The general rule is that a lawyer can’t be adverse to a current client; but, mere economic adversity is not enough. What if I’m seeking to enjoin party A, who sells products to one of my clients, and so any injunction may cause economic harm to my client?
This is a potentially very dangerous opinion for patent firms. Jones, Day was representing Apple when it entered an appearance in a case where the defendant had been preliminarily enjoined from making certain batteries. Apple used those batteries.
Apple moved to intervene in the Federal Circuit to disqualify Jones, Day from representing the battery maker on appeal. The motions panel (Dyk-auth; Newman Hughes) granted the motion to disqualify, though in a non-prec opinion.
Jones, Day stated it would not be adverse to Apple in any direct negotiations for licensing, etc. Nonetheless the panel disqualified the firm. The key passage:
[T]he 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). Apple faces not only the possibility of finding a new battery supplier, but also additional targeting by Celgard in an attempt to use the injunction issue as leverage in negotiating a business relationship. Thus, in every relevant sense, Jones Day’s representation of Celgard is adverse to Apple’s interests. This conclusion is not altered by the fact that Apple is not named as a defendant in this action. The rules and cases such as Freedom Wireless interpreting them make clear 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. 2006 WL at *2; see also Arrowpac Inc. v. Sea Star Line, LLC, Nos. 3:12-cv- 1180-J-32JBT et al., 2013 WL 5460027 at *10 (M.D. Fla. Apr. 30, 2013) (interpreting same rule as encompassing “any representation directly adverse to the interests of a current client.”). Celgard contends that despite the conflict we should not grant disqualification because of the prejudice involved in impinging on Celgard’s right to choose their counsel and secure new counsel. Celgard further suggests that if Rule 1.7(a) were to cover conflicting representations merely because the client is up or down the supply chain then “lawyers and clients would have no reliable way of determining whether conflicts of interest exist in deciding whether to commence engagements.” Opposition at 13, Celgard, LLC v. LG Chem, Ltd., Appeal Nos. 2014- 1675 et al. (Oct. 14, 2014).
That, however, is not our holding. Nor is it the facts of this case. As evidenced by Jones Day’s attempts to limit the nature of the representation, Jones Day and Celgard clearly knew the potential for conflict here yet elected to continue with the representation. See id. at 4 (“Jones Day explained that it could represent Celgard against LG Chem, but not against customers of LG Chem who were also Jones Day clients—such as Apple.”). Thus, the legal costs and delay in proceedings that may result from a disqualification are attributable in no small way to Celgard and Jones Day themselves.
The case is not on-line but I’ve posted it, I hope, here.
So… watch out for injunctive relief that might affect current clients! Good luck running conflicts checks on this one (though seemingly Jones Day knew of the ‘conflict’ before it appeared, in this case). By the way, there is another case, in the ITC, involving Google where the ITC came to a somewhat different conclusion, though under more attenuated facts.