Tuesday, August 11, 2015

Business Moves, Business Conflicts

A few interesting updates to note. First, via The Recorder devotes ink to risk management associated with lateral movement: "Four Steps to Take When Changing Firms" --
  • "Most law firms and search firms use a formal lateral questionnaire, although not all do. (Every law firm that uses a lateral questionnaire should use it every time–without exception! Inevitably, the lateral hire who did not complete the questionnaire ends up with an impermissible conflict, putting both the law firm and the attorney in a very difficult situation.)"
  • "The bottom line is that potential and actual conflicts should be addressed before the negotiation progress. This means truthfully and completely sharing the necessary information for a complete conflicts analysis."
  • "Notably, the new law firm has more flexibility than the attorney in exchanging information necessary for the conflicts analysis. The most important information for the new firm to disclose to the attorney changing law firms is the identity (for whatever reason) of clients against whom the new firm cannot (or refuses to be) adverse."
  • "Contrary to what most law firms believe, an impermissible conflict can be created prior to the moment an attorney actually joins a law firm. Commonly, it arises from the inadvertent disclosure of confidential information during an interview process."
Next, earlier this year we noted a decision concerning economic (not necessarily ethical) adversity as a potential a class of conflict. Now Celgard, LLC v. LG Chem, Ltd., Case Nos. 14-1675, -1733, -1806 (Fed. Cir., Dec. 10, 2014) (Dyk, J.) is getting a fresh round of review and analysis from Professor Ronald D. Rotunda worth revisiting, see: "The Celgard Decision and Lawyer Disqualification" --
  • "In Celgard, the Federal Circuit disqualified the international law firm of Jones Day because it was representing Celgard in a patent dispute while it continued to represent Apple (another Jones Day client) in other matters. However, Apple was not a party to the Celgard patent case. Jones Day represented Celgard seeking a preliminary injunction against LG Chem, maker of lithium batteries, for alleged patent infringement. It turns out that Apple uses LG Chem’s batteries in its products."
  • "The court said, '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 concluded that Apple was 'directly adverse' to Celgard in licensing negotiations related to that patent dispute and thus Rule 1.7(a) required disqualification."
  • "What does it mean to be 'directly' adverse and 'not merely adverse in an ‘economic sense''? Apple bought a product (lithium batteries) from LG Chem, but that alone should not create a conflict. As one comment noted, 'Jones Day argued that it would not be possible for a law firm to anticipate the economic consequences to a non-party client who happened to be in an opponent’s supply chain.' It added, 'the implications can be disturbing if read even a bit broadly,' because '[m]any litigations can have economic consequences for a non-party client, even foreseeable ones and here Apple was a client on unrelated matters. The case holds that as a client even on unrelated matters Apple had a right not to see Jones Day appear for another client in a matter in which Apple was not a party because of foreseeable economic harm to Apple.'"
  • "The Celgard precedent does not demand nor should it invite such a broad holding. Apple was concerned not merely that it could not buy batteries from LG Chem if Celgard was successful in this lawsuit. After all, Apple could presumably switch to Celgard as a supplier. However, the court noted that Apple faced 'additional targeting by Celgard in an attempt to use the injunction issue as leverage in negotiating a business relationship' (emphasis added)."
  • "The Celgard court made clear that there is no conflict for a law firm simply because another client of the law firm is part of the supply chain. '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.' (Emphasis added). The Federal Circuit specifically said that there is no conflict “merely because the client is up or down the supply chain . . . .'

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