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Patent Ethics

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Patent Ethics Litigation David Hricik

1

1 Oxford University Press, Inc., publishes works that further Oxford University’s objective of excellence in research, scholarship, and education. Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Mexico City Nairobi New Delhi Shanghai Taipei Toronto

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Copyright © 2010 by David Hricik Published by Oxford University Press, Inc. 198 Madison Avenue, New York, New York 10016 Oxford is a registered trademark of Oxford University Press Oxford University Press is a registered trademark of Oxford University Press, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press, Inc. _____________________________________________ Library of Congress Cataloging-in-Publication Data Hricik, David Charles. Patent ethics : litigation / David Hricik. p. cm. Includes bibliographical references and index. ISBN 978-0-19-536709-6 ((pbk.) : alk. paper) 1. Patent lawyers—Professional ethics—United States. 2. Patent suits—United States. I. Title. KF3165.H748 2010 346.7304'86—dc22 _____________________________________________

2009046429

1 2 3 4 5 6 7 8 9 Printed in the United States of America on acid-free paper Note to Readers This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is based upon sources believed to be accurate and reliable and is intended to be current as of the time it was written. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Also, to confirm that the information has not been affected or changed by recent developments, traditional legal research techniques should be used, including checking primary sources where appropriate. (Based on the Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.)

You may order this or any other Oxford University Press publication by visiting the Oxford University Press website at www.oup.com

Contents

ABOUT THE AUTHOR

xi

CHAPTER 1: Introduction

1

CHAPTER 2: Choice of Law in Federal Court Litigation

3

A. Introduction B. Federal Circuit Choice of Law on Legal Ethical Issues C. Federal Courts Take Diﬀerent Approaches to Choice of Law on Ethical Issues 1. The “National Standards” Approach to Choice of Law on Legal Ethics 2. Other Approaches to Choice of Law on Legal Ethics D. Conclusion on Choice of Law E. Subject Matter Jurisdiction Over Malpractice Claims Based Upon Conduct Occurring During Patent Litigation CHAPTER 3: Conﬂicts of Interest A. Introduction B. Conﬂicts Created by Communications with Prospective Clients C. Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client? 1. Inventors a. The Law 2. Business Entities a. The Law 3. Employees and Officers of the Entity Generally Are Not Clients 4. Affiliated Entities Are Generally Not Clients 5. Successor Corporations to Former Clients 6. Assignees of a Patent the Firm Obtained for a Current or Former Client D. Current Client Conﬂicts 1. Helping Out Behind the Scenes 2. Parallel Patent Litigation

4 6 7 7 9 10 11

13 15 15 18 22 22 26 26 27 28 33 35 36 37 38

vi Contents 3. Increasing a Client’s Risk of Liability Even Without Parallel Litigation 4. Adverse Discovery of a Current Client 5. Positional Conflicts of Interest 6. Implications and Recommendations E. Former Client Conﬂicts 1. Is the Representation Over? 2. The Protections Afforded to Former Clients

40 42 43 44 45 45 48

a. The Substantial Relationship Test b. Possession of Client Conﬁdences c. Challenging or Interpreting the Firm’s Prior Work

48 53 54

d. The Appearance of Impropriety

55

3. Special Issues Concerning Transferring Lawyers a. Private Practice Migration 4. Impact on a Firm of Hiring Lawyers 5. Impact on a Firm of Departure of Lawyers a. Former Government Oﬃcials F. Impact of Disqualiﬁcation G. Consent to Conﬂicts 1. Contemporaneous Consent to Conflicts 2. Prospective Consent 3. Post-Wrong Waivers of Malpractice Claims H. Other Justiﬁcations for Denial of Disqualiﬁcation 1. Prejudice or Taint and Balance of Hardships 2. Waiver by Delay in Seeking Disqualification 3. The Hot Potato Doctrine and the “Thrust Upon” Exception 4. Improper Uses of Disqualification Motions and Other Factors CHAPTER 4: Competency, Diligence, and Communication A. Competency B. Diligence C. Communication CHAPTER 5: Pre-Pleading Investigations

55 55 56 60 61 61 62 64 66 69 70 70 70 71 75

77 78 81 82

85

A. Introduction to the Potential Sources of Liability and Sanctions 1. Federal Rule of Civil Procedure 11 2. Exceptional Case Attorney Fee Shifting Under 35 U.S.C. § 285 3. Liability Under the Federal Antitrust Laws 4. Liability Under State Law and Other Federal Statutes

86 86 87 88 90

5. Concluding Introductory Thoughts B. Patentee’s Pre-Suit Letters Charging Infringement C. Patentee’s Pre-Suit Investigation into Charges of Infringement

91 91 94

1. Is the Plaintiff a “Patentee?” 2. Is the Patent in Force? 3. Is the Defendant the Proper Defendant?

95 96 96

Contents vii 4. Is There an Objective Basis, Based Upon Reasonable Investigation, to Allege Infringement? a. Interpretation of Claims b. Application of Claims to Accused Product or Process

97 97 99

D. Invalidity of the Patent 1. Note on ANDA Certifications E. Unenforceability

101 102 103

F. General Issues of Law and Other Papers Beyond Pleadings

103

G. Issues of Privilege and Work Product Concerning Pre-Suit Materials

104

CHAPTER 6: Ethical and Other Constraints on Pre-Suit Investigations

and Pre-Suit Enforcement Eﬀorts

107

A. Ethical Constraints on Pre-Suit Investigations

108

1. Counsel Representing a Party in a “Matter” May Not Communicate with a Person “Represented by Counsel” in that Matter About that Matter a. Rule 4.2 Prohibits Certain Ex Parte Contacts 2. Is There a “Matter?” 3. Does Counsel “Know” the Person “Represented by Counsel” in Terms of Rule 4.2? a. Note on the Impact of Federal Choice of Law Rules b. Current Employees of an Opposing Party 4. Contacts with Current Employees Through Web Sites of the Opposing Party a. Former Employees of an Opposing Party 5. In-House Counsel’s Inability to Alter Rule 4.2 6. Does Model Rule 4.2 Apply to Undercover Investigations? a. Model Rule 4.3 7. Is the Use of an Undercover Investigator “Dishonest” Under Rule 8.4 or Rule 4.1? B. Authority Holding White Lies Are Acceptable C. Authorities Finding White Lies to Be Deceitful CHAPTER 7: Pleading Ethically A. Law Governing Federal Pleadings 1. Federal Rule of Civil Procedure 8 B. Rule 11 Basis C. Pleading Infringement D. Defendants’ Pleadings CHAPTER 8: Expert Witnesses

108 108 109 111 111 113 115 116 120 121 124 127 131 133

137 138 138 139 139 142

145

A. What Is “Expert” Opinion in Patent Litigation? B. Selection C. Preparation of the Report

147 149 151

D. Contents of the Report

152

viii

Contents E. Conﬂicts of Interest of Experts 1. What Law Applies to Disqualification of Experts, Including Lawyer-Experts? 2. Conflicts of Interests of Experts a. Introduction b. Side-Switching Cases: The Duty of Loyalty for Experts Is Minimal 3. The First Party Must Have Objectively Believed a Confidential Relationship Existed Between It and the Expert 4. The First Party Must Prove It Disclosed Confidential Information to the Expert

154 154 157 157 158 160 162

a. Experts Whose Firms Represent Both Sides to a Dispute

162

b. Experts Retained by an Opponent Who Represents the Movant in Unrelated Matters

164

c. Consulting Experts d. Expert Is Lawyer’s Former Client e. Former Employees as Opposing Experts F. Conﬁdentiality and Experts 1. Basic Distinctions: Consulting and Testifying Experts 2. Disclosure of Testifying Experts’ Files in Related Cases 3. Waiving Privilege and Work Product by Disclosure to Experts 4. Access to Facts Known to and Opinions Held by Consulting Experts 5. Testifying Experts’ Review of Consulting Experts’ Materials 6. Inadvertent Waiver of Expert’s Facts and Opinions 7. Special Note on Consulting Experts 8. Testifying Experts G. Means to Reduce the Problems 1. Ensure that Employee Confidentiality Agreements Are Broad and Enforceable 2. To Help Identify Conflicts, Ask the Expert About Prior Work for the Opposing Party or Opposing Counsel 3. Require the Expert to Sign a Confidentiality Agreement 4. Formalize Retention of the Expert 5. Disclose Information and Get the Expert Working Early 6. Identify Confidential Disclosures as Such 7. Advise the Expert Not to Talk About or Listen to Confidential Information 8. If a Conflict Does Arise, Raise It Promptly with Opposing Counsel a. If the Conﬂict Cannot Be Resolved, Raise It Promptly with the Court b. Move In Limine to Exclude the Reference to the Conﬂicting Representation CHAPTER 9: Ethical Issues in the Information Exchange Process

165 165 165 166 166 168 169 170 171 171 172 173 174 174 174 174 175 175 175 176 176 176 176

179

A. Litigation Holds and Spoliation

180

B. Local Rule Requirements

180

Contents ix C. Initial Disclosures 1. Protection of Pre-Pleading Investigatory Materials

181 181

2. Complete Disclosures and Proper Supplementation D. Discovery 1. General Discovery Abuse 2. Improper Ex Parte Contacts During Pendency of a Matter

182 182 182 183

a. Employees and Former Employees b. Ethical and Procedural Limitations on Ex Parte Contacts with Expert Witnesses E. Litigation Mistakes and Misconduct F. Trial Conduct

183 183 189 191

1. In-Courtroom Conduct

191

2. Advocate-as-Witness Disqualification 3. Improper Argument 4. Ex Parte Communications with Jurors

192 192 192

CHAPTER 10: Combining Prosecution with Other Forms

of Representation

193

A. Identifying the Applicable Standards B. Combining Prosecution and Litigation 1. The Possibility of Misuse of Discovery Materials While Prosecuting Applications C. Is Prosecution of Patents by Itself Suﬃcient to Bar Access to Highly Conﬁdential Information? 1. In re Sibia 2. The Majority View 3. A Suggested Analysis D. A Proposed Prosecution Bar Raises Potential Conﬂicts and Liability E. Issues to Consider in Crafting Protective Orders 1. Liability and Disqualification of Prosecuting Litigators F. Inequitable Conduct as a Conﬂict G. Depositions of Prosecuting Litigators 1. Advocate-as-Witness Disqualification H. Combining Opinion and Trial Representations 1. Advocate-as-Witness Disqualification I. The Courts Split on Advocate-as-Witness Disqualiﬁcation J. What to Do 1. Enhanced Risk of Waiver of Work Product

194 195

2. What to Do K. Conclusion

235 235

195 196 198 202 206 208 212 216 216 218 219 223 224 224 227 227

TABLE OF CASES

237

INDEX

263

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About the Author

David Hricik is a Professor of Law at Mercer University School of Law, where he teaches patent law, legal ethics, federal civil procedure, and other courses. He litigated patent cases for 14 years prior to becoming a professor, and has also served as chair of ethics and professionalism committees of both the American Intellectual Property Law Association and the IP Section of the American Bar Association. He has served as an expert for the Office of Enrollment and Discipline and has represented clients in matters before the OED. He also serves as an expert witness in cases involving conflicts, errors, and other issues in IP and other cases.

xi

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CHAP T ER

1 Introduction

Since the founding of the Federal Circuit, patent litigation has steadily increased. At the same time, patent damage awards have also regularly increased so that now an award in the millions of dollars does not strike an unusual chord. Because of the increasing amount of patent litigation and the increased stakes, liability for missteps during patent litigation is of increasing concern. Conflicts of interest, mistakes in strategy, and improper arguments are leading to liability and sanctions.1 This book guides patent litigators and others through the minefields of litigation. Many of the problems are common to all civil litigation; others, however, are particular to patent litigation. The book addresses both types but focuses primarily on those more likely to arise in patent, as opposed to general commercial litigation. Apart from the first chapter addressing the oft-overlooked issue of choice of law, this book is essentially organized chronologically, starting with conflicts of interest then turning to the ethical issues that arise during pre-suit investigations and concluding with trial and related matters. It emphasizes cases and other in related areas of litigation. Patent Ethics is the first book of its kind.

1. See, e.g., Axcan Scandipharm, Inc. v. Reed Smith, LLP, 2007 Phila. Ct. Com. Pl. LEXIS 78 (March 26, 2007) (suit based on damages caused by firm that violated duty of loyalty and confidentiality and seeking disgorgement of fees); Tomar Elec., Inc. v. Watkins, 2009 WL 181994 (D. Ariz. Jan. 28, 2009) (removing case pleading, local counsel committed malpractice in patent infringement suit, including submission of flawed jury instructions); see also Fawer, Brian, Hardy & Zatkis v. Howes, 639 So.2d 329 (Ct. App. La. 1994) (suit against firm that, in litigation between husband and wife, had characterized patent as being “worthless” in light of harm accruing to husband in later patent litigation); Dorsey & Whitney LP v. Grossman, 749 N.W.2d 409 (Minn. App. 2008) (recounting fee dispute arising out of patent litigation and discussing related malpractice claim).

1

2

Chapter 1 Introduction

By its nature, some decisions about what to include, or not, were arguably arbitrary. For example, arguably everything is “ethical” because competency is a core obligation that lawyers owe to clients. Decisions had to be made as to where the draw the line, and I tried to use as a boundary the question of whether the issue raised something unique, or at least unusual, because it was patent litigation as opposed to simply complex federal litigation. No doubt there are more topics to be added in future editions.2

2. See also Tomar Electronics, Inc. v. Watkins, 2009 WL 1819994 (D. Ariz. Jan. 28, 2009) (removing case alleging errors in jury instructions in patent case caused adverse judgment); McCubbrey, Bartels & Ward v. D’Amato & Lynch, 2003 WL 21481027 (Ca. App. June 27, 2003) (recounting a Bleak House-like patent litigation).

CHAP T ER

2 Choice of Law in Federal Court Litigation

A. Introduction

4

B. Federal Circuit Choice of Law on Legal Ethical Issues

6

C. Federal Courts Take Diﬀerent Approaches to Choice of Law on Ethical Issues

7

1. The “National Standards” Approach to Choice of Law on Legal Ethics

7

2. Other Approaches to Choice of Law on Legal Ethics

9

D. Conclusion on Choice of Law

10

E. Subject Matter Jurisdiction Over Malpractice Claims Based Upon Conduct Occurring During Patent Litigation

11

3

4

Chapter 2 Choice of Law in Federal Court Litigation

A. Introduction This chapter addresses the threshold question of how to identify what ethical rules will apply during federal court litigation. By itself, the question of choice of law can be complicated, and it is an inquiry that litigators must undertake with conflicting and sometimes sparse guidance.1 Four sets of ethical rules and the authorities interpreting them can be relevant to determining the ethical, disciplinary, and malpractice issues2 that arise during patent litigation: the Model Code of Professional Responsibility (Model Code)3; the Model Rules of Professional Conduct (Model Rules)4; the disciplinary rules of the state in which the practitioner is also licensed (for example, for practitioners licensed in Washington, D.C., the Washington Rules of Professional Conduct (Washington Rules)5; and to a minimal extent, the code developed by the United States Patent and Trademark Office (PTO), entitled Representation of Others Before the Patent and Trademark Office (PTO Code).6 The Model Code was promulgated by the American Bar Association (ABA) in 1969 and was widely adopted by the states as their disciplinary rules.7 The PTO Code is based upon the Model Code, but it was not adopted by the PTO until 1985.8 Both the Model Code and the PTO Code are allencompassing codes of professional conduct, covering issues ranging from the amount of fees,9 to lawyer advertising,10 to protection of confidential

1. Judith A. McMorrow, The (F)utility of Rules: Regulating Attorney Conduct in Federal Court, S F 13 ALJ-ABA 317 (2000). 2. As explained below, ethical rules are applied by the PTO in disciplinary matters and in deciding disqualification motions, and in some states, ethical rules inform the standard of care applicable in malpractice suits. 3. Model Code of Professional Responsibility () [hereinafter Model code], available at http://www.abanet.org/cpr/mrpc/mcpr.pdf. Note that links to all of the ethics opinions and other rules cited here (as well as every other set on the Web) are available on http://www.legalethics.com or http://www.Hricik.com. 4. Model Rules of Professional Conduct (), available at http://www.abanet.org/cpr/ mrpc/mrpc_home.html [hereinafter Model Rules]. 5. Available at http://www.law.uh.edu/libraries/ethics/RulesofDisciplinaryProcedure/033107. pdf (effective March 31, 2007). 6. PTO Definitions, 37 C.F.R. § 10.1 (2005). 7. “The Model Code was adopted by the [ABA] House of Delegates on August 12, 1969 and subsequently by the vast majority of state and federal jurisdictions.” Annotated Model Rules of Prof. Conduct vii (5th ed. 2003) [hereinafter Ann. Model Rules]. 8. The PTO Code was first proposed in 1984. Practice Before the Patent and Trademark Office, 49 Fed. Reg. 10012–01 (proposed Mar. 16, 1984) (to be codified at pts. 1, 2, and 10). It went through extensive notice and comment periods and was adopted as a final rule on February 6, 1985. Practice Before the Patent and Trademark Office, 50 Fed. Reg. 5158–01 (Feb. 6, 1985). 9. E.g., 37 C.F.R. § 10.36 (2005). 10. E.g., id. § 10.32.

Introduction

information of a client.11 However, the PTO modified the language in the Model Code, so the wording of a particular rule in the PTO Code is not necessarily identical to the wording in the Model Code.12 The ABA promulgated the Model Rules in 1983.13 Most states soon thereafter replaced their versions of the Model Code with their own versions of the Model Rules,14 sometimes making changes to them before adopting them as state disciplinary rules.15 As a result, the wording of a state rule may differ from its Model Rules counterpart, sometimes significantly and occasionally in outcome-determinative ways. Other federal statutes,16 cases applying them,17 internal PTO practice guidelines (principally the Manual of Patent Examining Procedure (MPEP)),18 and cases applying the MPEP19 may also have an impact on litigation matters. Finally, state substantive law—the law of agency, defamation, of fiduciaries, and the like—and state case law may inform either the standard of care or other aspects of a representation that affect liability during patent litigation.20 When a question as to the propriety of lawyer conduct arises during federal court litigation, a lawyer must analyze which ethical rules and whose interpretation of them apply.21 Furthermore, the propriety of some conduct turns on whether a district court must follow the Federal Circuit’s interpretation of the Federal Rules of Civil Procedure or that of the regional circuit in which the district court hearing a patent infringement suit sits. Importantly, when deciding whether a prosecuting litigator may have access to an

11. E.g., id. § 10.57. 12. For a fairly extensive list of the variations among states, see ABA/BNA Lawyers’ Manual on Professional Conduct §§ 01:11–66 (2004). 13. See Ann. Model Rules at viii–ix. 14. Id. at viii. 15. The ABA also made more than 30 amendments to the Model Rules. See Ann. Model Rules, at vii. 16. E.g., 35 U.S.C. § 33 (2005). 17. E.g., Galarowicz v. Comm’r of Patents & Trademarks, 848 F.2d 1245 (Fed. Cir. 1988) (unpublished). 18. The MPEP is the Manual of Patent Examining Procedure and comprises the PTO’s internal guidelines. “While the MPEP does not have the force of law, it is entitled to judicial notice as an official interpretation of statutes or regulations as long as it is not in conflict therewith.” Bristol-Myers Squibb Co. v. Ben Venue Labs., 90 F. Supp. 2d 522, 537 n.7 (D.N.J. 2000). 19. E.g., Molins PLC v. Textron, Inc., 48 F.3d 1172 (Fed. Cir. 1995) (duty of disclosure under MPEP). 20. See, e.g., Monco v. Janus, 583 N.E.2d 575, 581 (Ill. App. 1991) (under state law, a transaction between patent practitioner and client must be “closely scrutinized”). In Chapter 5, we will see that state substantive law can impose liability on lawyers who file suit without proper pre-suit investigation and on those who defame products by inaccurately charging infringement in written publications. 21. See Judith A. McMorrow, The (F)utility of Rules: Regulating Attorney Conduct in Federal Court, S F 13 ALJ-ABA 317 (2000).

5

6

Chapter 2 Choice of Law in Federal Court Litigation

opponent’s proprietary information, the issue of which circuit’s interpretation of the rules of procedure matters greatly. Thus, practitioners must also be aware of the body of case law, addressing when an issue is “unique to patent law” and so is governed by Federal Circuit law, and when it is not and governed by regional circuit law. The fact that the rules differ in wording is important because federal courts hearing patent infringement suits rely upon decisions interpreting the Model Code and Model Rules as well as state versions of the Model Rules in deciding ethical matters even though these rules are worded differently. In addition, tribunals have frequently given differing interpretations even to identically worded rules.22 Nonetheless, the following sections show that all of these ethical rules and decisions interpreting them can bear on matters arising during patent prosecution and litigation.

B. Federal Circuit Choice of Law on Legal Ethical Issues Patent cases must be appealed to the Federal Circuit,23 but Federal Circuit law does not apply to all issues in patent cases. Regional circuit law applies to “procedural” issues, but Federal Circuit law applies to “patent” issues.24 More specifically, the Federal Circuit applies regional circuit law to procedural matters “that are not unique to patent issues,”25 but it applies its own law to procedural matters that “are related to patent issues.”26 The division between issues “unique to patent law” and those that are not can be critical. In its latest pronouncements, the Federal Circuit stated that a procedural issue is subject to Federal Circuit law if it (1) “pertain[s] to” the substance of a patent right, (2) “bear[s] an essential relationship to matters committed to [the Federal Circuit’s] exclusive control by statute,”

22. Most notorious is the variation that courts have given to the scope of whether and if so which current and former employees are “represented by counsel” in terms of Model Rule 4.2. See generally Messing, Rudavsky & Weliky, P.C. v. President & Fellows of Harvard Coll., 764 N.E.2d 825 (Mass. 2002) (discussing the numerous interpretations of this rule). 23. 28 U.S.C. § 1295(a)(1) (2005); see Holmes Group, Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, 62 USPQ2d 1801 (2002). 24. See Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356, 1360, 50 U.S.P.Q.2d 1672 (Fed. Cir. 1999). 25. Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d 1564, 1574–75, 223 U.S.P.Q. 465 (Fed. Cir. 1984). 26. Id. at 1575 n.14.

Federal Courts Take Different Approaches to Choice of Law on Ethical Issues 7

or (3) “clearly implicate[s] the jurisprudential responsibilities of [the Federal Circuit] in a field within its exclusive jurisdiction.”27 The Federal Circuit has so far held that ethical issues are not unique to patent law and has applied the law of the proper regional circuit.28 Accordingly, for instance, a lawyer litigating a case in Texas must consult the approach of the Fifth Circuit, while a litigator in federal court in New York consults the law of the Second Circuit, and so on. While a complete canvas of the varying approaches of federal courts to the issue of choice of law can form the basis of its own book, a brief description of two circuits illustrates the range.

C. Federal Courts Take Diﬀerent Approaches to Choice of Law on Ethical Issues 1. The “National Standards” Approach to Choice of Law on Legal Ethics Several circuits and district courts follow a “federal law” or “national standards” approach to choice of law in ethical matters. The leading court is the Fifth Circuit. The Fifth Circuit has held that even federal district courts that specifically adopt state disciplinary rules cannot be bound by them; instead, federal law governs “whether and how” the rules are applied.29 In adopting this approach, the Fifth Circuit rejected the reasoning of the district court in Red Eagle Resources Corp. v. Baker Hughes30 that “[a]doption of a local rule specifying a particular code of professional responsibility provides clear guidance to counsel practicing before the Court.” Instead, the Fifth Circuit held that the “district court clearly erred in holding that its local rules, and thus the Texas rules, which [the court] adopted, are the ‘sole’ authority governing a motion to disqualify.”31 The Fifth Circuit held that even the Model Code is merely “useful . . . but . . . not controlling.”32

27. Bose Corp. v. JBL, Inc., 274 F.3d 1354, 1360, 61 U.S.P.Q.2d 1216 (Fed. Cir. 2001). 28. Sun Studs, Inc. v. Applied Theory Assocs., Inc., 772 F.2d 1557, 1566, 227 U.S.P.Q. 81 (Fed. Cir. 1985). 29. In re American Airlines, Inc., 972 F.2d 605, 610 (5th Cir. 1992); see also Resolution Trust Corp. v. Bright, 6 F.3d 336, 341 (5th Cir. 1993). Even though the Model Code has been “superseded” by the Model Rules, in federal court, in several circuits and many district courts, the Model Code is still viable and relevant. See, e.g., In re Dresser Indus., 972 F.2d 540, 544 (5th Cir. 1992). 30. No. H-91-0627, 1992 WL 170614, at *3 (S.D. Tex. Mar. 4, 1992). 31. In re Dresser, 972 F.2d at 543. 32. Id. at 543–44.

8

Chapter 2 Choice of Law in Federal Court Litigation

The Fifth Circuit’s most recent amplification of its approach to determining the ethical standards which govern in federal court occurred in Federal Deposit Insurance. Corp. v. United States Fire Ins. Co.33: The local rules promulgated by the local court itself are the most immediate source of guidance for a district court. Therefore, the [local rules] are not irrelevant to our inquiry. Nonetheless, parties cannot be deprived of the right to counsel of their choice on the basis of local rules alone. Local rules are not the ‘sole’ authority governing motions to disqualify. Motions to disqualify are substantive motions. Therefore, they are decided under federal law. When reviewing the disqualification of an attorney, we must ‘consider the motion governed by the ethical rules announced by the national profession in light of the public interest and the litigant’s rights.’ The norms embodied in the Model Rules and the Model Code are relevant to our inquiry, ‘as the national standards utilized by this circuit in ruling on disqualification motions. Additionally, consideration of the Texas Rules is also necessary because they govern attorneys practicing in Texas generally. . . . 34

Under the Fifth Circuit’s approach, none of these standards controls by itself: “whereas the relevant local and national ethical canons provide a useful guide for adjudicating motions to disqualify, they are not controlling.”35 Federal substantive law controls the conduct of lawyers in federal court, not what any state or voluntary bar association suggests the standard should be. If the various rules do not apply a common standard, the court “must weigh the relative merits of each of the various competing disqualification rules. . . .”36 While cumbersome, the approach of following one set of ethical rules in federal court has been justified on the basis that “slavishly following the different state rules . . . would balkanize litigation.”37 This has some truth to it: on many issues, each state has adopted slightly different approaches to common ethical issues. Thus, in these courts, a patent litigator must analyze, not just the Texas Rules, but the Model Code, the Model Rules, the state rules and, as well,

33. 34. 35. 36.

50 F.3d 1304 (5th Cir. 1995). Id. at 1312, quoting In re American Airlines, Inc., 972 F.2d at 610 (citations omitted). FDIC, 50 F.3d at 1314. Id. See Carbo Ceramics, Inc. v. Norton-Alcoa Proppants, 31 U.S.P.Q.2d 1631 (N.D. Tex. 1994) (“motions to disqualify are determined by applying federal law which may be informed by state and national standards as a federal court in its discretion sees fit to apply.”); Cole v. Avidoso Municipal Schools, 43 F.3d 1373, 1383 (10th Cir. 1994) (adopting In re American Airlines). Courts have extended the Fifth Circuit’s approach, reasoning that “even when a federal court utilizes state ethics rules, it cannot abdicate to the state’s view of what constitutes professional conduct, even in diversity cases.” McCallum v. CSX Transp. Inc., 149 F.R.D. 104, 107 (M.D.N.C. 1993). 37. Rand v. Monsanto, 926 F.2d 596, 600 (7th Cir. 1991).

Federal Courts Take Different Approaches to Choice of Law on Ethical Issues 9

the Restatement of Law Governing Lawyers.38 The lawyer must analyze how each of these “rules” applies to the conduct and how authorities interpreting them have concluded they do and then determine the “national standard” on the issue. We will see various examples of this approach throughout the book.

2. Other Approaches to Choice of Law on Legal Ethics The Ninth Circuit’s position arguably39 stands in stark contrast to the Fifth Circuit’s. The Ninth Circuit reasoned that since “[a]dvance notice is essential to the rule of law [and] since it is desirable that an attorney or client be aware of what actions will not be countenanced,” if the federal district court adopted the California rules in its local rules, they would apply to ethical issues arising in federal court.40 Similarly, other courts have rejected the Fifth Circuit’s approach, reasoning that lawyers must be held only to the rules which they “pledged to follow.”41 There are various other approaches, and again, cataloging them completely is beyond the scope of this book.42 Suffice it to say that choice of law is a critical matter that can be outcome determinative. While it is important to analyze the particular court’s approach to the choice of law issue, it is very difficult when the court has not yet made that decision. Very difficult issues arise when the circuit or district court has not spoken directly to the issue of choice of law. A recent Nebraska patent case illustrates one court’s approach to this question: This court has specifically not incorporated any particular code or ethical rules of professional conduct. Instead, the applicable local rule establishes as a

38. The issue has come up in many patent cases in Texas, where, of course, many patent cases are filed. See, e.g., Biax Corp. v. Fujitsu Computer Sys., Corp., 2007 WL 1466638 (E.D. Tex. May 16, 2007) (applying Fifth Circuit’s approach in context of motion to disqualify in patent infringement case involving former client); Rembrandt Tech., L.P. v. Comcast Corp., 2007 WL 470631 (E.D. Tex. Feb. 8, 2007) (same, but involving current client); Landmark Graphics Corp. v. Seismic Micro Tech., Inc., 2007 WL 735007 (S.D. Tex. Jan. 31, 2007) (same in patent case involving advocate-as-witness disqualification); Grosser-Samuels v. Jaquelin Designs Enterp., Inc., 448 F. Supp. 2d 772 (N.D. Tex. 2006) (same in current client context); Advanced Display Sys., Inc. v. Kent State Univ., 2001 WL 1524433 (N.D. Tex. Nov. 29, 2001) (same in advocate-as-witness and conflict context). 39. There is precedent in the Ninth Circuit for various positions. 40. Paul E. Iancono Structural Eng’r, Inc. v. Humphrey, 722 F.2d 435, 438–39 (9th Cir. 1983) (stating that application of Model Code was also proper in certain instances). See also County of Los Angeles v. Forsyth, 223 F.3d 990, 995 (9th Cir. 2000) (holding “we apply state law in determining matters of disqualification”). 41. In re Potash Antitrust Litig., 1994-1 Trade Cas. ¶ 70,644 n.20 (D. Minn. 1993). 42. See McMorrow, The (F)utility of Rules: Regulating Attorney Conduct in Federal Court, S F 13 ALJ-ABA 317 (2000).

10

Chapter 2 Choice of Law in Federal Court Litigation general rule that an attorney admitted to practice must not engage in “conduct unbecoming of a member of the bar.” The rule permits the court to consult others’ rules or codes of professional conduct if it would be helpful in resolving issues before it. In this case I have utilized the American Bar Association Annotated Model Rules of Professional Conduct, because K & E is a “national law firm,” and because the model rules inform the court on generally applicable standards in concurrent representation issues. The question, however, is to be determined based on federal law.43

Thus, research into the court’s approach to choice of law is required.

