Bressler Risk Blog

“DOJ Brief to CAFC Slamming Apple Highlights PTAB Code of Conduct Problem” —

• “This particular mess relates to the Patent Trial and Appeal Board (PTAB) and the astonishing reality that the Administrative Patent Judges (APJs) on the PTAB are not bound by any Code of Judicial Conduct, as is applicable to Article III federal judges. Instead, PTAB Judges are only bound by the same ethics standard that applies to all other employees, which requires them to recuse themselves from any decisions relating to former employers for one year. That is how several PTAB Judges have been able to adjudicate inter partes review (IPR) and covered business method (CBM) challenges filed by a former litigation client – Apple, Inc.”
• “It makes absolutely no sense for PTAB Judges to be allowed to adjudicate matters dealing with former clients. How the USPTO has allowed for this to happen is a mystery, and why they continue to allow it to happen is nothing short of a startling display of indifference.”
• “The content of the Dr. Sawyer letters included a series of allegations of various criminal activities and other ethical infractions. For example, in a letter dated June 21, 2017, Dr. Sawyer complained about the cancellation rates for IPRs and suggested potential ethical violations posed by conflicts of interest with administrative patent judges (APJs) which went unreported by Apple. In the final letter, Dr. Sawyer suggested that the PTAB engaged in potential criminal violation of the Racketeering Influenced and Corrupt Organizations (RICO) Act and that IPR proceedings operated as a ‘killing field’ for small inventors.”
• “Clearly, these types of ex parte communications are not the appropriate way to handle the grievance; sanctions followed, but the USPTO did remove the PTAB panel, which Apple did not appreciate. Although no explanation as to why the panel was removed was forthcoming, Dr. Sawyer’s allegations were not the made-up rantings of a lunatic. APJ Stacy Beth Margolies had previously represented Apple in several patent litigation matters, so at a minimum there was an appearance of impropriety.”
• “It is unconscionable for the USPTO to continue to allow the PTAB to operate without a separate, distinct and legitimate Code of Conduct that at a minimum mandates recusal when an APJ cannot objectively preside over both parties in the proceeding.”

For more detail on this one, see: “More PTAB Conflicts: APJ Margolies Once Again Assigned to Apple Petitions.”

And going even deeper, a fascinating analytics-driven review of the PTAB trial outcomes (charts and commentary galore) involving a judge who served as lawyer that represented Apple in patent infringement matters while working for a prominent firm (2006-2013), then became an administrative patent judge at APJ (2013-2019), and was subsequently hired as Sr. Legal Counsel, IP Litigation by Apple: “By the Numbers: APJ Matt Clements and Potential Pro-Apple Bias at the PTAB.”

“Sills Cummis Faces Disqualification Bid in Battle Over Oil Refining Technology” —

• “The disqualification motion says that Sills Cummis is conflicted out of representing plaintiff Pristec Refining Technologies, a closely held entity, because of the law firm’s concurrent duties to defendants who are constituent members of that company. In particular, Sills Cummis has duties to defendant Pristec America, which holds a 75% interest in Pristec Refining Technologies and owns the license to the technology that is at the center of the case, according to the motion.”
• “The suit stems from a dispute over the operating and licensing agreements for a proprietary process for refining crude oil that promises to reduce waste and carbon emissions. That process, known as the Pristec Technology, has an estimated value of approximately $540 million, according to a court document.”
• “In seeking to have Sills Cummis taken off the case, the defendants cite a 2014 Appellate Division ruling, Comando v. Nugiel. In that case, the Bridgewater, New Jersey, firm of Norris, McLaughlin & Marcus was held to have a disqualifying conflict of interest in representing one co-owner of a limited liability company in a dispute with the other co-owner after it represented the LLC in connection with its formation.”
• “In Comando, the court held that Norris McLaughlin had represented the LLC at a time when it was owned by the two members, and, essentially, later sought to choose sides in the inter-company dispute, something that was prohibited under the Rules for Professional Conduct, O’Connor wrote.”

