Not Their Patent Lawyer Nintendo AMD

Release the New Patent Legislation Motions!

We are already seeing motions hit the courts that are based on new patent laws, which were signed by the President on September 16, 2011. Recently, the Federal Circuit stayed the briefing schedule in a pending patent case, and asked the parties to advise it of the effect of these new laws on that case.  In the Conair case, which involves a qui tam suit (these suits have also been affected by the new legislation), the court elected not to act directly and allowed the district court the opportunity to consider the new legislation’s effect on the case first.

You’re Not Their Patent Lawyer Anymore

The Federal Circuit rarely deals with professional ethics and lawyer disqualification issues. So you should read the court’s In re Shared Memory Graphics order.  No. 2011-m978 (Fed. Cir. Sept. 22, 2011) (Judges Newman, Dyk, and Schall). It reaches a surprising result.

Hint: disqualified law firm wins.

Switching Teams

Shared Memory Graphics (SMG) filed a patent infringement suit against Nintendo and other companies relating to the “Hollywood Chip,” a memory chip used in a number of popular consumer products. But this is not the first time this chip has seen the inside of a courtroom. Nintendo and Advanced Micro Devices (AMD) were co-defendants in another lawsuit related to this chip, and they exchanged information concerning litigation tactics and other confidential information under a joint defense agreement.

During the first lawsuit, a lawyer that worked at AMD (he was the Director of Patents & Licensing) coordinated with Nintendo and the other defendants to assess the patent and the Hollywood Chip’s potential infringement of it. That lawyer left AMD before the second lawsuit and joined a law firm that failed to screen him for potential conflict issues before he arrived. A short time after he shifted to private practice, his firm filed a suit on behalf of SMG against Nintendo and some other companies that were not involved in the first lawsuit.

After discovering this, Nintendo moved to disqualify SMG’s counsel from continued representation in this case. Nintendo argued that AMD’s former in-house counsel received confidential information from Nintendo during the first litigation and his new firm should not be allowed to continue its representation of SMG in this case. His former colleagues at AMD agreed that he received confidential information in the first case. But there was no “firewall” erected at his new firm to wall him off from Nintendo’s confidential information. The district court agreed with Nintendo, and disqualified the entire firm.

SMG asked the Federal Circuit to step in. It argued that Nintendo had given up its right to object to the firm’s representation of SMG because the joint defense agreement that its counsel signed (in the first case) states that it waives any basis to seek disqualification of the “respective counsel of such party in any future litigation.” Here’s the full provision:

Nothing contained in this Agreement has the effect of transforming outside or inside counsel for either party into counsel for the other party, or of creating any fiduciary or other express or implied duties between a party or its respective counsel and the other party or its respective counsel, other than the obligation to comply with the express terms of this Agreement, or of interfering with each lawyer’s obligation to ethically and properly represent his or her own client. The parties expressly acknowledge and agree that nothing in this Agreement, nor compliance with the terms of this Agreement by either party, shall be used as a basis to seek to disqualify the respective counsel of such party in any future litigation.

Two out of three Federal Circuit judges who considered the issue decided that Nintendo had signed an iron-clad contract, which waived its right to object to SMG’s law firm’s involvement in the second case against Nintendo. In fact, it used the words “clearly and indisputably” to talk about Nintendo’s waiver of any right to pursue disqualification of counsel involved in the first case and the new firm he is associated with.

Strong Disagreement from the Other Side of the Bench

This result wasn’t so clear and indisputable to Judge Newman. She decided that the court did not correctly apply California state laws and ethics rules or the appropriate standard of review, and that it confused contractual provisions with ethical obligations. In her view, the majority “has inappropriately intruded into the district court’s authority and responsibility, to the detriment of the integrity of legal practice.” (See page 6 of Judge Newman’s dissenting opinion.)

While the waiver provision of the joint defense agreement attempts to avoid disputes, Judge Newman concluded that it does not authorize future adverse representations that would never be permissible under California’s professional ethics rules for lawyers. She also noted that the abuse of discretion standard, which should be applied in this case to review the disqualification rulings, cannot be met given the undisputed facts.

I am, frankly, surprised by the result the majority reached in this case. It seems that certain language in contractual provisions can essentially alter the application of canons of conduct that govern attorneys’ ability to represent certain clients after receiving confidential information of an adverse party in a matter. Do you agree with this outcome?