An acquiring corporation normally conducts due diligence before acquiring an acquisition target. Not surprisingly, the acquiring corporation might seek privileged or work product protected documents or communications during such due diligence. At this due diligence stage, the acquiring company and the target are adversaries – so how do they avoid waiving those protections?
In Finjan, LLC v. ESET, LLC, Case No. 17-cv-183-CAB-BGS, 2021 U.S. Dist. LEXIS 75954 (S.D. Cal. Apr. 20, 2021), the court dealt with plaintiff Finjan’s patent infringement case against the defendant. The defendant sought patent-related documents Finjan had earlier disclosed to its acquirer Fortress during Fortress’ due diligence. Finjan resisted the discovery, noting that as part of "Fortress’ due diligence for this acquisition . . . Fortress and Finjan executed a non-disclosure agreement ('NDA') and common interest agreement" — thus precluding a waiver and allowing Finjan to successfully resist defendant’s discovery. Id. at *3. The court dodged the issue, explaining that it could not decide the waiver issue without knowing what documents and communications Finjan had disclosed to Fortress during the due diligence.
We may never know what happens, but the court seems to be heading in the wrong direction. Only a handful of courts recognize the common interest doctrine’s applicability in the absence of anticipated litigation. The majority of courts addressing disclosures during due diligence: (1) find a waiver of any attorney-client privilege protection (despite an NDA or a common interest agreement); and (2) find that a target’s due diligence disclosure of work product to the acquirer does not waive that more robust work product protection, because the acquirer and the target share a common interest in keeping any disclosed documents away from the adversary in litigation or anticipated litigation that the acquirer might inherit. Transactional lawyers should not be lulled into believing that they can contractually avoid the harsh waiver principles applicable to privileged communications that do not also deserve the less fragile work product protection.