Sony Alleges Conflict Of Interest, Wants Acacia In-House And Outside Patent Litigation Counsel DQ’d

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

Red Card DQMotions to disqualify opposing counsel are not uncommon, especially in patent litigation. In many cases, disqualification is sought based on an alleged former client conflict of interest. Former client disqualification motions normally allege that an attorney working in the law firm representing one of the parties to a litigation previously represented the opposing party in a “substantially related matter.” Under the rules of “imputed disqualification,” if any attorney in a law firm is prohibited from representing a client adverse to a former client, then no attorney in the firm may represent the client unless the former client waives the conflict.

A recent disqualification motion filed in a patent infringement case pending in the Central District of California seeks to stretch the limits of the imputed disqualification rule beyond the usual contours. See Nexus Display Technologies LLC v. Sony Electronics Inc., No. 2:14-cv-05693 (C.D. Cal. July 17, 2014).

The NDT Lawsuit

On July 17, 2014, Nexus Display Technologies LLC (“NDT”) filed suit for patent infringement against Sony Electronics Inc. (“SEI”). NDT alleged that Sony infringed three patents. The complaint accused multiple Sony products, including Sony’s “SXRD” projectors, of infringing NDT’s patents. The complaint was filed by Aliska Lipski of the law firm of Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing P.C. (AZA). Ms. Lipski and AZA are the only counsel to have entered an appearance on behalf of NDT.

The Motion to Disqualify

On November 17, 2014, SEL filed a motion to disqualify Jaime Siegel, the Executive Vice President of Licensing and Litigation for NDT’s parent, Acacia Research Corporation (“Acacia”).  The motion alleges, “Mr. Siegel spent fifteen years handling dozens of patent cases for SEL while employed as a senior in-house counsel at SEL’s parent Sony Corporation of America (‘SCA’).” Mr. Siegel played a central role defending SEL in an ITC investigation and parallel district court litigation initiated against SEL and other Sony entities by Compound Photonics, Ltd., which asserted that Sony’s “SXRD” projectors infringed a patent owned by Compound Photonics.

conflictThe motion alleges that, in June 2013, while Compound Photonics’ district court case against SEL was still pending, Mr. Siegel left Sony and joined Acacia as Senior Vice President. Acacia is “in the business of patent licensing.” According to the motion, Acacia employs subsidiaries to handle all patent “licensing and enforcement activities.” The motion further avers that, in May 2014, Mr. Siegel was appointed Acacia’s Executive Vice President of Licensing and Litigation.

The motion asserts that on June 12, 2014, Acacia formed NDT. Four days later, Acacia assigned to NDT the patents that NDT alleges cover Sony’s SXRD projectors.  The motion alleges that

 Given Mr. Siegel’s fifteen years of experience (until last year) defending SEL from charges of patent infringement, he cannot now switch sides and oversee [NDT]’s patent infringement claims, which concern an SEL product line that Mr. Siegel was defending until the very day he left Sony. The prejudice would be articularly profound given that [NDT] is targeting Sony’s SXRD projectors.

Is Disqualification Warranted Under California Rule of Professional Conduct 3-310(E)?

The motion asserts that disqualification of Mr. Siegel is warranted by California Rule of Professional Conduct 3-310(E), since he “possesses material confidential information that would unfairly prejudice SEL and benefit” NDT and that he “had access to such information because [NDT’s] claims against SEL are substantially related to previous patent infringement cases that Mr. Siegel defended on behalf of SEL and other Sony companies.” Rule 3-310(E) provides:

A member shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment.

At least two threshold questions exist as to the applicability of Rule 3-310(E) to Mr. Siegel. First, the term “member” means member of the California State Bar. See Cal. Rule Prof. Cond. 1-100. Mr. Siegel is not a “member” of the California bar.  Interestingly, Mr. Siegel is a registered patent practitioner and thus is subject to the disciplinary jurisdiction of the USPTO.

Second, the motion fails to state or suggest that Mr. Siegel “accept[ed] employment adverse to [his] former client” Sony, at least in the ordinary sense of those words. Yes, Mr. Siegel “accepted employment” by Acacia.  He did so, however, well before either NDT was formed or NDT filed its lawsuit against Sony.  Rule 3-310(E) thus begs the question – what is meant by the term “accept employment adverse to the former client?” The words appear literally to focus on the state of affairs at the time the “member’s” “employment” was “accepted.” The motion to disqualify does not state Mr. Siegel’s “employment” was accepted at the time of, or with knowledge of, any adverse action against Sony.