D. Conclusion on Choice of Law Federal court choice of law is a complex matter. Because courts often disagree on ethical obligations and do so even when interpreting identically worded disciplinary rules, lawyers must be sure to consult the approach taken by the regional circuit to determine whether and to what extent state law plays a role in determining ethical issues that arise during patent litigation. The propriety of particular conduct can often hinge upon the determination of which rules apply. In addition, courts often rely upon applicable ethical rules in determining the standard of care.44 For that reason, lawyers must

43. Bd. of Regents of the Univ. of Neb. v. BASF Corp., 2006 WL 2385363 (D. Neb. Aug. 17, 2006) (citations omitted) (citing State of Arkansas v. Dean Foods Products Co., Inc., 605 F.2d 380, 383 (8th Cir.1979), overruled on other grounds, In Re Multi-Piece Rim Products Liability Litigation, 612 F.2d 377 (8th Cir.1980)). 44. Some courts hold that applicable ethical rules are admissible as evidence of the standard of care under some circumstances; see, e.g., Two Thirty Nine Joint Venture v. Joe, 60 S.W.3d 896 (Tex. Ct. App. 2001), rev’d on other grounds, 145 S.W.3d 150 (Tex. 2004), while others hold they are inadmissible, see, e.g., Hizey v. Carpenter, 830 P.2d 646 (Wash. 1992). See generally Stephen E. Kalish, How to Encourage Lawyers to Be Ethical: Do Not Use the Ethics Codes as a Basis for Regular Law Decisions, 13 Geo. J. Legal Ethics 649 (2000); Douglas L. Christian & Michael Christian, Twice Bitten: Violations of Ethical Rules As Evidence of Legal Malpractice, 28 The Brief 62 (1999); Gary A. Munneke & Anthony E. Davis, The Standard of Care in Legal Malpractice: Do the Model Rules of Professional Conduct Define It?, 22 J. Legal Prof. 33, 33 (1997/1998); David J. Fish, The Use of the Illinois Rules of Professional Conduct to establish the standard of care in attorney malpractice litigation: An illogical practice, 23 S. Ill. U. L.J. 65 (1998); note, The Evidentiary Use of the Ethics Codes in Legal Malpractice: Erasing a Double Standard, 109 Harv. L. Rev. 1102, 1118 (1996); James I. Sullivan, Impact of Ethical Rules and Other Quasi-Standards on Standard of Care, 61 Def. Couns. J. 100, 101 (1994) (“Analysis of the legal malpractice standard of care frequently requires consideration of the potential impact of ethical rules.”); Teresa Schafer Sullivan, & Thomas H. Blaske, Legal Ethics and Legal Malpractice: A Beauty and a Beast in Search of Each Other, 74 Mich. B.J. 150 (1995); Laura Callaway Hart et al., From Offense to Defense: Defending Legal Malpractice Claims, 45 S.C. L. Rev. 771, 776 (1994).

Subject Matter Jurisdiction Over Malpractice 11

consider whether and to what extent each of the following bears on their conduct: (a) state ethics rules; (b) state substantive law (fiduciary duty, agency, and so on); (c) whether the Federal Circuit or regional circuits have jurisdiction over the issue; (d) “federal” ethical standards, however formulated by the regional circuit; and (e) the appropriate circuit’s law interpreting the Federal Rules of Civil Procedure.

E. Subject Matter Jurisdiction Over Malpractice Claims Based Upon Conduct Occurring During Patent Litigation Although technically not a choice of law issue, it is relevant here to note that the Federal Circuit has held that malpractice cases based upon errors in patent prosecution or litigation may create subject-matter jurisdiction in federal court based upon the so-called “substantial federal question” doctrine.45 Lower courts have generally followed the Federal Circuit’s approach.46 In many instances, as a result, not only do federal courts have subject-matter jurisdiction over patent litigation, they will also have subject-matter jurisdiction over state law malpractice claims that arise out of either negligence during patent prosecution or litigation.

45. Immunocept LLC v. Fulbright & Jaworski, LLP, 504 F.3d 1281, 1285 (Fed. Cir. 2007); Air Measurement Techs., Inc., v. Akin Gump Straus Hauer & Feld, LLP, 504 F.3d 1262, 1272 (Fed. Cir. 2007). But cf. Singh v. Duane Morris LLP, 538 F.3d 334 (5th Cir. 2008) (finding no federal subject-matter jurisdiction over claim arising out of trademark litigation). See generally, Michael Ena, Jurisdictional Issues in the Adjudication of Patent Law Malpractice Cases in Light of Recent Federal Circuit Decisions, 19 Fordham L. Rev. 219 (2008). 46. See, e.g., Harness, Dickey & Pierce, PLC v. Powerhouse Marks, LLC, 2008 WL 4457782 (E. D. Mich. Sept. 29, 2008) (subject-matter jurisdiction over both litigation and prosecution related malpractice claims); Berndt v. Greenwhich Ins. Co., 2008 U.S. Dist. LEXIS 98079 (W.D. Wis. Dec. 2, 2008) (court held it had subject-matter jurisdiction over malpractice claim against patent litigators who had previously defended the malpractice plaintiff in an infringement case because success on claim required proof that patents were invalid); LaBelle v. McGonagle, 2008 WL 3842998 (D. Mass. Aug. 15, 2008) (subject-matter jurisdiction over prosecution malpractice); Byrne v. Wood, Herron & Evans, LLP, 2008 WL 3833699 (E.D. Ky. Aug. 13, 2008) (denying remand of malpractice claim arising out of patent litigation).

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CHAP T ER

3 Conﬂicts of Interest

A. Introduction

15

B. Conﬂicts Created by Communications with Prospective Clients

15

C. Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client?

18

1. Inventors

22

a. The Law

22

2. Business Entities

26

a. The Law

26

3. Employees and Oﬃcers of the Entity Generally Are Not Clients

27

4. Aﬃliated Entities Are Generally Not Clients

28

5. Successor Corporations to Former Clients

33

6. Assignees of a Patent the Firm Obtained for a Current or Former Client

35

D. Current Client Conﬂicts

36

1. Helping Out Behind the Scenes

37

2. Parallel Patent Litigation

38

3. Increasing a Client’s Risk of Liability Even Without Parallel Litigation

40

4. Adverse Discovery of a Current Client

42

5. Positional Conﬂicts of Interest

43

6. Implications and Recommendations

44

E. Former Client Conﬂicts

45

1. Is the Representation Over?

45

2. The Protections Aﬀorded to Former Clients

48

a. The Substantial Relationship Test

48

b. Possession of Client Conﬁdences

53

c. Challenging or Interpreting the Firm’s Prior Work

54

d. The Appearance of Impropriety

55

13

14

Chapter 3 Conflicts of Interest 3. Special Issues Concerning Transferring Lawyers a. Private Practice Migration

55 55

4. Impact on a Firm of Hiring Lawyers

56

5. Impact on a Firm of Departure of Lawyers

60

a. Former Government Oﬃcials F. Impact of Disqualiﬁcation G. Consent to Conﬂicts

61 61 62

1. Contemporaneous Consent to Conﬂicts

64

2. Prospective Consent

66

3. Post-Wrong Waivers of Malpractice Claims

69

H. Other Justiﬁcations for Denial of Disqualiﬁcation

70

1. Prejudice or Taint and Balance of Hardships

70

2. Waiver by Delay in Seeking Disqualiﬁcation

70

3. The Hot Potato Doctrine and the “Thrust Upon” Exception

71

4. Improper Uses of Disqualiﬁcation Motions and Other Factors

75

Conflicts Created by Communications with Prospective Clients 15

A. Introduction Before a lawyer accepts a representation, she should ensure that doing so will not entail a conflict of interest. This chapter addresses many of the conflicts of interest that can arise in patent litigation. Chapter 11 goes into additional conflicts that can arise when a firm combines patent litigation with other forms of representation, such as prosecution or opinion work. It is important for lawyers to watch both for their own conflicts and those of opposing counsel.1 The need for a lawyer to avoid his own conflicts is obvious, as they can result in disqualification, discipline, malpractice, or simply embarrassment or loss of business. Less obvious may be the need to monitor for opposing counsel conflicts: courts generally hold that many conflicts are waived if not timely raised by the adversely affected client.2 Likewise, sometimes co-counsel’s conflict can be imputed to a firm.3 This chapter analyzes all sides of the equation.

B. Conﬂicts Created by Communications with Prospective Clients Often, of course, it will be clear that the party moving for disqualification is or was a current or former client: a lawyer who represents an inventor-owner in obtaining a patent obviously has an attorney-client relationship with that

1. In addition, a firm may need to be wary of co-counsel’s conflicts or conflicts affecting joint defendants. For reasons why, see the section in this chapter discussing the impact of a conflict of interest. 2. See, e.g., In re Metoprolol Succinate Patent Litig., 2005 WL 1661509 (E.D. Mo. 2005) (finding waiver due to delay); Buckley v. Airshield Corp., 908 F. Supp. 299 (D. Md. 1995) (no waiver under facts presented). Some courts, such as the Fifth Circuit, hold that certain objections cannot be waived by the client, but instead are matters for the court to resolve. See David Hricik & Jae Ellis, Disparities in Legal Ethics Standards Between State and Federal Judicial Systems: An Analysis and a Critique, 13 Geo. J. Legal Ethics 577 (2000). If a lawyer concludes that his firm or opposing counsel faces a conflict of interest, questions such as waiver, imputation of the conflict, and other matters arise. See Decora Inc. v. DW Wallcovering, Inc., 901 F. Supp. 161 (S.D.N.Y. 1995) (dispute over court’s receipt of in camera submission during disqualification proceeding), mand. denied, 1996 WL 17457 (Fed. Cir. Jan. 3, 1996); Flint Hills Scientific, LLC v. Nikitin, 2002 WL 975881 (D. Kan. March 21, 2002) (same, and analyzing scope of privilege waiver); see also Flint Hills Scientific, LLC v. Davidchack, 2001 WL 1718276 (D. Kan. 2001) (analyzing scope of privilege waiver in disqualification matter). Some of them are discussed in this book in generalities, but, unfortunately, often the law on particular ethical issues varies among the courts, and the application of the law to the facts tends to be highly fact-driven. 3. See Freeman v. Chicago Musical Instrument Co., 689 F.2d 715 (7th Cir. 1982).

16

Chapter 3 Conflicts of Interest

individual. But obligations of confidentiality that can give rise to disqualification of an entire law firm can arise from less than a full-blown attorney-client relationship. Even a preliminary consultation a between lawyer and a prospective client that does not lead to formation of an attorney-client relationship can, nonetheless, result in disqualification of an entire firm.4 The basis is an implied duty of loyalty and confidentiality or an implied attorney-client relationship.5 In this regard, in states that have adopted Model Rule 1.18, that rule will guide courts in disqualification matters. States that have adopted Rule 1.18 provide: (a) A person who discusses with a lawyer the possibility of forming a client-lawyer relationship with respect to a matter is a prospective client. (b) Even when no client-lawyer relationship ensues, a lawyer who has had discussions with a prospective client shall not use or reveal information learned in the consultation, except as Rule 1.9 would permit with respect to information of a former client. (c) A lawyer subject to paragraph (b) shall not represent a client with interests materially adverse to those of a prospective client in the same or a substantially related matter if the lawyer received information from the prospective client that could be significantly harmful to that person in the matter, except as provided in paragraph (d). If a lawyer is

4. See generally, Am. B. Ass’n. Formal Eth. Op. 90-358 (Sept. 13, 1990); Susan Martyn, Accidental Clients, 33 Hofstra L. Rev. 913, 921–29 (2005); Bridget Hoy, Watch What You Say: Avoiding the Accidental Attorney-Client Relationship, 93 Ill. B.J. 22, 24–25 (2005); Kenneth D. Agran, The Treacherous Path to the Diamond-studded Tiara: Ethical Dilemmas in Legal Beauty Contests, Note, 9 Geo. J. Legal Ethics 1307 (1996). 5. See Kearns v. Fred Lavery Porsche Audi Co., 745 F.2d 600, 603 (Fed. Cir. 1984) (in patent infringement case, disqualifying firm due to contact with individual even though he knew firm represented other party because individual thought consent or waiver was possible); DCA Food Indus., Inc. v. Tasty Foods Inc., 626 F. Supp. 54, 58–60 (W.D. Wis.1985) (applying Seventh Circuit law to patent infringement case to determine whether movant had submitted confidential information with reasonable belief that lawyer was acting as his attorney, who shared impressions of strengths and weaknesses of litigation position). For cases outside the patent context, see Lovell v. Winchester, 941 S.W.2d 466, 467–69 (Ky. 1997) (private initial consultation with informal discussion of claims and some type of value judgment obligated attorney to decline representation of opponent); Bays v. Theran, 418 Mass. 685, 639 N.E.2d 720, 722–24 (Mass. 1994) (respecting potential client’s belief that consultation was confidential, when attorney shared basic legal considerations based on plaintiff ’s background summary); Burton v. Burton, 139 A.D.2d 554, 555, 527 N.Y.S.2d 53 (N.Y. App. 1988) (accepting reasonable inference that potential client revealed “confidential or strategically valuable information” during initial consultation to preclude attorney from representing adversary); Taylor v. Sheldon, 172 Ohio St. 118, 173 N.E.2d 892, 895 (Ohio 1961) (“[C]ommunications made by a person to an attorney with the view of retaining the attorney to act on his behalf constitute privileged communications. It might well be said that a tentative attorney-client relationship exists during such period.”).

Conflicts Created by Communications with Prospective Clients 17

disqualified from representation under this paragraph, no lawyer in a firm with which that lawyer is associated may knowingly undertake or continue representation in such a matter, except as provided in paragraph (d). (d) When the lawyer has received disqualifying information as defined in paragraph (c), representation is permissible if: (1) both the affected client and the prospective client have given informed consent, confirmed in writing, or; (2) the lawyer who received the information took reasonable measures to avoid exposure to more disqualifying information than was reasonably necessary to determine whether to represent the prospective client; and (i) the disqualified lawyer is timely screened from any participation in the matter and is apportioned no part of the fee therefrom; and (ii) written notice is promptly given to the prospective client. For example, in a recent patent case, two lawyers in the Reston, Virginia office of the Finnegan Henderson firm met with representatives of Ambu, a corporation concerned that a party would be infringing a soon-to-be issued patent. During a process of interviewing potential counsel for the infringement suit, Ambu representatives met with the Finnegan Henderson lawyers for two hours and discussed claim interpretation and other issues. Ambu hired other counsel, and Finnegan Henderson was retained by the defendant after Ambu filed its infringement suit.6 The district court held that, even though Ambu did not retain Finnegan Henderson and thus did not form an attorney-client relationship, the preliminary consultation was sufficient to form a relationship able to support disqualification of the firm: “It is well established that a lawyer’s fiduciary obligations exist ‘even in the earliest stages of the relationship,’ including ‘preliminary consultations by a prospective client with a view to retention of the lawyer, although actual employment does not result.’”7 Simply saying “hello” is not enough to support implying an attorney-client relationship, however. Instead, the party moving for disqualification must show that the meeting went beyond “initial or peripheral contacts”8 or the “bare preliminaries of the representation.”9 While the amount of time is one factor, it is not dispositive. Indeed, even “the briefest conversation between a

6. 7. 8. 9.

Laryngeal Mask Co. Ltd v. Ambu A/S, 2008 WL 558561 (S.D. Cal. Feb. 25, 2008). Id., quoting Dept. of Corps v. SpeeDee Oil Change Sys., Inc., 980 P.2d 371 (Cal. 1999). SpeeDee, 980 P.2d 371. Trone v. Smith, 621 F.2d 994, 1000 (9th Cir. 1980).

18 Chapter 3 Conflicts of Interest

lawyer and a client can result in the disclosure of confidences.”10 However, in this context, some courts are more willing to permit “Chinese walls” to be available to prevent imputed disqualification.11 One as yet unsettled issue in some jurisdictions is whether an e-mail from a prospective client, sent unilaterally to the lawyer after the sender viewed the law firm’s Web page, can result in disqualification.12 For the most part, the trend is to hold that a lawyer does not owe an obligation of confidentiality to a person who unilaterally e-mails confidential information to a lawyer, at least where the lawyer has not implicitly invited the communication.13 To guard against misunderstanding, if not disqualification or unnecessary expense, firms should put in place warnings that effectively advise prospective clients that information will not be held in confidence.14 Where an initial consultation has occurred sufficient to invoke protection of the putative client, generally the firm is disqualified if the matter in which it is against its putative client is at least “substantially related” to the matter discussed in the initial consultation: the prospective client who discloses confidential information to a firm in a good faith effort to retain the firm is often treated as a “former client,” in other words.15 However, in some instances, the firm may be able to avoid at least firm-wide imputation of the conflict. If the federal court follows Model Rule 1.18, for example, imputation may be avoided by screening or other measures.

C. Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client? Client identity is important for various reasons. Most pertinent here, as a general matter,16 only a current or former client has standing to move to

10. Novo Terapeutisk Lab. v. Baxer Travenol Labs., 607 F.2d 186, 195 (7th Cir. 1979) (en banc). 11. E.g., In re Scantibodies Clinical Lab., Inc., 2002 WL 1334522 (Fed. Cir. May 8, 2002) (applying Ninth Circuit law to deny writ of mandamus to overturn denial of motion to disqualify based upon initial consultation); B.F. Goodrich Co. v. Formosa Plastics Corp., 638 F. Supp. 1050 (S.D. Tex. 1986) (firm not disqualified due to initial consultation). 12. See David Hricik & Chase Edward Scott, Avoiding Conflicts from Client Emails, 11 No. 3. J. Internet L. 1 (Sept. 2007). 13. See David Hricik & Chase Scott, Avoiding Conflicts of Interest from Client E-mails, 11 No. 3 J. Internet L. 1 (Sept. 2007). 14. Id. 15. See id. 16. Nonclient standing to move to disqualify can arise in various contexts. However, and as “a general rule, courts do not disqualify an attorney on the grounds of conflict of interest unless the former client moves for disqualification”; the few “narrow exceptions” to this general rule include cases where “the unethical change of sides [is] manifest and glaring,” thereby

Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client? 19

disqualify a lawyer.17 Thus, if a lawyer never represented a particular entity, it cannot prevent the lawyer from acting adversely to it. 18 In patent litigation, lawyers engage in conduct that can be argued to create an implied, or express, attorney-client relationship.19 Care needs to be given to ensuring that misunderstandings about the lawyer’s role do not arise, if for no other reason than to avoid legitimate confusion and cost to the lawyer or his actual clients.20 There are also three common issues concerning client identity which seems to be oft-litigated.21 The first is created by the fact that the Patent Act generally requires patent applications to be filed in the name of the inventor, not the owner or assignee.

17.

18.

19.

20.

21.

“confront[ing] the court with a plain duty to act.” In re Yarn Processing Patent Validity Litig., 530 F.2d 83 (5th Cir. 1976). See, e.g., Concat LP v. Unilever, PLC, 350 F. Supp.2d 796 (N.D. Cal. 2004) (applying exception in case of close corporation in patent suit). See, e.g., Netratings, Inc. v. NPD Group, Inc., 2003 WL 23112305 (D. Del. Dec. 11, 2003) (denying motion to disqualify because movant failed to prove prior attorney-client relationship between it and opposing counsel); Clemens v. McNamee, 2008 WL 1969315 (S.D. Tex. May 6, 2008) (discussing rule and exceptions). See also M.J Woods, Inc. v. Conopco, Inc., 271 F. Supp. 2d 576 (S.D.N.Y. 2003) (affirming arbitration award against party who brought claim against lawyers who represented opposing party to earlier patent litigation). See Kaempe v. Myers, 367 F.3d 958, 71 U.S.P.Q.2d 1147 (D.C. Cir. 2004) (affirming dismissal of malpractice claim against law firm based on conversion of patent rights); Parus Holdings, Inc. v. Banner & Witcoff, Ltd., 585 F. Supp. 2d 99 (N.D. Ill. 2008) (court in part denied firm’s motion to dismiss claims that it had used trade secret of one client to favor another client during patent prosecution); We’re Talkin’ Mardi Grass, LLC v. Davis, 192 F.Supp. 2d 635 (E.D. La. 2002) (analyzing malpractice claim based upon failure to advise corporation of need to have inventor assign his rights); Am. Stock Exchange, LLC v. Mopex, Inc., 230 F. Supp. 2d 333, 52 U.S.P.Q.2d 1385 (S.D.N.Y. 2002) (analyzing claim for constructive trust over patents based on misuse of trade secrets); Bausch & Lomb Inc. v. Alcon Labs., Inc., 64 F. Supp. 2d 233 (W.D.N.Y. 1999) (analyzing claim of indefiniteness and counterclaims of misappropriation of trade secrets, unfair competition, and constructive trust); see generally, Hackett v. Village Court Assocs., 602 F. Supp. 856, 858 (E.D. Wis. 1985) (limited partners could not bring a malpractice claim against partnership’s lawyers); Rose v. Summers, Compton, Wells & Hamburg P.C., 887 S.W.2d 683 (Mo. Ct. App. 1994) (lawyer for limited partnership owes no duty to individual partners upon which they may sue for malpractice); Morin v. Trupin, 711 F. Supp. 97, 103–04 (S.D.N.Y. 1989) (lawyer for partnership cannot be sued by its limited partners). See FMC Corp. v. Guthery, 2009 U.S. Dist. LEXIS 14609 (D. N.J. Feb. 25, 2009) (finding movant did not have reasonable belief that lawyer had represented him in connection with deposition in earlier suit since, among other things, deposition notice stated lawyer was representing another party, not him). In Metamorfyx, LLC v. Belkin Components, 2002 WL 1308633 (N.D. Ill. June 14, 2002), the movant for disqualification worked for a lawyer at the firm targeted by the motion to disqualify, and essentially argued that an implied attorney-client relationship had arisen through casual contact with a lawyer at the firm. State law would control whether an attorney-client relationship exists or existed. See also Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337, 1344 (Fed. Cir. 2004) (concluding in another context that “a special rule affecting attorney-client relationships in patent cases is not warranted”).

20 Chapter 3 Conflicts of Interest

Thus, where an employee invents subject matter that is subject to an obligation of assignment to the employee’s corporate employer, the fact that the employee must be involved in prosecution can create the potential for ambiguity. Second, even if the practitioner avoids ambiguity as to whether or not she represents only the corporate employer, ambiguity can still exist as to whether she represents only the corporate employer or affiliated entities (such as parents, subsidiaries, and the like). Finally, patents can be assigned, and so a lawyer may represent a client in obtaining a patent, and yet the patent could be asserted against the lawyer’s client by a subsequent assignee: does the assignee have standing to move to disqualify? The following sections analyze these three issues in detail. A brief word about other client identity and related issues is warranted, however. First, lawyers can be disqualified if during litigation they present a person for deposition. For example, in one recent case, the lawyer presented a patent agent who had prosecuted a patent for his deposition. When, in that litigation, the patent was found invalid, the same firm sued the patent agent and his firm for malpractice. The Federal Circuit affirmed disqualification of the firm since it had represented the patent agent in a substantially related (indeed, the same) matter.22 Second, obligations of confidentiality can arise from duties that are created separately from the attorney-client relationship, such as when a firm conducts due diligence on a third party on behalf of a client. Under some circumstances, exposure to confidential information of a third party can preclude the firm from being adverse to the third party, even when that third party was clearly not a client.23

22. See Touchcom, Inc. v. Bereskin & Parr, 2008 WL 4889148 (Fed. Cir. Oct. 6, 2008) (affirming motion to disqualify firm that had presented patent agent at his deposition in earlier infringement litigation from being adverse to him in subsequent malpractice suit, even though in prior suit firm had also represented his employer). 23. A related issue arose in Strausbourger Pearson Tulcin Wolff, Inc. v. Wiz Tech., Inc., 82 Cal. Rptr.2d 326 (Cal. App. 1999), one of a series of cases involving the question of whether a law firm that receives confidential information from a corporation while acting on behalf of a third party can be disqualified from being adverse to that corporation in later litigation. Only a very few courts have addressed this issue, and their approaches have not been uniform. In Strasbourger, the Stroock firm represented Strasbourger, an investment banking firm, in its capacity as underwriter for Wiz’s public offering. Among other things, Stroock prepared the registration statement, the prospectus ,and other filings, and did due diligence on Wiz. To perform these and other tasks, Stroocks’ lawyers repeatedly met with Wiz personnel, who disclosed information to Stroock as requested. Wiz, as part of the underwriting agreement, agreed to pay Stroock’s fee. Stroock performed blue sky work for Wiz as part of the arrangement. A short time later, Wiz retained Coopers & Lybrand as auditors. Stroock was also Coopers’ counsel. Wiz disclosed certain information to Coopers concerning an SEC investigation. Eventually, Coopers resigned as Wiz’s auditors. Strasbourger thereafter sued Wiz for breaching the underwriting agreement. Strasbourger alleged that Wiz was selling its shares on its own, among other things. In the suit, Strasbourger was represented by Stroock. Wiz then moved to disqualify Stroock. The district court granted

Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client? 21

Similarly, under some circumstances, participation by a firm in a joint defense agreement can preclude the firm from becoming adverse, not to just its former client, but to other participants in the joint defense (or prosecution,

the motion to disqualify, finding both that Stroock had represented Wiz and that it should be disqualified for having received Wiz’s confidential information. Strasbourger appealed. On appeal, the California appellate court reversed. The court concluded that Stroock had not represented Wiz because of the precise language of the underwriting agreement at issue. In reaching its conclusion, it distinguished two other decisions that have addressed this or similar fact patterns, stating: Any inference [that Stroock represented Wiz] to the contrary is rebutted by the habit and custom of parties in stock underwriting transactions. The company traditionally pays for the blue sky work done by the underwriter’s counsel. A savvy company involved in a stock offering would not consider the underwriter’s counsel to be its attorney simply because it performed blue sky work for the transaction. Wiz asserts that International Tele-Marine v. Malone & Associates, (D. Colo.1994) 845 F. Supp. 1427 compels a contrary conclusion. The case involved a stock offering with an underwriting agreement under which the underwriter’s counsel was to perform functions similar to those Stroock performed, and the company was to pay the underwriter’s counsel for its blue sky work. The company and the underwriter’s counsel entered into another agreement, however. That agreement was consistent with the underwriting agreement in some respects but also referred to “withdrawal as counsel for the company.” The court found that language could be construed as creating an attorney-client relationship and denied summary judgment. Nothing in International Tele-Marine mandates a finding the evidence here was sufficient to establish an attorney-client relationship, particularly in the absence of any express representation by Stroock. Indeed, the International Tele-Marine court noted the mere performance of blue sky work in an offering does not create an attorney-client relationship between the underwriter’s counsel and the issuing company. Wiz also relies heavily on Jack Eckerd Corp. v. Dart Group Corp. (D. Del. 1985) 621 F. Supp. 725. In Eckerd, Dart wanted to obtain shares in another company, but wanted to avoid the restrictions inherent in being labeled an ‘investment company’ under the Investment Company Act of 1940. It hired First Boston Corporation, an investment banking firm, to advise it. First Boston obtained the services of Fried, Frank, Harris, Shriver & Jacobson (Fried, Frank) in connection with the work. Fried, Frank received permission from Dart’s regular outside counsel to confer with Dart. One of Fried, Frank’s attorneys obtained information from Dart and prepared a complex memorandum discussing the issue. By agreement with First Boston, Dart paid Fried Frank’s fee. When Jack Eckerd Corporation sued Dart later on a substantially related matter, Dart sought to have Fried, Frank disqualified as Eckerd’s counsel. The district court granted the motion, finding there had been at least an implied attorney-client relationship between Fried, Frank and Dart. Although the fact situations of Eckerd and this case are similar, the distinctions mandate a different result. No agreement, like the one here, designated Fried, Frank as First Boston’s counsel. To the contrary, First Boston was required to obtain Dart’s approval of the counsel First Boston obtained for the work. Indeed, the district court in Eckerd found First Boston acted as Dart’s agent in obtaining Fried, Frank. And, unlike the blue sky work here, which inured to Strasbourger’s benefit, the memorandum Fried, Frank prepared affected only Dart’s interests.

22 Chapter 3 Conflicts of Interest

for that matter) arrangement.24 Thus, in some circumstances, nonclients with whom the lawyer shared a confidential relationship may have standing to move to disqualify. Lawyers participating in joint prosecution or defense arrangements should, as a consequence, clearly address the issue. One option may be to agree that no lawyer who personally and substantially represents a member to the joint defense arrangement is disqualified from being adverse to other members of the joint defense arrangement or that no lawyer is. Some courts have approved language that accomplishes these results.25

1. Inventors a. The Law Often, practitioners prosecute applications where an inventor is employed and is subject to assign of all inventions to a corporate employer. However, under PTO regulations and the 1952 Act, a “patent must be applied for in the name of the actual inventor or inventors.”26 Corporations cannot be “inventors.”27 Hence, the patent must be prosecuted in the name of the inventor. A practitioner must obtain authority from the inventor to do so.

24.

25. 26.

27.

82 Cal. Rptr.2d at 330 (citations and brackets omitted). The court then rejected Wiz’s other evidence of an attorney-client relationship—including the fact that Stroock had “advised” Wiz of certain legal needs and had made various decisions on its behalf. 82 Cal. Rptr.2d at 331. Finally, the court rejected the argument that Stroock should be disqualified by reason of Wiz’s disclosure of confidential information to Coopers, since Coopers had then passed that information along to Stroock in its capacity as Coopers’ counsel. After noting that “Wiz’s argument on this point is not entirely clear,” 82 Cal. Rptr.2d at 332, the court then rejected Wiz’s reliance on a case that held that disqualification was proper where a nonlawyer had received information while employed as a paralegal. Wiz argued that “the disqualified firm never had an attorney-client relationship with the opposing party and argue[d] for the same result.” 82 Cal. Rptr.2d at 333. The court held that since the information came from Stroock’s client, Coopers, it could not serve as the basis for a motion to disqualify. 82 Cal. Rptr.2d at 334. See In re Gabapentin Patent Litig., 407 F. Supp. 2d 607 (D. N.J. 2005) (finding attorney for one party to joint defense arrangement had implied attorney-client relationship with other members); Essex Chem. Corp. v. Hartford Accident & Indem., 993 F. Supp. 241 (D.N.J. 1998) (same); Wilson P. Abraham Constr. Co. v. Armco Steel Corp., 559 F.2d 250 (5th Cir. 1977). See also DCA Food Indus., Inc. v. Tasty Foods, Inc., 626 F. Supp. 54 (W.D. Wis. 1985) (analyzing whether lawyer who represented employee at his deposition in prior patent infringement case had attorney-client relationship with employer as a result). See U.S. v. Stepney, 246 F. Supp. 2d 1069 (N.D. Cal., Feb. 11, 2003). 37 C.F.R. § 1.41(a); see 35 U.S.C. § 111 (“application for patent shall be made, or authorized to be made, by the inventor . . .”); Comtech, Inc. v. Reuter, 1986 WL 6829 (E.D.N.Y. March 18, 1986) (explaining need for inventor to sign; denying motion to disqualify). Beech Aircraft Corp. v. EDO Corp., 990 F.2d 1237, 1247 (Fed. Cir. 1993).

Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client? 23

This creates potentially awkward circumstances during prosecution that can affect litigation.28 Companies generally require assignments by employee-inventors of any invention to the corporation. The PTO requires that practitioners get a Declaration from the inventors at the time that an application is filed or soon thereafter.29 While only a Declaration by the inventors is required, the Declaration is frequently filed as a joint Declaration & Power of Attorney.30 Given the general approach of obtaining the Combined Declaration & Power of Attorney from the inventor, it is perhaps understandable why some inventors operate under the false belief that they, too, were also clients of the practitioner retained by the corporate employer. After all, the employeeinventor will likely have met with or communicated with the practitioner and will have perhaps signed a document-styled “power of attorney.” It is also understandable why these facts can give rise to strategic behavior, such as where in a dispute between inventor and assignee, the inventor’s attorney either seeks to disqualify the assignee’s counsel or attempts to assert a malpractice claim against the assignee’s lawyer, claiming that assignee’s counsel also represented the inventor. Thus, patent litigators must be familiar with the client identity principles that apply during prosecution. As a general rule, courts are properly recognizing that actions which a practitioner takes pursuant to a power of attorney granted by an inventor, subject to an absolute obligation31 of assignment, are not necessarily made during an attorney-client relationship.32 That holding reflects several key points. First, a lawyer does not have to have a power of attorney to act as a lawyer. Likewise, powers of attorney can authorize nonlawyers to act (i.e., patent agents). Thus, a power of attorney does not create an attorney-client

28. During litigation, lawyers should be careful when they represent inventors or other corporate employees during depositions; it may be that doing so will preclude the firm from becoming adverse to the employee in a dispute with the employer. If the lawyer at the time he is presenting the employee for deposition is aware that the employer may have a claim against the employee, then the lawyer likely cannot represent the employee without full disclosure and informed consent. 29. There are of course times when the inventor refuses to sign or cannot be found. In these circumstances, the requirements under 37 C.F.R. § 1.47 are followed. 30. See 37 C.F.R. §§ 1.31 and 1.32. 31. “If doubts exist as to the extent of the inventor’s obligation to assign the invention, the practitioner may need to advise the inventor to seek separate counsel to resolve this question even before work begins on the patent application.” Tarek N. Fahmi, Who’s Your Client? Issues Involved in Representing Inventors and Their Assignees in Patent Matters, 824 PLI/Pat 737, 746 (March 2005). See Dunbar v. Baylor College of Med., 984 S.W.2d 338 (Tex. Ct. App. 1998) (suit against lawyers and others for not disclosing that she was obligated to assign inventions to corporate employer). 32. Nebraska v. Flores, 622 N.W.2d 632 (Neb. 2001) (recognizing that attorney’s actions taken pursuant to a power of attorney were not done in an attorney-client relationship).

24 Chapter 3 Conflicts of Interest

relationship.33 Consistent with this, courts generally recognize “the mere existence of a power of attorney may be insufficient to establish a confidential or fiduciary relationship.”34 In a case involving an absolute obligation of assignment, the Federal Circuit held that the execution by an employee of a power of attorney for the benefit of his employer did not create an express or implied attorney-client relationship: “In the present case there was not even a ‘technical’ attorneyclient relationship between Chernoff and Hunter, because of the prior agreement that all rights in the invention belonged to Sun Studs.”35 Thus, where the corporate employer previously had the inventor-employee assign all inventions to the corporation, generally the assignee, not the employee, is deemed to be the only client.36 Several courts in both the disqualification and malpractice context have held that a practitioner who prosecuted a patent did not have an attorney-client relationship with the inventor sufficient to disqualify or impose liability.37

33. See Restatement (Second) Agency § 14H (1974) (“One who holds a power created in the form of an agency authority, but given for the benefit of the power holder or of a third person, is not an agent of the one creating the power.”). See also id. § 387 cmt. a. 34. Transamerica Ins. Fin. Corp. v. Pennmed Consultants, Inc., 1996 WL 605131, *5 (Oct. 18, 1996). See In re State Street Assocs., L.P., B.R. 2005 WL 887151 (Bankr. N.D.N.Y. March 23, 2005) (“A POA does not necessarily create an attorney-client relationship, however”). 35. Sun Studs, Inc. v. Applied Theory Assocs., Inc., 772 F.2d 1557, 1568 (Fed. Cir. 1985) (emphasis added). 36. Synergy Tech & Design Inc. v. Terry, 2007 U.S. Dist. LEXIS 34463 (N.D. Cal. May 2, 2007) (“The listing of Mr. Terry as the individual inventor was made necessary by the rules governing the filing of patents and does not alter the parties’ previous discussions and the memorialization of those discussion in the law firm’s engagement letter with its corporate client.”); Ultimax Cement Mfg. Corp. v. CTS Cement Mfg. Corp., 2007 US Dist. Lexis 44096 (May 7, 2007) (denying motion to disqualify by inventor even though assignment was not executed because power of attorney was granted to benefit assignee, not inventor); In re Ducane Gas Grills, Inc., 320 B.R. 312, 320–21 (Bankr. D. S.C. 2004); University of W. Va. Bd. of Trustees v. Vanvoorhies, 33 F. Supp. 2d 519 (N.D. W.Va. 1998); Telectronics Proprietary, Ltd. v. Medtronic, Inc., 836 F.2d 1332, 1337 (Fed. Cir. 1988); Sun Studs, Inc. v. Applied Theory Assocs., Inc., 772 F.2d 1557, 1568 (Fed. Cir. 1985); Kersey v. Dennison Mfg. Co., 1992 WL 71390, *3 (D. Mass. 1992). See generally, Comtech, Inc. v. Reuter, 1986 WL 6829 (E.D.N.Y. March 18, 1986) (holding that inventor could not have disclosed confidences to lawyer representing his employer). See also Shannon v. Gordon, 670 N.Y.S.2d 887 (N.Y. Sup. Ct. 1998) (affirming dismissal of suit brought by inventor against attorney who had allegedly forged assignment because there was no attorney-client relationship between inventor and attorney). See generally, Gregory E. Upchurch, Intellectual Property Litigation Guide: Patents and Trade Secrets, § 12:8 (“the mere fact that a person executes a power of attorney does not ipso facto create an attorney-client relationship.”); Lisa B. Kole, Ethics in Technology Protection, 573 PLI/Pat 71 (Oct. 1999); Tarek N. Fahmi, Who’s Your Client? Issues Involved in Representing Inventors and their Assignees in Patent Matters, 824 PLI/Pat 737 (2005). 37. E.g., Emory Univ. v. Nova Biogenetics, Inc., 2006 WL 2708635 (N.D. Ga. Sept. 20, 2006) (“a firm prosecuting a patent application on behalf of a company does not form an

Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client? 25

However, these general principles, absolute obligations, and basic fact patterns can give rise to fact questions and ambiguity. For example, at least one court has held in the context of a motion to disqualify that the practitioner had represented the inventor and not just the assignee.38 The muddy waters of real life often lead to circumstances that can present a fact question as to who the lawyer represented, particularly in jurisdictions that give weight to the subjective belief of the person claiming to have been a client. Foremost, ambiguity or a fact question requiring trial by jury may arise if the practitioner in the course of prosecuting the application met with the inventor and casually referred to the inventor in correspondence or billing records as a “client.” This type of evidence—common in malpractice cases— has special importance in those jurisdictions that take into account the subjective belief of the person who claims to have been a client.39 In one case, the court found that the practitioner had represented inventors in prosecuting patents, reasoning: In this case, appellee expressly appointed Brooks and Kushman to advance its position in the Patent and Trademark Office. To further that effort, appellee supplied Brooks and Kushman with confidential information. Furthermore, appellee agreed to pay one half of the attorney fees. Finally, Brooks and Kushman were aware that one half of the fees would be indirectly paid by appellee and that appellee would directly benefit from the successful prosecution of the patent application. From these circumstances, the trial court could properly infer that appellee reasonably believed that Brooks and Kushman owed duties to appellee to the same extent that the firm owed duties to appellant and that the confidential information supplied to Brooks and Kushman would not subsequently be used to degrade its interests. Therefore, the factual finding that

attorney-client relationship with any individual inventor required to assign his rights to the company”); Univ. of W. Va. Bd. of Trustees v. Vanvoorhies, 33 F.Supp. 2d 519 (N.D. W. Va. 1998) (same); Shannon v. Gordon, 670 N.Y.S.2d 887 (N.Y. App. Div. 1998) (affirming dismissal of complaint brought by inventor against assignee’s attorney for malpractice). 38. Henry Filters, Inc. v. Peabody Barnes, Inc., 611 N.E.2d 873, 876 (Ct. App. Ohio 1992) (holding in disqualification context that an attorney-client relationship existed between attorneys and inventor because among other things he had supplied attorneys with confidential information and paid half of the fees). See also Grosser-Samuels v. Jaquelin Designs Enterp., Inc., 448 F. Supp. 2d 772 (N.D. Tex. 2006) (lawyers who had power of attorney in trademark registration deemed, without analysis, to be representing that party as a current client). See also Hooper v. Steelplank Corp., 215 U.S.P.Q.2d 329 (E.D. Mich. 1981) (holding that lawyer who handled prosecution for small closely held company represented the companies as well as their principals); cf. Civco Med. Instruments Co. v. Proteck Med. Products, Inc., 2004 WL 1326474 (S.D. Iowa June 4, 2004) (limiting and criticizing Hooper). 39. Even where a party needs to establish objective evidence of an agreement by the lawyer to represent the person as a client, evidence such as this may defeat a lawyer’s motion for summary judgment.

26

Chapter 3 Conflicts of Interest Brooks and Kushman had an attorney-client relationship with appellee is supported by substantial evidence and will not be disturbed.40

In another case, a company’s outside counsel met with a corporate officer, who asked counsel to file an application and specifically stated that it should not be assigned to the corporation.41 Because there was clearly an attorneyclient relationship between the inventor and counsel, the court disqualified counsel from representing the company in a subsequent dispute between the company and the officer over title to the patent.42 In addition to these fact patterns, under some state’s laws, a person generally need not establish that he was represented but instead show only that the lawyer knew or should have known that the person thought he was represented or, arguably, that the lawyer was negligent in not recognizing the person’s misapprehension and correcting it.43 Jurisdictions relying on subjective beliefs are particularly troublesome for attorneys who prosecute patents, since they will most frequently interact with an inventor who may not understand his role in patent prosecution as representing only the assignee’s interests.

2. Business Entities a. The Law Patent suits are often brought by and against corporations and other entities. While it is clear that a lawyer who represents a corporation generally cannot be adverse to that particular corporation, difficult questions arise when the lawyer is adverse to a related company, not the corporate client itself. It is of course not uncommon for corporate entities to have various affiliates and subsidiaries.44 It is clear that a lawyer who represents an entity as a matter of law does represent the entity.45 Put the other way, a lawyer-client relationship between a lawyer and a corporate client is between the lawyer and the entity. This is the so-called “entity approach,” which assumes that the “entity” has its own

40. Henry Filters, Inc. v. Peabody Barnes, Inc., 611 N.E.2d 873, 877–78 (Ct. App. Ohio 1992). 41. National Texture Corp. v. Hymes, 282 N.W.2d 890 (Minn. 1979). 42. Id. See also Pain Prevention Lab., Inc. v. Electronic Waveform Labs, Inc., 657 F. Supp. 1486 (N.D. Ill. 1987). 43. See Parker v. Carnahan, 772 S.W.2d 151, 157 (Tex. App.—Texarkana 1989, writ denied) (lawyer has duty to warn person he does not represent him “where the circumstances lead the party to believe that the attorney is representing him”). 44. Plant Genetic Sys., N.V. v. Ciba Seeds, 933 F. Supp. 514 (M.D. N.C. 1996) (denying motion to disqualify patent lawyers who had represented certain entities of corporation). 45. Am. B. Ass’n Model R. 1.13(a) (“A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.”).

Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client? 27

fictional, separate existence apart from the constituents who make decisions on the entity’s behalf. The entity approach has been applied to numerous business entity forms, including partnerships, corporations, associations, joint ventures, limited partnerships, and other entities.46 But the statement that a lawyer who represents an entity represents the entity does not answer the question of whether the lawyer can be disqualified from being adverse to entities related to the entity-client, such as its subsidiaries, affiliates, or parent corporations. As to that question, in the absence of agreement on the issue between lawyer and client,47 the courts disagree.

3. Employees and Oﬃcers of the Entity Generally Are Not Clients As a general principle, while a lawyer is free to agree to represent an employee of a corporation, by merely agreeing to represent the company a lawyer does

46. See, e.g., Carlson v. Fredrikson & Byron, P.A., 475 N.W.2d 882, 890 (Minn. Ct. App. 1991) (representation of business does not amount to representation of business’ owner); McCarthy v. John T. Henderson Inc., 587 A.2d 280, 283 (N.J. Super. Ct. App. Div. 1991) (lawyer who represented close corporation could sue another close corporation with same officers and directors since representation of corporation was not representation of individuals); Security Bank v. Klicker, 418 N.W.2d 27, 31 (Ct. App. Wis. 1987) (“a limited partnership has been held to be an entity ‘similar’ to a corporation for purposes of determining attorneyclient relationships.”); Marshall v. Quinn-L Equities, Inc., 704 F. Supp. 1384, 1395 (N.D. Tex. 1988) (if lawyers “represented the limited partnerships . . . this does not magically transform them into counsel” for the limited partners); Meyerland Community Improvement Ass’n v. Temple, 700 S.W.2d 263, 267–68 (Tex. App.—Houston [1st Dist.] 1985, writ ref ’d n.r.e.) (no attorney-client relationship between association’s lawyers and members of association); Fortson v. Winstead, McGuire, Secrest & Minick, 961 F.2d 469, 472–74 (4th Cir. 1992) (no duty owed by counsel for partnership to limited partners). See also Hopper v. Frank, 16 F.3d 92, 95–96 (5th Cir. 1994) (lawyer hired by individual partners to assist in sale of limited partnership assets had attorney-client relationship only with partnership, and so individuals who retained lawyer could not sue for malpractice) (Mississippi law); Quintel Corp. v. Citibank, 589 F. Supp. 1235 (S.D.N.Y. 1984) (lawyer for general partner has no fiduciary duty to limited partners); Rice v. Strunk, 670 N.E.2d 1280, 1289 (Ind. 1996) (lawyer for partnership has no attorney-client relationship with anyone except the managing general partner); Am. Bar Ass’n Comm. On Ethics and Prof. Resp., Formal Op. 91- 361 (1991) (lawyer for partnership represents entity, rather than individual partners); Md. St. B. Ass’n, Inc., Comm. On Ethics, Op. 95-54 (1995) (lawyer of limited partnership may continue representing limited partnership even where general partner is removed and contests removal because lawyer represents partnership, not general partner); Va. St. B. Standing Comm. On Legal Ethics, Op. 1610 (1994) (lawyer representing joint venture of three entities may ethically sue one of those entities on behalf of another client). 47. See Avocent Redmond Corp. v. Rose Electronics, 491 F. Supp. 2d 1000 (W. D. Wash. 2007) (in analyzing motion to disqualify in patent case, lawyer and client agreed that lawyer represented client “and its affiliates”).

28 Chapter 3 Conflicts of Interest

not ipso facto represent some or all of its employees. While the lawyer may need to clarify to an employee that the lawyer does not represent his interests, and while inadvertent relationships can be formed,48 the general rule is, without more, a lawyer for a corporation does not represent its employees, officers, or directors: he represents the entity. 49 However, particularly where a close corporation is involved, confusion over client identity can become more acute, and a court more likely to imply an attorney-client relationship between counsel for the corporation and one or more of its agents. Under some circumstances, a court may be more willing to find that representation of the inventor constituted representation of the corporate assignee, as well as the inventor individually.50

4. Aﬃliated Entities Are Generally Not Clients In most but not all jurisdictions, a lawyer who represents an entity does not, without more, represent its constituents. The clear majority rule is that the mere fact that a lawyer represents an entity does not ipso facto mean that he represents any of the entity’s constituents.51 But the majority of courts, though rejecting a “one big client” approach, also reject an “only the ‘real’ client counts” approach. Neither bright-line approach dominates. As a result, a practitioner unclear in the engagement letter about client identity runs the risk that a court will later deem him to have represented more than just the entity that signed the engagement letter. For example, if a lawyer represents Company A in prosecuting an application, and his firm is asked to represent another client against Company A’s parent corporation, the firm may be disqualified because by representing Company A, the lawyer will be deemed to represent Company A’s parents, affiliates, or other entities. There is no uniform approach among the jurisdictions, and often there are different approaches reflected within a jurisdiction, a client identity

48. Model Rule 1.13 (f) (“In dealing with an organization’s directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing.”). 49. See Model Rule 1.13(a) (“A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.”). 50. See Hooper v. Steelplank Corp., 215 U.S.P.Q. 829, 831 (E.D. Mich. 1981). See also Fortner v. Int’l Diving & Consulting Serv., Inc., 1996 WL 50807 (E.D. La. Feb. 8, 1996). 51. See Honeywell Int’l, Inc. v. Phillips Lumileds, 2009 WL 256831 (E.D. Tex. Jan. 6, 2009) (patent case); Pennwalt Corp. v. Plough, Inc., 85 F.R.D. 264 (D. Del. 1980) (Lanham Act case).

Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client? 29

in this context.52 Some authorities hold that a lawyer always represents affiliated entities;53 others hold that he never does; and, perhaps a majority, apply a vague, multifactored balancing test. A 1995 American Bar Association opinion54 illustrates the scope of disagreement on the proper way to address “corporate family” conflicts, and the disagreements expressed in that opinion persists in the law today. In that ABA opinion, a majority concluded that representation of one entity does not automatically disqualify the lawyer from being adverse to related entities. Two members of the committee vigorously dissented, which is unusual in an ABA opinion. They took the brightline position that this would always be a conflict that required consent. A third member also dissented and espoused a third approach. The newer version of the ABA Model rules in a comment adopts a middle ground, highly indeterminate weighing test that rejects both the “all” or “nothing” approach to corporate family conflicts: A lawyer who represents a corporation or other organization does not, by virtue of that representation, necessarily represent any constituent or affiliated organization, such as a parent or subsidiary. Thus, the lawyer for an organization is not barred from accepting representation adverse to an affiliate in an unrelated matter, unless the circumstances are such that the affiliate should also be considered a client of the lawyer, there is an understanding between the lawyer and the organizational client that the lawyer will avoid representation adverse to the client’s affiliates, or the lawyer’s obligations to either the organizational client or the new client are likely to limit materially the lawyer’s representation of the other client.55

Thus, the ABA in the comment simply refers to “circumstances” that indicate the affiliate “should be considered a client,” or there is an “understanding,” or the adverse matter will materially limit the lawyer’s ability to be

52. See Eastman Kodak Co. v. Sony Corp., 2004 WL 2984297 (W.D.N.Y. Dec. 27, 2004) (“Determining the existence and nature of conflicts in the context of ‘corporate families’ and the appropriate remedy upon the finding of a conflict can be a difficult and complex undertaking.”); Installation Software Tech. Inc., v. Wise Solutions, Inc., 2004 WL 524829, *3 (N.D. Ill. March 5, 2004) (“mergers and acquisitions have created a unique genre of conflicts”). 53. Ostensibly, this was the conclusion of the court in University of Rochester v. G.D. Searle & Co., 2000 WL 1922271 (W.D.N.Y. Dec. 11, 2000) (in patent case, stating that “there is ample case law which supports the proposition that, for conflict purposes, representation of a subsidiary corporation is equivalent to representation of the parent, and vice-versa”) (collecting cases). 54. ABA in Op. 95-390 (1995). 55. Id.

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Chapter 3 Conflicts of Interest

adverse to the affiliated entity. This has led to at least three separate “tests” for loyalty under these circumstances:56 1. Is the affiliate de facto a current client of the law firm?57 2. Is there a significant risk that the law firm’s representation of either the current corporate client or the adverse client in the adverse representation will be materially limited by the law firm’s responsibilities to the other client? 3. During its representation of the corporate client, did the law firm learn confidences and secrets from either the client or its affiliate that would be so material to the adverse representation as to preclude the law firm from proceeding?58

Although the New York City Bar Association’s opinion is typical, courts and bar associations that apply these various alternative tests do not do so uniformly.59 Although uniformity is sorely lacking in this area, uniformly the authorities recognize that one important factor in determining whether a separate legal entity should nonetheless be treated as part of the “real” client is whether the same in-house lawyer may be or already is involved in both the matter on which the firm is representing the client and the matter in which the firm will be adverse to the related entity. Another factor that often is identified as important is whether the lawyer in representing the corporate

56. http://www.nycbar.org/Publications/reports/print_report.php?rid’671&searchterm’Corporatefamily%20conflicts;%20duty%20of%20loyalty;%20duty%20to%20preserve%20confidences %20and%20secrets. 57. This turns on various factors: • Does the current corporate client have an objectively reasonable belief that its affiliate has de facto become a current client of the law firm, either because of the law firm’s relationship and dealings with the affiliate during the representation, or because of significant overlaps in personnel and infrastructure between the corporate client and its affiliate? • Do the current corporate client and its affiliate share the same directors, officers, management, or other personnel? • Do the current corporate client and its affiliate share the same offices? • Do the current corporate client and its affiliate share the same legal department (or report to the same general counsel)? • Do the current corporate client and its affiliate share a substantial number of corporate services? • Is there substantial integration in infrastructure between the current corporate client and its affiliate, such as shared computer networks, e-mail, Intranet, interoffice mail, health benefit plans, letterhead and business cards, etc.? Id. 58. Id. 59. See, e.g., Ill. St. B. Ass’n Advisory Op. 95-15 (May 17, 1996); N.Y. County Lawyers’ Ass’n Comm. on Prof. Eth. 684 (June 1991); Cal. St. B. Standing Comm. on Prof. Resp. Op. 1989-113 (1989).

Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client? 31

client may have obtained information about the entity to which the firm is adverse.60 Recent patent cases illustrate the indeterminate and subject nature of this inquiry. Foremost, in Honeywell,61 the Eastern District of Texas disqualified a firm from being adverse to an affiliate of a current client. The court reasoned: The first issue is whether Philips Lumileds is a current client of PHJW. Here, the issue centers on whether a corporate affiliation creates a concurrent clientlawyer relationship. The issue of whether a corporate affiliation “ipso facto creates a client-lawyer relationship with every member of a corporate family when one of its members is formally represented by the lawyer” is not addressed in the ABA Model Rules themselves. ABA Comm. on Ethics and Prof ’l Responsibility, Formal Op. 95-390, at 3 (1995). While the fact of corporate affiliation, without more, does not make all of the corporate affiliates a client of a specific lawyer or firm, Model Rule 1.7, however, generally bars a lawyer from accepting representation adverse to an affiliate of a corporate client when “circumstances are such that the affiliate should also be considered a client.” MODEL RULES OF PROF’L CONDUCT R. 1.7, at comment 34; see Formal Op. 95-390. Indeed, whether such a relationship exists almost always depends on an analysis of the specific facts involved. Formal Op. 95-390, at 5. In the parent/subsidiary context, some of the key facts applicable to the analysis include (1) whether the corporation and the subsidiary share a common legal department and management duties, (2) whether the lawyer’s work for a parent corporation benefits a subsidiary, or (3) whether the lawyer’s work for the parent involves collecting confidential information. Id. at 5-6. Analysis of similar factors in this case indicated that Philips Lumileds should be treated as PHJW’s current client.

60. Faughn v. Perez, 145 Cal. App. 4th 592 (Cal. App. 2006) (noting split in California law on the approach to this issue); Discotrade Ltd. v. Wyeth-Ayerst Int’l. Inc., 200 F. Supp. 2d 355 (S.D.N.Y. 2002) (weighing); Colorpix Systems of America v. Broan Mfg. Co., 131 F. Supp. 2d 1499 (D. Conn. 2001) (in applying the weighing approach, the court disqualified the firm, emphasizing that the same in-house lawyer represented both the client-entity and the adverse entity); Gen-Cor, LLC v. Buckeye Corrugated, Inc., 111 F. Supp. 2d 1049 (S.D. Ind. 2000); Baxter Diagnostics, Inc. v. AVL Scientific Corp., 798 F. Supp. 612 (C.D. Cal. 1992) (weighing in patent litigation; disqualifying firm); Teradyne, Inc. v. Hewlett-Packard Co., 1991 WL 239940 (N.D. Cal. June 6, 1991) (weighing in patent suit; disqualifying firm); Md. State Bar Op. 87-19 (weighing); Mass. Bar Op. 3 (1992) (weighing); Pa. Op. 2001-03 (2001) (allowing firm that represents one subsidiary to be adverse to another). 61. Honeywell Int’l, Inc. v. Phillips Lumileds, 2009 WL 256831 (E.D. Tex. Jan. 6, 2009). See Eastman Kodak Co. v. Sony Corp., 2004 WL 2984297 (W.D. N.Y. Dec. 27, 2004) (finding parent and subsidiary should be treated as one entity for purposes of conflicts of interest in patent case); Agilent Tech., Inc. v. Micromuse, Inc., 2004 WL 2346152 (S.D.N.Y. Oct. 19, 2004) (finding with little analysis that firm’s former representation of wholly owned sub “counted” for purposes of disqualifying firm from representing patentee against parent corporation, but denying the motion to disqualify on other grounds).

32 Chapter 3 Conflicts of Interest Here, it is undisputed that (1) Philips Lumileds and the other Philips affiliates share a common legal department, Philips IP & S; (2) Philips and Philips Lumileds share common management, computer networks, and marketing designs; and (3) PHJW currently represents PENAC. As indicated above, Philips IP & S directs intellectual property litigation and licensing strategy for Philips subsidiaries worldwide, including Philips Lumileds. Additionally, while it is generally disputed, PHJW has had broad access to confidential information of various Philips entities, based on its representations of various Philips entities. In fact, Lawrence R. Sidman, a partner at PHJW, stated in his declaration that he had received confidential information concerning PENAC, Philips Consumer Electronics, Philips Healthcare, and Philips IP & S. See Sidman Decl., Ex. 1 to Honeywell’s Resp. Although it is not clear whether PHJW’s representation of PENAC will directly benefit Philips Lumileds, this fact is not dispositive. In addition, some courts have pointed to manifestations to the public as a factor relevant to disqualification. In Eastman Kodak Co. v. Sony Corp., the Western District of New York disqualified counsel after noting, among other factors, that an affiliate’s website “confirms the close family relationship of the two companies, as well as their integrated business operations and interests.” Eastman Kodak Co. v. Sony Corp., 2004 WL 2984297 (W.D.N.Y.2004). Here, both the Philips Lumileds’ website and marketing materials feature the Philips logo. The PENAC website also features the Philips logo. Considering all the facts, the Court is persuaded that Philips Lumileds should be considered a current client of PHJW.62

Judge Robinson engaged in a similarly amorphous analysis in Boston Scientific Corp. v. Johnson & Johnson, Inc.63 In that case, she permitted the Howrey firm to continue a representation adverse to an affiliate of a current client, reasoning in part: Moreover, Howrey’s failure to comply with Model Rule 1.7 is, to a significant degree, due to Wyeth’s conduct. Among other things, Wyeth’s naming conventions, its use of the same in-house attorneys on matters involving different subsidiaries without consistently identifying to Howrey which entity those in-house attorneys were representing, and the willingness of it and its subsidiaries to receive billing invoices for matters on which they were not directly engaged with Howrey, together created significant confusion for Howrey as to which entity or entities it was representing, confusion which is evident from Howrey’s time sheets, its mailing of billing invoices, and the averments of its attorneys in Europe. Wyeth should not now benefit from such obfuscatory conduct. Accordingly, the court declines to disqualify Howrey from the instant suits and instead orders Howrey to maintain its ethical wall.64

62. Id. See also White Mach. Corp. v. Whiting Corp., 567 F.2d 713 (7th Cir. 1977) (disqualifying counsel from representing patentee in infringement suit because for 20 years he had represented the owner of 20 percent of defendant’s shares). 63. __ F. Supp. 2d __, 2009 WL 2600902 (D. Del. Aug. 25, 2009). 64. Id.

Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client? 33

Finally, even if the engagement letter specifies that the “real” client is the practitioner’s only client, nothing precludes a practitioner who is representing an entity from also—intentionally or otherwise—forming an express or implied attorney-client relationship with one or more of the entity’s constituents. The Fifth Circuit’s approach in Hopper v. Frank exemplifies the approach to whether a lawyer who represents an entity also has an attorney-client relationship with its constituents. In that case, the court reasoned that, by itself, representing a partnership did not constitute representation of a constituent representation of one of its partners. Instead, the court must look to “such factors as whether the lawyer affirmatively assumed a duty of representation to the individual partner, whether the partner was separately represented by other counsel when the partnership was created or in connection with its affairs, whether the lawyer had represented an individual partner before undertaking to represent the partnership, and whether there was evidence of reliance by the individual partner on the lawyer as his or her separate counsel, or of the partner’s expectation of personal representation. . . .”65 Of course, in real practice the facts and circumstances in Hopper v. Frank can and often do occur. Failing to clarify up front who is and is not the client thus permits entity-constituents to argue, in hindsight, that they “had been” a client. For example, a lawyer representing a corporation may on a daily basis be in contact with individuals; those individuals (who are oblivious to what the ethical rule may say) may become confused about who the lawyer represents, particularly where the individual is a principal in the corporation or other entity being represented. The propriety of lawyers in patent litigation being adverse to affiliated entities has been exhaustively litigated, but the cases split along the lines noted above. For example, in Baxter Diagnostics, Inc. v. AVL Scientific Corp.,66 the court disqualified a lawyer from being adverse to the parent corporation of a former client.67

5. Successor Corporations to Former Clients There are various means by which third parties can acquire corporations and other entities that a law firm represented. At least outside of the circumstance of assignment of patents, courts reason that whether the third party can claim, for purposes of disqualification or malpractice, that it should be treated like a

65. Hopper, 16 F.3d at 95–96 (quoting ABA Op. 91-361 (1991) (internal quotation marks omitted)). 66. 798 F. Supp. 612 (C.D. Cal. 1992). 67. See also Decora Inc. v. DW Wallcovering, Inc., 899 F. Supp. 132 (S.D.N.Y. 1995) (disqualifying firm because parent corporation, now opposing party, had, while firm had been representing its subsidiary, communicated its trade secrets to the firm).

