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Dolby Laboratories Licensing Corp. v. Adobe Inc.

United States District Court, N.D. California

August 29, 2019

DOLBY LABORATORIES LICENSING CORPORATION, et al., Plaintiffs,
v.
ADOBE INC., Defendant.

          ORDER ON DEFENDANT'S MOTION TO MAINTAIN PRIVILEGE DESIGNATIONS RE: DKT. NO. 135

          Donna M. Ryu, United States Magistrate Judge

         Plaintiffs Dolby Laboratories Licensing Corporation and Dolby International AB (“Dolby”) challenges Defendant Adobe, Inc.'s (“Adobe”) privilege designations for over 4, 000 non-lawyer communications. [Docket No. 109 at 3.] Dolby raised concerns about Adobe's privilege log. Those concerns cast doubt on whether Adobe was properly asserting privilege with respect to non-lawyer communications, and prompted the court to order Adobe to lodge a sample of fifteen documents[1]selected by Dolby from Adobe's log for in camera review. After conducting the review, the court ordered the parties to brief the privilege issues for the sample documents. On July 5, 2019, Adobe filed this motion to retain the privilege designations. [Docket Nos. 135 (“Mot.”), 143 (“Reply”).] Dolby filed a timely opposition. [Docket No. 141 (“Opp.”).] The court held a hearing on August 8, 2019. For the reasons stated below, the court grants in part and denies in part Adobe's motion to retain privilege designations.

         I. BACKGROUND

         On March 12, 2018, Dolby filed this action for copyright infringement and breach of contract against Adobe and filed an amended complaint on May 18, 2018. [Docket Nos. 1, 20 (“FAC”).] The court draws the following case description from the allegations in the FAC. Dolby develops audio and audio-visual technologies. Id. ¶ 15. Generally, Dolby does not develop products for direct sale to end-users, but instead licenses its products to other companies that incorporate them into their products. Id. ¶ 1. Dolby's licensing agreements usually allow its licensees to self-report their sales of products containing Dolby technology, although Dolby retains broad rights under those agreements to conduct third-party audits. Id. ¶ 2.

         Between 2002 and 2017, Adobe licensed Dolby products for use in its audio-video content creation and editing software. FAC ¶¶ 4, 16-17. Adobe entered into license agreements with Dolby in 2003, 2012, and 2013 (“Agreements”), each of which defined the scope of the license. Id. ¶ 23. Adobe was obligated by the Agreements to report its sales of products containing Dolby technology to Dolby, pay the agreed-upon royalties for the sales, and refrain from selling products containing Dolby technology outside the scope of the licenses. Id. The Agreements also provided Dolby the right to inspect and audit Adobe's books and records so that Dolby could verify the accuracy of Adobe's reporting of sales and its payment of royalties. Id.

         On January 5, 2015, Dolby attempted to begin the auditing process to inspect Adobe's books and records for the period 2012-2014. FAC ¶ 86. Dolby alleges that “for over three years Adobe employed various tactics to frustrate Dolby's right to audit Adobe's inclusion of Dolby Technologies in Adobe's products.” Id. ¶ 89. Dolby claims that Adobe only offered to provide data that it unilaterally determined to be relevant to its obligations under the Agreements and only for a limited time period. Id. ¶ 90. Dolby avers that it has still not received the information required to complete an audit of Adobe's records. Id. ¶ 92. On September 8, 2017, Dolby notified Adobe that it was also going to initiate the audit process for the inspection period 2015-2017. Id. ¶¶ 94-95. Adobe again allegedly “failed to provide Dolby with complete auditable information.” Id. ¶ 95.

