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Recent Cases Highlight Privilege Risks for Pharmaceutical Companies

September 2, 2008

Two recent cases have taken a very narrow approach to the attorney-client privilege available to in house lawyers. Although every corporate lawyer should be alarmed by these courts' approach, the fact that both cases involve pharmaceutical companies highlights the threat to the privilege in the pharmaceutical setting.

Not surprisingly, every court takes a more skeptical view of attorney-client privilege claims for communications to or from in house lawyers. Because in house lawyers are more likely to provide non-legal advice (especially business advice), courts have always demanded evidence that the in house lawyer had his or her "legal" hat on when communicating with clients. As an abstract matter, courts have occasionally pointed to a widespread circulation of communications within a company as evidencing the non-legal nature of those communications. However, only a handful of courts had actually stripped away the privilege for such communications.

In In re Vioxx Products Liability Litigation, 501 F. Supp. 2d 789 (E.D. La. 2007), the judge handling the Vioxx product liability cases against Merck sought the assistance of a special master after having been criticized by the Fifth Circuit for the way he conducted his own privilege review. The judge hired well-known American University law professor Paul Rice. Not surprisingly, Professor Rice and his assistant spent approximately $400,000 reviewing 2,500 representative Merck documents over three months -- $160 per document. Professor Rice provided both an abstract discussion of the attorney-client privilege (essentially a law review article) and also listed a series of guidelines to use when reviewing Merck's privileged documents.

Professor Rice eventually outlined, and the court ultimately adopted, a remarkably narrow view of the attorney-client privilege in the corporate setting. Professor Rice first noted that Merck's in house lawyers provided everything from legal advice to grammatical guidance. He insisted that Merck's in house lawyers demonstrate that the "primary purpose" of each communication involved legal advice rather than some other type of advice. He specifically rejected Merck's argument that pharmaceutical companies operate in such a heavily regulated context that essentially every internal communication involves legal advice. He also rejected Merck's argument that narrowly interpreting the privilege would allow Merck's adversaries to "reverse engineer" documents and uncover protected legal advice.

Perhaps the most worrisome approach involves Professor Rice's explanation that the "distribution pattern" of Merck's internal documents often demonstrated unprotected non-legal purposes. Specifically, he adopted a presumption that documents Merck's employees simultaneously sent to an in house lawyer and another businessperson for their review did not deserve privilege protection. Even worse, Professor Rice also adopted what is called the "derivative" approach to communications going the other way -- from lawyer to client. Under that approach, a lawyer's communications to a client deserve privilege protection only to the extent that the communications disclose confidences that the client shared with the lawyer. Because Professor Rice presumed that many communications to Merck's in house lawyers did not deserve privilege protection (because they were simultaneously circulated to many non-lawyers in the company), the lawyers' responses to those communications usually did not deserve protection either -- because they did not tend to disclose any protected communications from the client. Professor Rice even applied this principle to Merck's in house lawyers' electronic changes to the document the lawyers received from their clients, and returned with the lawyers' changes incorporated in them.

All in all, Professor Rice's academic approach (which the court adopted) would generally protect only communications between the particular Merck employee who needed the legal advice and Merck's in house lawyer, without including anyone else in the e mail message traffic.

More recently, another court explicitly endorsed the very narrow view articulated by Professor Rice. In re Seroquel Prods. Liab. Lit., Case No. 6:06-md-1769-Orl-22DAB, 2008 U.S. Dist. LEXIS 39467 (M.D. Fla. May 7, 2008). Although that case also discussed AstraZeneca's alleged failure to properly log withheld documents, the opinion extensively quotes from the Vioxx opinion. The court also rejected AstraZeneca's regulatory context argument.

Given the breadth of Professor Rice's approach, presumably every American corporation is at risk. The only way to assure privilege protection is for a company's in house lawyers to engage in e mail communications only with those specific employees who need the lawyer's advice -- without including other company employees in the e mail message traffic. In many, if not most, American companies, switching to that mode of communication would require a major cultural upheaval.

As indicated above, a number of courts had previously taken this narrow view. However, most courts looked at internal corporate communication "distribution patterns" as part of a waiver analysis acknowledging but hardly ever finding that widespread internal corporate communications forfeited the privilege. By taking the analysis back to an analysis of whether the privilege even existed in the first place, Professor Rice severely limited the attorney-client privilege's applicability to internal corporate communications. And now that his analysis has found favor in another federal district court, all American corporations should take note.

Pharmaceutical companies should be especially concerned, both because of the severe view taken by these courts, and because of the courts explicit rejection of Merck's and AstraZeneca's argument that the heavily regulated nature of the pharmaceutical industry entitled the companies to a greater degree of privilege protection.