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former client turns on the particular facts.68 If the third party essentially acquires control of the assets and operations of the former client, it may have standing to move for disqualification or to plead malpractice as a former client. While the mere transfer of some assets does not transfer the attorneyclient relationship, a transfer of all assets has not, by some courts, been required.69 For example, a recent case summarized the law as follows: [T]he analytical focus is on whether control of the predecessor organization passed to the successor organization. The cases agree that a mere transfer of some assets without more does not transfer the attorney-client relationship. Cases also hold that a transfer of the relationship can occur in situations involving the sale of less than all the organization’s assets. The cases generally turn on the particular facts and circumstances of the transfers and relationships between the predecessor and successor organization. Since based on particularized facts, whether the various cases are consistent with each other is not readily discernible. Regardless, the better reasoned rule, and the one that appears to be followed by the majority of recent cases, is the general standard enunciated in Soverain and Tekni-Plex. NWI-I summarized it as follows: In Soverain Software LLC v. Gap, Inc., 340 F.Supp.2d 760, 763 (E.D.Tex.2004), the court found that the mere transfer of some assets does not transfer the attorney-client privilege. However, the court noted that such a “bright-line rule does not apply equally to the myriad ways control of a corporation or a portion of a corporation can change hands. Therefore, the court found the more appropriate rule to be ‘whether the attorney-client relationship transfers to the new owners turns on the practical consequences rather than the formalities of the particular transaction. The Soverain court stated that: If the practical consequences of the transaction result in the transfer of control of the business and the continuation of the business under new management, the authority to assert or waive the attorney-client privilege will follow as well. Because the plaintiff in Soverain not only acquired certain assets but also continued to operate the particular enterprise it purchased, the court found that control of the enterprise, and with it the right to assert the attorney-client privilege, passed to the plaintiff.70

68. Parus Holdings, Inc. v. Banner & Witcoff, Ltd., 585 F. Supp. 2d 995 (N.D. Ill. 2008). The question of whether a successor corporation is a “former client” for purposes of disqualification or malpractice has been held by some courts not to be distinct from the question of whether a successor corporation may claim privilege over communications between its predecessor and former counsel. See id. 69. See Coffin v. Bowater Inc., 2005 WL 5885367 (D. Me. May 13, 2005). 70. Parus Holdings, Inc. v. Banner & Witcoff, Ltd., 2008 WL 4601033 (N.D. Ill. Oct. 9, 2008) (citations omitted).

Assuming an Attorney-Client Relationship Formed, Who Is, or Was, the Client? 35

An interesting example of successor standing arose in a recent patent malpractice case, Greene’s Pressure Treating & Rentals, Inc. v. Fulbright & Jaworski, L.L.P.71 There, Fulbright provided a noninfringement opinion to a corporation. Later, certain assets of that corporation were acquired by a third party. Then the patentee retained Fulbright to sue that third party for infringement. The third party settled the case but then sued Fulbright for breach of fiduciary duty. Fulbright obtained summary judgment because the third party had only acquired certain assets of Fulbright’s former client and so had not succeeded to the attorney-client relationship between Fulbright and its former client. On the other hand, the Northern District of Indiana found that a successor had standing to move to disqualify its predecessor’s former patent counsel.72 The court found that the successor was a “mere continuation” of the former client.73 What remains to be seen is whether courts will follow the following line of cases, which hold that assignment of a patent does not “transfer” the attorney-client relationship with this line of cases. While not in direct conflict, they are in tension with each other.

6. Assignees of a Patent the Firm Obtained for a Current or Former Client A lawyer should obviously be careful about challenging the validity of a patent that the lawyer obtained for a former client. A lawyer who argues, for example, that he failed to provide an adequate written description of an invention could win the invalidity case but prove his own malpractice. But where, for example, validity turns on novelty or nonobviousness and on art that the practitioner was unaware of, the risk of a malpractice claim is lessened. Nonetheless, attacking a patent still owned by the lawyer’s former client would obviously be adverse and also be a substantially related matter.74 Where, however, the former client has assigned the patent to a third party, who was never a client of the lawyer, then the lawyer would not be acting adversely to a former client. That has been the conclusion of the Federal Circuit and the courts that have addressed the issue.75

71. 72. 73. 74.

178 S.W.3d 40 (Tex. App.—Houston [1st Dist.] 2005, no pet.). Monon Corp. v. Wabash Nat’l Corp., 764 F. Supp. 1320 (N.D. Ind. 1991). Id. at 1322. See Abyst Tech., Inc. v. Empak, Inc., 962 F. Supp. 1241 (N.D. Cal. 1997) (firm disqualified from representing accused infringer where two of its current partners had, while at another firm, prosecuted the patents-in-suit). 75. Telectronics Proprietary, Ltd. v. Medtronic, Inc., 836 F.2d 1332, 1336 (Fed. Cir. 1988) (“assignment of a patent does not transfer an attorney-client relationship”). See SMI Indus. Canada Ltd. v. Caelter Indus., Inc., 586 F. Supp. 808, 815 (N.D.N.Y. 1984) (same); Plant Genetic Sys.,

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D. Current Client Conﬂicts Courts generally hold that, absent unusual circumstances, a lawyer may not be adverse to a current client, even in an unrelated matter.76 Generally, too, this obligation is imputed to all lawyers associated with a firm: if one lawyer is representing a company in a matter, no lawyer may be adverse to that client, even in a matter completely unrelated to the representation of the client. Patent litigation presents a variety of ways for lawyers to act against the interests of clients and in ways prohibited by the ethical rules,77 even when

N.V. v. Ciba Seeds, 933 F. Supp. 514 (M.D. N.C. 1996) (“mere assignment of a patent is not sufficient to establish an attorney-client relationship”); In re Yarn Processing Patent Validity Litig., 530 F.2d 83, 90 (5th Cir. 1976) (same); Civco Med. Instruments Co. v. Protek Med. Prods., Inc., 2004 WL 1326474 (S.D. Iowa June 4, 2004) (attorney represented inventor; patents later assigned; corporation’s argument that in prosecuting the applications that were later assigned the attorney also rejected it was rejected by the court, even in the close corporation context). See also Beghin-Say v. Rasmussen, 212 U.S.P.Q. 614 (Comm’r. Pat. 1980) (no attorney-client relationship between inventor’s attorney and inventor’s assignee, even though the attorney prosecuted the patent after it had been assigned). Cf. Am. Roller Co. v. Budinger, 513 F.2d 982 (3rd Cir. 1975). 76. See Concat LP v. Unilever PLC, 350 F. Supp. 2d 796 (N.D. Cal. 2004) (explaining that prohibition applies strictly, even if matters are totally unrelated); (collecting cases). As a general principle, absent informed consent, adverse concurrent representations are prohibited. Id. Some courts have permitted adverse representations against current clients in circumstances, particularly if the concurrent representation is unrelated and is in a different office from the adverse representation. E.g., Boston Scientific Corp. v. Johnson & Johnson Inc., __ F. Supp. 2d __, 2009 WL 26000902 (D. Del. Aug. 25, 2009); Elonex I.P. Holdings, Ltd. v. Apple Computer, Inc., 142 F. Supp. 2d 579 (D. Del. 2001) (court reasoned that firm could be adverse in a patent infringement to a current client that it represented, as local counsel, in an unrelated patent matter); Kinzenbaw v. Case, LLC, 2004 WL 1146462 (N.D. Iowa May 20, 2004) (denying motion to disqualify based upon various factors, including approaching trial and inadvertence of conflict); Research Corp. Tech. Inc. v. Hewlett-Packard Co., 936 F. Supp. 697 (D. Ariz. 1996) (denying motion to disqualify where representation of adversary had been brief, unrelated, and inadvertent); Parkinson v. Phonex Corp., 857 F. Supp. 1474 (D. Utah 1994) (same); see also In re Dresser Indus., Inc., 972 F.2d 540 (5th Cir. 1992) (in dicta court stated that in exceptional circumstances a lawyer may be adverse to a current client); Lemelson v. Apple Computer Inc., 28 U.S.P.Q.2d 1412 (D. Nev. June 4, 1993) (court weighed interests rather than automatically disqualifying firm, but disqualified firm). Other courts reject an automatic approach and permit the firm to prove that its representation will not be affected by concurrently being adverse to its own client. See University of Rochester v. G.D. Searle & Co., 2000 WL 1922271 (W.D.N.Y. Dec. 11, 2000) (patent case; collecting cases). 77. As a general principle, economic impact alone is insufficient: a lawyer who succeeds in representing one client may allow that client to compete better economically with another client, but that is not adverse. See Model Rule 1.7, cmt. 6 (“[t]here may not be a conflict if the simultaneous representation concerns . . . competing economic interests. . . .”); see generally Shire Labs. Inc. v. Nostrum Pharma., Inc., 2006 WL 2129482 (D. N.J. July 26, 2006) (fact that lawyer’s representation of one client in a patent suit “may be harmful” to another client’s “financial interests” insufficient to constitute adversity).

Current Client Conflicts

the client is not a named party to any infringement suit.78 For example, suppose a firm represents a patentee against a nonclient, but a firm’s client is likely to be sued later for infringing that same patent. While claim preclusion doctrines will not bind the client to any findings made in the first suit, and so as a legal matter the client will not be bound by any findings such as those as to claims scope, for example, as a practical matter an earlier court’s interpretation of a patent may have some impact on a later court’s views. Is that adverse “enough” to be “adverse”? What if the suits are proceeding in parallel? What if they are proceeding in parallel before the same judge? This section addresses adversity in the context of current clients and patent litigation. Some things are pretty simple: representing a patentee against a current client in an infringement suit constitutes an adverse representation. Conduct that does not involve the traditional “across the v” litigation has also been held to be unethical. Indeed, if the cases are any indication, there are few bright lines, and instead, infinite combinations may lead to a finding of adversity. This next section addresses some of those circumstances. We will see that even suits in which a firm represents a patentee against a nonclient can be “adverse” to a client of the firm.

1. Helping Out Behind the Scenes A firm that cannot represent a party opposing a current client in litigation also cannot help some other firm to do the same thing, trying to avoid adversity solely by not making an appearance in court.79 Put the other way, if a firm would be disqualified if it appeared in court, it can’t avoid disqualification by simply acting only out of court. In some ways, a firm that tries to help out “behind the scenes” can be portrayed in even a harsher light than a firm that

However, at least one court has assumed that a firm that knows that its client intends to sue another client breaches its fiduciary duty by not warning the other client. Universal Mfg Co. v. Gardner, Carlton & Douglas, 207 F. Supp. 2d 830 (N.D. Ill. 2002) (dismissing claim because attorneys’ fees incurred in defending suit were not compensable damages). 78. See generally, Michael Lynn, Divining Adversity: A Modified Total Fairness Approach to Current-Client Direct-Adversity Conflicts Arising in Patent Litigation, 36 Am Intell. Prop. L. Q. J. 233 (2008) (discussing issue of current client adversity and proposing multifactor test to measure it). 79. E.F. Hutton & Co. v. Brown, 305 F. Supp. 371, 378–79 (S.D. Tex. 1969) (disqualifying New York firm that had represented employee from assisting Houston firm from litigating against him in substantially related matter). But cf. Touchcom, Inc. v. Bereskin & Parr, 2008 U.S. App. LEXIS 23271 (Fed. Cir. Oct. 6, 2008) (refusing to rule on whether counsel who had not entered an appearance on appeal was disqualified).

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appears in court, since the failure to appear can be characterized as a strategic, cynical decision designed to “hide” the conflict.80 In patent litigation, clearly this case means that if a firm is precluded from acting openly in court—because, for example, the opposing party is a current client of the firm—then the firm cannot avoid the conflict by simply not formally appearing in court. The problem, as we will see, is that adversity can exist even if the opposing party is not a current client of the firm, as next shown.

2. Parallel Patent Litigation Suppose, as it happens, a firm is approached by a patentee with a list of possible infringers. The firm determines, however, that of the, say, five possible targets, one is a client of the firm. As shown earlier, the firm cannot represent the patentee against its client. Nor can it help some other firm in that suit. Suppose the patentee-client retains the firm but only to sue the nonclient defendants. It retains another firm to act separately and file suit against the first firm’s client. Is the first firm, nonetheless, disqualified from representing the patentee against nonclients? Two district courts have addressed this issue in the context of patent litigation.81 Naturally, they split on their answer to the question. In the first case, Enzo Biochem, Inc. v. Applera Corp.,82 the court found no adversity; a month later, the second court in Rembrandt Technologies, LP v. Comcast Corp.,83 did. The cases are fact intensive. The Rembrandt court distinguished Enzo and ordered disqualification, as follows: In Enzo, the Hunton firm represented a client in a patent case against one defendant. The same plaintiff, represented by the Greenberg firm, sued a different defendant. Some of the same patents were asserted in both cases. A client of the Hunton firm, GE, later acquired the defendant being sued in the second case. The Hunton lawyers representing the plaintiff in the first case aided, to a certain extent, the Greenberg lawyers representing the plaintiff in the second case. GE contended that the Hunton firm’s concurrent representation of Enzo in the first case and the GE subsidiary sued by Enzo in the second case amounted to an

80. See Patriot Scientific Corp. v. Moore, 2006 WL 994747 (Fed. Cir. Apr. 12, 2006) (“it does not mater that [the lawyer] was acting as a litigation consultant, rather than [the adverse party’s] attorney”). 81. Another court disqualified a firm in a different and more complicated but related context. Flo-Con Sys., Inc. v. Servsteel, Inc., 759 F. Supp. 456 (N.D. Ind. 1990) (firm could not represent company that acquired patentee in suit against former client or third party). 82. 468 F.Supp. 2d 359 (D. Conn. 2007). The Enzo court in part viewed the matter as a “positional conflict of interest,” an issue discussed below. 83. 2007 WL 470631 (E.D. Tex. Feb. 8, 2007).

Current Client Conflicts impermissible conflict of interest. GE intervened in the first case and moved to disqualify the Hunton firm. The court evaluated the evidence and concluded that GE had not demonstrated a sufficient showing of direct adversity. The court stated that “while the construction of [the plaintiff ’s] patents applicable to the infringement claims brought against two separate accused infringers . . . implicates pretrial Markman overlap, the trials of how those constructions apply to the respective accused products or conduct are wholly separate.” Enzo, 2007 WL 30338 at *7 (emphasis added). As a result, the court refused to disqualify the Hunton firm from representing the plaintiff in the first case. The court agrees with Enzo that the mere possibility of overlapping Markman proceedings is insufficient to show direct adversity, particularly when the trials of how the constructions apply to accused products or conduct varies from defendant to defendant. Here, in contrast to Enzo, F & R is not simply advocating claim construction positions that might, at some later date, adversely impact Time Warner. F & R advocates that the Comcast defendants infringe the patents because the defendants comply with industry standards. In particular, F & R advocates in this case that Comcast infringes because it adheres to the ATSC standard for United States Patent No. 5,43,627 (“the 627 patent”) and DOCSIS for United States Patent Nos.5,852,631, 4,937,819, and 5,719,858 (“the 631, 819, and 858 patents”). The practical significance of Rembrandt’s infringement theory is to indict for patent infringement all major cable companies who follow the industry standards. A finding of infringement and an injunction issued by this court against a cable company for compliance with industry standards would have a significant practical effect on Time Warner. There are additional distinctions between this case and the Enzo decision that lead the court to find the requisite direct adversity. Rembrandt filed its cases in the same district. Its case against Time Warner is pending before the same judge at roughly the same time as this case, but this case was filed first. Although it is true that the claim construction rulings in this case would not be binding on Time Warner, there is a likelihood that the positions taken by F & R in this case could, as a practical matter, prejudice Time Warner in subsequent proceedings. As a result, on these facts, this court reaches a different conclusion from the one in Enzo. F & R’s representation of Rembrandt in this case is directly adverse to Time Warner.84

Thus, a firm may have a conflict of interest even where it is not adverse to a current client, and even if it is not helping a firm to sue a current client, if there is “enough” practical impact to establish direct adversity. In Enzo, there was not enough—the court viewed the firm as merely taking different positions of law before different trial courts, which it viewed as merely a routine matter—but the fact that the patent covered a standard, the litigation was pending before the same judge, and the other facts tipped the scales in Rembrandt.

84. Id.

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3. Increasing a Client’s Risk of Liability Even Without Parallel Litigation Suppose a law firm is representing a client adverse to a nonclient, but in the course of that representation, it may uncover evidence that might lead someone else to sue a client. Is that adverse? Even without parallel litigation, but somewhat similarly, there are circumstances “in which a lawyer’s pursuit of a client’s lawsuit or defense may be at odds with or detrimental to the interests of a person or entity that has not been joined in the litigation but is being represented by the lawyer in a different litigation or transactional matter.”85 Identifying precisely when this sort of indirect adverse representation becomes an ethical violation is “difficult.”86 As we’ll see soon, “difficult” may be a severe understatement, at least in the middle of the infinite spectrum of circumstances that can arise. On one end of the spectrum, there are some relatively easy cases. For example, representing a plaintiff against a defendant who impleads a third-party defendant who is a client is adverse: if the nonclient is liable to the plaintiff, then the impleaded client is liable to the defendant.87 Similarly, adversity can arise short of actual impleading of the client such as when a lawyer in a case against a nonclient will give the nonclient the ability to seek indemnity against a client.88 Another relatively clear case of adversity arose in Board of Regents of the University of Nebraska v. BASF Corp.89 There, Kirkland & Ellis (K&E) had been defending Monsanto in a significant state court breach of contract action for several years when its lawyers were retained by the BASF to defend it in a suit filed by University of Nebraska. The dispute between the University and

85. ABA/BNA Lawyer’s Manual on Professional Conduct 51:111 (2001). 86. Id. 87. Richmond Am. Homes of N. Cal., Inc. v. Air Design, Inc., 2002 Cal. App. Unpub. LEXIS 6948 (Cal. App. July 25, 2002) (finding adversity because procedural rules allow third-party defendants to defend against a third-party complaint by alleging that the defendant had no liability to the plaintiff ); Pressman-Gutman Co., Inc. v. First Union Nat’l Bank, 459 F.3d 383 (E.D. Pa. 2004), on reconsideration, Pressman-Gutman Co., Inc. v. First Union Nat’l Bank, 2004 U.S. Dist. LEXIS 23991 (E.D. Pa. Nov. 30, 2004), mand. denied, Pressman-Gutman Co., Inc. v. First Nat’l. Bank, 459 F.3d 383 (3d Cir. 2006). See also Axcan Scandipharm, Inc. v. Reed Smith, LLP, 2007 Phila. Ct. Com. Pl. LEXIS 78 (March 26, 2007) (suit based on damages caused by firm that violated duty of loyalty and confidentiality and seeking disgorgement of fees). 88. See Snapping Shoals Elec. Membership Corp. v. RLI Ins. Corp.,2006 WL 1877078 (N.D. Ga. July 5, 2006) (firm disqualified from asserting claim against nonclient that would result in a client owing the nonclient indemnity). See also Commonwealth Scientific & Industrial Research Organisation v. Toshiba Am. Info. Sys., Inc., 2008 U.S. App. LEXIS 22114 (Fed. Cir. Oct. 23, 2008) (indemnity obligation from client to accused infringer created adversity, but disqualification denied on other grounds). 89. 2006 WL 2385363 (D. Neb. Aug. 17, 2006).

Current Client Conflicts

BASF was over whether BASF had any rights in certain patents; the University contended it did not. K&E did not represent BASF, and thus there appeared to be no conflict. Accordingly, K&E prepared to file a counterclaim that would, among other things, seek to enjoin the university from licensing the technology to anyone else. After the suit was filed, but before BASF answered, the university granted an exclusive license to Monsanto. K&E attorney Mr. Asaff contacted Monsanto’s Mr. Hoerner and, ostensibly at least, obtained his consent to permit K&E to continue to represent BASF even though if BASF won, BASF would own the patent rights and so the license Monsanto had taken would be worthless and, worse, probably indicated infringement. Not surprisingly, the court found the case to be adverse (though the motion to disqualify was denied on other grounds, as will be explained further). The court summarily stated, “there is now a conflict of interest for K&E. . . .”90 On the other end of the spectrum, simply because a victory by a lawyer for a client will allow a current client to compete economically against a client does not mean the lawyer is representing any adverse interests. As a general matter, most states recognize that “adversity” cannot be stretched so far as to include mere economic competition.91 In the middle are those “difficult” cases. Two somewhat famous nonpatent cases illustrate the fact intensive, difficult, and arguably subjective nature of this inquiry. In the first, National Medical Enterprises, Baker Botts was representing a client against a nonclient. A former client, Cronen, alleged that while representing its client, Baker Botts might uncover evidence that might lead to criminal charges being brought against him. The Texas Supreme Court found that Baker Botts was acting adversely to Cronen even though Cronen was not a party to the suit, and there was no litigation planned by anyone against him: Even if Baker & Botts is correct that resolution of the pending case will leave Cronen unscathed, Cronen’s anxiety that his former law firm is now vigorously advancing the same allegations that have swirled around him for so long is certainly understandable. The chances of being struck by lightning are slight, but not slight enough, given the consequences, to risk standing under a tree in a thunderstorm. Cronen is not likely to be struck by lightning in the pending

90. Id. The court also, however, apparently believed that unless the matter adverse to Monsanto was related to the firm’s work for Monsanto, that disqualification was not necessary. Id. That dictum would not likely be followed in most courts. 91. For an interesting case analyzing this principle in a complex patent context, see Shire Labs., Inc. v. Nostrum Pharma., Inc., 2006 WL 2129482 (D. N.J. July 26, 2006) (refusing to disqualify firm even though current representation would have adverse economic impact on a current client). See also Andrew Corp. v. Beverly Mfg. Co., 415 F. Supp. 2d 919 (N.D. Ill. 2006) (holding that firm acted adversely to current client when it gave opinion letter to client about another client’s patent).

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42 Chapter 3 Conflicts of Interest case, even though he is in the midst of a severe thunderstorm, but he is entitled to object to being forced by his former lawyer to stand under a tree while the storm rages on.92

The second, the well-known case of Fund of Funds,93 illustrates this point. In Fund of Funds, Morgan Lewis represented Client A. With Meister as cocounsel, it then represented Client B in a suit against King. At the time the King suit was filed, Morgan Lewis knew that Client A intended to sue Client B. At this time, Morgan Lewis repeatedly advised Meister that it could not “make the case” against Client B and said Morgan Lewis lawyers would not participate in any consideration of wrongdoing by its Client B. Nonetheless, the court held that Morgan Lewis was disqualified because it had violated its duty of loyalty to Client B because the firm had examined documents which touched on Client B’s liability to Client A and had otherwise investigated and assisted in the prosecution of a claim against a current client.94 In light of these cases, adversity can arise even where the firm is doing its best to avoid “making the case” against its client, and even where no impleader has taken place and may even not be contemplated. “Directly adverse” representations can arise in a variety of ways, apart from the circumstance of taking action that will result in liability against a client. For example, current clients have argued that their firms may not argue a “position” that affects their rights.95

4. Adverse Discovery of a Current Client The American Bar Association and several courts and bar associations have concluded that adverse discovery of a client constitutes an “adverse

92. Nat’l Med. Enterp. v. Godbey, 924 S.W.2d 123, 133 (Tex. 1996). 93. Fund of Funds, Ltd. v. Arthur Andersen & Co., 567 F.2d 225 (2d Cir. 1977) (trial counsel disqualified for receiving assistance from law firm which breached its duty of undivided loyalty). 94. Id. 95. See Flying J Inc. v. TA Operating Corp., 2008 WL 648545 (D. Utah March 10, 2008) (denying motion to disqualify, though finding a conflict of interest, where firm could be creating arguments, facts, and positions in litigation against a nonclient that “could be applied” by “third parties” to the client in litigation in which the firm would not be involved). In NHBA Eth. Comm. Formal Op. 1989-90/17 (Aug. 25, 1990), the committee concluded that a firm could not represent a general contractor in pursuing a claim against a lender where doing so would expose its other client, a developer, to a claim by the lender. (Although the opinion is couched in terms of material limitations, the issue could also be viewed as one of adversity.) See also Kirkland & Ellis v. CMI Corp., 1996 WL 559951 (N.D. Ill. Sept. 30, 1996) (dismissing malpractice claim, for lack of proof of causation of damages against firm which allegedly represented companies that would be harmed by adverse judgment against nonclient in patent suit); Kirkland & Ellis v. CMI Corp., 1996 WL 674072 (N.D. Ill. Nov. 19, 1996) (seeking certification to appeal).

Current Client Conflicts

representation” that triggers the conflict of interest rules.96 A few courts have extended this concept to former clients.97 The target of the discovery must, however, have been a current or former client.98 The reason this is a conflict to some courts is because the “spectacle of an attorney skewering her own client on the witness stand in the interests of defending another client demeans the integrity of the legal profession and undermines confidence in the attorney-client relationship.”99 However, often courts permit the conflict to be alleviated by permitting separate counsel to conduct the adverse discovery. As the ABA explained: There are possible circumstances . . . where it would be particularly unfair to the litigation client to require it to choose between . . . discovery of an important third party witness, on the one hand, and replacing trial counsel on the other. In such circumstances the desirability of some practical solution to the problem of the lawyer’s (and the lawyer’s colleagues’) conflicting loyalties, and the more fundamental problem of the conflicting interest of the two clients involved is patent. In some instances, a sufficient solution may be to provide for other counsel, also representing litigation counsel, to deal with the client-witness: where local counsel as well as principal counsel are involved in a litigation, the disqualification applying to one of these will not ordinarily affect the other. In other circumstances, a satisfactory solution may be the retention of another lawyer solely for the purpose of examining the principal lawyer’s client.100

Thus, retention of separate counsel to conduct the adverse discovery may obviate the conflict.101

5. Positional Conﬂicts of Interest A positional conflict of interest is rare because it is narrowly defined. A comment to most state rules explains that ordinarily it is not a conflict for a lawyer

96. See ABA Ethics Op. 92-367 (1992) (discovery against current client is an “adverse representation”); In re Cendant Corp. Sec. Litig., 124 F. Supp. 2d 235, 241 (D. N.J. 2000); Committee on Legal Ethics v. Frame, 433 S.E.2d 579 (W.Va. 1993). 97. See, e.g., Selby v. Revlon Consumer Prods. Corp., 1997 WL 587472 (N.D. Tex. Sept. 17, 1997); Swanson v. Wabash, Inc., 585 F. Supp. 1094, 1097 (N.D. Ill. 1984). 98. Griffin-El v. Beard, 2009 WL 292802 (E.D. Pa. Sept. 8, 2009). 99. Hernandez v. Paicius, 134 Cal. Rptr.2d 756 (Cal. App. 2003). 100. ABA Formal Eth. Op. 92-367 (1992). See In re Motion to Quash Deposition Subpoena to Lance Wagar, 2006 WL 3699544 (N.D.N.Y. 2006); Sykes v. Matter, 316 F. Supp. 2d 630, 633 (M.D. Tenn. 2004); Swanson v. Wabash, Inc., 585 F. Supp. 1094, 1097 (N.D. Ill. 1984) (same with respect to former client); St. B. of Mich. Standing Comm. on Prof. Ethics Op. No. RI-218 (Aug. 16, 1994). 101. See NYC Ass’n. B. Comm. Prof. & Jud. Eth. Formal Op. No. 2001-3 (July 6, 2001) (describing how to properly limit the scope of representation of a client under this and other circumstances).

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to argue one side of a legal question before a district court, and for another lawyer to take the opposite side of that question in another district court.102 Specifically, many states have a comment that provides: Ordinarily a lawyer may take inconsistent legal positions in different tribunals at different times on behalf of different clients. The mere fact that advocating a legal position on behalf of one client might create precedent adverse to the interests of a client represented by the lawyer in an unrelated matter does not create a conflict of interest. A conflict of interest exists, however, if there is a significant risk that a lawyer’s action on behalf of one client will materially limit the lawyer’s effectiveness in representing another client in a different case; for example, when a decision favoring one client will create a precedent likely to seriously weaken the position taken on behalf of the other client. Factors relevant in determining whether the clients need to be advised of the risk include: where the cases are pending, whether the issue is substantive or procedural, the temporal relationship between the matters, the significance of the issue to the immediate and long-term interests of the clients involved and the clients’ reasonable expectations in retaining the lawyer. If there is significant risk of material limitation, then absent informed consent of the affected clients, the lawyer must refuse one of the representations or withdraw from one or both matters.103

Thus, a firm advocating in the Federal Circuit for a proposition that is contrary to the position of a client in a district court in a patent matter must assess these factors to determine whether a “positional conflict” exists.104 As noted before, at least one court has held that arguing for different claim interpretations in different district courts should be viewed as a positional conflict and analyzed as such.105

6. Implications and Recommendations Two principles emerge. First, adversity does not depend upon appearing in court against a client; it can arise even when a firm does not actually appear in a case, and even if the case is not filed against its own client. Second, disqualification often turns, not on the normal bright line that accompanies the prototypical “across the v” conflict but instead on the facts and circumstances of each case. The consequences may not be as clear, however. Whenever a firm knows that its patentee-client contemplates parallel litigation, the firm should analyze whether that litigation could result in either

102. Model Rule 1.7, cmt. 24. 103. Id. 104. For a comprehensive review of positional conflicts of interest, see John S. Dzienkowski, Positional Conflicts of Interest, 71 Tex. L. Rev. 457 (1993). 105. Enzo Biochem, Inc. v. Applera Corp., 468 F. Supp. 2d 359 (D. Conn. 2007).

Former Client Conflicts

adversity under the facts and circumstances or the need to communicate and coordinate with a firm representing the patentee to a degree prohibited by the principle that “helping out behind the scenes” is improper. Either circumstance could be deemed to be unethical and warrant disqualification. Second, firms ought to consider an issue not litigated in any of these cases: the risk that the patentee-client may later claim that the firm’s ability to represent its interests were materially limited by the firm’s representation of the party accused of infringement in the parallel case, the impleader action, or the possible later claim. “You pulled your punches in the suit against the nonclient in order to avoid creating a record that could harm your client,” will be the gist of the allegation.106 Fee forfeiture and other remedies may be available to the patentee if the firm, for example, failed to obtain a broad Markman construction in order to avoid infringement by its other client. The ultimate lesson may be that firms should monitor for conflicts in patent litigation closely. The nature of patent litigation, with sometimes common multiple defendants, Markman rulings, and indemnity obligations, means that care and attention may be the only way to spot the issues.

E. Former Client Conﬂicts 1. Is the Representation Over? Various circumstances can make it difficult to determine precisely when, if ever, an attorney-client relationship ended. Yet the end of an attorneyclient relationship is extremely significant for purposes of conflicts of interest since a lawyer may be adverse to a former client but just not in certain categories of matters. If the representation has not ended, however, then the “per se” current client rule applies.107 Which rule applies can be outcome determinative.108

106. See Berkeley Ltd. Partnership v. Arnold, White & Durkee, 118 F. Supp. 2d 668 (D. Md. 2000) (counsel allegedly failed to assert infringement claims against third party because it was a client); Kirkland & Ellis v. CMI Corp., 1996 WL 559951 (N.D. Ill. Sept. 30, 1996) (dismissing malpractice claim, for lack of proof of causation of damages against firm which allegedly represented companies that would be harmed by adverse judgment against nonclient in patent suit); see also University of Rochester v. G.D. Searle & Co., Inc., 2000 U.S. Dist. LEXIS 19030 (N.D. N.Y. Dec. 11, 2000) (firm dropped client before suing it; that client then sued firm for doing so). 107. See generally NYC Ass’n. B. Comm. Prof. & Jud. Eth. Formal Op. No. 2001-3 (July 6, 2001) (noting per se rule applicable generally everywhere except Texas). As noted above, it does overstate it to say that firms are always disqualified from being adverse to current clients. 108. See Mindscape, Inc. v. Media Depot, Inc., 973 F. Supp. 1130 (N.D. Cal. 1997) (lawyer was disqualified from unrelated adverse representation because he had not yet corrected mistake on patent by recording proper assignee); Shearing v. Allergan, Inc., 1994 WL 382450

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Of course, if the lawyer and client expressly recognize the relationship has ended, such as by a letter from the lawyer to the client so noting, then the question is easy to answer.109 On the other end of the spectrum, if the lawyer is currently representing the client in a matter, then the representation is ongoing.110 In between are the difficult cases, including those where a client has some history of consistently retaining the same firm to represent it in matters, but, at the time the adverse representation arises, the firm is not representing the party in a matter.111 As a general principle, courts apply the same concepts that determine whether an attorney-client relationship has ended as they do in determining whether one was ever formed.112 Thus, if mutual intent to form an attorney-client relationship is required, so too it is required to determine whether that relationship has ended.113 Obviously, in most matters it will be simple: the lawyer will have never represented the client previously, and the lawsuit in which it did represent it will have been settled.114 But various fact patterns particular to patent practice raise additional concerns.115 An agreement by the firm to calendar and pay maintenance fees has been suggested to constitute an on-going attorney-client relationship. There is a

109. 110.

