Datel Holdings Ltd. v. Microsoft Corp. - No. C-09-05535 EDL, 2011 U.S. Dist. LEXIS 30872 (N.D. Cal. Mar. 11, 2011)

Rule:

Under Federal Rule of Evidence 502(b), adopted in 2008, the disclosure of a privileged document does not waive the privilege if the disclosure was inadvertent, the holder of the privilege or protection took reasonable steps to prevent disclosure and the holder promptly took reasonable steps to rectify the error. These three requirements are separate and should not be conflated in the analysis; in particular, inadvertence under the first prong does not turn on the reasonable steps taken to prevent mistaken disclosure addressed in the second prong. The burden of proving that the attorney-client privilege applies rests not with the party contesting the privilege, but with the party asserting it.

Facts:

Datel Holdings filed a Motion to Compel seeking production of six documents that Datel argued were not privileged, and seeking an order that Microsoft take certain steps to re-review its privilege log and provide additional information. Microsoft has lodged the six documents for in camera review. Five of the six documents are various abbreviated versions of a long email chain that began in July 2009 entitled "Re-auth test for hacked memory units." Microsoft explained that there was a glitch in the document review software that caused these documents to be produced in truncated format. The sixth document was an email entitled "auth data," which contained some of the contents of an earlier email from the "Re-auth" chain, and was not truncated. The parties refer to these documents as the "deposition documents" because the dispute over them arose during the deposition of Tracy Sharpe, a Distinguished Engineer on Microsoft’s Xbox Console Software Team, who authored or received some of the emails. Microsoft argued that the deposition documents are protected by the attorney-client privilege and/or the work product doctrine because the non-truncated portions show that the email chain was instigated by a request from in-house counsel, Shelley McKinley, to non-attorney Sebastian Lange, a Principal Program Manager at Microsoft, to investigate whether Datel had infringed Microsoft’s intellectual property rights. Microsoft also argued that the documents were inadvertently produced to Datel within the meaning of Federal Rule of Evidence 502(b), so there was no waiver of the privilege or work product protection. Specifically, Microsoft explained that after potentially responsive documents were collected from custodians, they were loaded into a computerized document processing system known as "Clearwell." Clearwell extracted metadata from each document and converted the documents into a format that allowed for text searching. Once the documents were processed through Clearwell, they were entered into an online platform, where they were reviewed by attorneys. For reasons still unknown to Microsoft, Clearwell truncated some "Re-auth" documents during processing. 

Issue:

Did the disclosure of the “Re-auth” emails result in a waiver of attorney-client privilege?

Answer:

No.

Conclusion:

First requirement (inadvertent disclosure) — Although Microsoft’s team of lawyers carefully reviewed documents to identify privileged communications, a computer glitch truncated the documents, removing the portion conveying the request from counsel to conduct a factual investigation. The technical glitch was a mistake, which occurred accidentally and unintentionally, and prevented Microsoft’s team of lawyers from recognizing the privileged nature of the email chain. Mistaken production due to an unexpected software glitch that occurred despite the use of standard discovery software falls squarely on the inadvertent side of the divide between intentional disclosure under Rule 502(a) and unintentional disclosure under Rule 502(b). Under these circumstances, production of these six documents was inadvertent.

Second requirement (reasonable steps to prevent) — Microsoft adopted fairly robust measures to protect against inadvertent production. Microsoft hired a group of contract lawyers to review the documents for privileged material. A team of attorneys initially screened responsive documents and identified potentially privileged documents. A quality control team then reviewed any documents marked potentially privileged. A privilege team then reviewed any documents that were still designated as privileged after the second review, and privileged documents were entered into a privilege log. Reviewing attorneys had specific instructions on how to identify documents that contain attorney-client communications or work product. In addition to providing written instructions, Microsoft’s litigation counsel conducted a tutorial for the reviewers. From time to time, Microsoft’s litigation counsel also conducted its own quality control checks. These measures enabled Microsoft to identify and withhold the non-truncated versions of the "Re-auth" email thread. Further, Microsoft used a computerized document processing system to organize its documents which, unbeknownst to Microsoft, suffered a software failure. Moreover, "the rule does not require the producing party to engage in a post-production review to determine whether any protected communication or information has been produced by mistake. But the rule does require the producing party to follow up on any obvious indications that a protected communication or information has been produced inadvertently." Despite the fact that Microsoft produced the "Re-auth" emails at various times, post-production review is not required as long as there was no obvious indication that protected information had been produced. Here, given the scope of production and the unexpected nature of the software glitch, the fact that the format of the deposition documents gave some indication that some content had been truncated was not a sufficiently obvious clue that any missing material concerned privileged material, so no obligation of post-production review was triggered prior to the deposition. Thus, Microsoft took reasonable steps to prevent disclosure. In relatively large productions of electronic information under a relatively short time table, perfection or anything close based on the clairvoyance of hindsight cannot be the standard; otherwise, the time and expense required to avoid mistakes to safeguard against waiver would be exorbitant, and complex cases could take years to ready for trial.

Third requirement (reasonable steps to rectify) — Microsoft first learned the nature of the truncated emails at the Sharpe deposition after counsel looked at the complete documents during the deposition. Microsoft did not appreciate the true nature of the full text when Sharpe was testifying about the documents and when they were marked at the deposition. As soon as Microsoft obtained the entire text of the emails while the deposition was still ongoing, Microsoft interrupted the deposition to put its privilege assertion on the record. Then, within a few days, Microsoft reviewed its entire production to identify other documents affected by the glitch. These steps constitute a prompt and immediate response to the inadvertent production. Further, Microsoft asserted privilege with respect to the "Re-Auth" emails on the record at the Sharpe deposition as soon as counsel found out that the documents contained privileged material, which satisfied Rule 502(b). The use of the "Re-auth" emails at the Sharpe deposition did not result in a waiver.