Here’s a great analysis of an always popular issue, which I missed during my blogging hiatus. (Speaking of which, we’re approaching the one year anniversary of the Bressler Risk Blog… I’d better come up with something interesting for that milestone… In the meantime, please do encourage your colleagues to join our readership rolls.)

“All In The Family: The Tricky Ethics Of Corporate Affiliate Conflicts” —

• “If you represent a corporation, do you represent all entities in the corporate family? For example, if you represent a parent company, does that mean you also represent the parent’s subsidiaries? Does it matter if a subsidiary is wholly-owned vs. partially owned? How about if you represent a subsidiary–does that mean you also represent its parent or grandparent entity in the corporate tree?”
• “Many corporate entities are parts of families that can include parents, subsidiaries, and other affiliated or related entities. Some corporate families can be complex and include scores, or even hundreds, of related entities under the same ‘family tree.’ This arrangement can present challenges for attorneys who are asked to undertake a representation adverse to an entity that the lawyer does not consider to be her client yet is part of the same corporate family as the lawyer’s organizational client.”
• “In a recent decision, the Federal Circuit disqualified a law firm from representing a client in a patent appeal because the adverse parties in the patent matter were corporate affiliates of one of the firm’s clients. The Court’s decision in Dr. Falk Pharma GMBH v. Generico, LLC, is instructive on how corporate affiliates can morph into unintentional clients that create a conflict of interest for a lawyer who wants to take a position adverse to a different entity within the same corporate family as the lawyer’s client.”
• “Bausch & Lomb is both an indirect subsidiary of Valeant-CA and an affiliate of Salix. The Firm’s engagement agreement for the trademark litigation on behalf of Bausch & Lomb was executed by Valeant-CA. As is common especially when representing large entities, the client had outside counsel guidelines (OCGs), which the engagement agreement incorporated by reference. Valeant-CA’s OCGs stated in relevant part that Katten would not represent any party in matters conflicting with any Valeant entity.”
• “In addition to that representation, Mukerjee and Soderstrom, while at Alston & Bird, represented Mylan against Salix in related, parallel proceedings before the PTAB and the district court. The Salix matter wound up in a related appeal filed in the Federal Circuit, which appeal was pending when Mukerjee and Soderstrom joined Katten. Thereafter, Salix moved to disqualify Katten from that appeal. That motion was consolidated for decision with the Valeant-CA disqualification motion.”
• “[Applying the regional law of the Third and Fourth Circuit] The court noted that under the comments to Rule 1.7 pertaining to organizational clients ‘a lawyer for the 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…’ The court concluded that the “circumstances” were such that affiliates should be considered clients of Katten.”

See the full article for more of the story, more analysis, and Michael McCabe’s key take-aways.

“Federal Circuit Disqualifies Litigation Counsel Who Prosecutes Patents for Subsidiary Company” —

• “In an unusual decision, the Federal Circuit has disqualified PerDiem’s appellate counsel – the firm of Davidson Berquist Jackson & Gowdey, LLP – based upon a current client conflict.”
• “The particular problem here stems from Davidson’s simultaneous performance of patent prosecution work for Trimble Transportation Enterprise Solutions, Inc.. Trimble Transport is a wholly owned subsidiary of appellant Trimble Inc (TRMB).”
• “Although Davidson has now withdrawn its representation of Trimble, the court judges current-client conflicts as of the filing of the motion to disqualify. At that time Davidson was representing both Trimble Transportation and PerDiem. Also, because the district court case was litigated in California, California professional responsibility rules control conflict situations.”
• “Software Engineering, LLC (who is also a party to the lawsuit). Trimble (TRMB) has a valuation of $10 billion, 8,000+ employees, and more than a dozen major subsidiary companies. The formal corporate structure was specifically and particularly designed to take advantage of various laws — creating protections against a variety of potential liabilities and allowing differentiation between the various companies. Now, however, when it is advantageous to the company, it argues that the corporate walls are illusory.”
• “…the biggest factor in this case is Aaron Brodsky — in-house patent counsel at Trimble Inc. Although Brodsky works for the parent, he advises on patent prosecution work for a number of the subsidiaries that do not have their own patent counsel — including Trimble Transport. In particular, Broadsky advised the Davidson firm on its prosecution work and, at the same time, manages the present litigation. That intermingling of relevant legal matters starts to make the concurrent representation look bad.”