111.

112. 113. 114.

115.

(D. Nev. Apr. 5, 1994) (disqualifying firm from undertaking unrelated adverse patent matter even though it had not done work for “current” client in over two years); Balivi Chem. Corp. v. JMC Ventilation Refrigeration, LLC, 2008 WL 131028 (D. Idaho Jan. 10, 2008) (reserving ruling on the issue for factual investigation as to when adversity arose). Artromick Int’l, Inc. v. Drustar, Inc., 134 F.R.D. 226 (S. D. Ohio 1991) (recognizing that express termination was easy to spot). Manoir Electroalloys Corp. v. Amalloy Corp., 711 F Supp. 188 (D. N.J. 1989) (firm sued party who was current client because other lawyer in firm had sent the party a letter that same day to set up an appointment). IBM Corp. v. Levin, 579 F.2d 271 (3rd Cir. 1978); Ehrich v. Binghampton City School Dist., 210 F.R.D. 17, 25 (N.D.N.Y. 2002) (present client rule applies if “an attorney simultaneously represents clients with differing interests even though the representation ceases prior to filing the disqualification motion); Gen-Cor, LLC v. Buckeye Corrugated, Inc., 111 F. Supp. 2d 1049 (S.D. Ind. 2000) (generally, “a client is a current client if the representation existed at the time the complaint was filed); Ransburg Corp. v. Champion Spark Plug Co., 648 F. Supp. 1040 (N.D. Ill. 1986) (fact that client fired firm after it sued it did not mean former client rule applied). Artromick Int’l, Inc. v. Drustar, Inc., 134 F.R.D. 226 (S. D. Ohio 1991). Id. See G.D. Searle & Co. v. Nutrapharm, Inc., 1999 WL 249725 (S.D.N.Y. Apr. 28, 1999) (treating movant as former client because firm had “terminated performing any substantive work on the patents by the time of the filing of the complaint”). See also Applied Tech. Ltd. v. Watermaster of Am., Inc., 2009 U.S. Dist. LEXIS 25183 (March 26, 2009) (fact that movant received bulk-mailed newsletters did not mean it was necessarily a current client). See also Applied Tech. Ltd. v. Watermaster of Am., Inc., 2009 U.S. Dist. LEXIS 25183 (March 26, 2009) (fact that lawyer had registered trademark for client did not indicate ongoing relationship since registration was a “finite act”).

Former Client Conflicts

split on this issue,116 but I believe that the better rule is that, absent additional circumstances, the bare calendaring of a maintenance fee is insufficient to create an attorney-client relationship. When a firm provides an opinion of counsel to a client, it obviously does so as part of an attorney-client relationship. No doubt, a party who receives an opinion of counsel could contend that they had an “ongoing” relationship with the firm because, should suit be filed, it intended to have the firm “continue” its representation of the client.117 In addition, it is not uncommon for clients who have received opinions to return to the firm with additional or more specific questions. When do such representations end? The on-again, off-again client perhaps creates the most difficult or, at least, unpredictable fact pattern. Courts are leery of holding that a client who has repeatedly returned to a firm over the years is a former client simply because, at a particular moment in time, the firm was not representing it.118 Nonetheless, whether a “repeat client” is a “current client” obviously turns on the facts,119

116. See Oregon Op. 2005-146 (2005) (reasoning that the recipients of maintenance fee reminders “in the absence of . . . a clear statement [that no attorney-client relationship exists] may reasonably believe that there is a continuing relationship”). The PTO in its recent notice and comment took the same position. See Notice of Proposed Rulemaking Changes to Representation of Others Before the United States Patent and Trademark Office, 68 Federal Register 69442, 69467 (December 12, 2003). However, in Strojirenstvi v. Seisakusho, 2 USPQ2d 1222 (Comm’r Pat. & Trademarks Aug. 29, 1986), the commissioner stated that a client was a former client even though the firm was “paying maintenance fees” because calendaring was merely a “ministerial” service. In CardioGrip Corp. v. Mueller & Smith, LP, 2008 U.S. Dist. LEXIS 2627 (S.D. Ohio Jan. 14, 2008), the court also intimated that sending reminders of maintenance fee due dates did not create an attorney-client relationship, basing its holding on undisputed testimony of the practitioner that reminders were sent as a courtesy and in the hopes of obtaining fees for being retained to pay the maintenance fees. The Court of Appeals of Michigan has also held that the “ministerial task of sending a reminder letter” did not continue a prior attorney-client relationship. Wright v. Rinaldo, 2008 Mich. App. LEXIS 1411 (July 10, 2008). 117. See Chapter 11, however (describing the risks of combining litigation and opinion work in the same case). 118. See, e.g., Kabi Pharmacia AB v. Alcon Surgical, Inc., 803 F. Supp. 957, 962 (D. Del. 1992) (rejecting the argument that “the alleged ‘sporadic’ nature of [the law firm’s] work supports a finding that there was not an on-going attorney-client relationship. Nor does a lull in its work . . . support such a finding.”); Oxford Sys., Inc. v. Cellpro, Inc., 45 F. Supp. 2d 1055, 1060 (W.D. Wash. 1999) (under Washington law, client’s reasonable belief that it was a current client was sufficient where it had a long-term relationship with firm but no thenpending matter); Lemelson v. Apple Computer Inc., 28 U.S.P.Q.2d 1412 (D. Nev. June 4, 1993) (client was current client even though no attorney time had been billed in many months and representation was in an isolated tax assessment matter). 119. See, e.g., Unique Sports Generation, Inc. v. LGH-III, LLC, 2005 US Dist. LEXIS 22133 (S.D. N.Y. Sept. 30, 2005); Cleverly Minded Ltd. v. Anthony Sicari Apparel Group Indus., 2003 U.S. Dist. LEXIS 855 (S.D. N.Y. Jan 23, 2003).

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and so to avoid uncertainty, counsel should consider using formal “disengagement” letters.

2. The Protections Aﬀorded to Former Clients Generally, as a former client, the movant must establish (1) that it was a former client, (2) that the current matter is adverse to it, and then (3) one of three alternatives: (a) that the current matter is substantially related to the prior representation, (b) that it actually disclosed confidential information that can be used against the movant in the current matter, or (c) that the attorney is “attacking” work product created for the former client. The first two elements are discussed earlier in this chapter.120 a. The Substantial Relationship Test As noted in Chapter 2, the Federal Circuit has stated that federal courts would have subject-matter jurisdiction over certain legal malpractice claims arising out of malpractice during patent litigation or prosecution. As a result, any appeal would be to the Federal Circuit. The Federal Circuit has held that it would apply regional circuit law to the question of what constitutes a “substantial relationship,” as that is not a matter “unique to patent law.”121 Consequently, although any appeal will be to the Federal Circuit, it would apply regional circuit law to the question of whether a lawyer is disqualified. The regional circuits do not take a uniform approach to the question of how to determine whether a substantial relationship exists. Instead, they vary wildly, and it is very likely that a former representation that would be “substantially related” to an adverse matter in one circuit would not be in another. The disagreements are many and often only implicit. Some are clear. For example, some courts place the burden to prove a substantial relationship on the moving party, while others place the burden to show the representation is proper on the firm seeking to avoid disqualification.122 Others allow the lawyer to rebut the presumption that during the prior representation of

120. Other law may apply where, for example, a lawyer involved in a patent suit is a former patent examiner or other government employee. See generally Kearney & Trecker Corp. v. Giddings & Lewis, Inc., 452 F.2d 579 (7th Cir. 1972). Federal Circuit regulations also limit the ability of former clerks to appear before it. 121. Touchcom, Inc. v. Bereskin & Parr, 2008 WL 4889148 (Fed. Cir. Oct. 6, 2008) 122. See Avocent Redmond Corp. v. Rose Electronics, 491 F. Supp. 2d 1000 (W. D. Wash. 2007) (collecting cases).

Former Client Conflicts

the movant, he gained access to confidential information, while others do not.123 To illustrate, in the Second Circuit, the movant must bear a “heavy burden” of establishing that the substantial relationship is “patently clear” by proving that the prior representation and the adverse matter are “identical” or “essentially the same.”124 This requires examining whether the facts necessary to the first representation are necessary to the adverse representation.125 Similarly, in the Fifth Circuit, the movant must “delineate[] with specificity the subject matters, issues, and causes of action presented in the former representation,” and a “superficial resemblance between the present and prior representations is insufficient.”126 The focus in the Fifth Circuit is on common factual and legal issues between the current and former representations.127 Somewhat distinctly, in the Seventh Circuit, whether two matters are substantially related turns on whether a lawyer “could have obtained confidential information in the first representation that would have been relevant in the second.”128 The “determination of whether there is a substantial relationship turns on the possibility, or appearance thereof, that confidential information might have been given to the attorney in relation to the subsequent matter in which disqualification is sought.”129 Although they differ at the margins, under each approach, determination of whether an adverse representation is substantially related to a prior representation is, under any of these approaches, also a fact-intensive inquiry. Generally, if the adverse matter involves the same patent that the lawyer was substantively involved in obtaining for a client or previously litigated for it, a substantial relationship is very likely to exist.130 In contrast, by itself, the fact

123. See Parkland Corp. v. Maxximum Co., 920 F. Supp. 1088 (D. Idaho 1996); Millburn Marketing Assocs. v. Parker Labs, Inc., 1994 WL 228531 (D. N.J. May 17, 1994); Elan Transdermal Ltd. v. Cygnus Therapeutic Sys., 809 F. Supp. 1383 (N.D. Cal. 1992). 124. Applied Tech. Ltd. v. Watermaster of Am., Inc., 2009 U.S. Dist. LEXIS 25183 (March 26, 2009). 125. Applied Tech. Ltd. v. Watermaster of Am., Inc., 2009 U.S. Dist. LEXIS 25183 (March 26, 2009) (denying motion to disqualify). 126. Duncan v. Merill, Lynch Pierce Fenner & Smith, Inc., 646 F.2d 1020, 1029 (5th Cir. 1981). See In re Riles, 2000 WL 1062086 (Fed. Cir. July 20, 2000) (applying Duncan in patent disqualification proceeding and denying petition for mandamus seeking to reverse finding of substantial relationship). See also Uniweld Prods., Inc. v. Union Carbide Corp., 385 F.2d 992 (5th Cir. 1967) (prior representation in patent cases not substantially related to later suit in trademark and unfair competition case). 127. In re American Airlines, 972 F.2d 605 (5th Cir. 1992). 128. Analytica, Inc. v. NPD Research, Inc., 708 F.2d 1263, 1266 (7th Cir. 1983). 129. Westinghouse Elec. Corp. v. Gulf Oil Corp., 588 F.2d 221, 224 (7th Cir. 1978). See Novo Terapeutisk Laboratorium A/S v. Baxter Travenol Labs, Inc., 607 F.2d 186, 195 (7th Cir. 1979). 130. Sun Studs, Inc. v. Applied Theory Assocs., Inc., 772 F.2d 1557 (Fed. Cir. 1985) (suit challenging validity of patent obtained for client is substantially related to work obtaining the

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that the representation involved a trademark on the patented product in issue in the subsequent adverse suit would not mean a substantial relationship existed. Beyond that, matters turn on the facts.131 All courts agree, likewise, that the moving party need not actually disclose the confidential information that it shared with the lawyer; instead, the burden is to show a substantial relationship.132 The following table summarizes principal cases by result. As a general principle, they recognize that simply because a lawyer represented a client in a patent matter does not mean he can never be adverse to it in a patent case;133 much more is needed than that. The particular cases obviously turn on their facts as well; as noted above, the particular court’s approach to determination of whether an adverse representation is “substantially related” to a prior representation looks at the following: Substantial Relationship Found

No Substantial Relationship Found

In re Superguide Corp., 2001 WL 1000700 (Fed. Cir. Aug. 13, 2001) (denying petition for mandamus where district court found substantial relationship between work lawyer had done for movant as lead national counsel, including work on particular license agreement that was subject of subsequent adverse representation); In re Riles, 2000 WL 1062086

In re Fresenius USA, Inc. v. Baxter Int’l, Inc., 107 Fed. Appx. 910 (Fed. Cir. July 29, 2004) (denying petition for writ of mandamus to overturn disqualification of firm that was adverse to former client where its lawyers had prosecuted patents-in-suit); In re Yamaha Corp., 1995 WL 412843 (Fed. Cir. June 30, 1995) (providing little analysis);

patent); Iverness Med. Switzerland GMBH v. Acon Labs., Inc., 2005 WL 1491233 (D. Mass. June 23, 2005); Abyst Tech., Inc. v. Empak, Inc., 962 F. Supp. 1241 (N.D. Cal. 1997) (law firm disqualified from representing an accused infringer where two current partners had prosecuted the patent-in-suit while at another firm); Hilleby v. FMC Corp., 1992 WL 455436 (N.D. Cal. 1992) (lawyers could not challenge patents obtained for former client); Amgen, Inc. v. Elanex Pharma., Inc., 32 U.S.P.Q.2d 1688 (W.D. Wash. May 11, 1994) (lawyers had handled appellate litigation involving the patent-in-suit). 131. See Avocent Redmond Corp. v. Rose Electronics, 491 F. Supp. 2d 1000 (W. D. Wash. 2007) (finding substantial relationship between prior licensing work and subsequent infringement suit). 132. See Atasi Corp. v. Seagate Tech., 847 F.2d 826, 829 (Fed. Cir. 1988); Trone v. Smith, 621 F.2d 994, 998 (9th Cir. 1980); In re Am. Airlines, Inc., 972 F.2d 605 (5th Cir. 1992); Abyst Tech., Inc. v. Empak, Inc., 962 F. Supp. 1241 (N.D. Cal. 1997); Parkland Corp. v. Maxximum Co., 920 F. Supp. 1088 (D. Idaho 1996); Amgen, Inc. v. Elanex Pharma., Inc., 32 U.S.P.Q.2d 1688 (W.D. Wash. May 11, 1994); Elan Transdermal Ltd. v. Cygnus Therapeutic Sys., 809 F. Supp. 1383, 1388 (N.D. Cal. 1992). 133. Cf. Duncan v. Merill, Lynch Pierce Fenner & Smith, Inc., 646 F.2d 1020 (5th Cir. 1981) (lawyer could be adverse to former client in securities fraud suit even though it had represented the former client in many security fraud suits). See In re Riles, 2000 WL 1062086 (Fed. Cir. July 20, 2000) (applying Duncan in patent disqualification proceeding).

Former Client Conflicts

Substantial Relationship Found

No Substantial Relationship Found

(Fed. Cir. July 20, 2000) (denying petition for mandamus seeking to reject district court finding of substantial relationship, but with little analysis, even though adverse suit involved different patents than prior representation); Atasi Corp. v. Seagate Tech., 847 F.2d 826 (Fed. Cir. 1988) (lawyer had represented opposing party as a client on same patent while at other firm); Sun Studs, Inc. v. Applied Theory Assocs., Inc., 772 F.2d 1557 (Fed. Cir. 1985) (law firm was attacking patents it had obtained for its former client) (applying Ninth Circuit law); Gen’l Elec. Co. v. Valeron Corp., 608 F.2d 265 (6th Cir. 1979) (holding but providing little detail as to why prosecution work was substantially related to subsequent litigation); Emle Indus., Inc. v. Patentex, Inc., 478 F.2d 562 (2d Cir. 1973) (lawyer disqualified where former suit included allegations of illegal control of corporation and identical issue would be involved in patent litigation against former client); Innovation Ventures, Inc. v. N2G Distributing Inc., 2009 U.S. Dist. LEXIS 66295 (E.D. Mich. July 31, 2009) (substantial relationship between prior patent work and later trade dress case on same product); Stratagene v. Invitrogen Corp., 225 F. Supp.2d 608 (D. Md. 2002) (substantial relationship between work on parent application and patent-in-suit, which was divisional of the parent); Hewlett-Packard Co. v. Cooper, 1999 WL 33921317 (N.D. Cal. March 12, 1999) (finding substantial relationship but with little factual discussion); Asyst Tech., Inc. v. Empak, Inc., 962 F. Supp.2d 1241 (N.D. Cal. 1997)

Am. Roller Co. v. Budinger, 513 F.2d 982 (3rd Cir. 1975) (prosecution of related patents nonetheless not substantially related to current patent suit); Reliant Pharmaceuticals, Inc. v. Par Pharmaceuticals, Inc., 2008 WL 1826036 (D. Del. Apr. 23, 2008) (denying motion to disqualify in part because transferring lawyer had only worked on matter for 2.5 hours to review a contract unrelated to subsequent infringement action and no evidence supported assertion that lawyers had advised client of issues that related to patentin-suit); Talecris Biotherapeutics, Inc. v. Baxter Int’l Inc., 491 F. Supp.2d 510 (D. Del. 2007) (finding no substantial relationship even though patent in prior litigation was allegedly invalidating prior art in current suit); Microsoft Corp. v. Commmonwealth Scientific & Industrial Org., 2007 WL 4376104 (E.D. Tex. Dec. 13, 2007) (denying motion to disqualify by former client because it failed to explain how related patent applications pertained to litigation); Biax Corp. v. Fujitsu Computer Sys. Corp., 2007 U.S Dist. LEXIS 35770 (E.D. Tex. May 16, 2007) (no substantial relationship between either prior representation in litigation or prosecution); In re Metoprolol Succinate Patent Litig., 2005 WL 1661509 (E.D. Mo. 2005) (former case involved different chemical composition); Civco Med. Instruments Co. v. Protek Med. Prods., Inc., 2004 WL 1326474 (S.D. Iowa June 4, 2004) (little analysis); Agilent Tech., Inc. v. Micromuse, Inc., 2004 WL 2346152 (S.D.N.Y. Oct. 19, 2004) (former representations

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Substantial Relationship Found

No Substantial Relationship Found

(law firm was attacking patents it had obtained for its former client); Buckley v. Airshield Corp., 908 F. Supp. 299 (D. Md. 1995) (prior patent suit and adverse suit involved same patent); Decora Inc. v. DW Wallcovering, Inc., 899 F. Supp. 132 (S.D.N.Y. 1995) (same patent involved); Millburn Marketing Assocs. v. Parker Labs, Inc., 1994 WL 228531 (D. N.J. May 17, 1994) (finding substantial relationship where lawyer now representing infringer had drafted patent at time it had begun to market infringing product and which allegedly infringed); Amgen, Inc. v. Elanex Pharma., Inc., 32 U.S.P.Q.2d 1688 (W.D. Wash. May 11, 1994) (lawyers had previously handled appellate litigation involving the patent-in-suit); Asset Convservation, Inc. v. Chapman Indus. Corp., 147 F.R.D. 12 (disqualifying firm from representing third-party defendant; they had previously represented the defendants/third-party plaintiffs in that matter); Elan Transdermal Ltd. v. Cygnus Therapeutic Sys., 809 F. Supp. 1383 (N.D. Cal. 1992) (lawyers had represented the now-former client on foreign counterpart to patent-in-suit); Monon Corp. v. Wabash Nat’l Corp., 764 F. Supp. 1320 (N.D. Ind. 1991) (representation where attorney made patentability determination substantially related to later suit involving that same patent); Flo-Con Sys., Inc. v. Servsteel, Inc., 759 F. Supp. 456 (N.D. Ind. 1990) (same patent in former and current suits); Kearns v. Fred Lavery/Porsche Audi Co., 573 F. Supp. 91 (E. D. Mich. 1983) (same patent in initial consultation as in adverse matter); Moss v. Moss Tubes, Inc., 1998 WL 641362 (N.D.N.Y.

concerning corporate governance, financing, and various patent and trademark matters not shown to be substantially related to patent infringement suit); Etna Prods. Co., Inc. v. Tactica Int’l, Inc., 234 F. Supp. 442 (S.D.N.Y. 2002) (former matters not substantially related to suit involving design patent); Power Mosfet Techs., LLC v. Siemens AG, 2002 WL 32785219 (E.D. Tex. Sept. 30, 2002) (even though earlier patent litigation involved very similar patents, court found no substantial relationship); McCook Metals LLC v. Alcoa, 2001 WL 58959 (N.D. Ill. Jan. 18, 2001) (trademark search not substantially related to later patent infringement suit even though both involved the same industry); Plant Genetic Sys., N.V. v. Ciba Seeds, 933 F. Supp. 514 (M.D. N.C. 1996) (prior work on patent related to electromechanical bombardment was not substantially related to genetically engineered seed corn); Ciba-Geigy Corp. v. Alza Corp., 795 F. Supp. 711 (D.N.J. 1992) (no substantial relationship where prior work and present work both involved transdermal patches but of qualitatively different chemicals); Hunter Douglas, Inc. v. Home Fashions, Inc., 811 F. Supp. 566 (D. Colo. 1992) (lawyer had worked on trademark application unrelated to patent in suit); Hydril Co. v. Multiflex, Inc., 553 F. Supp. 552 (S.D. Tex. 1982) (no substantial relationship even though prior representation and adverse matter both involved “encapsulated control lines” because products were “significantly different”); Moyroud v. Itek Corp., 528 F. Supp. 707 (S.D. Fla. 1981) (holding attorney’s prior representation of defendant

Former Client Conflicts

Substantial Relationship Found

No Substantial Relationship Found

Sept. 9, 1998) (same patents); Koehring Co. v. Manitowoc Co., 418 F. Supp. 1133 (E.D. Wis. 1976) (prior litigation involved same patents; rejecting argument that there was no substantial relationship because different claims were involved).134

in suit involving photo-typesetting patents was not substantially related to subsequent suit involving other patents in same field); Koehring Co. v. Manitowoc Co., 418 F. Supp. 1133 (E.D. Wis. 1976) (firm disqualified from defending patent suit based on same patents on which it had previously represented the patentee, even though suits involved different patent claims).

134 The

key is to examine what confidences reasonably were likely conveyed in the prior representation and to determine whether those confidences are pertinent to the current adverse matter.135

b. Possession of Client Conﬁdences A less-often used basis for disqualification is proof by the movant that as a former client, it imparted confidential information to the now-adverse firm. Disqualification under this prong does not require proof of a substantial relationship between the two matters; however, it does require proof of the actual confidences that were transmitted by the former client.136 A motion filed under this “prong” may require submission of information to the court for it to review in camera and cannot rest on the presumptions that accompany the substantial relationship test. Nonetheless, it may be a significant basis to disqualify where, for example, in a wide-ranging and

134. See also W.L. Gore & Assocs., Inc. v. Int’l Med. Prosthetics Research Assocs., Inc., 745 F.2d 1463 (Fed. Cir. 1984) (analyzing antitrust claims); Elantec Semiconductor Inc v. Cooper, 1999 WL 33921316 (N.D. Cal. March 10, 1999); CITC Indus., Inc. v. Manow Int’l Corp., 1978-1 Trade Cases P 61,947 (S.D.N.Y. 1978) (analyzing whether trademark work on shoes was substantially related to later antitrust claim involving a patent on shoes, and concluding it was not). 135. See Reliant Pharm., Inc. v. Par Pharm., Inc., 2008 U.S. Dist. LEXIS 33461 (Apr. 23, 2008) (in reconstructing prior representation, court determined confidences pertinent to subsequent adverse matter were likely not imparted). 136. Biax Corp. v. Fujitsu Computer Sys. Corp., 2007 U.S Dist. LEXIS 35770 (E.D. Tex. May 16, 2007) (movant failed to meet burden of proof); Ciba-Geigy Corp. v. Alza Corp., 795 F. Supp. 711 (D. N.J. 1992).

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ostensibly unrelated prior representation the client disclosed to the lawyer information that is pertinent to the specific adverse representation. c. Challenging or Interpreting the Firm’s Prior Work As noted, a lawyer generally cannot become adverse to a former client on a substantially related matter; as a result, if a lawyer was substantively involved in obtaining a patent for a client, he could not represent a client adverse to the patentee in a suit over infringement or validity of that patent. Courts have so held.137 But assignment of a patent does not carry with it the attorney-client relationship. Does this mean that a lawyer is free to attack a patent that he obtained for a former client, so long as it no longer owns the patent? This path is fraught with risk, but it has been permitted. Specifically, the Federal Circuit permitted attorneys to do so, stating: Telectronics does concede that it would be unusual to have counsel impeaching their own work product. But that is not this case. Rackman and Nealon’s continued representation is subject to the condition that the proof of invalidity of the ’242 patent will be limited to prior art that was not known at the time that the application was prosecuted. No change in any position taken during the prosecution of the ’242 patent is required to recognize the significance of that art. Similarly, no change in position is required on the infringement issue because Telectronics’ allegedly infringing products were not first produced until some time after the issuance of the ’242 patent. Although counsel for Telectronics may have to testify when a particular piece of prior art became known to them, patent owners and attorneys are often asked that question during discovery, and no disqualification is required.138

Other courts have reached the same conclusion.139

137. E.g., Asyst Tech., Inc. v. Empak, Inc., 962 F. Supp. 1241 (N.D. Cal. 1997) (“Few people are more likely to have confidential information with which to attack the validity of a patent than the lawyers who prosecuted it.”). The court’s statement is, of course, inconsistent with the obligation under Rule 1.56 for practitioners to disclose to the office information that is material to patentability of a claim; confidential information that is material to patentability must be disclosed, not withheld. A lawyer who attacks the validity, or enforceability, of a patent that it obtained for a client faces serious malpractice risks whether or not he possesses confidential information. That fact, coupled with the conclusion that attacking the validity of a patent obtained for a former client has led the few courts that have faced this fact pattern to disqualify the lawyers. See id. (collecting cases). It is an interesting question whether this is correct, since the substantial relationship test is designed to protect confidentiality, rather than loyalty. 138. Telectronics Proprietary, Ltd. v. Medtronic, Inc., 836 F.2d 1332, 1336 (Fed. Cir. 1988). 139. Caelter Indus., Inc., 586 F. Supp. 808, 815 (N.D.N.Y. 1984) (finding no appearance of impropriety where firm based invalidity arguments on art it was not, at the time of prosecution, aware of).

Former Client Conflicts

The risks that lawyers who attack a patent that they obtained for a former client face are several, even if it is ethically permissible. For example, if the lawyers raise Section 112 issues, they may be creating the record necessary for their former client to file suit, if any sort of harm accrues to the former client as a result of the invalidation of a patent that it sold to the defendant, such as by way of warranty. Likewise, if the lawyers establish invalidity based upon then-known prior art, the assignee might have a claim against the former client. Although courts have not yet addressed these fact patterns, they could raise “adversity” to the former client. d. The Appearance of Impropriety Some jurisdictions have, and some still rely, at least rhetorically, on the concept that a lawyer should be disqualified if the representation creates the “appearance of impropriety.”140 This book does not analyze the scope of that concept since it has been eliminated as a basis for disqualification in most states, and its contours, in any event, vary wildly among the jurisdictions that do apply the concept.141

3. Special Issues Concerning Transferring Lawyers a. Private Practice Migration Particularly in recent years, lawyer mobility has dramatically increased. Combined with that trend is the recent development of large “full service” firms acquiring, and sometimes later divesting themselves of, patent boutiques. Lateral movement by lawyers among firms creates ethical issues and particularly conflicts of interest. Most jurisdictions follow the doctrine of imputed disqualification. While lawyers are associated at a firm, each is imputed with the conflicts that affect the others.142 However, once an association ends—such as when a lawyer quits one firm to go to another—imputation ends. This affects both the firm that the lawyer leaves, as well as any firm that he migrates to. A lawyer who leaves a firm is no longer affected by the conflicts of other lawyers at the firm.

140. E.g., Grosser-Samuels v. Jaquelin Designs Enterp., Inc., 448 F. Supp. 2d 772 (N.D. Tex. 2006) (analyzing continued vitality of this standard in the Fifth Circuit); Lemelson v. Synergistics Research Corp., 504 F. Supp. 1164 (S.D.N.Y. 1981) (denying motion to disqualify based on this standard). 141. See Monon Corp. v. Wabash Nat’l Corp., 764 F. Supp. 1320 (N.D. Ind. 1991) (lawyer who advised that invention was patentable and who had drafted claims for it disqualified in suit alleging it did not meet the conditions for patentability). 142. See generally, Model Rule 1.10. There are some specific exceptions, but they are generally narrow (including those relating to attorney-client sexual relationships under Rule 1.8).

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At the same time, the firm is no longer imputed with conflicts that “belong” solely to the departed lawyer. This next section briefly analyzes both issues.

4. Impact on a Firm of Hiring Lawyers Once a lawyer leaves a firm, he is no longer imputed with conflicts that affect only other lawyers at the firm. If only other lawyers at the departed firm represented Exxon and the departed lawyer did not otherwise acquire confidential information about Exxon, he could be adverse to Exxon in any matter once he left the firm. However, if he personally represented Exxon, or if he actually acquired confidential information about Exxon, he may be disqualified from being adverse to Exxon and, further, this conflict is imputed to any firm that hires him. Put simply, when a lawyer leaves a firm, what he did and what he learned goes with him and is, in most jurisdictions, irrebuttably imputed to lawyers at any firm the lawyer becomes employed by or affiliated with. A lawyer can be said to be “tainted” with prior knowledge and representations; if the lawyer is not so tainted, then the firm can be adverse to former clients of the newly hired lawyer’s former firm.143 Generally, this means that when a firm hires a lawyer,144 every lawyer at that firm is imputed with all of the migrating lawyer’s disqualifications: if that newly hired lawyer could not undertake a representation because it is adverse to the lawyer’s former client in a substantially related matter, for example, no lawyer at the new firm may do so—absent the former client’s informed consent.145 Much as with former client conflicts, there are two general areas of concern to the hiring firm: the first is that it identify every representation undertaken

143. See Dieter v. Regents of Univ. of Cal., 963 F. Supp. 908 (E.D. Cal. 1997) (lawyer not tainted so firm not disqualified from representing patentee against accused infringer); Boston Scientific Corp. v. Johnson & Johnson Inc., __ F. Supp. 2d __, 2009 WL 2600902 (D. Del. Aug. 25, 2009) (denying motion to disqualify patent firm from being adverse to current client due in part to screen established by firm); Amgen v. Elanex Pharma., Inc., 160 F.R.D. 134 (W.D. Wash. 1994) (noting availability of screening in some circumstances to rebut presumption of shared confidences). 144. In most circumstances, imputation applies whether the lawyer is made partner, associate, or “of counsel” to the firm. See Atasi Corp. v. Seagate Tech., 847 F.2d 826, 829 (Fed. Cir. 1988) (imputing conflict of “of counsel” lawyer to firm). 145. In re DW Wallcovering, Inc., 1996 WL 17457 (Fed. Cir. 1996) (denying petition for writ of mandamus seeking to overturn order disqualifying firm even though it had set up screen around migrating lawyer); Atasi Corp. v. Seagate Tech., 847 F.2d 826, 829 (Fed. Cir. 1988) (affirming disqualification of firm despite screen); Abyst Tech., Inc. v. Empak, Inc., 962 F. Supp. 1241 (N.D. Cal. 1997) (law firm disqualified from representing an accused infringer where two current partners had prosecuted the patent-in-suit while at another firm); Hitachi, Ltd. v. Tatung Co., 419 F. Supp. 2d 1158 (N.D. Cal. 2006) (refusing to permit screening under circumstances of case even though lawyer claimed not to recall anything about representation).

