pason willfully marketed its automatic driller product in the United States while its Canadian counsel was telling it not once, but twice in writing that it needs more information about the Pason product before it can analyze Bowden patent Claim 14, correct? ... A Yes.

Q . . . Does that seem to you a little bit like the ostrich that buried his head in the sand? (Hill Dep. 134:19-135:22). II. Pason's Reliance on the Leier Opinions is Unreasonable Based on Subsequent Events Pason apparently continues to rely on Mr. Leier's two opinions to support its decision to continue marketing the AutoDriller, despite the occurrence of three intervening events that would cause a reasonable company to re-examine its decision to

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market an allegedly infringing product. First, the PTO renewed the `142 patent in response to Pason's claims of invalidity. (Id. 216:25-218:11); (Thomas Dep. 117:3118:18, Oct. 24, 2006) (Ex. 5). Second, the Federal Circuit rejected Pason's interpretation of the `142 patent. (Leier Dep. 70:9-13); (Thomas Dep. 134:1-9, Oct. 24, 2006). Third, Mr. Leier informed Pason that the operation of the AutoDriller falls within the scope of at least one of the claims of the `142 patent. (Leier Dep. 65:667:14). This last event occurred when Pason's technical expert, Trevor Holt, provided the additional technical information regarding Claim 14 of the `142 patent that Mr. Leier had twice requested. (E-mail from Trevor Holt to Terry Leier (May 14, 2004)) (Ex. 6); see also (Holt Dep. 29:1-30:10, July 14, 2006) (Ex. 7). After considering this technical information, Mr. Leier concluded that the "Pason system operates within the parameters of claim 14[.]" (E-mail from Terry Leier to J. Ford Brett (May 14, 2004)) (Ex. 6). Mr. Leier went on to state: Unless there is a basis to invalidate the claim, the operation of the Pason system appears to fall within the scope of the claim. Therefore, if there is a Markman/construction hearing that affirms the claim, there does not seem to me to be any other defense issues. (Id.). During his deposition, Mr. Hill stated that, after receiving an opinion stating that Pason might be infringing a patent, he would seek more clarification ­ but Pason has not produced any documents reflecting that it took such steps after it received Mr. Leier's May 14, 2004 e-mail. (Hill Dep. 63:9-64:13). If Pason did not obtain

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additional advice from counsel in response to these significant changes in the circumstances surrounding its decision to market the AutoDriller, that decision bears on whether Pason's continued reliance on the two outdated opinions is reasonable. Cf. AptarGroup, Inc. v. Summit Packaging Sys., Inc., 178 F.3d 1306, 1998 WL 791707 at *8 (Fed. Cir. 1998) ("Summit obtained an infringement opinion . . . , but . . . when it modified its design thereafter, . . . inexplicably failed to obtain an updated infringement opinion."). III. Pason's Apparent Reliance on Vague, Unsupported References to Additional "Opinions" of Counsel If Pason did obtain additional opinions on invalidity or infringement from counsel, Pason must produce those opinions. Following In re EchoStar Communications Corporation, 448 F.3d 1294 (Fed. Cir.), cert. denied, --- U.S. ---, 2006 WL 3542787 (2006), an overwhelming majority of district courts have held that when a defendant in a patent infringement suit asserts a "reliance on advice of counsel" defense, the defendant waives the attorney-client and work product privileges for all documents embodying or discussing the defendant's communications with counsel about whether the patent at issue is valid, enforceable, or infringed by the defendant. See, e.g., Affinion Net Patents, Inc. v. Maritz, Inc., 440 F. Supp. 2d 354, 356 (D. Del. 2006); Beck Systems, Inc. v. Managesoft Corp., 2006 WL 2037356, at *5 (N.D. Ill. July 14, 2006) (Ex. 8); Genentech, Inc. v. Insmed Inc., 442 F. Supp. 2d 838, 847 (N.D. Cal. 2006); Informatica Corp. v. Bus. Objects Data Integration, 454 F. Supp. 2d 957, 965 (N.D. Cal.), aff'd, 2006 WL 2329460 (N.D. Cal. 2006) (Ex. 9); see also EchoStar, 448 F.3d at 1299 & 1304. These district courts have protected core work product ­

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documents that discuss only trial strategy, or that embody work product that a defendant's attorneys never communicated to the defendant ­ while requiring the production of documents that enable the trier of fact to determine whether a defendant's reliance on a disclosed legal opinion is reasonable. A. Pason Has Produced No Documentary Evidence That It Obtained Additional Opinions from Mr. Leier

