Dormant Role as Patent Counsel Gets Firm Disqualified in Infringement Action

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By Joan C. Rogers  

A law firm is disqualified from representing a plaintiff in a patent infringement action against a company because the firm did not clearly end its quiescent role as the company's patent opinion counsel before filing suit, the U.S. District Court for the District of Delaware held March 4 (Parallel Iron LLC v. Adobe Systems Inc., D. Del., No. 12-874-RGA, 3/4/13).

The history between the firm and the company made it reasonable for the company to expect that their attorney-client relationship was ongoing even though no active matters were underway, Judge Richard G. Andrews reasoned.

On the other hand, Andrews decided not to prohibit the firm from communicating with lawyers serving as the plaintiff's co-counsel in this and related litigation asserting the same patents against other parties. That drastic step would be an unnecessary punishment, he found.

Big Data in Court

Last summer Parallel Iron LLC lodged actions against numerous businesses, including Adobe Systems Inc., alleging that their use of certain data storage technology infringes three patents that Parallel Iron holds for a data storage system.

Adobe moved to disqualify Russ August & Kabat, Parallel Iron's lead counsel, on the ground that the firm faced a concurrent conflict of interest because it was serving as Adobe's opinion counsel at the time Parallel Iron filed suit.

RAK never represented Adobe in litigation; rather; the firm's alleged conflict was grounded in three engagements in which RAK partner Marc A. Fenster prepared opinion letters for Adobe.

Fenster provided two opinion letters, one in 2006 and one in 2007, advising that certain Adobe products did not infringe two patents held by another company. In 2009 he did an infringement analysis relating to an Adobe product and a patent held by a different company, and again delivered a noninfringement opinion.

In 2010 Fenster was asked to assess whether yet another Adobe product infringed two patents held by Manufacturers LLC. While he was drafting that opinion, Adobe asked Fenster to undertake an infringement analysis in relation to a third Manufacturers patent. Fenster delivered final opinion letters to Adobe in 2011 and presented them during a conference call in February 2012. This lawsuit came five months later.

RAK contended that each opinion letter was a discrete engagement with an agreed-upon budget, and that its relationship with Adobe ended with the final conference call. Fenster said that when he delivered the final opinion letters to Adobe, he asked if any additional work was needed or requested, and Adobe said no.

RAK's contact at Adobe, however, said the company at all times expected that it would be able to continue relying on RAK as opinion counsel in the ongoing Manufacturers matter.

'Client-Centric Focus'

Adobe argued that RAK was still its counsel when this lawsuit was filed against it, and that the firm had a conflict of interest under ABA Model Rule 1.7, which prohibits a lawyer from suing one current client on behalf of another, absent client consent.

Where there is no express contract or formal retainer agreement, Andrews said, courts look at the contacts between the parties to determine whether it would have been reasonable for the client to believe that the attorney was still acting as its counsel.

“The determination of whether an attorney-client relationship exists thus requires a client-centric focus,” Andrews said. The reasonableness of the client's belief is a fact-specific inquiry that depends on the client's history with the law firm, he added.

Here, the court found, the six-year history between Adobe and RAK made it reasonable for Adobe to believe that it would not be sued by RAK, at least without some prior notice that RAK would no longer be available to serve as its opinion counsel. RAK should have expected that Adobe would want to rely on the firm's experience with the Manufacturers patent to provide any needed updates, just as had occurred during RAK's first Adobe engagement, Andrews said.


“The fact that the law firm … may freely choose to end the relationship … does not mean it is free to sue its client prior to making it clear that the relationship is over.”
Judge Richard G. Andrews

The fact that RAK had never refused work from Adobe strengthened the reasonableness of Adobe's belief that the attorney-client relationship was ongoing, Andrews said.

Onus on Firm

While acknowledging that RAK would have been free to drop Adobe as a client and did not act in bad faith, the court said the firm needed to notify Adobe that the attorney-relationship was over before suing it.

“The fact that the law firm … may freely choose to end the relationship and refuse further business does not mean it is free to sue its client prior to making it clear that the relationship is over,” the court said.

“It is the law firm's responsibility to ensure there are no questions regarding the status of its current client relationships,” Andrews said, noting that firms must “iron out risks of conflicts before the risks mature into live controversies.” He stated:

Law firms must be aware of the importance of conducting thorough conflict analyses, especially when filing multiple suits against dozens of defendants. When it became apparent to RAK that Adobe was a tenable target of Parallel Iron's patent suit, RAK should have been more alert to the delicateness of the situation and been more proactive in extinguishing any questions regarding the existence and extent of the Adobe relationship.  

 

Despite the limited nature of the opinion counsel role, “opinion counsel is still counsel, complete with fiduciary duties to clients and professional obligations under the Model Rules,” Andrews said.

The court found it irrelevant that Adobe's guidelines for outside counsel require the legal department's authorization for each engagement and do not require any formal notice of termination.

Andrews also ruled that Fenster did not end the attorney-client relationship merely by asking whether anything further was needed. “Such a customary gesture to conclude a conversation is not sufficient to terminate Adobe's expectations,” the court said.

Accordingly, the court decided that RAK had an ongoing attorney-client relationship with Adobe when it filed suit, creating a concurrent conflict of interest under Rule 1.7. A per se disqualification rule is applied when that rule is breached, Andrews said.

No Barrier Needed

Adobe contended that in addition to disqualification, RAK should be prohibited from communicating with two law firms that are serving as Adobe's co-counsel in this case and the related patent infringement actions. Otherwise, the company argued, RAK could indirectly continue litigating against Adobe by directing co-counsel's actions.

The court refused to impose that remedy, reasoning that it would severely hamper RAK's ability to litigate on behalf of Parallel Iron in the other actions and would result in undue disruption and disproportionate punishment. RAK does not have any confidential Adobe information relevant to this suit, Andrews pointed out.

Marc Fenster of Russ August & Kabat, Los Angeles, argued for Parallel Iron. Robert J. Artuz of Kilpatrick Townsend, Menlo Park, Cal., argued for Adobe.


Full text at http://www.bloomberglaw.com/public/document/Parallel_Iron_LLC_v_Adobe_Sys_Inc_CA_No_12874RGA_2013_BL_55524_D_.

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