Former Client Conflicts

by the lawyer at his former firm(s); the second, and more difficult inquiry, is to identify any information that the lawyer may have acquired, even though it was not in the course of representing a client. If the lawyer left a small firm that had weekly meetings where each lawyer discussed upcoming events, a lawyer may have acquired confidential information about a client even while not representing it.146 This is sometimes called “water cooler talk.”147 Identifying whether a potential lateral hire acquired confidences outside the confines of a representation is, by its nature, more difficult. Recollections of every hallway conversation or e-mail exchange will not be perfect. If the hiring firm knows, however, that there is a pending matter between the two firms, it should obtain assurances from the departing firm that the lawyer did not acquire confidential information about that matter, so that it is not disqualified from an ongoing matter by hiring the lawyer. Again, client consent may be an option and, in some jurisdictions, a law firm can avoid disqualification by hiring a new lawyer by creating a screen, even without client consent. In cases of doubt, a firm can seek a ruling that it would not be disqualified in a particular case due to hiring of lawyers from another firm.148 Despite the breadth of imputed disqualification, there are exceptions or limitations on it. Foremost, as noted, a lawyer, once he leaves a firm, is no longer imputed with the representations of other lawyers at that firm. The vast majority of the jurisdictions reject “double imputation,” such that a migrating lawyer is imputed with the representations of lawyers at her old firm, and those imputed representations are reimputed at the new firm.149 Second, it may be that, though the lawyer personally represented a client while at a former firm, the lawyer did not do so “enough” to count for purposes of imputed disqualification at the new firm. Often it is clear whether the lawyer personally represented the client in a matter “enough” to count.150 Lead trial counsel on a matter that went to trial obviously represented the client “enough” so that his new firm will be imputed with that conflict.

146. See, e.g., EZ Paintr Corp. v. Padco, Inc., 222 U.S.P.Q. 310 (D. Minn. Nov. 9, 1983) (reasoning that “it is certainly reasonable to assume that in a firm of only seven attorneys discussions concerning this case may have taken place”). 147. See Papst Motoren GMbH & Co. v. Kanematsu-Goshu (U.S.A.), Inc., 629 F. Supp. 864 (S.D.N.Y. 1986) (holding that “small talk” did not rise to level of representation). 148. See Engineered Prods. Co. v. Donaldson Co., Inc., 290 F. Supp. 2d 974 (N.D. Iowa 2003) (addressing a motion for “qualification” in patent infringement case). 149. See, e.g., American Can Co. v. Citrus Feed Co., 436 F.2d 1125, 1129 (5th Cir. 1971); Inverness Medical Switzerland GMBH, 2005 WL 1491233 (D. Mass. June 23, 2005); American Sterilizer v Surgikos, 1992 U.S. Dist. LEXIS 21542 at *11 (N.D. Tex. 1992). See generally Ferguson et al., Conflicts in Intellectual Property Law: A Brief Survey, 616 PLI/Pat 539 (Sept. 2000) (collecting cases). 150. See Lucent Tech., Inc. v. Gateway, Inc., 2007 U.S. Dist. LEXIS 35502 (S.D. Cal. May 15, 2007) (lawyer billed several thousand hours on precise matter).

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Sometimes, however, a lawyer who was only peripherally involved in a representation of the former client may not have realistically been exposed to client confidences.151 Under those circumstances, the lawyer may be able to avoid personal disqualification, and thus the firm avoids imputed disqualification.152 The amount of time the lawyer spent representing the client is one factor in this determination, but it is not dispositive.153

151. See, e.g., Reliant Pharmaceuticals, Inc. v. Par Pharmaceuticals, Inc., 2008 WL 1826036 (D. Del. Apr. 23, 2008) (denying motion to disqualify in part because transferring lawyer had only worked on matter for two and one-half hours to review unrelated contract); Talecris Biotherapeutics, Inc. v. Baxter Int’l Inc., 491 F. Supp. 2d 510 (D. Del. 2007) (denying disqualification motion based on transferring lawyer’s brief, stale representation of client). 152. See Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., 518 F.2d 751, 757 (2d Cir. 1975); Talecris Biotherapeutics, Inc. v. Baxter Int’l Inc., 491 F. Supp. 2d 510 (D. Del. 2007) (giving weight to fact that lawyer had been involved only early in litigation in denying motion to disqualify new firm); Iverness Med. Switzerland GMBH v. Acon Labs., Inc., 2005 WL 1491233 (D. Mass. June 23, 2005) (migrating lawyer had been only involved in procedural, not substantive, issues in patent case at prior firm); Eberle Design, Inc. v. Reno A&E, 354 F. Supp. 2d 1093 (D. Ariz. 2005) (holding that firm which hired lawyer who had spent nine hours drafting voir dire questions in pending suit did not personally and substantially participate and denying motion to disqualify hiring firm); Papyrus Tech. Corp. v. N.Y. Stock Exchange, Inc., 325 F. Supp. 270 (S.D.N.Y. 2004) (considering whether e-mails to lawyer were sufficient to establish attorney-client relationship with him); Melea Ltd. v. Steelcase, Inc., 2003 WL 21816814 (E.D. Mich. July 14, 2003) (lawyer had been involved in minor discovery issue in prior patent case and so was not disqualified from later patent infringement suit involving same patent); Dieter v. Regents of the Univ. of Cal., 963 F. Supp. 908 (E.D. Cal. 1997) (finding lawyers had no involvement in matter at prior firm and so were not even personally disqualified, and so firm was not imputed with disqualification); Buckley v. Airshield Corp., 908 F. Supp. 299 (D. Md. 1995) (considering but rejecting contention that lawyer had only minimal involvement in prior patent suit); Hunter Douglas, Inc. v. Home Fashions, Inc., 811 F. Supp. 566 (D. Colo. 1992) (analyzing lack of proof that lawyer had been substantively involved in prosecution of patent-in-suit and denying motion to disqualify); N.Y. Institute of Tech. v. Biosound, Inc., 658 F. Supp. 759 (S.D.N.Y. 1987) (noting lawyer had only been “administratively” involved in prosecuting patent-in-suit, and denying disqualification); See also Stratagene v. Parsons Behle & Latimer, 315 F. Supp. 2d 765 (D. Md. 2004) (dismissing malpractice claims against lawyer who had not personally represented plaintiff in prior patent matters). For a case discussing the scope of this exception, see Intelli-Check, Inc. v. Tricom Card Tech., Inc., 2008 WL 4682433 (E.D.N.Y. Oct. 21, 2008). For a case involving migrating summer associates in a patent case, see Actel Corp. v. Quicklogic Corp., 1996 WL 297045 (N.D. Cal. May 29, 1996). See also Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d 1564, 1574–75, 223 U.S.P.Q. 465 (Fed. Cir. 1984) (discussing ability of migrating lawyer to establish that, though working on a matter, he did not gain confidential information); W.L. Gore & Assocs., Inc. v. Int’l Med. Prosthetics Research Assocs., Inc., 745 F.2d 1463 (Fed. Cir. 1984) (same). Counsel in doubt as to whether a migrating lawyer is “tainted” by a representation have filed motions to “approve screening” prior to hiring the attorney. See U.S. Filter Corp. v. Ionics, Inc., 189 F.R.D. 26 (D. Mass. 1999) (denying motion). 153. Elan Transdermal Ltd. v. Cyguns Therapeutic Sys., 809 F.Supp. 1383, 1388 (N.D. Cal. 1992) (fact that attorneys billed only three and one-fourth hours did not preclude disqualification).

Former Client Conflicts

Second, a few jurisdictions permit unilateral “screening” of incoming disqualified lawyers to avoid disqualification of the hiring firm under some circumstances,154 but the majority do not, instead requiring consent which can include screening as a part of the consent.155 Absent controlling authority, a firm should not rely on a unilateral screen to avoid imputation of a conflict.156 Taken together, when a firm is deciding whether to hire a lawyer, it must (a) identify which matters the lawyer personally represented clients, and (b) attempt to discern if the lawyer acquired confidential information about clients of other firm lawyers through “water cooler talk.”157 Any confidences that were merely imputed to the lawyer at his former firm no longer “count.”158 If the lawyer is “tainted” in either manner, then the hiring firm must examine

154. Massachusetts, for example, permits a hiring firm to avoid imputed disqualification. See Iverness Med. Switzerland GMBH v. Acon Labs., Inc., 2005 WL 1491233 (D. Mass. June 23, 2005) (applying the Massachusetts rule). See Kennecott Corp. v. Kyocera Int’l, Inc., 15 U.S.P.Q.2d 1745 (Fed. Cir. 1990) (denying petition for mandamus where district court had denied motion to disqualify in part based upon screening of incoming lawyers); N. Am. Philips Corp. v. Am. Vending Sales Inc., 29 U.S.P.Q.2d 1817 (N.D. Ill. 1993) (denying motion to disqualify because ‘federal law’ in Seventh Circuit permitted screening under the circumstances); Hunter Douglas, Inc. v. Home Fashions, Inc., 811 F. Supp. 566 (D. Colo. 1992) (allowing screening). In a case from California, the Federal Circuit predicted that California federal courts might allow for screening of migrating lawyers. In re Yamaha Corp., 1995 WL 412843 (Fed. Cir. June 30, 1995) (denying petition for writ of mandamus denying motion to disqualify in part because firm had set up screening). In unusual cases, district courts have permitted the presumption that a migrating lawyer shares confidential information upon arriving at a new firm to be rebutted. In the first type, it was in part because the new firm fired the lawyer promptly learning of the conflict. Carbo Ceramics, Inc. v. Norton-Alcoa Proppants, 155 F.R.D. 158 (N.D. Tex. 1994). In the second, it was because of the attenuated nature of the conflict, among other things. Papyrus Tech. Corp. v. N.Y. Stock Exchange, Inc., 325 F. Supp. 270 (S.D.N.Y. 2004); McCook Metals LLC v. Alcoa, 2001 WL 58959 (N.D. Ill. Jan. 18, 2001). Other courts have at least entertained the possibility of screening, though finding it ineffective under the facts presented. E.g., EZ Paintr Corp. v. Padco, Inc., 222 U.S.P.Q. 310 (D. Minn. Nov. 9, 1983). 155. See, e.g., W.L. Gore & Assocs., Inc. v. Int’l Med. Prosthetics Research Assocs., Inc., 745 F.2d 1463 (Fed. Cir. 1984) (rejecting screening); Ultradent Prods., Inc. v. Dentsply Int’l, Inc., 344 F. Supp. 2d 1306 (D. Utah 2004); Engineered Prods. Co. v. Donaldson Co., Inc., 290 F. Supp. 2d 974 (N.D. Iowa 2003) (rejecting screening). 156. Lucent Tech., Inc. v. Gateway, Inc., 2007 U.S. Dist. LEXIS 35502 (S.D. Cal. May 15, 2007) (rejecting firm’s argument that screen was acceptable under the facts). 157. See Lucent Tech., Inc. v. Gateway, Inc., 2007 U.S. Dist. LEXIS 35502 (S.D. Cal. May 15, 2007) (despite lateral lawyer listing Lucent as former client, firm nonetheless showed up adverse to it in same matter in which that lawyer had represented Lucent); Intelli-Check, Inc. v. Tricom Card Tech., Inc., 2008 WL 4682433 (E.D.N.Y. Oct. 21, 2008) (merging firms did not include in conflicts checks former clients of lateral hires). 158. Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d 1564 (Fed. Cir. 1984) (explaining that double imputation—imputing knowledge from the first firm, to the migrating lawyer, to the second firm, is not proper).

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whether the applicable rules permit screening, or if not ,whether client consent is an option. The firm may have the burden to show that the migrating lawyer was not exposed to confidences at the former firm.159 In mid-2009, the American Bar Association adopted a new version of its rule respecting screening. While, as yet, no state has adopted the rule, it may influence courts into permitting screening in more circumstances. That rule provides: (a) While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rules 1.7 or 1.9, unless (1) the prohibition is based on a personal interest of the disqualified lawyer and does not present a significant risk of materially limiting the representation of the client by the remaining lawyers in the firm; or (2) the prohibition is based upon Rule 1.9(a) or (b) and arises out of the disqualified lawyer’s association with a prior firm, and (i) the disqualified lawyer is timely screened from any participation in the matter and is apportioned no part of the fee therefrom; (ii) written notice is promptly given to any affected former client to enable the former client to ascertain compliance with the provisions of this Rule, which shall include a description of the screening procedures employed; a statement of the firm’s and of the screened lawyer’s compliance with these Rules; a statement that review may be available before a tribunal; and an agreement by the firm to respond promptly to any written inquiries or objections by the former client about the screening procedures; and (iii) certifications of compliance with these Rules and with the screening procedures are provided to the former client by the screened lawyer and by a partner of the firm, at reasonable intervals upon the former client’s written request and upon termination of the screening procedures.160

5. Impact on a Firm of Departure of Lawyers If all of the lawyers who personally represented a client depart a firm, the firm may be able to be adverse to its former client, even in the same or a

159. See Freeman v. Chicago Musical Instrument Co., 689 F.2d 715 (7th Cir. 1982) (remanding to determine whether migrating lawyer had learned confidences at his former firm where he went from firm that was representing the patentee to firm that was representing the accused infringer during pending litigation). 160. Although the rule sounds as if it permits screening other than for migrating lawyers, the intent of the ABA was to permit screening only as to migrating lawyers.

Impact of Disqualification 61

substantially related matter. In most jurisdictions, whether the lawyers who remain at the firm are disqualified turns on whether any lawyer still with the firm possesses confidential information.161 A minority of courts holds that the imputation of conflicts persists, however, and cannot be rebutted by a showing that no lawyer at the firm possesses confidences.162 If a lawyer that has been involved in representing the former client remains at the firm but was only peripherally involved in the representation, the firm may be able to avoid disqualification if the lawyer’s involvement was so peripheral that there was no realistic chance that confidences were disclosed to him.163 If there is a subsisting relationship between the firm and a “tainted” lawyer, however, disqualification by reason of the presumption of shared confidences is still appropriate.164 a. Former Government Oﬃcials Particular statutes and other regulations apply to former PTO and other government officials who transfer to private practice. Those will be addressed in subsequent editions of this book.165

F. Impact of Disqualiﬁcation Obviously, a firm that is disqualified can no longer represent the client in the matter. As a general rule, however, a disqualified firm is permitted to assist new counsel with becoming familiar with the case and is permitted to turn its files and work product over to replacement counsel.

161. Oxford Sys., Inc. v. Cellpro, Inc., 45 F. Supp. 2d 1055, 1065 & n.3 (W.D. Wash. 1999) (emphasizing that the question is not whether any lawyer who had personally represented the client but is still at the firm possesses confidential information, but instead is whether any lawyer at the firm does). 162. Elan Transdermal Ltd. v. Cygnus Therapeutic Sys., 809 F. Supp. 1383, 1392–94 (N.D. Cal. 1992) (continuing, also, to hold that even if the presumption that lawyers remaining at the firm had no confidences, the presumption had not been rebutted). 163. This is the mirror image of the situation discussed above, where the migrating lawyer, though personally representing the client, had not been exposed to the client’s confidences. 164. Schloetter v. Railoc of Indiana, Inc., 546 F.2d 706 (7th Cir. 1976) (affirming disqualification of firm in part because tainted lawyer continued some sort of association with former firm). 165. See, e.g., Ah Ju Steel Co. v. Armco, Inc., 680 F.2d 751 (CCPA 1982) (analyzing whether former ITC attorney was disqualified in private litigation); Gen’l Elec. Co. v. U.S., 215 Ct. Cl. 928 (Ct. Cl. 1977) (former government lawyer had represented United States in related patent matters and was now adverse to them).

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However, where there is substantial proof of risk of misuse of confidences by a firm, courts have prevented disqualified counsel from turning over work product to replacement counsel.166 On the other hand, because of the harsh impact and expense, courts do look carefully before imposing a turnover bar.167 In addition to possible impact on replacement counsel, co-counsel can also be disqualified under some circumstances. For example, a firm that described itself as “affiliated” with disqualified patent counsel was disqualified.168 Similarly, a firm that assists another firm in a representation in which the first firm is conflicted can be disqualified.169

G. Consent to Conﬂicts The preceding portion of this chapter identified conflicts of interest. Consent by a client can, in almost all instances, cure common conflicts. Some conflicts are not consentable, whether in advance or otherwise. As a general principle, a lawyer cannot ask for consent, and so consent is ineffective even if granted, if a disinterested lawyer would conclude that any affected client should not agree to the conflict presented.170 The question, essentially, is whether a disinterested lawyer would conclude that a lawyer faced with the conflict could, nonetheless, represent the clients adequately.171 Generally, this unconsentable conflict includes asserting a claim for one client against another client in the same proceeding.172 In addition, transactions can also create unconsentable conflicts of interest: Lawyer has been asked by Buyer and Seller to represent both of them in negotiating and documenting a complex real-estate transaction. The parties are in sharp disagreement on several important terms of the transaction. Given such

166. See In re Anticancer, Inc., 2006 U.S. App. LEXIS 31177 (Fed. Cir. Nov. 30, 2006) (denying mandamus where district court had found disqualified counsel’s work product “tainted” and so ordered it turned over to the court, not replacement counsel). 167. See Actel Corp. v. Quicklogic Corp., 1996 WL 297045 (N.D. Cal. May 29, 1996) (rejecting turnover bar). 168. Mustang Enterp, Inc. v. Plug-in Storage Sys., Inc., 874 F. Supp. 881 (N.D. Ill. 1995). 169. Elantec Semiconductor Inc. v. Cooper, 1999 WL 33921316 (N.D. Cal. March 10, 1999); Gen’l Elec. Co. v. Industra Prods., Inc., 683 F. Supp. 1254 (N.D. Ind. 1988) (denying motion to disqualify firm that had been associated with conflicted firm, holding firm rebutted presumption that confidences were shared among co-counsel). 170. N.Y.C. Eth. Op. 2006-1 (Feb. 17, 2006). 171. See, e.g., Ass’n. B. City of N.Y. Formal Op. 2004-02 (2004) (discussing disinterested lawyer test); Midfirst Bank v. Curtis, 2006 WL 2787485 (N.D. Ill. Sept. 22, 2006) (finding disinterested lawyer would not even seek consent to dual representation under circumstances). 172. See Model Rule 1.7(a).

Consent to Conflicts differences, Lawyer would be unable to provide adequate representation to both clients.173

“Similarly, in a transactional setting in which the parties’ interests are inherently antagonistic, such as when one party is a hostile bidder and the other an unwilling target in a corporate takeover, or when lawyers in the same law firm would be required to negotiate substantive business terms head-tohead, simultaneous representation generally will be ethically prohibited.”174 But most conflicts are consentable. Among the factors that determine whether a particular conflict is consentable include: (a) the nature of the conflict and the possibility of an adverse effect on the exercise of the lawyer’s independent professional judgment; (b) the likelihood that client confidences or secrets in one matter will be relevant to the other representation; (c) the ability of the lawyer or law firm to ensure that confidential information of the affected clients will be preserved, including through screening and other information-control devices; (d) the sophistication of the client and the client’s ability to understand the reasonably foreseeable risks of the conflict; and (e) if the firm is still representing the waiving client when the conflict arises, whether the lawyer’s relationship with the clients is such that the lawyer is likely to favor one client over another.175

Consent to permit a firm or lawyer to act despite a conflict of interest can come in various forms and at least at three different times. As to form, sometimes clients simply “waive” the conflict, while at other times they insist that the firm take certain precautions such as establishing a “screen” or “Chinese wall” to ensure that confidential information is not misused. As to time, consent can be in advance, after the conflict has arisen but before the firm has acted, and even after the firm has undertaken improper action against a client or former client. When consent is obtained in advance or at the time of the conflict, the firm must obtain informed consent of each affected client, which can come after full disclosure by the lawyer.176 The next two sections analyze that question in the specific context of advanced versus contemporaneous consent. On the other hand, if the firm has acted improperly, then it must seek not simply consent but waiver of the malpractice claim that the client has against it; that requires more than merely informed consent after full disclosure, and is analyzed in the third subsection here.

173. Restatement 3d of Law Governing Lawyers § 122, Illustration 10. 174. ABCNY Formal Opinion 2001-2 (2001). See generally Pearson v. First NH Mortgage Corp., 200 F.3d 30, 41 (1st Cir. 1999) (“under the governing ethical rules, some conflicts of interest are considered so fundamental that even an anxious prospective client is deemed incapacitated from providing informed consent”). 175. N.Y.C. Eth. Op. 2006-1 (2006). 176. Celgene Corp. v. KV Pharm. Co., 2008 WL 2937415 (D. N.J. July 29, 2008).

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Thus, in the first two instances, the client must give informed consent after full disclosure. Informed consent requires that the lawyer explain to the client the risks of the proposed representation.177 There is no one-size-fits-all definition of informed consent. Rather, it is a “difficult” inquiry “necessitating a case-by-case factual analysis.”178 Although there is as yet no uniform answer, the better reasoned rule is that the lawyer must prove that the client gave informed consent after full disclosure.179 Finally, some jurisdictions require that the consent be “confirmed in writing” even though the actual disclosure need not be written.180 A written disclosure obviously creates a record and is not subject to conflicting memories.

1. Contemporaneous Consent to Conﬂicts When a conflict arises, as a general rule,181 each affected client may provide consent after full disclosure and continue the representation. Full disclosure and consent are not formalities. Instead, the lawyer must communication “information reasonably sufficient to permit the client to appreciate the significance of the matter in question.”182 Although there are no bright-line rules, clearly some courts apply a multifactor test to analyze whether informed consent after full disclosure was obtained. Specifically, the factors they examine include: (1) the waiver’s breadth; (2) its temporal scope, i.e., whether it waived only current conflicts or applied to all conflicts in the future; (3) the quality of the conflict discussion between attorney and client; (4) the specificity of the waiver; (5) the nature of the actual conflict, i.e., whether the attorney sought to represent both clients in the same dispute or in unrelated matters; (6) the sophistication of the client; and (7) the interests of justice.183

An example is Board of Regents of the University of Nebraska v. BASF Corp.184 There, Kirkland & Ellis (K&E) had been defending Monsanto in a

177. See, e.g., Model Rule 1.0(e). 178. In re Gabapentin Patent Litig., 407 F. Supp. 2d 607, 612 (D. N.J. 2005). 179. See Celgene Corp. v. KV Pharm. Co., 2008 WL 2937415 (D. N.J. July 29, 2008), citing Int’l Bus. Mach. Corp. v. Levin, 579 F.2d 271, 282 (3d Cir. 1978). 180. E.g., Model Rule 1.7. 181. Many states do not permit lawyers to represent two clients with claims against each other in the same court. See, e.g., Model Rule 1.7(b). Certain other representations that are not typical to patent litigation can also create nonconsentable conflicts of interest, as noted above. 182. Model Rules terminology. 183. See Concat LP v. Unilever, PLC, 350 F. Supp. 2d 796, 820 (N.D. Cal. 2004). 184. 2006 WL 2385363 (D. Neb. Aug. 17, 2006). See also Concat LP v. Unilever, PLC, 350 F. Supp. 2d 796, 820 (N.D. Cal. 2004) (finding prospective consent ineffective); In re Agouron Pharma., Inc., 1999 WL 187637 (Fed. Cir. March 1, 1999) (denying petition for writ of

Consent to Conflicts

significant state court breach of contract action for several years when its lawyers were retained by the BASF to defend it in a suit filed by the University of Nebraska. The dispute between the university and BASF was over whether BASF had any rights in certain patents; the university contended it did not. K&E did not represent BASF, and thus there appeared to be no conflict. Accordingly, K&E prepared to file a counterclaim that would, among other things, seek to enjoin the university from licensing the technology to anyone else. After the suit was filed but before BASF answered, the university granted an exclusive license to Monsanto. K&E attorney Mr. Asaff contacted Monsanto’s Mr. Hoerner and, ostensibly at least, obtained his consent to permit K&E to continue to represent BASF, even though if BASF won, BASF would own the patent rights, and so the license Monsanto had taken would be worthless and, worse, probably indicated infringement. The court rejected the argument that there had been informed consent: I conclude that Monsanto’s consent was not “informed” so as to excuse K & E’s continued representation of BASF. First, the evidence establishes that the discussion between Mr. Asaff and Mr. Hoerner was anything but thorough. While Mr. Asaff states now that he discussed a number of possible conflicts, he does not now state what possibilities were discussed, nor possible ramifications of them. It appears from his declaration that the closest he came to such a discussion was informing Mr. Hoerner that “an alleged ‘exclusive’ license grant from the Board to Monsanto was ineffective.” He does not state that he told Hoerner BASF’s position was directly in conflict with Monsanto’s interest in the subject technology. Further, his “confirming” letter did even less. Mr. Hoerner’s affidavit is to the effect that he did not give the matter much critical attention; indeed, he did not even initiate the normal internal review procedures for evaluating possible conflict situations. I find that puzzling, given the enormity of the stakes in this litigation; it begs the question of whether that attitude was the product of his own lack of attention, or being misled by Mr. Asaff, or something else. In any event, the evidence before the court is insufficient to demonstrate that Monsanto was “aware of the relevant circumstances and of

mandamus asserting that district court had erred in finding prospective consent informed). In a footnote, the court wrote: His characterizing of the “possible” conflict as “indirect adversity” is misleading; even giving K & E the benefit of its argument that it did not know-exactly-the particulars of the technology claimed to be the subject of both contracts, and even though it did not know-exactly-the terms of Monsanto’s contract, how BASF’s position, taken with the contemporaneous filing of its counterclaim, that it holds a “non-exclusive” license was only a “potential” conflict with Monsanto’s claim to an “exclusive” license eludes me. Moreover, the letter does not even allude to-much less recount with particularity-what Mr. Asaff now says was Mr. Hoerner’s only “condition” on K & E’s continued representation of BASF, that separate counsel depose any Monsanto witnesses. Id.

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66 Chapter 3 Conflicts of Interest the material and reasonably foreseeable ways that the conflict could have adverse effects on [its] interests,” nor that it agreed “to a proposed course of conduct after the lawyer has communicated adequate in-formation and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.” I conclude that K & E has not shown that it engaged in the type of disclosure demanded by its fiduciary obligation to Monsanto, and as a result, Monsanto has not given K & E its informed consent to continue representing BASF in this case.185

2. Prospective Consent There is nothing per se unethical with asking a client in advance to consent to a later-arising adverse representation.186 Although, as noted, the conflict that arises later may be unconsentable, this fact does not make asking for advanced consent improper; it means that when the conflict does later arise, the lawyer must determine whether he may properly continue to represent each affected client.187 As with contemporaneous consent, the client must be truly informed, with the standard often stated as being “knowing, intelligent and voluntary.”188 Although the applicable standard is the same—informed consent after full disclosure—prospective consent is as a practical matter more difficult to obtain than consent after a conflict has arisen, for the obvious reason that it is easier to make full disclosure once the conflict is known; before then, there is some degree of speculation.189 Advance consent is, however, possible. The key is the degree of disclosure and its relationship to the nature of the later adverse representation. One bar association put it slightly more specifically, stating that “the client or prospective client should be advised of the types of possible future adverse representations that the lawyer envisions, as well as the types of clients or matters that may present such conflicts.”190 As one court further explained: The extent of the necessary disclosure is what is important. . . . [T]his is a question that must be conscientiously resolved by each attorney in the light of the particular facts and circumstances that a given case presents. It is utterly insufficient simply to advise a client that he, the attorney, foresees no conflict of interest and then to ask the client whether the latter will consent to the multiple

185. 186. 187. 188.

Id. N.Y.C. Eth. Op. 2006-1 (Feb. 17, 2006). This point is discussed further at the end of this section. Celgene Corp. v. KV Pharm. Co., 2008 WL 2937415 (D. N.J. July 29, 2008), quoting In re Dolan, 384 A.2d 1076 (N.J. 1978). 189. Celgene Corp. v. KV Pharm. Co., 2008 WL 2937415 (D. N.J. July 29, 2008). 190. N.Y.C. Legal Ethics Op. No.724.

Consent to Conflicts representation. This is no more than an empty form of words. A client cannot foresee and cannot be expected to foresee the great variety of potential areas of disagreement that may arise in a real estate transaction of this sort. The attorney is or should be familiar with at least the more common of these and they should be stated and laid before the client at some length and with considerable specificity. Of course all eventualities cannot be foreseen, but a great many can.191

Likewise, states that follow the Model Rules emphasize that there must be sufficient disclosure—in the agreement or otherwise192—showing the client was reasonably advised of the material risks: The effectiveness of such waivers is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails. The more comprehensive the explanation of the types of future representations that might arise and the actual and reasonably foreseeable adverse consequences of those representations, the greater the likelihood that the client will have the requisite understanding. Thus, if the client agrees to consent to a particular type of conflict with which the client is already familiar, then the consent ordinarily will be effective with regard to that type of conflict. If the consent is general and open-ended, then the consent ordinarily will be ineffective, because it is not reasonably likely that the client will have understood the material risks involved. On the other hand, if the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consent is more likely to be effective, particularly if, e.g., the client is independently represented by other counsel in giving consent and the consent is limited to future conflicts unrelated to the subject of the representation.193

Given the fact-intensive nature of what constitutes “adequate” disclosure, bright lines are hard to draw. However, on one end of the spectrum, blanket or generic prospective consents that cover any conflict that might develop at any time are generally insufficient to constitute informed consent after full disclosure, if no further details as to the nature of the conflict, the risks involved, and the like, are made.194 For example, an open-ended, vague agreement by a client to permit a firm to be adverse, but simply not in substantially related matters, is insufficient.195 In Worldspan, L.P. v. Sabre Group Holdings, Inc.,196 the court held that consent was not informed where a letter did not specifically identify the potential adverse party but did mention its ultimate

191. Celgene Corp. v. KV Pharm. Co., 2008 WL 2937415 (D. N.J. July 29, 2008), quoting In re Lanza, 65 N.J. 347, 352–53, 322 A.2d 445 (N.J. 1974). 192. Celgene Corp. v. KV Pharm. Co., 2008 WL 2937415 (D. N.J. July 29, 2008). 193. This language is from states following Model Rule 1.7 cmt. 22. 194. See Concat LP v. Unilever, PLC, 350 F. Supp. 2d 796, 820 (N.D. Cal. 2004) (noting consent was “almost a blank check”); N.Y.C. Eth. Op. 2006-1 (Feb. 17, 2006). 195. Celgene Corp. v. KV Pharm. Co., 2008 WL 2937415 (D. N.J. July 29, 2008). 196. 5 F. Supp. 2d 1356 (N.D. Ga. 1998).

