Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Pa.: Attorney-client privilege protected communications with business consultants, non-attorney employees, (Sep 12, 2013)

By Edward L. Puzzo, J.D.

Documents relevant to legal advice created by an outside business consultant, by non-attorney employees, and by board members were all attorney-client communications privileged from discovery in an FTC antitrust action against drug companies for blocking generic competition for the modafinil drug, Provigil, the federal district court in Philadelphia has ruled (King Drug Co. of Florence, Inc. v. Cephalon, Inc., September 11, 2013, Goldberg, M.).

In ongoing litigation in this matter, the FTC challenged agreements made between Cephalon and four generic drug manufacturers, in settlement of a patent infringement suit related to its modafinil drug, Provigil, which were allegedly made in exchange for the generics’ promise to stay off of the modafinil market.

The issue at this stage in discovery involved Cephalon’s claims that it could withhold certain documents from discovery as privileged attorney-client communications: minutes from meetings of the Cephalon board of directors; documents shared with or created by a business consulting company who performed work for Cephalon; and documents created by non-attorney employees at Cephalon. The FTC claimed that these documents were not for the purpose of obtaining legal advice but were instead communications for the purpose of making business decisions, and therefore not privileged. The court reviewed the contested documents in camera.

Board of directors meeting minutes. The FTC first challenged the redaction of minutes from certain meetings of the Cephalon board of directors. The court concluded that the communications, some of which were made directly by Cephalon’s attorney, had a legal rather than business purpose because they involved settlement discussions with generic drug manufacturers in the pending Provigil patent infringement suits. Thus they were protected from discovery, the court ruled.

Documents created by consultants. The FTC next challenged Cephalon’s privilege claims related to documents created by or shared with Clarion, a business consulting firm it hired. The FTC argued that attorney-client privilege extends to third-party consultants only where those consultants were hired to perform a function necessary for litigation, unlike here, where the consultant was hired for the non-legal purpose of creating marketing plans for its modafinil drugs. In response, Cephalon cited In re Flonase Antitrust Litigation (2012-1 Trade Cases ¶77,942), which focused upon whether the non-employee, by virtue of his or her role as a consultant, possessed confidential information necessary to provide legal advice to the company. If so, communications with consultants, if kept confidential and used in providing legal advice, were privileged.

The court ruled for Cephalon, agreeing with the Flonase approach, focusing on whether the communications with the consultant were kept confidential and made for the purpose of obtaining legal advice, rather than focusing on whether the consultants were hired specifically for legal, rather than business, purposes. Especially in the pharmaceutical industry, the court opined, marketing and business strategies were inextricably tied to regulatory, antitrust and intellectual property issues.

The business consultants, in providing strategic advice regarding commercial, regulatory, antitrust and intellectual property issues for Cephalon’s modafinil drug products, were the functional equivalent of employees, continued the court. Thus, the Clarion documents in question fell squarely within attorney-client privilege.

Documents created by non-attorney employees. Finally, the FTC challenged privilege claims regarding documents created by non-attorney employees of Cephalon. The court stated that the focus must be on whether those communications were for the purpose of gathering information necessary for Cephalon’s attorneys to render or disseminate legal advice. The in camera review of the contested communications prepared by the non-attorney employees revealed that the documents concerned information to company attorneys regarding the status of its intellectual property filings, its clinical testing of pharmaceuticals, and legal advice on regulatory filings or sales documents. The documents, the court ruled, were properly withheld or redacted in order to protect the confidentiality of communications between Cephalon’s employees and its attorneys regarding intellectual property, regulatory and contractual issues.

The case is Civil Action Nos. 2:06-cv-1797 and 2:08-cv-2141.

Attorneys: David J. Creagan (White & Williams LLP) for Cephalon, Inc. Markus Meier for FTC.

Companies: Cephalon, Inc.

Cases: Antitrust PennsylvaniaNews FederalTradeCommissionNews