         Dolby claims that Adobe breached its contracts and engaged in copyright infringement in numerous ways, including:

(1) bundling multiple licensed products together but only reporting one sale; (2) granting numerous licenses to Adobe products but only reporting a sale to Dolby if and when Adobe or its customer took some further action; (3) failing to report and pay royalties for multiple different product sales to a single customer; (4) misreporting Adobe's professional products under incorrect license agreements; (5) failing to report and pay royalties on upgrades to the Adobe products as agreed in the license agreements; (6) failing to report, or incorrectly reporting, the Dolby technology contained in Adobe products; and (7) selling products containing Dolby technology without any license at all.

FAC ¶ 6. Dolby alleges that Adobe's failure to abide by its audit obligations prevented Dolby from discovering “the nature and extent of Adobe's breaches or infringement.” Id. ¶ 97. Dolby now asserts claims for copyright infringement and breach of contract.

         On May 8, 2019, the parties exchanged privilege logs for communications that did not include lawyers but for which the parties claimed attorney-client privilege or work product protection. [Docket No. 135-1 (“Berta Decl.”) ¶ 3.] Adobe included 4, 690 communications on its privilege log for non-lawyer communications. Id. On May 17, 2019, the parties filed a joint discovery letter in which Dolby challenged Adobe's privilege designations on those documents. [Docket No. 109 at 3.] The court ordered Adobe to review its log of non-attorney communications, to “modify the log as necessary to remove inappropriate assertions of attorney-client privilege, ” and to provide Dolby with the amended log. [Docket No. 114.] The court directed Dolby to select fifteen sample documents from the log, which Adobe was then to lodge for in camera review. Id. Adobe admitted that it had mistakenly claimed privilege over two of the fifteen documents. The court then directed the parties to fully brief the dispute on the remaining thirteen documents. [Docket No. 125.]

         The purpose of this order is to adjudicate the disputes regarding these thirteen documents, as well as provide guidance to the parties so that they can attempt to resolve the remaining disputes regarding Adobe's privilege log without further court intervention. As was discussed in detail in the August 8, 2019 hearing, the court will appoint a special master at the parties' expense to determine any issues of privilege over the remaining documents. Id.

         II. LEGAL STANDARDS

         A. Attorney-Client Privilege

         Federal privilege law applies in this federal copyright infringement case with pendent state law claims. Agster v. Maricopa Cty., 422 F.3d 836, 839 (9th Cir. 2005); see also Fed. R. Evid. 501, Advisory Committee Notes (“In nondiversity jurisdiction civil cases, federal privilege law will generally apply.”). The attorney-client privilege protects from discovery “confidential communications between attorneys and clients, which are made for the purpose of giving legal advice.” United States v. Richey, 632 F.3d 559, 566 (9th Cir. 2011) (citation omitted); see Vasudevan Software, Inc. v. IBM Corp., No. 09-cv-5897-RS (PSG), 2011 WL 1599646, at * 1 (N.D. Cal. Apr. 27, 2011). The privilege attaches when (1) legal advice of any kind is sought (2) from a professional legal adviser 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) unless the protection be waived. Richey, 632 F.3d at 566 (brackets, citation, and quotation marks omitted).

         Attorney-client privilege is “narrowly and strictly construed, ” and the party asserting it bears the burden of proving that it applies. Vasudevan Software, Inc., 2011 WL 1599646, at *1 (footnotes and quotation marks omitted); accord United States v. Bergonzi, 216 F.R.D. 487, 493 (N.D. Cal. 2003) (holding that party asserting privilege “must make a prima facie showing” that privilege applies) (citing In re Grand Jury Investigation, 974 F.2d 1068, 1071 (9th Cir. 1992)); see Richey, 632 F.3d at 566. The privilege protects only communications, and not underlying facts. Upjohn v. United States, 449 U.S. 383, 396 (1981) (finding that a party “may not refuse to disclose any relevant fact within his knowledge merely because he incorporated a statement of such fact into his communication to his attorney”) (citations omitted).