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parent corporation and stated only that the client was consenting to “adverse representations” in matters that were not “substantially related”—without specifically stating that adverse litigation was included.197 On the other end of the spectrum, an advance consent that specifies the party with whom the client eventually becomes adverse and, further, specifies the type of dispute will likely be held to constitute informed consent, particularly if the consenting client is represented in the matter or has access to independent counsel.198 The Restatement (Third) Law Governing Lawyers provides likewise focuses on the specificity of the disclosure: “A client’s openended agreement to consent to all conflicts normally should be ineffective unless the client possesses sophistication in the matter in question and has had the opportunity to receive independent legal advice about the consent,” and generalized advance waivers are “ineffective unless the client possesses sophistication in the matter” and the client “receive[d] independent legal advice about the consent.”199 The Restatement, however, recognizes that advance consent is more likely to be based on full disclosure where the consent is matter specific, and the eventual conflict is, in fact, that matter: On the other hand, particularly in a continuing client-lawyer relationship in which the lawyer is expected to act on behalf of the client without a new engagement for each matter, the gains to both lawyer and client from a system of advance consent to defined future conflicts might be substantial. A client might, for example, give informed consent in advance to types of conflicts that are familiar to the client. Such an agreement could effectively protect the client’s interest while assuring that the lawyer did not undertake a potentially disqualifying representation.200

The Restatement then illustrates when it is appropriate to use matterspecific advance consent: 2. Law Firm has represented Client in collecting commercial claims through Law Firm’s New York office for many years. Client is a long-established and sizable business corporation that is sophisticated in commercial matters generally and specifically in dealing with lawyers. Law Firm also has a Chicago office that gives tax advice to many companies with which Client has commercial dealings. Law Firm asks for advance consent from Client with respect to conflicts that otherwise would prevent Law Firm from filing commercial claims on

197. Id. 198. See generally Nathan Crystal, Enforceability of General Advance Waivers of Conflicts of Interest, 38 St. Mary’s L.J. 859, 865 (2007) (presenting a range of advance consents from general to specific and discussing each). 199. Restatement (3d) of the Law Governing Lawyers § 122(1), cmt. d (2000). 200. Id.

Consent to Conflicts behalf of Client against the tax clients of Law Firm’s Chicago office. If Client gives informed consent the consent should be held to be proper as to Client. Law Firm would also be required to obtain informed consent from any tax client of its Chicago office against whom Client wishes to file a commercial claim, should Law Firm decide to undertake such a representation. The facts being otherwise as stated in Illustration 2, Law Firm seeks advance consent from each of its Chicago-office corporate-tax clients to its representation of any of its other clients in matters involving collection of commercial claims adverse to such tax clients if the matters do not involve information that Law Firm might have learned in the tax representation. To provide further assurance concerning the protection of confidential information, the consent provides that, should Law Firm represent any client in a collection matter adverse to a tax client, a procedure to protect confidential information of the tax client will be established. Unless such a tax client is shown to be unsophisticated about legal matters and relationships with lawyers, informed consent to the arrangement should be held to be proper.201

Thus, under some circumstances, disclosure adequate to support a finding of prospective consent can exist.202 Where independent counsel represents the client in the matter, for example, and the lawyer does not conceal or misrepresent the facts, a court will likely find consent to have been informed.203 In one recent case, a firm representing a client in a patent case became adverse to it in a trademark case.204 As the defendant in the trademark case, the client moved to disqualify. The court denied the motion to disqualify because the prospective consent clearly identified the adverse client and matter.205 Finally, and significantly, even if informed consent after full disclosure was obtained prospectively, at the time the conflict arises, the lawyer must evaluate whether he can continue to represent the client adequately despite the existence of a conflict of interest.206

3. Post-Wrong Waivers of Malpractice Claims Where the lawyer has already acted improperly, then the client has a malpractice or breach of fiduciary duty claim against the lawyer. In some states, informed consent after full disclosure is not enough to obtain a client’s

201. 202. 203. 204.

Id. See generally ABA Formal Op. 05-436 (2005). Id. Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100 (N.D. Cal. 2003). See generally Elonex I.P. Holdings, Ltd. v. Apple Computer, Inc., 142 F. Supp. 2d 579, 584–85 (D. Del. 2001) (finding client had given prospective consent). 205. Id. 206. See N.Y.C. Ass’n. B. Comm. Prof. & Jud. Eth. Op. 2006-1 (Feb. 17, 2006).

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consent to waive a malpractice claim; instead, the client must at least be advised to consult with independent counsel. Even when not required, however, advising a client in writing to consult with outside counsel will reduce the likelihood of later controversies over the enforceability of the release.207

H. Other Justiﬁcations for Denial of Disqualiﬁcation 1. Prejudice or Taint and Balance of Hardships As explained in the chapter on choice of law, a number of courts, but not all, insist that a violation of the disciplinary rules is not by itself sufficient to warrant disqualification. While not all courts have done so, many but not all have spelled out precisely what more beyond a violation of the rules is required. Many express this as a requirement that allowing the lawyer to proceed as counsel would “prejudice” or “taint” the trial or litigation.

2. Waiver by Delay in Seeking Disqualiﬁcation Although lawyers often use the term “waive” to refer to a consent to a conflict, in fact, waiver doctrine has its own separate role. Waiver often arises where a litigant delays in filing the motion to disqualify after learning of the conflict of interest. No bright-line rule exists, but delays of over a year clearly jeopardize a party’s right to seek disqualification of opposing counsel.208 Not all conflicts can be waived. Some courts hold that the public interest in integrity of the proceedings cannot be waived by counsel.209

207. See Brosnan v. Gillin, Jacobson, 2003 WL 1558257 (Cal. App. March 26, 2003) (in connection with settling patent case, firm agreed to cut its fees but only if client agreed to release it from malpractice claims, and firm insisted client consult with outside counsel before signing release). 208. See, e.g., Central Milk Producers Co-op. v. Sentry Food Stores, Inc., 573 F.2d 988, 991–92 (8th Cir.1978) (delay of two years after discovery of factual basis for motion held to be waiver); Kearns v. Chyrslter Corp., 771 F. Supp. 190 (E.D. Mich. 1991) (no waiver with five month’s delay). 209. See, e.g., Monon Corp. v. Wabash Nat’l Corp., 764 F. Supp. 1320 (N.D. Ind. 1991).

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3. The Hot Potato Doctrine and the “Thrust Upon” Exception When firms have become adverse or been asked to become adverse to current clients, they sometimes have responded by “dropping” the client, so that it becomes a “former client.” As a consequence, the firm may be adverse to the “former” client but just not in substantially related matters and a few other sorts of matters. As a general matter, these efforts have failed. Courts have not permitted firms to drop clients “like a hot potato” in order to treat it like a former client for purposes of conflicts of interest. Thus, as a general matter, conflicts are measured at the time adversity arises, not when the motion to disqualify is filed or at some later point.210 Where a firm properly undertakes a matter adverse to a party—because it was a former client and the matter is not substantially related, or the opponent never had been a client—events after the suit is filed can create conflicts of interest.211 For example, a law firm might sue a company that it has never represented, only to have a client acquire the opposing party, thus placing the firm in the position of suing a subsidiary of a current client.212

210. Parkinson v. Phonex Corp., 857 F. Supp. 1474 (D. Utah 1994) (magistrate erred in applying former client standard where firm had concurrently represented client and adversary). See also Static Control Components, Inc. v. Dallas Semiconductor Corp., 2003 WL 21666582 (M.D.N.C. July 16, 2003) (whether firm improperly discontinued work for current client in order to treat it as former client for purposes of disqualification became moot when case was dismissed). 211. N.Y.C. Ass’n. B. Comm. on Prof. & Jud. Eth. Formal Op. 2005-05 (June 2005) 212. See Eastman Kodak Co. v. Sony Corp., 2004 WL 2984297 (W.D.N.Y. Dec. 27, 2004) (a firm that had deliberately avoided representing conflict suddenly found Kodak acquiring one of its long-standing clients); Installation Software Tech. Inc., v. Wise Solutions, Inc., 2004 WL 524829, *3 (N.D. Ill. March 5, 2004) (denying firm’s motion to withdraw from case and instead relying on flexible approach in corporate merger context); Gould, Inc. v. Mitsui Mining & Smelting Co., 738 F. Supp. 1121 (N.D. Ohio 1990) (holding firm could pick which client it continued to represent). In contrast, where a law firm merges with a firm that represents an opposing party, the firm cannot rely upon the “thrust upon” conflict in most circumstances. Picker Int’l, Inc. v. Varian Assocs., Inc., 869 F.2d 578 (Fed. Cir. 1989); see generally Phila. B. Ass’n Prof. Guidance Comm. Op. No. 2001-4 (June 2001) (discussing conflicts arising from merger of two law firms in patent context). But see Intelli-Check, Inc. v. Tricom Card Tech., Inc., 2008 WL 4682433 (E.D.N.Y. Oct. 21, 2008) (permitting firm to continue to represent long-standing client despite merging with firm that had a personally disqualified lawyer). As noted earlier in this chapter, some courts hold that a firm cannot be adverse to a subsidiary of a current client, while others hold that ownership by a client of an adversary is not enough, while others adopt various middle-ground approaches. That body of law would also need to be consulted.

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States following the Model Rules recognize this possibility—that a client’s actions will “thrust” a conflict on the lawyer. Specifically, a comment to Model Rule 1.7 provides: Unforeseeable developments, such as changes in corporate and other organizational affiliations or the addition or realignment of parties in litigation, might create conflicts in the midst of a representation, as when a company sued by the lawyer on behalf of one client is bought by another client represented by the lawyer in an unrelated matter. Depending on the circumstances, the lawyer may have the option to withdraw from one of the representations in order to avoid the conflict. The lawyer must seek court approval where necessary and take steps to minimize harm to the clients. See Rule 1.16. The lawyer must continue to protect the confidences of the client from whose representation the lawyer has withdrawn. See Rule 1.9(c).213

Often this takes place in the context of corporate mergers, where a current client acquires a company that is an adversary of the firm in an existing matter. However, “thrust upon” conflicts are not so limited. An interesting distinct example of a conflict that a court held to be a “thrust upon” conflict arose in a patent suit, Board of Regents of the University of Nebraska v. BASF Corp.214 There, Kirkland & Ellis (K&E) had been defending Monsanto in a significant state court breach of contract action for several years, when its lawyers were retained by BASF to defend it in a suit filed by the University of Nebraska. The dispute between the university and BASF was over whether BASF had any rights in certain patents; the university contended it did not. K&E did not represent BASF, and thus there appeared to be no conflict. Accordingly, K&E prepared to file a counterclaim that would, among other things, seek to enjoin the university from licensing the technology to anyone else. After the suit was filed, but before BASF answered, the university granted an exclusive license to Monsanto. Subsequently, Monsanto moved to intervene in the case to protect its interests. Nearly a year after the conflict had been recognized, Monsanto moved to disqualify K&E. The court denied the motion because it found the facts fit within the “thrust upon” exception. In reaching that conclusion, however, the court also

For other examples of thrust upon conflicts, see Tipton v. Canadian Imperial Bank of Commerce, 872 F.2d 1491, 1498 (allowing counsel to withdraw and treating client like former client after discovery of conflict); Florida Ins. Guar. Ass’n., Inc. v. Carey Canada, Inc., 749 F. Supp. 255, 260 (S.D. Fla. 1990) (allowing firm that withdrew upon immediately discovering conflict to treat movant as former client). 213. Model Rule 1.7, cmt. 7. 214. 2006 WL 2385363 (D. Neb. Aug. 17, 2006).

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required K&E to take steps to ensure the sanctity of Monsanto’s confidential information: K & E argues that it was Monsanto that created the conflict in the first place, by its contracting with plaintiff in January, 2005, and in any event, the direct conflict did not arise until Monsanto became a party to this case, thus “thrusting” the conflict on K & E. Although Monsanto argues that this doctrine does not apply in this circumstance, I disagree. At the time K & E commenced its representation of BASF in this dispute FN8—sometime near the date of the filing of the complaint herein on November 17, 2004—it had represented BASF for a number of years. Prior to the DPL litigation, K & E had not represented Monsanto. When this case was filed, there was no notion that any other party was involved, much less a current client that would be taking a position adverse to BASF. The conflict arose with the contract between the plaintiff and Monsanto in January, 2005. From K & E’s perspective it was an “unforeseeable development” as that term is used in Model Rule 1.7. Principle 5 following that rule requires K & E to take steps to minimize harm to the clients. In this case wholly different litigation teams from K & E are representing BASF in this case and Monsanto in the DPL litigation; none of the lawyers involved has represented the other client. Monsanto has argued that K & E lawyers have been privy to “millions of pages of Monsanto’s confidential records and information regarding recombinant DNA gene technology, including technology relating to herbicide resistance and other is-sues associated with Monsanto’s biotechnology business strategy,” and have “worked very closely with numerous top level executives, scientists, and lawyers at Monsanto in . . . discussing . . . Monsanto’s biotechnology and acquisition strategies.” However, it has produced no evidence describing any specific items of such information, documents, biotechnology or acquisition strategies which have been shared with K & E, and no evidence that any such information relates to BASF’s claims in this litigation, and no evidence that any such information has been shared between the two teams of lawyers at K & E. More importantly, even if such information has been shared, there is in this record no showing of any resulting prejudice to Monsanto in either this case or the Mississippi case. Should the motion to disqualify be denied, K & E would still be required to keep inviolate the confidential information and trade secrets of Monsanto; in this regard it may be that the proverbial “Chinese wall” would be necessary to keep such information—both Monsanto’s and BASF’s—from the lawyers for the other client.215

Although fact-intensive in its scope, the proposition that licensing and other activities can constitute “thrust upon” conflicts has the clear potential to reduce conflicts of interest in patent litigation.

215. Id.

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An even more liberal view of the “thrust upon” exception was found to have been proper by the Federal Circuit in a recent case. In Commonwealth Scientific & Industrial Research Organisation v. Toshiba Am. Info. Sys., Inc.,216 the Townsend firm filed suit on behalf of the patentee, CSIRO, against several defendants for infringing a patent related to Wi-Fi technology. One of the defendants purchased equipment from a nonparty, Marvell, which had agreed to indemnify the defendant for any infringement liability. Townsend represented Marvell in unrelated matters. Marvell knew that Townsend represented CSIRO but did not advise Townsend that it was obligated to indemnify the defendant. Marvell intervened to disqualify the Townsend firm, arguing that Townsend was adverse to it because Marvell would have to indemnify the defendant if Townsend was successful in its representation of CSIRO. Townsend had not known of the indemnity obligation at the time it filed the suit. The district court held that, as a result, this was a “thrust upon” conflict and allowed the firm to avoid disqualification by applying the more lenient “former client” conflict rules. The district court relied on Comment 5 to A.B.A. Model Rule 1.7, which states: Unforeseeable developments, such as changes in corporate and other organizational affiliations or the addition or realignment of parties in litigation, might create conflicts in the midst of a representation, as when a company sued by the lawyer on behalf of one client is bought by another client represented by the lawyer in an unrelated matter. Depending on the circumstances, the lawyer may have the option to withdraw from one of the representations in order to avoid the conflict. The lawyer must seek court approval where necessary and take steps to minimize harm to the clients. See Rule 1.16. The lawyer must continue to protect the confidences of the client from whose representation the lawyer has withdrawn. See Rule 1.9(c).217

The Federal Circuit affirmed, relying on the district court’s determination that it was Marvell’s purposeful failure to disclose the existence of the indemnity agreement that had allowed Townsend to move forward with the suit.218

216. 2008 U.S. App. LEXIS 22114 (Fed. Cir. Oct. 23, 2008). 217. Id. quoting A.B.A. Model Rule 1.7, cmt. 5. 218. Id. See also Asset Conservation, Inc. v. Chapman Indus. Corp., 147 F.R.D. 12 (disqualifying firm from representing third-party defendant; they had previously represented the defendants/ third-party plaintiffs in that matter); See Eastman Kodak Co. v. Sony Corp., 2004 WL 2984297 (W.D.N.Y. Dec. 27, 2004) (granting motion to disqualify by using “flexible approach” to disqualification in context of acquisition).

Other Justifications for Denial of Disqualification 75

4. Improper Uses of Disqualiﬁcation Motions and Other Factors This chapter cannot conclude without the observation that, particularly in a down economy, parties sometimes use disqualification motions to accomplish goals that are actually incompatible with the legal system, including unnecessarily driving up costs and depriving a party of counsel without sound reason to do so. In many jurisdictions, as a result, courts will examine delay by the movant and other facts and circumstances to ensure that disqualification is not only necessary but properly sought. Notions of unclean hands, waiver, delay, and strategic use are often taken into account in determining whether, even if an ethical violation has occurred, disqualification is the proper remedy. Again, however, this is an issue not particular to patent cases and one that varies wildly by circuit and district court. As a result, a lawyer analyzing an ethical issue must carefully examine regional circuit law and any district court precedent for guidance.

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CHAP T ER

4 Competency, Diligence, and Communication

A. Competency

78

B. Diligence

81

C. Communication

82

77

78

Chapter 4 Competency, Diligence, and Communication

The core duties of competency, diligence, and communication are critical in patent practice, as in many forms of representation. Although critical, the duties do not create too many issues particular to patent litigation. As with any civil case, patent litigators must act diligently to bring claims on behalf of their clients—particularly in light of the six-year damages period and the availability of laches and estoppel as defenses—and must also communicate effectively with their clients during litigation. As a result, this chapter only generally describes these duties, but that fact should not be interpreted as denying their importance.

A. Competency Most states require that lawyers provide competent representation to a client and generally state that doing so “requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.”1 Although many of the chapters in this book could generally be lumped into the subject of “competency,” there is a threshold in patent practice that deserves a preliminary discussion. Obviously, many of the same issues of competency that are implicated in patent litigation are also implicated in any civil suit.2 The requirement of competency can create unique issues in patent litigation. Unlike some other forms of litigation, patent litigation can require knowledge of a fairly complex body of substantive law, of intricate and sometimes arcane rules of procedure, and, at least in some cases, of complex and cutting-edge technology. Accordingly, before undertaking to represent a client in a patent suit, a lawyer should ensure that he is competent to do so. Being licensed to practice law is not sufficient to indicate competency in most patent cases.3 This is because of the relative complexity and specialized

1. See Model Rule 1.1. 2. See Harsco Corp. v. Kerkam, Stowell, Kondracki & Clarke, PC., 965 F. Supp. 580 (malpractice claim based on firm’s failure to raise best mode defense in Rule 50 motion during trial); Biomet, Inc. v. Finnegan Henderson LLP, 967 A.2d 662 (D.C. App. 2009) (holding firm used reasonable judgment not to appeal award of punitive damages in prior infringement suit, thereby waiving the point); see also M.J. Woods, Inc. v. Conopco, Inc., 271 F. Supp. 2d 576 (S.D.N.Y. 2003) (holding malpractice claims against defense counsel in prior patent infringement suit barred by issue preclusion due to prior arbitration of related claims). 3. Many states have a comment to their rules that, by negative implication, indicates that a general license to practice would generally not be enough to evidence competency in a patent suit. Specifically, a comment to Rule 1.1 in many states provides: In determining whether a lawyer employs the requisite knowledge and skill in a particular matter, relevant factors include the relative complexity and specialized nature of the matter,

Competency

nature of most patent matters. Much like bankruptcy, patent law is based upon a federal statute, has a complex regulatory scheme, and, further, patent cases are often subject to specialized rules of civil procedure.4 Thus, in addition to being licensed to practice and generally familiar with federal court litigation, a lawyer should ensure that he is knowledgeable in patent law and procedure so as to be able to spot, analyze, and address the common substantive patent issues that arise. In addition, in many cases, the technology itself will create competency questions. Although not every patent case requires a technological expert, the majority will. A lawyer, however, has nondelegable duties under Rule 11 to ensure that allegations and legal and factual positions taken are not frivolous. Thus, the lawyer must to an extent be able to comprehend and evaluate the conclusions reached by a technical expert. Accordingly, in most cases, either a technical expert must be involved, but in all cases the lawyer must be able to assess and analyze the technical expert’s opinions. This need to understand both the law and facts is obviously not unique to patent law: competent representation in any matter “includes inquiry into and analysis of the factual and legal elements of the problem, and use of methods and procedures meeting the standards of competent practitioners. It also includes adequate preparation.”5 But, because generally the stakes in patent litigation can be high (for both the patentee and accused infringer), the law is more complex than in virtually any other practice area and the

the lawyer’s general experience, the lawyer’s training and experience in the field in question, the preparation and study the lawyer is able to give the matter and whether it is feasible to refer the matter to, or associate or consult with, a lawyer of established competence in the field in question. In many instances, the required proficiency is that of a general practitioner. Expertise in a particular field of law may be required in some circumstances. A lawyer need not necessarily have special training or prior experience to handle legal problems of a type with which the lawyer is unfamiliar. A newly admitted lawyer can be as competent as a practitioner with long experience. Some important legal skills, such as the analysis of precedent, the evaluation of evidence and legal drafting, are required in all legal problems. Perhaps the most fundamental legal skill consists of determining what kind of legal problems a situation may involve, a skill that necessarily transcends any particular specialized knowledge. Although there are no doubt patent infringement suits that a general practitioner could undertake, those would be the exception and not the rule. 4. See, e.g., N.D. Cal. Patent Local Rules. 5. Model Rule 1.1, cmt. 2. Related to this point, several lawsuits have been brought against counsel who represented accused infringers for failing to analyze whether the infringement claims were “advertising injury” in terms of the client’s insurance policy; the argument being that analyzing insurance coverage was part of competent representation of counsel for an accused infringer. E.g., Darby & Darby, PC v. VSI Int’l, Inc., 701 N.Y.S.2d 50 (Sup. Ct. App. Div. 2000). Even though these cases have generally failed, counsel should consider advising clients to determine whether there is insurance coverage available, even though it is not implied as part of representing an accused infringer. Id.

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factual subject matter complex, patent practice is different and does require “more” than a law license and some experience in civil litigation.6 A lawyer who is not competent essentially has three options if he wants to represent a client in an infringement suit. Two of them involve associating counsel who is competent. First, the lawyer and client can agree to limit the scope of the representation to matters in which the lawyer is competent. 7 This by necessity would require associating patent counsel on the case.8 However, it is a means for litigators to agree, for example, to handle aspects of the case that do not require specialized patent or technical knowledge or to do so only with the facilitation of co-counsel. The second means to take on a case in which the lawyer is not competent is through necessary study.9 This often is a viable option where a lawyer has handled patent cases but just not in the particular area of technology. A lawyer with a mechanical engineering background can, for example, readily become competent to handle a case involving a mechanical patent, even in a subject area in which the lawyer has no real experience. It is less likely that a general litigator with a technical background could “study” patent law enough to become competent in the area, however, because of the complexities involved. In either case, the lawyer would need to ensure the client understood that the lawyer was going to “go to school” on the client’s dime.

6. See Tomar Electronics, Inc. v. Watkins, 2009 WL 1819994 (D. Ariz. Jan. 28, 2009) (removing case alleging errors in jury instructions in patent case caused adverse judgment); Berndt v. Greenwich Ins. Co., 2008 WL 5114269 (W.D. Wis. Dec. 2, 2008) (denying motion for summary judgment by patent firm that had represented client previously in patent litigation that resulted in an adverse judgment); Kirkland & Ellis v. CMI Corp., 1999 WL 92257 (N.D. Ill. Feb. 11, 1999) (denying firm’s motion for summary judgment on affirmative defense that it had improperly handled damages side of patent infringement case for which firm was suing for fees); Campcore, Inc. v. Matthews, 689 N.Y.S.2d 814 (N.Y. Sup. Ct. App. Div. 1999) (dismissing suit for failure to state a claim); In re SMEC, Inc., 160 B.R. 86 (M.D. Tenn. 1993) (claim that lawyers failed to advise client concerning risk of infringement under doctrine of equivalents where prior case resulted in million dollar judgment); Wilco Marsh Buggies & Draglines, Inc. v. XYZ Ins. Co., 520 So.2d 1292 (Ct. App. La. 1988) (dismissing on limitations ground malpractice claim against lawyers who had represented client in patent litigation, in part basing suit on allegation lawyer did not have knowledge of “specialized patent law”); Sherman Indus., Inc. v. Goldhammer, 683 F. Supp. 502 (E.D. Pa. 1988) (granting summary judgment on limitations grounds claim that firm had improperly advised defendant about damages in prior patent suit); Saveca v. Reilly, 488 N.Y.S.2d 876 (N.Y. Sup. Ct. App. Div. 1985) (malpractice suit based on failure to research venue, personal jurisdiction, and patent office proceedings). 7. Model Rule 1.1, cmt. 2. 8. In some circumstances, of course, even a seasoned patent litigator or patent prosecutor may need to associate with specialized counsel. See generally Ciocca v. Neff, 2005 WL 1473819 (S.D.N.Y. June 22, 2005) (alleging patent practitioner failed to abide by standard of care in obtaining an expert to appraise value of patents). 9. Model Rule 1.1, cmt. 2.

Diligence

Finally, the third way for a lawyer who is not competent in either the technology or the law is to associate a lawyer on the case who is competent and will be guided in the case by that lawyer.10 This latter option happens frequently in patent practice, where lawyers with significant patent experience “support” the “trial lawyers” who are better skilled at litigation. This form of a mixed team is often the best way to address patent cases. Finally, in those rare cases where an emergency presents itself and referral to or association with a competent lawyer is impractical, a lawyer can give advice or assistance but only to the extent reasonably necessary in the circumstances.11

B. Diligence Lawyers owe the duty of diligence to all clients; breach of this duty is often called “neglect.” A related but distinct obligation is to represent clients diligently.12 In patent litigation, various deadlines are imposed by the Federal Rules of Civil Procedure, certain parts of the Patent Act (such as the Section 282 notice), as well as potentially by district court local rules. Missing deadlines can show incompetency as well as breach of the duty of diligence.13 The overlap between diligence and duty is not complete, but it is substantial. For example, missing deadlines can result in a violation of the duty of competency, the duty of diligence, or both. Significantly, some jurisdictions hold that prejudice to the client is not required to establish violation of the duty of diligence.14 Thus, even though missing deadlines could result in loss of defenses or claims, or inability to put on evidence, some jurisdictions allow for a finding for breach of the duty of diligence to be based solely on undue delay and not require harm. Likewise, some courts hold that missing a deadline is not required; undue delay by itself can subject a lawyer to discipline.15

10. See Model Rule 1.1, cmt. 2. 11. Model Rule 1.1, cmt. 2. 12. See Model Rule 1.3 (“A lawyer shall act with reasonable diligence and promptness in representing a client.”). 13. See People v. Miller, 35 P.3d 689 (Colo. 20010) (lawyer failed to file suit before limitations ran). 14. See, e.g., In re Lewis, 689 A.2d 561 (D. D.C. 1997). 15. See, e.g., People v. C de Baca, 948 P.2d 1 (Colo. 1997) (lawyer delayed in filing a complaint because he had been disbarred and told client of delay only just before limitations would have run).

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C. Communication Again, in all representations, lawyers owe clients the duty to keep the client reasonably informed about the matter.16 In part, this obligation exists because certain decisions during the litigation process are for the client to make, and a client who is not kept reasonably informed cannot, as a result, properly exercise that obligation.17 Thus, because the decision whether to settle a case belongs to the client, failure to communicate settlement offers or demands violates the duty of communication.18 One counterintuitive duty is the duty to communicate their mistakes to their clients. A lawyer who makes a mistake has an obligation to disclose that mistake to his client.19 The obligation becomes more intuitive if you consider that the failure of a lawyer to convey such information to his client is because the lawyer’s interest in avoiding a possible grievance or malpractice claim conflicts with the obligation to inform the client of the potential claim. This aspect of this issue can be particularly an issue in cases where the firm is representing the patentee in litigation where it obtained the patent for the client. In addition, attempts to cover up a breach of the duty of competency or diligence can result in violation of the duty of communication.20 Lawyers who fail to file suit, but then create fictitious settlement documents, have been found to have neglected a matter and also breached the duty of communication.21 Finally, patent litigation also raises various disqualification and related issues that may need to be communicated to the client. As is discussed in Chapter 11, a lawyer who prosecuted the patent in suit, or who gave an opinion of counsel, may be unable to serve as trial counsel. Likewise, if the litigation firm also represents the client in prosecution matters, there may be the need to create “prosecution bars” that limit the ability of the firm to represent the client fully, either in the litigation or in prosecution.

16. Model Rule 1.4 17. Model Rule 1.4, cmt. 1 18. See, e.g., Hartford Accident & Indem. Co. v. Foster, 528 So.2d 255 (Miss. 1988) (lawyer must fully explain all ramifications of any offer to settle a case). 19. See, e.g., In re Schoeneman, 891 A.2d 729 (D. D.C. 2006) (lawyer disciplined for telling client its case was “fine” even though it had been dismissed). 20. See, e.g., In re Mays, 495 S.E.2d 30 (Ga. 1998) (lawyer falsely told client it had prevailed in case, even though he had failed to file it and was instead paying the “judgment” in installments out of his own pocket). 21. In re Gibson, 991 P.2d 277 (Colo. 1999).

Communication 83

Somewhat conversely, information that any person learns from litigation that is material to patentability of a pending application must be disclosed to the patent office.22 For example, the MPEP states: Where the subject matter for which a patent is being sought is or has been involved in litigation, the existence of such litigation and any other material information arising there from must be brought to the attention of the Patent and Trademark Office. Examples of such material information include evidence of possible prior public use or sales, questions of inventorship, prior art, allegations of “fraud,” “inequitable conduct,” and “violation of duty of disclosure.” Another example of such material information is any assertion that is made during litigation which is contradictory to assertions made to the examiner. Such information might arise during litigation in, for example, pleadings, admissions, discovery including interrogatories, depositions, and other documents and testimony.23

Thus, a client who is substantively involved in the prosecution of related applications to the patent-in-suit in may not understand that material information learned during litigation must be disclosed to the patent office. These obligations may need to be communicated to the client by prosecution counsel. Litigation counsel, if aware that this has not been done, should communicate the duty to the client.

22. Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1234 (Fed. Cir. 2007). 23. MPEP § 2001.06, citing Environ Prods., Inc. v. Total Containment, Inc., 43 U.S.P.Q.2d (BNA) 1288, 1291 (E.D. Pa. 1997). See also 37 C.F.R. 1.565 (requiring disclosure of litigation during reexamination proceedings); MPEP § 1442.04 (disclosure during reissue proceedings).