Pason purports to rely on additional oral "opinions" from its counsel regarding the subject of infringement and invalidity. Pason's General Manager testified that, on at least one occasion, Mr. Leier communicated his opinions orally, and that this oral communication directly impacted Pason's decision to market its infringing device. (Thomas Dep. 115:18-24, Oct. 24, 2006); see also (id. 44:7-47:7, 105:13-109:17, 114:8116:16, 119:21-121:1); (Thomas Dep. 38:3-7, 41:7-15, May 25, 2004) (Ex. 10); (Holt Dep. 13:23-14:15, 27:20-24, 28:12-25, July 14, 2006). Notably, Pason has produced no notes memorializing the content of this purportedly important conversation, or the content of any other conversations addressing whether the `142 patent is valid or infringed by Pason's device. 2 Records of informal communications ­ particularly notes or memoranda capturing the content of conversations, telephone calls, and other discussions ­ are
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At 4:51 p.m. today, Pason removed three sets of notes from its privilege log and produced the documents ­ some in redacted form ­ to Varco. (E-mail from Joanna L. Roman to Robert Bowick and Jane Michaels (Jan. 10, 2006)) (Ex. 11). Given Pason's last-minute disclosure, Varco has not yet had an opportunity to analyze these newly produced documents. Based on their descriptions on Pason's privilege log, however, the notes clearly fall within the scope of Pason's waiver of the attorney-client and work product privileges. Certainly, Pason should not have withheld these documents until the eleventh hour.

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important in this case because Pason intentionally sought to solicit its counsel's opinions orally, rather than in writing. Mr. Hill testified in his deposition that he intentionally asked solely for an oral clarification of Mr. Leier's formal opinion. (Hill Dep. 29:16-31:7, 53:12-23). Yet, Pason has not produced any notes or memoranda reflecting this alleged oral clarification, and Mr. Hill recalls its contents only vaguely. (Id. 65:20-66:4, 195:12-18). Similarly, Pason has not produced notes from the telephone conference described in Mr. Leier's February 8, 2000 opinion. 3 (Letter from Terry Leier to H. Ronald Hansford at 1 (Feb. 8, 2000)); see also (Hill Dep. 69:6-70:23). Pason has produced no notes from any internal discussions addressing the impact of Mr. Leier's May 14, 2004 e-mail stating that Pason's AutoDriller device infringed at least one of the claims of the `142 patent. (E-Mail from Terry Leier to J. Ford Brett (May 14, 2004)). Given that Mr. Leier's May 14, 2004 e-mail undercut the legal basis for Pason's continued sales of its device, it is surprising that there are no additional documents between Pason and its opinion counsel responding to Mr. Leier's unfavorable conclusion that "the Pason system operates within the parameters of claim 14" of the `142 patent. (Id.). Indeed, the only pertinent document produced by Pason that followed up on the May 14, 2004 e-mail was another e-mail from Mr. Leier. Notably, in the follow-up e-mail, dated May 15, 2004, Mr. Leier does not retreat from his opinion that the Pason device "operates within the parameters of claim 14," but attempts instead to soften the bad news he had

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It is possible that these notes are among the three undated documents that Pason belatedly produced at the close of business this afternoon.

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delivered to Pason by stating that claim 14 should be held invalid because it is not accurately described or disclosed in the patent specifications. (E-mail from Terry Leier to J. Ford Brett (May 15, 2004)) (Ex. 12). Significantly, Mr. Leier made that same argument to the Patent Office during its re-examination of the `142 patent ­ to no avail. B. Pason Has Produced No Documentary Evidence That It Obtained Additional Opinions from Trial Counsel

Pason also has not produced documents embodying or reflecting any opinions from trial counsel on invalidity or infringement. Pason's trial counsel have represented that they did not render any opinions, favorable or unfavorable, to their client on the subjects of infringement or invalidity of the `142 patent. However, several of Pason's employees stated during their depositions that trial counsel did provide such opinions. (Hill Dep. 188:11-189:23); (Holt Dep. 183:6-22, Sept. 21, 2006); (Thomas Dep. 133:1025, Oct. 24, 2006). But see (Hill Dep. 141:6-16). Pason cannot have it both ways. If there are no documents substantiating Pason's alleged "reliance" on oral advice from its patent counsel or trial counsel, then Pason should be precluded at trial from making bald, unsupported assertions of such alleged "reliance." If there are documents reflecting additional opinions of counsel (whether favorable or unfavorable) communicated to Pason regarding infringement and invalidity of the `142 patent, then those documents must be produced. See Affinion Net Patents, Inc., 440 F. Supp 2d at 356 ("Defendant contends that, because it has retained different lawyers . . . as opinion and litigation counsel, only communications with opinion counsel are waived. This argument is not supported by the case law of the Federal Circuit. . . . Defendant has waived the attorney-client privilege as to

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communications with `litigation counsel,' and any other counsel, to the extent the communications relate to non-infringement, invalidity, and any other defense to infringement."); Beck Systems, Inc., 2006 WL 2037356 at *6 ("[T]he waiver of attorney-client privilege extended not only to other communications and opinions of the attorney rendering the opinion on which a defendant relies, but also attorney-client information from other counsel involving the same subject. . . . [T]his waiver extended to communications generated after the commencement of suit, and further extended to attorney-client communications between the defendant and trial counsel."); Genentech, Inc., 442 F. Supp. 2d at 847 ("Waiver of trial counsel communication with the client should apply to documents and communications that are most akin to that which opinion counsel normally renders--i.e., documents and communications that contain opinions (formal or informal) and advice central and highly material to the ultimate questions of infringement and invalidity (the subject matter of the advice given by . . . opinion counsel); Informatica Corp., 454 F. Supp. 2d at 964 ("[B]oth pre- and postfiling work product is potentially relevant to the alleged infringer's intent where there is an allegation of continuing infringement and are therefore also subject to waiver."). CONCLUSION Many of the documents on Pason's privilege log appear ­ at least from the cursory descriptions on the privilege log ­ to be documents embodying or reflecting Pason's communications with counsel on infringement and invalidity. Included in this category are the following: 1. Numerous e-mails from Mr. Leier to Pason employees.

