Risk Update

Costly Conflicts — Judge Stock Ownership in Patent Matter, “Intractable Conflict of Interest” Results in Six-figure Damages

Posted Dan Bressler

“Patent Probe Can Proceed Despite Judge’s Cisco Stock Ownership” —

  • “Cybersecurity firm Centripetal Networks LLC can’t halt a US Patent and Trademark Office tribunal’s validity review of a patent that was part of a wiped-out $1.9 billion verdict against Cisco Systems Inc., the Federal Circuit ruled Tuesday.”
  • “Although the verdict in the high-profile patent-infringement case was vacated due to Cisco stock owned by the presiding judge’s wife, the Federal Circuit said a parallel challenge to the patent’s validity lodged against Centripetal can proceed in the face of an administrative patent judge owning a small amount of Cisco stock.”
  • “Centripetal’s petition, filed in March, sought to wipe out all the decisions in the administrative case and to have a brand new panel of administrative judges take up the threshold decision of whether to institute an inter partes review of the patent.”
  • “Centripetal told the Federal Circuit the board’s actions thus far should be undone because Brian J. McNamara, one of the three administrative patent judges who originally agreed to hear the patent challenge, owned between $1,001 and $15,000 in Cisco stock and received retirement income from a law firm that did lobbying work for the company.”
  • “McNamara and another judge ultimately left the panel, and the PTAB refused to shut down the case or abandon its decisions, including one allowing Cisco to join in the challenge. The board determined that McNamara’s Cisco stock holdings fell below a federal recusal threshold for executive branch employees, and it said Centripetal took McNamara’s former firm’s work out of context.”
  • “The Federal Circuit said Centripetal hasn’t been harmed thus far in the process, especially in light of Cisco’s secondary role in the proceeding, which has yet to actually reach whether the challenged claims are invalid.”

“City firm was in ‘intractable conflict of interest’ with client” —

  • “City law firm RPC has been ordered to pay a former client damages of £192,500 after it put itself in an “intractable conflict of interest and duty” during its work for her.”
  • “Mr Justice Fancourt found that RPC – which is well known for acting for solicitors facing claims – preferred its own interests and those of a funder to whom it introduced the client over those of the client herself.”
  • “He rejected the firm’s contention that the terms of the conditional fee agreement (CFA) it signed with Deborah Forster allowed it to put its interests before hers.”
  • “RPC acted for her in a dispute with investors in her company who removed her. The case settled during trial in March 2011 with a Tomlin order that they would pay Ms Forster £350,000 and 80% of her costs, with £400,000 on account; the £750,000 was to be paid six months later.”
  • “However, only £50,000 was paid and nothing more was recovered. She claimed for loss of the opportunity to enforce the Tomlin order in October 2011 – RPC did not follow her instructions to do so, preferring instead to negotiate – and thereby recover more.”
  • “In February 2011, RPC persuaded her to sign a funding agreement with a John Deacon to help pay for disbursements but did not disclose to her that it had an existing relationship with Mr Deacon and his company, Giltspur Capital, in which it was invested.”
  • “The firm also failed to disclose that it started to act for Mr Deacon soon after the agreement was signed. The various agreements meant that Mr Deacon would be paid first from any recoveries, followed by RPC and counsel, with Ms Forster receiving anything left.”
  • “However, the judge found that, in persuading a reluctant Ms Forster to accept the settlement, RPC gave her ‘a clear assurance’ that she would receive £350,000 out of the £750,000 that was to be paid on 30 September 2011. As a result, the firm was estopped from contending that, because of the terms of the CFA, she lost nothing of value as a result of any breach of duty.”
  • Mr Justice Fancourt found:
    • “In relation to the Deacon agreement, ‘RPC had a clear conflict of interests in advising Ms Forster to borrow money from Mr Deacon and then advising and acting for (or in the name of) Mr Deacon in preventing Ms Forster from enforcing the first Tomlin order [without consent, which it did not have]…'”
    • “‘The conflict went further than acting for two clients whose interests in a transaction conflicted because RPC had its own interest in the business of Giltspur and in working with Mr Deacon, which it did not disclose to Ms Forster at any time…'”
    • “‘As a result of the enormous costs incurred on Ms Forster’s claim and the modest settlement in her favour, there was an intractable conflict of interest and duty on the part of RPC once the [other side] defaulted.'”