The plain language of Rule 3-310(E) appears to apply more naturally in the classic sense of outside litigation counsel being “employed” to represent a client adverse to counsel’s former client.  Whether the Rule encompasses Mr. Siegel’s situation is murky at best.

Imputation To Outside Litigation Counsel

The motion seeks to impute Mr. Siegel’s alleged conflict to NDT’s outside litigation counsel at AZA. The motion states that, “Without such vicarious disqualification, Sony would unfairly be left to wonder what Mr. Siegel (or others at Acacia with whom he has discussed [NDT’s] case against SEL) may have disclosed to AZA concerning Mr. Siegel’s extensive experience defending SEL in patent cases and working with many of the same people who are potential witnesses and/or decision makers in the present suit.”

canstockphoto16781055If Rule 3-310(E) does not apply to Mr. Siegel, then no basis would appear to exist to “disqualify” any other in-house counsel at Acacia or outside litigation counsel. Indeed, the motion to disqualify appears to postulate a double imputation: (1) imputing the “disqualification” of Mr. Siegel to Acacia’s in-house legal department; and (2) imputing the imputed disqualification of Acacia’s in-house legal department to NDT’s outside patent litigation counsel at AZA.

The motion primarily relies upon Advanced Messaging Techs, Inc. v. EasyLink Servs, Int’l Corp., 913 F. Supp. 2d 900 (C.D. Cal. 2012). In Advanced Messaging, a party employed “outside in-house counsel” who had a conflict of interest with the adverse party in litigation. The court stated, as a case of first impression, that the in-house counsel was disqualified and that the outside litigation counsel was vicariously disqualified. The court explained:

The general rule is that presuming an attorney possesses confidential information requires presuming the same for his law firm (‘the Vicarious Presumption Rule’). The Attorney, however, does not work at [outside litigation counsel]. Rather, he was outside in-house counsel for Open Text on intellectual property matters. This court is not aware of any case analyzing whether the Vicarious Presumption Rule applies to such a situation. However, some cases have analyzed whether presuming an attorney at one law firm has confidential information requires making the same presumption about another firm that is co-counsel with the tainted attorney. These cases come out different ways, but the cases applying the Vicarious Presumption Rule to co-counsel have the better argument.

Relying on Advanced Messaging, the motion argues that “either Mr. Siegel or someone else within Acacia (to whom Mr. Siegel’s conflict is imputed) naturally must have consulted with AZA” concerning NDT’s claims before AZA filed the complaint. “As such, it is necessary to disqualify AZA from handling [NDT’s] claims against SEL. SEL otherwise would be in the untenable position of ‘legitimately question[ing]’ whether AZA ‘has the unfair advantage of knowing [SEL’s] confidential information when it litigates against’ SEL in the [NDT] matter, involving product categories and witnesses that Mr. Siegel himself handled as recently as last year when managing SEL’s defense of the Compound Photonics case.”

Interestingly, in a case decided the following year not cited in the motion to disqualify, Flatworld Interactives LLC v. Apple Inc., the district court noted courts are divided over whether an attorney or a firm that is conflicted due to one representation can also taint that attorney’s or firm’s co-counsel in a different joint representation. The court observed that “at least three judges in the Northern District of California refused to disqualify counsel under the same circumstances.” The court concluded that, “Most importantly for present purposes, however, the Court is unaware of any case in which a court disqualified an attorney or a law firm when no attorney had actual knowledge or possession of confidential information about an adverse party but one was conflicted only through imputation.”

Sony’s disqualification motion offers to waive the putative conflict if three conditions are satisfied: (1) an ethical screen is created to bar Mr. Siegel from having any input or authority with respect to NDT’s case against SEL; (2) the ethical screen extends to any other Acacia personnel who have consulted with Mr. Siegel concerning the claims against SEL or other accused infringers; and (3) the AZA law firm withdraws as outside counsel.

Whether NDT is willing to accept Sony’s waiver offer is unclear.  In light of the uncertainty in the law and the fact the litigation only recently commenced, the proposed waiver does not appear to be unreasonable.  In any event, NDT’s opposition to the motion to disqualify is due by November 26, 2014.

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