“Ohio jury hits Dentons with ‘record’ $32m legal malpractice verdict” —

• “An Ohio jury has ordered law firm Dentons to pay $32.3 million to laser technology company RevoLaze, after the firm was disqualified in a patent suit over a conflict of interest.”
  “RevoLaze sued Dentons and the chair of its patent litigation practice after the firm had been disqualified from the dispute at the US International Trade Commission (ITC).
• “The Gap filed a motion to disqualify Dentons, arguing that the law firm’s Canadian arm had previously acted for the company in litigation.”
  “Dentons US denied that it had a conflict of interest, arguing that while Dentons US and Dentons Canada are both members of the Swiss verein Dentons Group, they are separate law firms. A verein-organised firm is a combination of law firms that share marketing and branding, but keep their profits and finances separate from one another. But, in May 2015, the ITC granted The Gap’s motion to disqualify.”
• “In a legal malpractice suit filed subsequently against Dentons US, RevoLaze said: ‘As a result of defendants’ failures, RevoLaze was required to retain alternate counsel to replace defendants. Despite the fact that defendants had billed RevoLaze for over 81% of the agreed budget for all of the ITC litigation [and district court litigation] RevoLaze was required to duplicate many of these expenses with its alternate counsel.”
• “Sarah Dunkley, senior associate at Patterson, added that the case is important because it shows that a ‘law firm cannot evade its duty of loyalty by organising itself as a Swiss verein.'”
• “Dentons said: ‘We will appeal. The verdict was simply wrong. Just as our position was vindicated on appeal by the ITC, we will be vindicated on appeal in this matter. We acted properly, ethically, and consistent with our duties to our clients.'”

“Dentons Suffer $32 Million Lawsuit Loss For Malpractice” —

• “‘The verdict did not surprise me,’ said Kristi Browne [counsel for RevoLaze], ‘but it was gratifying. The jury was particularly attentive throughout the trial, asked good questions, and thoroughly deliberated.'”
• “RevoLaze, a small Cleveland, Ohio technology company, owns patents that have revolutionized the denim industry. In 2015, Dentons and Mr. Hogge were disqualified from representing RevoLaze in a patent enforcement case in the International Trade Commission. The disqualification occurred after a defendant in that case, The Gap, raised a conflict of interest. ‘The case is important because it shows that a law firm cannot evade its duty of loyalty by organizing itself as a Swiss verein,’ said Sarah Dunkley [counsel for RevoLaze].”

OCGs are a hot topic, no doubt. A longtime reader brought this story to my attention. What’s most interesting is the creation of a specific OCG-focused operational risk role to help manage things: “Technology Alone Is Not the Answer’: Wilmer Revisits Outside Counsel Guidelines” —

