Baker Botts Defeats $40M Suit Premised on Alleged Conflict

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By Samson Habte

March 28 — Baker Botts LLP can't be held liable for representing two competitors seeking patents based on the same technology where the complaining client didn't come up with evidence proving the firm had a conflict that caused the plaintiff's purported $40 million in damages, the Texas Court of Appeals, Fifth District, held March 24.

The decision extinguished a closely watched $40.5 million lawsuit that raised a question few courts have considered: whether simultaneously representing different clients prosecuting patents for similar technology is a conflict of interest upon which a client may sue for malpractice.

Because the court found proof of causation lacking, it didn't resolve whether such dual representation of industry competitors—which patent attorneys have described as a necessity of modern practice in a highly specialized legal field—amounts to a breach of a lawyer's duty of care or fiduciary obligations.

The court said Axcess International Inc. didn't show that Baker Botts's undisclosed, concurrent representation of both Axcess and its chief competitor was the proximate cause of Axcess's purported injury.

Lawyers who spoke with Bloomberg BNA said the ruling—if followed by other courts—may cheer patent practitioners because it sets a high bar for proving causation in malpractice claims predicated on the increasingly common subject matter conflicts that Axcess accused Baker Botts of operating under in this case.

Jury: Firm Cost Client $40 Million

The malpractice lawsuit was tied to Baker Botts's representation of Axcess in the prosecution of patents for radio-frequency identification (RFID) technology.

Axcess claimed Baker Botts failed to disclose that it was simultaneously representing Axcess's chief competitor, Savi Technologies Inc., which at the time was prosecuting patents for similar technology.

In 2014 a jury found that Baker Botts caused Axcess to lose $41 million by failing to disclose the dual representation—which, the lawsuit claimed, would have allowed Axcess to obtain conflict-free counsel, broaden its patent claims, successfully pursue an interference proceeding challenging Savi's patent rights and then negotiate a favorable business resolution with Savi.

But the jury also found Axcess waited too long to sue after discovering the dual representation, and the trial court entered a take-nothing judgment for Baker Botts.

The appeals court affirmed on an alternative ground: Axcess failed to prove causation.

Justice David J. Schenck said the causation evidence was legally insufficient because it relied on “speculative” testimony from experts who said Axcess would have prevailed if it pursued an interference proceeding and that Savi would then “sit down and work out” a “business solution” to the intellectual property dispute.

Inference Stacking

The court said the causation testimony from one of Axcess's experts “hinged upon (1) what he believed the [U.S. Patent and Trademark Office] would have done, had Axcess suggested an interference, and (2) what Savi would have done—as a rational business person—had Axcess suggested an interference and expanded its patent claims.”

“In other words, Axcess's causation evidence depended upon how third parties would react under different hypothetical circumstances,” Schenck wrote.

That testimony was too “speculative” and thus “legally insufficient evidence of causation,” the panel ruled. “Under such circumstances, Axcess had to prove—not just suggest or theorize, but prove with competent, non-speculative evidence—that the third parties would have actually taken such action,” it said.

Lessons for Plaintiffs

Schenck said one reason the expert's testimony on causation fell short is because it was based on a conclusory assertion that Axcess would have prevailed in a hypothetical interference proceeding, which is “a unique and complex proceeding to determine the priority issues of multiple patents or patent applications.”

The court said this testimony was “simply ungrounded in any explanation as to how the USPTO, including the Interference Practice Specialist and the panel of administrative patent judges, would have viewed the hypothetical suggestion of interference.”

The court also said the expert witness “is not an Interference Practice Specialist or an administrative patent judge.”

Law professor David Hricik told Bloomberg BNA the Axcess court set a fairly high standard for proving causation in patent malpractice cases predicated on a subject matter conflict of interest.

Hricik teaches at Mercer University School of Law and is the author of a two-volume treatise on ethics issues in patent prosecution.

The court's comments about the expert witness's experience or lack of it seems to suggest plaintiffs who bring claims similar to those asserted by Axcess must be prepared to produce “granular testimony from interference specialists or a former member of the Board [of Patent Appeals and Interferences],” Hricik said.

‘Still an Open Question.'

Colin Cahoon, founder of the Dallas patent law firm Carstens & Cahoon LLP, told Bloomberg BNA the Axcess case is also noteworthy because of what the court didn't do: it didn't address whether dual representation of clients seeking patents for similar technology is a conflict of interest and thus actionable as a breach of a lawyer's duty of care or fiduciary obligations.

“That is still an open question,” he said. Cahoon said he's aware of only one state supreme court—Massachusetts—that has tackled the issue. See Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner LLP, 2015 BL 420979, 31 Law. Man. Prof. Conduct 744 (Mass. Dec. 23, 2015).

But Cahoon predicted this paucity of controlling authority is not likely to continue. He said he's heard that the types of conflicts alleged against Baker Botts are giving rise to an increasing number of malpractice claims against patent law firms.

Justices Elizabeth Lang-Miers and David Evans concurred.

Steven E. Aldous of Forshey Prostok LLP, Dallas, and Michael T. Cooke, Jonathan T. Suder and Glenn S. Orman of Friedman Suder & Cooke, Fort Worth, Tex., represented Axcess.

Paul M. Koning and Brent Basden of Koning Rubarts LLP, Dallas, and Murray J. Fogler, Jasdeep Brar and Michelle Gray of Beck Redden LLP, Houston, represented Baker Botts.

To contact the reporter on this story: Samson Habte in Washington at shabte@bna.com

To contact the editor responsible for this story: Kirk Swanson at kswanson@bna.com

Risk Management: How Patent Lawyers Can Spot and Proactively Deal With Incipient Client Conflicts

Colin Cahoon of the Dallas patent law firm Carstens & Cahoon LLP shared with Bloomberg BNA some risk management tips he offered during a recent CLE program on “Subject Matter Conflicts—The Next Wave in IP Malpractice Claims?”

The presentation focused on how law firms can spot subject matter conflicts and deal with them proactively.

Cahoon said the first thing patent lawyers should do to reduce their exposure to liability is “raise the issue of subject matter conflicts in the retainer letter.”

Cahoon said his firm tells prospective clients seeking representation to “help us by identifying now any companies that you don't want us to do work for.”

A firm doesn't have to agree to the limitations a prospective client sets out in response to that question, Cahoon said. But he said raising the issue early on could help the firm identify potential conflicts with existing clients that may affect the firm's determination whether to take on the prospective client.

Cahoon said his firm also recently began including provisions in its engagement letters that require clients to monitor patent publications in their technological fields and alert the firm if they see applications identifying Cahoon's firm as prosecuting counsel for “a third party competitor” or a “party of concern to you.”

Cahoon also suggests including a provision that requires clients to agree to arbitrate any disputes with the firm and includes the following language:

IF THE DISPUTE CONCERNS A PATENT MATTER, THEN THE PARTIES SHALL EACH SELECT AN ARBITRATOR WHO IS A LICENSED MEMBER OF THE US PATENT BAR. THE SELECTED ARBITRATORS SHALL SELECT A CHAIR OF THE PANEL WHO SHALL BE A LICENSED MEMBER OF THE US PATENT BAR WITH AT LEAST FIFTEEN YEARS OF EXPERIENCE IN PATENT LITIGATION.

Cahoon said an arbitration provision of this sort may be a valuable “defensive measure” because practitioners in other areas are not often equipped with an understanding of the vagaries of patent law needed to analyze disputes over issues such as subject matter conflicts.

“I would much rather have a patent lawyer answering patent ethics questions,” Cahoon said.

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

 

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