Jan. 6 — A law firm must stop representing a patent infringement plaintiff that is seeking an injunction harmful to the interests of the defendant's customer which the firm represents in unrelated matters, the U.S. Court of Appeals for the Federal Circuit decided Dec. 10.
In a per curiam order labeled nonprecedential, the court concluded that the firm's representation of the plaintiff was directly adverse to the other client's interests and therefore raised a disqualifying conflict, even though the other client is not named as a defendant in the patent infringement suit.
The order disqualified Jones Day as counsel for plaintiff Celgard LLC at the request of nonparty Apple Inc. in a patent infringement action Celgard brought against Apple's lithium battery supplier, LG Chem Ltd.
Jones Day was representing Apple in several ongoing unrelated commercial litigation matters, and Apple sought to intervene in the patent suit when Jones Day showed up as counsel on appeal from a preliminary injunction that, if upheld, would prevent LG Chem from selling its batteries to customers such as Apple.
The court said Apple was justifiably unhappy that Jones Day was representing Celgard in seeking an injunction that not only could require Apple to find a new battery supplier but also could give Celgard leverage for negotiating a licensing agreement with Apple.
“Because Jones Day’s representation here is ‘directly adverse' to the interests and legal obligations of Apple, and is not merely adverse in an ‘economic sense,' the duty of loyalty protects Apple from further representation of Celgard,” the court stated.
Another nonparty, General Motors, also sought to disqualify Jones Day on similar grounds, but the court said that motion was mooted by its decision.
The court grounded its decision to disqualify Jones Day on the prohibition in North Carolina Rule of Professional Conduct 1.7(a) against representation that “will be directly adverse to another client.”
North Carolina's professional conduct rules apply, the court said, because regional circuit law—in this case the Fourth Circuit—applies to disqualification matters, and the Fourth Circuit, in turn, applies the professional conduct rules of the forum state.
The court also cited its decision in Freedom Wireless, Inc. v. Boston Commc’ns Grp., Inc., No. 2006-1020 (Fed. Cir. March 20, 2006). That case involved similar circumstances and the same conflict rule, albeit from a different jurisdiction, it said.
As in Freedom Wireless, the court said, “the burden placed on the attorney-client relationship here extends well beyond the sort of unrelated representation of competing enterprises allowed under Rule 1.7(a).”
In every relevant sense, it said, Jones Day's representation of Celgard was adverse to Apple's interests.
The court found it unimportant that Apple was not named as a defendant. The ethics rules, and decisions such as Freedom Wireless, make clear that “it is the total context, and not whether a party is named in a lawsuit, that controls whether the adversity is sufficient to warrant disqualification,” the court stated.
Jones Day argued that it would be impossible for law firms and clients to spot conflicts if Rule 1.7(a) were to cover conflicting representations merely because the client is up or down the supply chain. “That, however, is not our holding,” the court said.
Nor does that proposition fit the facts here, the court said. It pointed out that Jones Day said it would not counsel Celgard in any matter adverse to Apple, including license negotiations. The firm's attempts to limit the nature of the representation showed that the firm and Celgard clearly knew of the potential for conflict, the court said.
Judges Pauline Newman, Timothy B. Dyk and Todd M. Hughes were on the panel.
Fish & Richardson P.C. represented LG Chem. Orrick, Herrington & Sutcliffe LLP represented Apple Inc. Crowell & Moring LLP represented General Motors LLC.
Copyright 2015, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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