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CHAP T ER

5 Pre-Pleading Investigations

A. Introduction to the Potential Sources of Liability and Sanctions

86

1. Federal Rule of Civil Procedure 11

86

2. Exceptional Case Attorney Fee Shifting Under 35 U.S.C. § 285

87

3. Liability Under the Federal Antitrust Laws

88

4. Liability Under State Law and Other Federal Statutes

90

5. Concluding Introductory Thoughts

91

B. Patentee’s Pre-Suit Letters Charging Infringement

91

C. Patentee’s Pre-Suit Investigation into Charges of Infringement

94

1. Is the Plaintiﬀ a “Patentee?”

95

2. Is the Patent in Force?

96

3. Is the Defendant the Proper Defendant?

96

4. Is There an Objective Basis, Based Upon Reasonable Investigation, to Allege Infringement?

97

a. Interpretation of Claims

97

b. Application of Claims to Accused Product or Process

99

D. Invalidity of the Patent

101

1. Note on ANDA Certiﬁcations

102

E. Unenforceability

103

F. General Issues of Law and Other Papers Beyond Pleadings

103

G. Issues of Privilege and Work Product Concerning Pre-Suit Materials

104

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Chapter 5 Pre-Pleading Investigations

A. Introduction to the Potential Sources of Liability and Sanctions Various rules, federal statutes, and state substantive law (in the form of claims for malicious prosecution and the like) require that lawyers not invoke the power of any court without good reason. This section addresses four principal sources of obligations of inquiry and investigation commonly raised in patent suits. The purposes behind requiring pre-suit investigation are many and include weeding out frivolous claims and defenses, reducing the scope of what is in controversy, and eliminating unnecessary disputes over facts. But pre-suit and pre-answer investigation would no doubt occur even without legal requirement, since litigation itself is expensive, and counsel for both parties are generally interested in prevailing, and asserting meritless claims or defenses is generally perceived to indicate weakness, not strength, and so can diminish the value of strong claims or defenses.1

1. Federal Rule of Civil Procedure 11 Federal Rule of Civil Procedure 11 provides in part: (a) Signature. Every pleading, written motion, and other paper must be signed by at least one attorney of record in the attorney’s name—or by a party personally if the party is unrepresented. The paper must state the signer’s address, e-mail address, and telephone number. Unless a rule or statute specifically states otherwise, a pleading need not be verified or accompanied by an affidavit. The court must strike an unsigned paper unless the omission is promptly corrected after being called to the attorney’s or party’s attention. (b) Representations to the Court. By presenting to the court a pleading, written motion, or other paper—whether by signing, filing, submitting, or later advocating it—an attorney or unrepresented party certifies that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances: (1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; (2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law; (3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery; and

1. See Robert B. Fitzpatrick, Plaintiff ’s Pre-Trial Strategies, ALI-ABA (July 8, 1996).

Introduction to the Potential Sources of Liability and Sanctions (4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on belief or a lack of information.2

As with all suits filed in federal court, before a patent suit can be filed, a lawyer must comply with Federal Rule of Civil Procedure 11 by conducting an adequate pre-suit investigation as to the law and facts underlying the allegations of infringement that will be made in the complaint.3 So, too, a defendant must investigate in compliance with Rule 11 before filing a motion or pleading in response to a patent infringement suit.4 Because of the stakes often involved, as well as the complexity often associated with patent suits, however, it often takes significant effort to comply. The Federal Circuit applies regional circuit law to motions for sanction under Rule 11, since they are not unique to patent law.5 Fortunately, in the main Rule 11 has been interpreted relatively consistently across the circuits, at least at a high level. Although at the margins there are significant differences that could be outcome determinative in a particular case, generally the courts hold that a frivolous claim or pleading for Rule 11 purposes is one that is “legally or factually ‘baseless’ from an objective perspective” and made without “a reasonable and competent inquiry.”6 Thus, if the pleading or other paper was not objectively baseless, then the amount of inquiry is irrelevant; it is only if the pleading or paper is objectively baseless that the reasonableness of the factual and legal investigation matters.7

2. Exceptional Case Attorney Fee Shifting Under 35 U.S.C. § 285 Second, Section 285 provides that a “court in exceptional cases may award reasonable attorneys’ fees to the prevailing party.”8 The statute authorizes fee

2. Fed. R. Civ. P. 11. 3. Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295 (Fed. Cir. 2004); View Eng’g, Inc. v. Robotic Vision Sys., Inc., 208 F.3d 981, 986 (Fed. Cir. 2000). See Eon-Net, L.P. v. Flagstar Bancorp, Inc., 239 F.R.D. 609 (W.D. Wash. 2006) (“Rule 11 is not about “after-the-fact investigation,” and consulting with experts after fling to craft “colorable” arguments does not cure a Rule 11 violation.”) (quoting Judin, 110 F.3d at 785). 4. Rule 11 applies to all pleadings and signed documents, not just those of the plaintiff. See Fed. R. Civ. P. 11. 5. Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295 (Fed. Cir. 2004). 6. Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir. 2002). 7. See, e.g., Eon-Net, L.P. v. Flagstar Bancorp, Inc., 239 F.R.D. 609 (W.D. Wash. 2006) (imposing sanctions under Rule 11 for inadequate pre-suit investigation). 8. 35 U.S.C. § 285 (2000).

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shifting—awarding the accused infringer its attorneys’ fees, for example— where the prevailing party establishes that the suit was “objectively baseless.”9 In its most common form, “exceptional case” liability arises if the patentee loses the suit,10 although it also operates where the patentee wins the suit. A patentee who files an infringement suit can be liable for “exceptional case” damages if it acts “manifestly unreasonable in assessing infringement.”11 Significantly, liability can be imposed even if the patentee files suit but then voluntarily dismisses.12 The Federal Circuit applies its own law to claims under Section 285, since they are unique to patent law.13 Exceptional cases include those involving “‘inequitable conduct before the [Patent and Trademark Office]; litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or willful infringement.’”14 Even if one of these types of conduct is present, the district court must “weigh intangible as well as tangible factors: the degree of culpability of the infringer, the closeness of the question, litigation behavior, and any other factors whereby fee shifting may serve as an instrument of justice.”15

3. Liability Under the Federal Antitrust Laws Third, antitrust liability can arise, and in rare circumstances a patentee can be found liable for bad faith litigation or bad faith enforcement or publicity of a patent.16 Likewise, in some circumstances, an affirmative claim for relief, under state law or federal antitrust laws, can arise through enforcement of an invalid or unenforceable patent, for other forms of litigation involving patents.17

9. Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295 (Fed. Cir. 2004). 10. See generally Digeo, Inc. v. Audible, Inc., 505 F.3d 1362 (Fed. Cir. 2007) (examining exceptional case liability in contest of purchase of “as is” patents); Brooks Furn. Mfr’g, Inc. v. Dutailer Int’l, Inc., 393 F.3d 1378 (Fed. Cir. 2005). 11. Eltech Sys. Corp. v. PPG Indus., Inc., 903 F.2d 805, 809–10 (Fed. Cir. 1990). See Taurus IP, LLC v. DaimlerChrysler Corp., 559 F. Supp. 2d 947 (W.D. Wis. 2008) (finding case exceptional). 12. Micromesh Technology Corp. v. American Recreation Products, Inc., (N.D. Cal. 2007). 13. Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295 (Fed. Cir. 2004); Superior Fireplace Co. v. Majestic Prods. Co., 270 F.3d 1358, 1377 (Fed. Cir. 2001). 14. Superior Fireplace Co. v. Majestic Prods. Co., 270 F.3d 1358, 1377 (Fed. Cir. 2001); see Brooks Furn. Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378 (Fed. Cir. 2005) (describing additional forms of conduct that can violate Section 285). 15. Nat’l Presto Indus., Inc. v. West Bend Co., 76 F.3d 1185, 1197 (Fed. Cir. 1996). Accord Superior Fireplace Co. v. Majestic Prods. Co., 270 F.3d 1358, 1377 (Fed. Cir. 2001); see Modine Mfg. Co. v. Allen Group, Inc., 917 F.2d 538, 543 (Fed. Cir. 1990) (similar test). 16. Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 295 (Fed. Cir. 2004). 17. See, e.g., Abbott Labs. v. Brennan, 952 F.2d 1356 (Fed. Cir. 1992) (state law and antitrust counterclaims filed arising out of disputed result in interference proceeding).

Introduction to the Potential Sources of Liability and Sanctions

The Federal Circuit applies regional circuit law to antitrust claims, since they are not unique to patent law.18 Although a full discussion of the federal antitrust laws is beyond the scope of this book, some general principles relate directly to the issue of pre-suit inquiry. A suit for infringement, without more, is generally exempt from the antitrust laws even if the patent provides some market power; however, a patentee is subject to antitrust liability for the anticompetitive effects of that suit if the accused infringer proves either of two things.19 First, the accused infringer may prove that the asserted patent was obtained through “Walker Process” fraud—that is, knowing and willful fraud.20 Walker Process claims are a form of antitrust claim that are seldom made and even more rarely established. To succeed, on a claim for Walker Process fraud, the antitrust claimant—the accused infringer in the earlier suit—must show: 1. That the asserted patent was obtained by knowingly and willfully misrepresenting the facts to the PTO during prosecution; 2. That the party enforcing the patent—the plaintiff in the prior antitrust suit—was aware of the fraud when bringing the suit; 3. Independent and clear evidence of deception; 4. A clear showing that the patent would not have issued but for the misrepresentation or omission; and 5. The necessary additional elements to establish a violation of the antitrust laws.21

Second, the accused infringer may prove the earlier suit was “‘a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor.’”22 There is both an objective and subjective element to this substantive legal claim. First, the accused infringer must prove that the lawsuit was objectively baseless—in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit was reasonably calculated to lead to a favorable outcome, an antitrust claim based on the sham exception fail.

18. Filmtec Corp. v. Hydranautics, 67 F.3d 931 (Fed. Cir. 1996). 19. In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d 1322, 1326 (Fed. Cir. 2000); Nobelpharma, 141 F.3d at 1068. 20. Nobelpharma, 141 F.3d at 1068 (citing Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177, 86 S. Ct. 347, 15 L.Ed.2d 247 (1965)). 21. See In re Netflix Antitrust Litig., 506 F. Supp. 2d 308 (N.D. Cal. 2007) (granting defendant’s motion to dismiss Walker Process claim). 22. Id. (quoting E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 144, 81 S. Ct. 523, 5 L.Ed.2d 464 (1961)).

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Only if challenged litigation is objectively meritless may a court examine the litigant’s subjective motivation. An improper subjective motivation exists when the baseless lawsuit conceals “an attempt to interfere directly with the business relationships of a competitor,”23 through the “use [of] the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon.”24

4. Liability Under State Law and Other Federal Statutes Fourth, actions in federal court can give rise to state law claims for malicious prosecution and the like.25 Obviously, the existence and scope of these torts vary by state, and a particularized discussion is beyond the scope of this book. In addition to Rule 11, other laws inspired by tort reform efforts can require pre-suit investigation as well.26 Likewise, other federal statutes in rare circumstances can apply to patent suits. For example, 28 U.S.C. § 1927 provides that any person “admitted to conduct cases in any court of the United States . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses and attorneys’ fees reasonably incurred because of such conduct.”27 Where multiple suits are filed without basis, violations of Section 1927 have been found, but the cases are not common.28

23. E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 144, 81 S. Ct. 523, 5 L.Ed.2d 464 (1961). 24. City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 380, 111 S. Ct. 1344 (1991) (emphasis in original). 25. See Dominant Semiconductors SDN. BHD. v Osram GMBH, 524 F.3d 1254 (Fed. Cir. 2008) (discussing liability for bad faith litigation and bad faith publicity of patent rights); Taurus IP, LLC v. DaimlerChrysler Corp., 559 F. Supp. 2d 947 (W.D. Wis. 2008) (analyzing award of attorneys’ fees for breach of contract action related to patent infringement suit); Verve, LLC v. Hypercom Corp., 2006 WL 2390505 (D. Ariz. Aug. 16, 2006) (discussing claims for malicious prosecution and abuse of process for filing patent suit under Arizona state law); PSN Ill., Inc. v. Ivoclar Vivadent, Inc., 2005 WL 2347209 (N.D. Ill. Sept. 21, 2005) (analyzing counterclaims to infringement suit under state and federal law). See also Carter v. Ozoeneh, 2009 WL 3003836 (W.D. N.C. Sept. 16, 2009) (claims by former client that current litigation was actionable). The assertion of state law claims can implicate preemption and related doctrines. See Zenith Elec. Corp. v. Exzec, Inc., 182 F.3d 1340, 1349 (Fed. Cir. 1999); Pro-Mold and Tool Co. v. Great Lakes Plastics, Inc., 75 F.3d 1568, 1575 (Fed. Cir. 1996). 26. See, e.g., Hinchman v. Gillette, 618 S.E.2d 387 (W.V. 2005) (contrasting statutory pre-suit certificate with state version of Rule 11 in separation of powers challenge). 27. 28 U.S.C. § 1927 28. Verve, LLC v. Hypercom Corp., 2006 WL 2390505 (D. Ariz. Aug. 16, 2006) (concluding that attorney violated Section 1927 in patent suit). See also Baldwin Hardware Corp. v. Franksu

Patentee’s Pre-Suit Letters Charging Infringement

5. Concluding Introductory Thoughts Each basis for sanctions and liability has its particular elements and requirements. What follows focuses principally on Rule 11, since it is the more common basis for imposition of sanctions for inadequate pre-suit inquiry. Although they do vary in their elements and requirements, often if Rule 11 has not been violated during pre-suit investigation, then the courts tend to also hold that liability under the other bases is not established.29

B. Patentee’s Pre-Suit Letters Charging Infringement It is typical for patentees to send letters to accused infringers before filing a lawsuit in an effort to provide notice of infringement and to settle the dispute prior to litigation. It is less typical but still common for patentees to send letters to customers of a possible infringer and warn the customer that his conduct constitutes infringement. State and federal law can impose liability, under limited circumstances, on patentees who send these letters and thus result in suits against counsel for incompetently drafting them,30 and on some occasions can result in liability of patentee’s counsel directly to the accused infringer for violations of state and federal law.31

Enterp. Corp., 78 F.3d 550 (Fed. Cir. 1996) (affirming award based on litigation misconduct); Great Am. Ins. Co. v. Godwin Pappas Ronquillo, LLP, 2008 WL 1881320 (N.D. Tex. March 6, 2008) (pleading involving insurance coverage dispute over sanctions in prior patent infringement case). 29. E.g., Prism Technologies LLC v. Verisign, Inc., 2008 WL 4426135 (D. Del. Sept. 30, 2008) (basing denial of finding exceptional case in part on denial of finding Rule 11 violation). 30. E.g., Conditioned Ocular Enhancement, Inc. v. Bonaventura, 458 F. Supp. 2d 704 (N.D. Ill. 2006); Classen Immunotherapies, Inc. v. King Pharma., Inc., 403 F. Supp. 2d 451 (D. Md. 2005); Waterloov Gutter Protection Sys. Co v. Absolute Gutter Protection, LLC, 64 F. Supp. 2d 398 (D. N.J. 1999) (recognizing that state law claims like defamation and unfair competition, if any, arise from letters sent to customers of accused infringers). A somewhat distinct issue of competency arises from drafting letters accusing a party of infringement: there are ways to write this type of letter in a way that avoids creating declaratory judgment jurisdiction over the dispute. Counsel should take care to draft the letter in a way that minimizes the risk that the accused infringer will be able to preemptively file a declaratory judgment action of noninfringement in its home forum, or some forum less hospitable to the patentee. See generally Peter E. Heuser and Robert A Shlachter, If You’re Going to Do It, Do It Right, Or. St. B. Bull. (April 2009) (discussing this and other pitfalls to pre-suit communications, including the potential for letters and communications to be used to establish personal jurisdiction over the patentee). 31. See ISI Int’l Inc., v. Borden Ladner Gervais LLP, 316 F.3d 731, 733 (7th Cir. 2003) (suit by party targeted by letters against patentee’s lawyers); Waterloov Gutter Protection Sys. Co v.

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Owing to a 2008 Federal Circuit decision, these claims will be rare. In general, the Federal Circuit has stated that “federal patent law bars the imposition of liability for publicizing a patent in the marketplace unless the plaintiff can show that the patent holder acted in bad faith” and so “bad faith must be alleged and ultimately proven, even if bad faith is not otherwise an element of the tort claim.”32 The court reasoned that the purpose of requiring the plaintiff to plead and prove “bad faith” is to permit patentees to publicize their patent rights without incurring liability under state or federal law.33 The court has even extended it to statements made after the notice of allowance but before issuance of the patent.34 “Bad faith” in this context has both subjective and objective components: not only must the defendant have subjectively acted in bad faith, the plaintiff must prove that the defendant’s statements—whether made pre- or postlitigation35—were “objectively baseless.”36 Under this recent line of Federal Circuit decisions, this bad faith must be alleged and proven even if there is fraud or misrepresentations or product disparagement occurs in the letters, or if there is commercial advertising or promotion in terms of the Lanham Act.37

32.

33.

34.

35.

36. 37.

Absolute Gutter Protection, LLC, 64 F. Supp. 2d 398 (D. N.J. 1999) (counterclaim by accused infringer against patentee’s lawyers). Dominant Semiconductors SDN, BHD v. Osram GmBH, 524 F.3d 1254, 1260 (Fed. Cir. 2008). See Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318, 1336–37 (Fed. Cir. 1998), overruled on other grounds, Midwest Industries, Inc. v. Karavan Trailers, Inc., 175 F.3d 1356 (Fed. Cir. 1999) (requiring plaintiff to plead and prove bad faith to prevail on state law tort claims based upon statements of infringement in the marketplace); Contech Stormwater Solutions, Inc. v. Baysaver Tech., Inc., 534 F. Supp. 2d 616 (D. Md. 2008) (requiring bad faith and other elements of state law tort claims for pre-suit letters); Zenith Electronics Corp. v. Exzec, Inc., 182 F.3d 1340, 1353–54 (Fed. Cir. 1999) (adopting the bad-faith requirement for Lanham Act claims). See Hunter Douglas, 153 F.3d at 1336 (“[I]n a case involving a patentholder’s conduct in . . . publicizing a patent, if the plaintiff were to fail to allege that the defendant patentholder was guilty of . . . bad faith in the publication of a patent, then the complaint would be dismissed for failure to state a claim upon which relief can be granted because of federal preemption.”). Judkins v. HT Window Fashion Corp., 529 F.3d 1334, 1337, 1342 (Fed. Cir. 2008). Other courts have applied the requirement in other contexts. E.g., Foboha GmbH v. Gram Tech., Inc., 2008 WL 4619795 (N.D. Ill. Oct. 15, 2008) (statements made during pending reexamination). The “objectively baseless” standard was first applied to “pre-litigation” infringement letters (e.g., cease-and-desist letters). See Globetrotter Software, Inc. v. Elan Computer Group, Inc., 362 F.3d 1367, 1377 (Fed.Cir.2004). In Dominant, the court held that the “‘objectively baseless’ standard applies to publicizing a patent in the marketplace as well as to pre-litigation communications.” 524 F.3d at 1260 n. 5. GP Indus., Inc. v. Eran Indus., Inc., 500 F.3d 1369, 1374 (Fed. Cir. 2007). See also ISI Int’l Inc., v. Borden Ladner Gervais LLP, 316 F.3d 731, 733 (7th Cir. 2003) (holding that “letters sent to customers do not come within the scope of ” the Lanham Act and so are not actionable).

Patentee’s Pre-Suit Letters Charging Infringement

Even if bad faith can be alleged, the remaining elements of any cause of action must be established.38 Courts distinguish between claims based upon the filing of litigation, and claims based upon pre-suit communications with customers or accused infringers.39 Claims based on prefiling conduct and communications are discussed here; claims and potential sanctions and liability for merely filing a lawsuit are discussed in the next section; claims and sanctions based on conduct during litigation itself, rather than the mere filing of it, are discussed in Chapter 9. Prefiling communications with customers of potential infringers raise thornier problems,40 as well as delicate business issues since they also might be customers of the patentee who are unlikely to be happy with the possible supply interruption and other hassles that patent infringement litigation with a supplier can create. With respect to the liability issues presented, claims have been made under both state and federal law, and so with respect to the state law claims, the contours of potential liability vary by state.41 In addition to the “bad faith” requirement created by the Federal Circuit, a state’s “litigation privilege” often affords a defense to many claims.42 Courts generally find some pre- and most post-litigation communications subject to a litigation privilege,43 which is often characterized as “absolute.”44 Significantly, however, it is “absolute” if at all only with respect to state law claims: federal claims are not subject to a state law litigation privilege.45 Even with respect to state law claims, the litigation privilege does not bar all

38. Some of the decisions cited in this section pre-date the Federal Circuit’s imposition of a “bad faith” requirement and so need to be read with that in mind. 39. PSN Ill., Inc. v. Ivoclar Vivadent, Inc., 2005 WL 2347209 (N.D. Ill. Sept. 21, 2005). 40. As noted elsewhere, First Amendment rights to petition government may protect a patentee’s communications with and threats of infringement against a potential party; but the same does not necessarily hold true with respect to communications with customers. See Open LCR.Com, Inc. v. Rates Techn., Inc., 112 F. Supp. 2d 1223, 1233–34 (D. Colo. 2000) (discussing the scope of Noerr-Pennington immunity and state litigation privilege in context of communications between patentee and customers of accused infringer). 41. E.g., Conditioned Ocular Enhancement, Inc. v. Bonaventura, 458 F. Supp. 2d 704 (N.D. Ill. 2006); Contech Stormwater Solutions, Inc. v. Baysaver Tech., Inc., 534 F. Supp. 2d 616 (D. Md. 2008). 42. See Waterloov Gutter Protection Sys. Co v. Absolute Gutter Protection, LLC, 64 F. Supp. 2d 398 (D. N.J. 1999) (analyzing whether state or federal “litigation privilege” applied to claims against patentee and its counsel and concluding state law applied). 43. See New Jersey Sports Prods., Inc. v. Bobby Bostick Promotions, LLC, 963 A.2d 890 (N.J. Super. Ct. 2007) (collecting cases holding that litigation privilege applies to prelitigation letters sent “bear” on subsequent litigation); Waterloov Gutter Protection Sys. Co v. Absolute Gutter Protection, LLC, 64 F. Supp. 2d 398 (D. N.J. 1999) (noting state had extended privilege to pre-suit communications “made in contemplation of litigation”) (collecting cases). 44. E.g., PSN Ill., Inc. v. Ivoclar Vivadent, Inc., 2005 WL 2347209 (N.D. Ill. Sept. 21, 2005). See generally T. Leigh Anenson, Absolute Immunity from Civil Liability: Lessons for Litigation Lawyers, 31 Pepp. L. Rev. 915 (May 2004). 45. Steffes v. Stepan Co., 144 F.3d 1070, 1074 (7th Cir. 1998) (collecting cases).

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claims in some states.46 However, where the charge is made in an advertisement or press release, the litigation privilege may not apply in some states.47 Although there is likely little risk associated with the typical use of a letter of infringement sent to either an accused infringer or its customers, clear guidelines are impossible to provide, given the differences in state substantive law, the undeveloped nature of federal claims, and the differing scope of state litigation privileges, a few points can be made: • The letter should come only after at least some analysis of the claims and accused product, to avoid objective baselessness; • Press releases or public pronouncements should be kept to a minimum, since they are often outside the scope of the state litigation privilege; • The letter should not disparage the accused product or its maker; and • The letter should come from counsel, not the patentee; • Counsel should discuss the possible risks, though minimal, with the client.48

C. Patentee’s Pre-Suit Investigation into Charges of Infringement Once a suit is filed in federal court, various additional sources of liability and responsibility arise. Foremost, the Federal Circuit has warned that a patent holder must “be prepared to demonstrate to both the court and the alleged infringer exactly why it believed before filing the claim, exactly why it believed that it had a reasonable chance of proving infringement.”49 If the patent owner cannot show that it had an objectively reasonable basis for filing the suit, then the court must examine the adequacy of the lawyer’s investigation into the suit.50 If the plaintiff can show neither sufficient objective evidence to file suit nor an adequate investigation, then “ordinarily” this should “result in the district court expressing its broad discretion in favor of Rule 11 sanctions, at least in the absence of a sound excuse or considerable

46. E.g., Conditioned Ocular Enhancement, Inc. v. Bonaventura, 458 F. Supp. 2d 704 (N.D. Ill. 2006). 47. Classen Immunotherapies, Inc. v. King Pharma., Inc., 403 F. Supp. 2d 451 (D. Md. 2005) (press release alleging infringement not protected by litigation privilege). 48. New Jersey Sports Prods., Inc. v. Bobby Bostick Promotions, LLC, 963 A.2d 890 (N.J. Super. Ct. 2007); St. Paul Fire & Marine Ins. Co. v. Birch, Stewart, Kolasch & Birch, LLP, 379 F. Supp. 2d 183 (D. Mass. 2005) (firm sued for not explaining risk that sending letter could entail). 49. View Eng’g, Inc. v. Robotic Vision Sys., Inc., 208 F.3d 981, 986 (Fed. Cir. 2000). 50. Dome Patent LP v. Permeable Tech., Inc., 190 F.R.D. 88, 91 (W.D.N.Y. 1999).

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mitigating circumstances.”51 State law claims, such as malicious prosecution, have also been based upon faulty pre-suit investigations, whether or not Rule 11 is satisfied.52 While Rule 11 applies to all civil suits in federal court, it has special force in patent cases where the district court has, in addition, adopted local rules requiring disclosures in patent cases. As it will be explained more fully, a patentee can violate both Rule 11 and a district court’s local rules by failing to conduct adequate pre-suit discovery. What is “reasonable” obviously varies with the facts. In addition, the Federal Circuit has held that whether a litigant has complied with Rule 11 turns on law not unique to patent law, and so regional circuit law controls.53 Thus, what may be proper in one circuit may be improper in another, even though the Federal Circuit will hear any ultimate appeal. However, there are some basic steps that competency requires and which may be necessary to avoid liability for attorneys’ fees or damages under both federal or state law.

1. Is the Plaintiﬀ a “Patentee?” First, the lawyer representing the plaintiff must investigate whether the party proposed to be named as plaintiff is a “patentee” under the act.54 If the patent was issued to the named party, and there have been no subsequent transfers, assignments, or conveyance of any rights under the patent, this is often a simple matter. However, where the initial assignee has sold or otherwise conveyed some or all rights represented by the patent, investigation into whether the transfer was sufficient to give the proposed named plaintiff standing as a “patentee” is required.55 In some circumstances, proper pleading may require more than one plaintiff be named. The failure to reasonably investigate this threshold

51. Id. See Pellegrini v. Analog Devices, Inc., 2008 WL 2329403 (Fed. Cir. July 2, 2008) (finding no abuse of discretion in district court’s finding of Rule 11 violation and award of sanctions). 52. Verve, LLC v. Hypercom Corp., 2006 WL 2390505 (D. Ariz. Aug. 16, 2006) (addressing motions for sanctions and for claims under state law). 53. Manildra Milling Corp. v. Ogilvie Mills, Inc., 76 F.3d 1187, 1183 (Fed. Cir. 1996); Centillion Data Systems, LLC v. Convergys Corp., 2006 WL 20777 (S.D. Ind. 2006). 54. See, e.g., FieldTurf, Inc. v. Southwest Recreational Labs, Inc., 235 F. Supp. 2d 708 (E.D. Ky. 2002), vacated in part, FieldTurf, Inc. v. Southwest Research Recreational Indus., Inc., 357 F.3d 1266 (Fed. Cir. 2004); Verve, LLC v. Hypercom Corp., 2006 WL 2390505 (D. Ariz. Aug. 16, 2006). 55. See Shatterproof Glass Corp. v. PPG Indus., Inc., 1995 WL 5609 (Fed. Cir. Jan. 6, 1995) (holding that plaintiff ’s counsel should have determined that its client was no longer a patentee but reversing district court’s finding that failure to do so was grossly negligent).

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question of standing has led firms to be sanctioned under Rule 11 as well as other mechanisms, such as Section 1927 and inherent power.56

2. Is the Patent in Force? Second, the patent must still be in force, at least if future damages or injunctive relief is sought, or must have expired within six years of filing suit. Maintenance fees are due on patents every few years, and if they are not paid, the patent lapses.57 Competent counsel can easily discern whether maintenance fees have been paid. If they have not, there are means to revive the patent that is available under some circumstances.58 Even an expired patent has value, since in most circumstances, damages accruing six years prior to its expiration may be recovered. Nonetheless, a pleading seeking damages based upon on an expired patent probably should inform the defendant that only past damages, and not injunctive relief, are being sought to avoid charges of improper conduct.

3. Is the Defendant the Proper Defendant? Third, the plaintiff’s lawyer must ensure he is naming the proper defendant. “Requiring parties to determine with accuracy that they are suing the correct parties . . . is the most basic factual inquiry in any law suit.”59 Suing a party that as a matter of law does not infringe—because, for example, it does not even make the accused product—can result in sanctions.60 While usually this is straightforward, if the defendant is part of a complex interrelated corporate structure, more investigation may be required than in run-of-the-mill cases.

56. See, e.g., FieldTurf, Inc. v. Southwest Recreational Labs, Inc., 235 F. Supp. 2d 708 (E.D. Ky. 2002), vacated in part, FieldTurf, Inc. v. Southwest Research Recreational Indus., Inc., 357 F.3d 1266 (Fed. Cir. 2004); Digeo, Inc. v. Audible, Inc., 505 F.3d 1362 (Fed. Cir. 2007) (even when patents are purchased “as is,” no additional inquiry is required of patentee). 57. See generally, Michels v. U.S., 72 Fed. Cl. 426 (Fed. Cl. Ct. 2006) (holding it was not an unconstitutional taking for government to let patent lapse due to nonpayment of statutorily mandated maintenance fees). 58. See also Kasha v. Roth & Goldman, P.C., 2008 WL 690916 (Cal. Super. Ct. Jan. 12, 2006) (complaint alleging firm had advised patentee that a third-party’s patent had lapsed, and so the client invested money developing a product, but then learned the patent had been reinstated). 59. Classen Immunotherapies, Inc. v. Biogen IDEC, 381 F. Supp. 452, 457 (D. Md. 2005), quoting Callahan v. Schoppe, 864 F.2d 44, 46–47 (5th Cir. 1989). 60. See Fraser v. High Liner Foods (U.S.A.), Inc., 2009 WL 1951894 (Fed. Cir. July 8, 2009) (in affirming sanctions, court noted that plaintiff ’s counsel “did not even inquire as to the existence of these defendants prior to bringing suit”).

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4. Is There an Objective Basis, Based Upon Reasonable Investigation, to Allege Infringement? Fourth, and less straightforward than the first three, there must be reasonable factual and legal investigation of the allegation of direct infringement of at least one claim of one patent-in-suit owned by the proposed plaintiff.61 What