Delaware Court Disqualifies Patent Lit. Counsel For Conflict Of Interest

Michael E. McCabe, Jr.Conflicts of Interest, District Court Litigation, IP Ethics0 Comments

Youre OutOn May 15, 2015, the U.S. District Court for the District of Delaware granted a defense motion disqualifying plaintiff’s counsel in a patent infringement action due to a former client conflict of interest. Innovative Memory Solutions, Inc. v. Micron Tech., Inc., No. 14-1480-RGA (D. Del. May 15, 2015) (order here). Innovative Memory Solutions, Inc. (“IMS”) filed the infringement action against Micron Technologies, Inc. (“Micron”) for allegedly infringing eight patents that IMS purchased from SanDisk, Micron’s main competitor in the NAND flash technology industry.

Micron moved to disqualify plaintiff’s counsel, Tensegrity Law Group LLP, based on a lengthy former attorney-client relationship between Micron and two of the attorneys representing IMS, Matthew Powers and Steven Cherensky.  Messrs. Powers and Cherensky were formerly partners of Weil Gotshal & Manges LLP, where they represented Micron and Lexar Media, Inc. (“Lexar”), a company Micron acquired in 2006.

Their prior representation included serving as Micron’s litigation counsel in a number of patent and trade secret cases. Seven of the patent cases and one of the trade secrets cases that Messrs. Powers and Cherensky worked on as counsel for Micron related to NAND flash technology.  Micron alleged that NAND flash technology was relevant to the eight patents at issue in the Delaware action.

Because Micron was a former client of Messrs. Powers and Cherensky, the disqualification analysis required consideration of Delaware Rules of Professional Conduct Rule 1.9, which specifically addresses conflicts of interest involving former clients and is modeled after the Model Rules of Professional Conduct.  Rule 1.9 prohibits a lawyer who, without client consent, represents one client against a former client in a matter that is the “same” or is “substantially related” to the prior representation of the former client and in which the new client’s interests are materially adverse to the interests of the former client.

In this case no dispute existed regarding material adversity or the absence of former client consent. Thus, the Delaware district court’s analysis focused on whether Messrs. Powers and Cherensky’s prior representation of Micron in patent and trade secret cases involving NAND flash technology was “substantially related” to the Delaware “matter.” The Delaware court applied a three-prong test for determining whether their prior and current representations were “substantially” related:

 (1) What was the nature and scope of the prior representation? (2) What is the nature of the present lawsuit against the former client? (3) In the course of the prior representation, might the client have disclosed to his attorney confidences which could be relevant to the present action? In particular, could any such confidences be detrimental to the former client in the current litigation?

To prevail on its disqualification motion under the Delaware court’s test, Micron was required to show a “common sense inference” that Messrs. Powers and Cherensky “might” have obtained Micron confidences that “could be” relevant to the Delaware lawsuit.

District of DelawareThe district court concluded that several factors supported the conclusion that the prior representation of Micron was substantially related to the representation of IMS in the Delaware action.

First, Messrs. Powers and Cherensky billed approximately 4,000 hours during their representation of  Micron and Lexar, and they maintained an attorney-client relationship with Micron for 14 years (from 1997 until 2011).

Second, the court determined that multiple opportunities existed for Micron and Lexar to reveal their confidences to Messrs. Powers and Cherensky during the prior representation. Significantly, Micron was not required to prove that actual confidences were shared with their former attorneys. The mere potential that relevant confidences were disclosed was sufficient to support a finding that the prior and current representations were substantially related.

Third, the court reasoned that counsels’ prior representation could give them an unfair advantage in the Delaware action. Indeed, Messrs. Powers and Cherensky allegedly were privy to Micron’s litigation, licensing and settlement strategies. In addition, the court was troubled by the fact that Messrs. Powers and Cherensky might be required in the Delaware case to cross-examine individuals whom they previously represented in their prior representation of Micron.  According to the district court, this would give the “appearance of switching sides.”  Of course, any time a lawyer sues a former client, the lawyer has “switched sides.”  In this respect the court appears to be applying a duty of loyalty analysis under Rule 1.7, which applies to current client conflicts, to the former client analysis under Rule 1.9.

According to Micron, while the technology at issue in the Delaware action is more advanced than the technology at issue during Messrs. Power’s and Cherensky’s prior representations of Micron, the similarities between the “old” and “new” technologies were greater than the differences. In addition, Micron asserted that claim construction and prior art from their former counsel’s prior representation overlapped with claim construction and prior art in the Delaware lawsuit.

IMS argued that because the trade secret case took place a decade earlier and included a lengthy public trial, any information that may have once been client confidential inevitably was publicly revealed during the trial. The district court, however, rejected this argument. The court found that at the time of the trial, “counsel put their best foot forward” and the “weaknesses in the case” would have been kept confidential. It was those weaknesses, the court explained, that “are precisely the points that would be detrimental to Micron.”

The disqualification decision again raises the issue, discussed previously in this blog, regarding patent-based subject matter conflicts and “how close is too close.”  Although the general subject matter of “NAND flash technology” is extremely broad, the district court did not engage in any substantive analysis of the specific features of NAND flash technology at issue in the prior representations.  Nor did it analyze in its 9-page memorandum opinion whether, why, or how those features from the prior representation were related to the pertinent features of the patents and products at issue in the Delaware litigation.

As discussed previously (click here), the issue of substantial relationship of subject matter of patents in the context of a conflicts of interest analysis continues to be a vexing and uncertain area of professional ethics law. No uniform test exists by which courts decide the issue of so-called patent “subject matter conflicts.”  Indeed, while some courts (including the Delaware district court in this case) may view the relatedness of the subject matter of the prior and current from a high level (i.e. “NAND flash technology” generally), other tribunals have tended to drill down deeper into the details of technology, realizing that inventions in a broad field may be completely unrelated.

What probably carried the day for disqualification in this case was the long-term nature of the former client relationship, the number of cases that former counsel handled on behalf of Micron, and the thousands of hours former counsel billed Micron. While one could argue that time billed and overall duration of a relationship do not necessarily prove the former and current representations are “substantially” related, the time and duration metric appear to have been important factors that augured in favor of disqualification. This may explain why Judge Andrews did not focus on the specific aspects of NAND flash technology at issue in the former representations or how those features compared to the technology at issue in the Delaware action.

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