Federal Circuit Disqualifies Litigation Counsel Who Prosecutes Patents for Subsidiary Company

by Dennis Crouch

Trimble Inc. v. PerDiemCo LLC (Fed. Cir. 2020) [TrimbleDisqualify]

In an unusual decision, the Federal Circuit has disqualified PerDiem’s appellate counsel – the firm of Davidson Berquist Jackson & Gowdey, LLP – based upon a current client conflict.

The particular problem here stems from Davidson’s simultaneous performance of patent prosecution work for Trimble Transportation Enterprise Solutions, Inc.. Trimble Transport is a wholly owned subsidiary of appellant Trimble Inc (TRMB).

Although Davidson has now withdrawn its representation of Trimble, the court judges current-client conflicts as of the filing of the motion to disqualify. At that time Davidson was representing both Trimble Transportation and PerDiem. Also, because the district court case was litigated in California, California professional responsibility rules control conflict situations.

California’s rules provide:

A lawyer shall not, without informed written consent from each client and compliance with paragraph (d), represent a client if the representation is directly adverse to another client in the same or a separate matter.

Cal. R. of Prof’l Conduct 1.7(a) (2018). The comment to the rule further explains:

Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client. The duty of undivided loyalty to a current client prohibits undertaking representation directly adverse to that client without that client’s informed written consent.

Cal Rules Comment 1.

Here, Trimble has intentionally created a complex corporate structure with Trimble Inc. owning Trimble Transport and other subsidiaries, including Innovative
Software Engineering, LLC (who is also a party to the lawsuit).  Trimble (TRMB) has a valuation of $10 billion, 8,000+ employees, and more than a dozen major subsidiary companies.  The formal corporate structure was specifically and particularly designed to take advantage of various laws — creating protections against a variety of potential liabilities and allowing differentiation between the various companies.  Now, however, when it is advantageous to the company, it argues that the corporate walls are illusory.

The basic rule with parent-subsidiary companies is that a law firm will be seen as representing both if the “corporate affiliates are sufficiently intertwined that the representation adverse to one would threaten harm to the other, diminishing the formal corporate client’s (here, Trimble Transportation’s) confidence and trust in counsel.” Slip Op. Here, the Federal Circuit found sufficient intertwining with shared VOIP system, employee recognition program, computer network, human resources information system, payroll, and office space.  In addition – and with rather low level reasoning – the court found that if Trimble lost the patent case it “would have a direct adverse impact on Trimble Transportation” since “financial statements from each of Trimble [Inc.]’s businesses, including Trimble Transportation, are also combined . . . to report to investors in Trimble [Inc.]’s overall corporate financial statements.” (Wouldn’t this would be true for all wholly owned subsidiaries).

For me, the biggest factor in this case is Aaron Brodsky — in-house patent counsel at Trimble Inc.  Although Brodsky works for the parent, he advises on patent prosecution work for a number of the subsidiaries that do not have their own patent counsel — including Trimble Transport. In particular, Broadsky advised the Davidson firm on its prosecution work and, at the same time, manages the present litigation. That intermingling of relevant legal matters starts to make the concurrent representation look bad.

Despite my misgivings noted above, this appears to be the right outcome. Representing a client is a pledge of loyalty that is not easily set aside.