• In total, the firm is sitting on approximately 1,000 documents, after receiving, in 2019 alone, roughly 260 new retainer agreements or updates to existing guidelines that stipulate what clients expect from the attorneys they are hiring.
• “‘There are a lot of process failures out there,’ said Kyle Liepelt, who was named Wilmer’s first dedicated outside counsel guidelines administrator in February 2018. ‘Technology alone is not the answer.'”
• “When Wilmer began the process of reevaluating how it dealt with these guidelines in 2017, leaders found that—unlike the majority of the firms… it was over-complying with guidelines. Instead of losing money through rejected bills, convoluted appeals and write-downs, attorneys were being overly cautious in their billing.
• “‘We couldn’t arm our partners to the nuances of these client differences,” said Steve Smith, the firm’s director of matter management services, describing a problem of ‘excessive diligence.’ That impact, both in time and money, to communicate the complexity around outside counsel guidelines, that’s time that we should have been spending adding real value to our clients,’ he continued.”
• “Following an initial workshop, one of Wilmer’s first steps was to create the centralized administrator position held by Liepelt, who spent the previous five years as a conflicts specialist in the firm’s new business department. Each set of new guidelines goes directly to him, and he’s responsible for reviewing their terms, looping in the relationship partner and the billing partners on a given matter.”
• “If these conversations illustrate the human side of the process, the technical side takes the forefront once any negotiations are finished. The Wilmer team looked to a database to help solve the problem of scale, teaming with a vendor that had its own outside counsel guidelines solution and using the underlying workflow and source code to built their own unique design. Each client’s guidelines are broken down into a data record with component terms highlighted, and attorneys and staff can search for terms and easily access the source documents.”
• “When updated versions of guidelines roll in, Liepelt can turn to the database to identify what’s changed, then rapidly point out the differences to the partners involved. When looking at intranet profiles for the firm’s attorneys, he and others can follow links to see what outside counsel guidelines apply to each matter they’re working on, guiding conversations about matter efficiency.”
• “One year into the new system, the feedback, from both inside and outside the firm, has been overwhelmingly positive, according to Smith and Liepelt. Partners appreciate having an internal point person to whom they can direct their inquiries and concerns, while staff have the information at their disposal to do pre-bill auditing. Turnaround time with clients has decreased by 25%.”

Last week’s look at laterals was definitely a hit. Never one to live within artificial constraints, I felt it worthwhile to extend things, thanks to an update sent by Chuck Lundberg. This analysis from 2017 reminds us that these issues are not new, with links to several relevant stories and examples: “Quandaries and Quagmires: Carefully vetting lateral partner candidates” —

• “It’s the end of July 2017 — the bar exam was last week — and the hottest trending topic in legal ethics and risk management right now is this: How badly some law firms have screwed up in vetting new lateral partners. Here’s just a sampling of the most recent headlines in the legal press about lateral hire disasters:
  • Hiring Misfires Show Need for Tougher Law Firm Vetting (The American Lawyer, 6/22/17)
  • Lateral Hazard: Legal Malpractice Claims Rise With New Hires (The American Lawyer, 6/30/17)
  • Stat Of The Week: How Much Can A Bad Lateral Hire Cost A Firm? (Above the Law, 6/23/17)
  • Survey: Lateral Attorneys Blamed for Most Legal Malpractice Claims (JD Journal, 7/3/17)
• “And the cost of a bad lateral hire can be substantial — two to four times the lateral’s annual compensation. And that doesn’t even account for some intangible costs that could be far more expensive to the firm:
  • Like the expense of an unforeseen motion to disqualify your firm from a big case based on an undetected imputed conflict triggered when the lateral walked in the front door.
  • Like losing one or more clients who choose to retain new counsel rather than stay with you and fight the DQ motion.
  • Like the fact that your malpractice insurance carrier may perceive an increased underwriting risk in your firm’s lateral hiring practices (translation: higher premiums).
  • Like the incalculable internal cost to the firm from bringing in a culturally incompatible partner.
  • Like the unexpected telephone call from the respected judge who has always been a friend of your firm, who quietly asks why in the world you would hire that lawyer as a lateral.
• “And trust me about this: When a lateral does flop spectacularly, you do not want to be the subject of this angry question among your partners: ‘Who was the genius who wanted to bring that lawyer into the firm?'”
• “All of which is not to say that firms should not engage in lateral hiring. A carefully chosen lateral partner can be worth his or her weight in gold… But the decision to hire a lateral must be done with great care, with a full understanding of how badly it could go wrong. The vetting process is neither easy nor quick.”
• “Treat lateral due diligence as seriously you would an M&A transaction for a client; many firms spend hundreds or thousands of hours vetting such a transaction, and lateral vetting should be no different.”