         B. Work Product Doctrine

         The work product doctrine protects from discovery “materials prepared by an attorney in anticipation of litigation, ” be they “by or for the attorney.” United States v. Bergonzi, 216 F.R.D. 487, 494 (2003) (citations omitted); accord United States v. Richey, 632 F.3d 559, 567 (9th Cir. 2011). It aims to balance the “promotion of an attorney's preparation in representing a client” and “society's general interest in revealing all true and material facts to the resolution of a dispute.” In re Seagate Tech., LLC, 497 F.3d 1360, 1375 (Fed. Cir. 2007) (citation and quotation marks omitted). To qualify for work-product protection, materials must “(1) be prepared in anticipation of litigation or for trial and (2) be prepared by or for another party or by or for that other party's representative.” Richey, 632 F.3d at 567 (citation and quotation marks omitted). When a document was not prepared exclusively for litigation, it will receive protection if “in light of the nature of the document and the factual situation in the particular case, the document can be fairly said to have been prepared or obtained because of the prospect of litigation.” Id. at 568 (citation and quotation marks omitted). This analysis requires the court to examine the totality of the circumstances and determine whether the document was prepared in anticipation of litigation and “would not have been created in substantially similar form but for the prospect of litigation.” Id. (citation and quotation marks omitted).

         Unlike the attorney-client privilege, the work product doctrine may be overcome by a party's showing of “need and undue hardship.” In re Seagate Tech., LLC, 497 F.3d at 1375 (citing Fed.R.Civ.P. 26(b)(3)). The degree of showing required, however, depends on whether the sought-after material “is factual, or the result of mental processes such as plans, strategies, tactics, and impressions, whether memorialized in writing or not.” Id. (citations omitted). Factual materials simply require a demonstration of “substantial need and undue hardship, ” while materials reflecting mental processes receive greater, “nearly absolute” protection. Id. (citations omitted).

         III. DISCUSSION

         A. Adobe's Challenge to In Camera Review

         As a threshold matter, Adobe asserts that Dolby was not entitled to in camera review because its sole basis for challenging Adobe's privilege designations was “an unfounded suspicion rooted in the total number of entries on Adobe's log.” Mot. at 2. Dolby counters that its challenge was not based solely on the sheer number of entries on Adobe's log but arose because “very few of the entries contain sufficient information to state a claim for privilege.” Opp. at 9.

         In re Grand Jury Investigation established the standard that a party must meet in order to seek in camera review of contested assertions of privilege. 974 F.2d at 1074. The Ninth Circuit acknowledged that “[a]lthough in camera review of documents does not destroy the attorney-client privilege, it is an intrusion which must be justified.” Id. at 1074. The court explicitly clarified that the challenging party need not make a prima facie showing that the privilege does not apply, and described the standard as a “minimal threshold.” Id. at 1074. It concluded that a party opposing a claim of attorney-client privilege “need only show a factual basis sufficient to support a reasonable, good faith belief that in camera inspection may reveal evidence that information in the materials is not privileged.” Id. at 1075. Once the challenging party makes that initial showing, “the decision whether to conduct the review rests within the discretion of the district court.”[2] Id.

         Here, Dolby more than met the minimal threshold. In the joint discovery letter where Dolby first raised its challenge, Dolby explained the basis for the challenge and offered examples of log descriptions that appeared inadequate. See Docket No. 109 at 3. Specifically, in addition to the fact that Adobe had listed 4, 690[3] documents on its privilege log for non-attorney communications, [4]Dolby noted that numerous subject lines on logged emails appeared to reference business-related communications rather than the transmission of legal advice. Id. It also argued that the generic description “email reflecting legal advice regarding the scope of the audit” was insufficient to allow Dolby to analyze Adobe's claim of privilege over that document. Id. The parties also submitted a copy of Adobe's privilege log; upon review of the entries, the court determined that there was adequate basis to support a limited in camera review to enlighten the court about the issues underlying the discovery dispute. Adobe was ordered to “immediately review its log of non-attorney communications and modify the log as necessary to remove inappropriate assertions of attorney-client privilege.” [Docket No. 114 at 2.] The court further ordered Dolby to identify fifteen sample documents on the amended log, which Adobe was then to lodge with the court for in camera review. Id. Upon review of both Adobe's amended privilege log and the sample documents, the court determined that full briefing on the issue was justified. [Docket No. 125.][5]

