Firm DQ’d Because it “Should Have Known” a TM Client Would Sue Another for Patent Infringement the Day the Patent Issued

This is an interesting case where the court granted a motion to disqualify based on a very odd assumption.  The case is Altova GMBH v. Syncro Soft SRL, No. 17-11642-PBS (D. Mass. July 26, 2018), here.

The facts of this case are a bit unclear, but it seems like Firm A represented Syncro Soft in three trademark-related matters.  The first involved responding to a C&D letter from a third party in 2004. The second involved representing Firm A in responding to a C&D letter alleging trade dress and copyright infringement from the party moving for disqualification in this case, Altova, in April 2009 and ending in June 2009.  Then in 2010 Firm filed a trademark registration for Syncro Soft and provided other assistance through 2014. The total number of hours on these matters:  less than 50.

In October 2011, Firm A had begun to represent Altova in trademark matters and in June 2012 filed suit for Altova against an alleged trademark infringer.  In other words, although Firm A had defended Syncro Soft from claims of trade dress and copyright infringement in 2009, from October 2011 through 2014, at least, Firm A was representing both Altova and Syncro Soft though not in matters where each was adverse to the other.   The opinion is unclear whether Firm A represented Syncro Soft after 2014.

In June, 2017, Altova asked Firm A to assert a patent that Altova had obtained against Syncro Soft.  In July, 2017, Firm A sent a letter to Syncro Soft “terminating” its attorney-client relationship with it (again, it’s not clear the firm was doing anything after 2014).  The firm did not explain why.  It then filed the patent infringement suit for Altova against Syncro Soft.

Syncro Soft moved to disqualify Firm A. The court held that at the time the conflict arose, Syncro Soft was a current client of the firm.  Thus, the rule governing current client conflicts, not former client conflicts, controlled.  Under that rule, it is unethical for a law firm to be adverse to a current client of the firm.  Thus, the firm was disqualified, the court noting that most courts do not permit lawyers to drop a client like a hot potato in order to have the former client conflict rule apply, which permits lawyers to be adverse to a former client, just not in a matter that is substantially related to the work the firm performed for its former client.

So, in many ways, the case is no news.  But — and this is a “wow” statement –the court stated that the firm should have known when Altova obtained its patent that Altova was reasonably likely to sue for patent infringement, and, again, there’s no indication the firm obtained the patent for Altova or knew of its existence until Altova approached Firm A in June, 2017.  The court nonetheless wrote:

A reasonable lawyer should have known that there was a significant risk that Altova’s interests would become adverse to Syncro Soft’s concerning their competing XML products no later than November 2016 when Altova’s patent issued, and then should have obtained written, informed consent from both clients or withdrawn from representing both parties on that matter. The companies were direct competitors who sold similar XML editor software products. Sunstein knew that Altova vigorously protected its intellectual property rights. In fact, Altova had previously sent Syncro Soft a cease and desist letter related to alleged copyright infringement involving this software. For these reasons, this patent dispute is not the type of unforeseeable development contemplated by Comment 5. See Mass. R. Prof. C. 1.7 cmt. 5.

Hopefully, the case won’t be read as standing for the proposition that you need to monitor every patent one client obtains, to make sure you don’t have a conflict!