“Data Security And Your Lateral Job Search (What you need to know)” —

• “To combat these [external data] breaches, law firms have several contingencies and programs in place. Among the oldest and most widely used is email monitoring. Nothing that you type from your work email is truly 100% confidential. Law firms can access your emails at any time. So should you be wary of your firm discovering your emailed plans for making a lateral move?”
• “According to a former high-level IT employee at two Am Law 200 firms, the answer is, not really. According to them, email inspection is not passive. To review an attorney’s emails, the firm would have to go through HR and would only do so when there was ample evidence of a crime or wrongdoing.”
• “Does this mean that your inbox is 100% completely safe from prying eyes? In short, no. The former employee mused that a firm that was hemorrhaging laterals and was in danger of collapsing might forego their established policy to try to stem the flow of lateral movement.”
• “Additionally, the proliferation of employee monitoring software has made it easier for firms to identify suspicious activity. The caveat here is the same tools that can detect potential data security threats, can also be used to monitor an employee’s likelihood of leaving. New employee monitoring tools can monitor everything you do on your computer. If you’re not responding to your coworker’s IM’s, or are taking longer than usual, this (in tandem with other key indicators) may tip them off that you’re looking to move. Other indicators can include things like regularly updating your LinkedIn profile.”
• “The most telling pattern of behavior is when attorneys check out an unusually large amount of documents (usually in excess of 50) in one day that were marked as read-only, with no edits. In this case, the firm is painfully aware that the attorney is copying their library in preparation for a lateral move.”

“Wise counsel when moving between firms” —

• “Law firm managers have long known they can’t require attorneys to sign noncompete agreements when they join a firm. Even so, there have still been instances where firms have made it challenging for a lawyer trying to make a lateral move.”
• “But a recent opinion from the American Bar Association Standing Committee on Ethics and Professional Responsibility makes it clear that any provision of an employment agreement that interferes with a client’s autonomy is never acceptable.”
• “‘Firms may require some period of advance notice of an intended departure,’ Formal Opinion 489, handed down last month, reads. ‘…Firm notification requirements, however, cannot be so rigid that they restrict or interfere with a client’s choice of counsel or the client’s choice of when to transition a matter.'”
• “One of the main points of the ethics opinion is the notice requirement a firm can impose on a lawyer who wishes to move to another firm. ‘The period of time should be the minimum necessary, under the circumstances, for clients to make decisions about who will represent them, assemble files, adjust staffing at the firm if the firm is to continue as counsel on matters previously handled by the departing attorney, and secure firm property in the departing lawyer’s possession,’ the ethics committee wrote.”
• “The opinion also advises firm leadership that they cannot withhold resources, such as email or staff, from a departing attorney during the transition period if doing so would prevent leaving lawyers from adequately representing their clients. Lawyers and their firms are encouraged to coordinate during a transition period in the best interests of any affected clients.”
• “To that end, firms should have procedures in place that explain the process of transitioning a lawyer out of the practice and to another firm, the opinion advises. Most sophisticated firms have established such procedures, said Bruce Lithgow, a managing director of the Partner Practice Group of Major Lindsey & Africa.”
• “A ‘race to the phone’ is not uncommon, Lithgow said, as both departing attorneys and their former firms will likely want to keep the client on their rolls. But Lithgow said he would advise leaving lawyers to come to their firm management with a prepared statement that can then be negotiated into a joint statement.”

“US Firms Mostly Hire From Other US Firms in London, 2019 Data Shows” —

• “U.S.-headquartered law firms in London hired nearly twice as many partners from other U.S. law firms as they did from their U.K. competitors in 2019, Legal Week analysis of lateral hire data has found. In total, nearly 30% of all lateral partner hires in London involved U.S partners defecting to other U.S rivals.”
• “The data, which was compiled using ALM’s intelligence arm, Legal Compass, and reporting by Legal Week across the year, identified nearly 340 lateral partner hires in London by Am Law 100 and UK Top 50 firms.”
• “Moves from U.K firms to U.S firms were only marginally higher than the other way round – the former accounting for 13% of moves compared to the latter on 11%. The U.S. threat was still potent however. The Magic Circle lost eleven partners in lateral moves this year, ten of whom moved to U.S firms.”

For more data on industry lateral trends, see a previous summary posted on the risk blog.