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2. Numerous e-mails from Pason's employees to Mr. Leier. 3. Notes reflecting conversations between Pason's employees and Mr. Leier, presumably regarding Mr. Leier's opinions. 4. Numerous communications between Pason's trial counsel, Pason's employees, and Mr. Leier, presumably regarding Mr. Leier's opinions. 5. The invoices of Pason's opinion counsel, presumably reflecting the amount of time Mr. Leier spent to prepare his patent opinions. 4 Varco respectfully submits that Pason should be ordered to produce these and all other documents on Pason's privilege log that fall within the scope of the waiver. It is unclear whether all unproduced documents embodying or reflecting Pason's communications with counsel on infringement and invalidity are included on Pason's privilege log and have been submitted to this Court for an in camera review. Before Varco filed a motion to compel Pason to produce documents covered by Pason's partial waiver of the attorney-client and work product privileges, Pason's privilege log consisted of one page listing 17 documents. (Defendant's Privilege Log (Oct. 25, 2006)) (Ex. 13). After the November 17, 2006 motions hearing, Pason revised its privilege log, increasing the log's length to six pages listing 60 documents. (Defendant's Privilege Log (Dec. 22, 2006)) (Ex. 14). Pason extensively revised its privilege log, even though three weeks earlier, on October 25, 2006, Pason asserted that "[a]ll of the documents that relate to the opinions provided by Terry Leier . . . have been produced." (Def. Pason's Br. in Opp. to Pl.'s Mot. to Compel, Doc. 117, at 2). That statement was not accurate. In fact, as of
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Any descriptions of unrelated legal work contained in Mr. Leier's invoices can be redacted prior to their production.

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October 25, 2006, Pason had not even reviewed the files of its opinion counsel, Terry Leier, nor produced documents from those files, nor listed any of those documents on its privilege log. (Stipulated Proposed Schedule for Submission of Privileged Docs. and Dep. Designations, Doc. 136, at 1). Pason did not produce documents from Mr. Leier's files until December 22, 2006. (Letter from Joanna L. Roman to Jane Michaels (Dec. 22, 2006)) (Ex. 15). Pason's last-minute revision of its privilege log, and misleading assertion as to the completeness of its document production, are reflective of Pason's consistent pattern of non-compliance and non-responsiveness throughout the discovery process. For example, on April 10, 2006 Varco requested that Pason update its disclosures following remand of this case from the Federal Circuit. Pason dragged its feet in providing documents and information, then dumped more than 12,000 pages of documents on Varco between October 13, 2006 and November 6, 2006. Because Pason did not provide the requested information in a timely manner prior to the October 1, 2006 discovery deadline, Varco was forced to depose several key witnesses ­ including Mr. Leier ­ without having received the requested documents. Varco also was forced to depose Pason technical employee Trevor Holt three times because Pason failed to provide the requested critical information and documentation it was required to produce. The most recent illustration is Pason's belated production today of three sets of notes that had been listed on its privilege log. Rather than complying in good faith with its discovery obligations, Pason has once again produced documents only when its back

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is to the wall. Pason previously removed clearly non-privileged material from its privilege log only after Varco filed a motion to compel. (Def. Pason's Br. in Opp. to Pl.'s Mot. to Compel, at 9 n.2). Today, Pason removed additional discoverable material from its privilege log only when faced with the prospect of this Court's in camera examination of those materials. Varco welcomes the Court's in camera review of the documents delineated on Pason's privilege log. In addition, Varco respectfully submits that Pason should be ordered to produce any other documents that are covered by its privilege waiver but have neither been produced to date nor listed on Pason's current privilege log. Dated this 11th day of January, 2007. Respectfully submitted,

s/Jane Michaels Jane Michaels H OLLAND & H ART LLP 555 Seventeenth Street, Suite 3200 Post Office Box 8749 Denver, Colorado 80201-8749 Tel. (303) 295-8000 Fax (303) 295-8261 [email protected] Robert M. Bowick M ATTHEWS , L AWSON , B OWICK & A L -A ZEM , PLLC 2000 Bering Drive, Suite 700 Houston, Texas 77057 Tel. (713) 355-4200 Fax (713) 355-9689 [email protected] ATTORNEYS FOR PLAINTIFF VARCO, L.P.

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C ERTIFICATE O F S ERVICE I hereby certify that on January 11, 2007, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following: [email protected] [email protected]

s/Jane Michaels

3653265_4.DOC

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