         B. Dolby's Challenge to Adobe's Reply Evidence

         In its opening brief, Adobe submitted declarations from three Adobe employees who were participants in some of the contested communications, including: Michael Draper, Adobe's Manager of Privacy Investigations (Docket No. 135-2 (“Draper Decl.”)); Joe Perry, Adobe's Director of Worldwide Royalty Operations and Data Management (Docket No. 135-3 (“Perry Decl.”)); and Colin Stefani, Adobe's Principal Product Manager-Cloud Platform (Docket No. 135-4 (“Stefani Decl.”).

         Dolby argued in its opposition that Adobe's evidence was insufficient to meet its burden to show privilege because Adobe did not submit any declarations from Adobe's in-house counsel. In response, as part of its reply, Adobe submitted five more declarations, three of which are from former or current Adobe in-house lawyers who purportedly directed the investigation(s) that produced the disputed documents: Hung Chang (Docket No. 143-5 (“Chang Decl.”)); Donna Kolnes (Docket No. 143-6 (“Kolnes Decl.”)); and Maulik Shah (Docket No. 143-8 (“Shah Decl.”)). Adobe also submitted supplemental declarations from Perry and Stefani. [Docket Nos. 143-7 (“Perry Supp. Decl.”), 143-9 (“Shah Supp. Decl.”).] Dolby objects to the reply evidence, arguing that Adobe failed to submit attorney declarations attesting to the privileged nature of the documents in its opening motion, and that it is prejudicial to submit them on reply.

         Adobe's actions are troubling. The court directed Adobe to file supporting declarations as part of its motion to retain privilege designations. [Docket No. 125.] A cursory review of the case law demonstrates that attorney declarations generally are necessary to support the designating party's position in a dispute about attorney-client privilege. See, e.g., Datel Holdings Ltd. v. Microsoft Corp., No. 09-cv-05535 EDL, 2011 WL 866993, at *5 (N.D. Cal. Mar. 11, 2011) (holding that attorney-client privilege did not protect communications between employees where there was “no showing that the results of the investigation were ever conveyed to counsel”); Oracle Am., Inc. v. Google, Inc., No. 10-cv-03561-WHA (DMR), 2011 WL 3794892, at *3 (N.D. Cal. Aug. 26, 2011) (finding an attorney's affidavit insufficient to establish privilege where the attorney did not testify that the document was “connected to the work he requested . . . as part of the provision of legal advice he describes in his declaration.”).

         Adobe should have filed the attorney declarations with its opening brief rather than on reply and is admonished for failing to follow the court's specific directions to submit all supporting evidence with its motion. In the interest of reaching the merits, the court will consider Adobe's reply declarations. However, the special master is directed to find waiver if Adobe fails to provide affirmative and adequate support for its assertions of privilege in any future dispute.

         C. Privilege for Communications Between Non-Attorney Employees

         The thirteen documents in dispute are communications between non-attorney employees of Adobe. The attorney-client privilege “may attach to communications between nonlegal employees where: (1) the employees discuss or transmit legal advice given by counsel; and (2) an employee discusses her intent to seek legal advice about a particular issue.” Datel, 2011 WL 866993, at *5 (quoting United States v. ChevronTexaco Corp., 241 F.Supp. 2d. 1065, 1077 (N.D. Cal. 2002)) (internal quotation marks omitted); see also AT&T Corp. v. Microsoft Corp., No. 02-cv-0164 MHP (JL), 2003 WL 21212614, at *3 (N.D. Cal. Apr. 18, 2003) (“Communications between non-lawyer employees about matters which the parties intend to seek legal advice are likewise cloaked by attorney-client privilege.”). “A vague declaration that states only that the document ...


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