Abstract
A Delaware court recently barred a patent assertion entity's principals, who also acted as litigation counsel, from having access to an accused infringer's confidential information and from prosecuting patents for related technology.
In Blackbird v. Service Lighting and Electrical Supplies,
Inc. et al., the accused infringers attempted to prevent
in-house attorneys of a patent assertion entity from having access
to their confidential research, development, or commercial
information, and attempted to preclude the in-house attorneys of
the patent assertion entity from prosecuting patents related to the
technology at issue in the litigations by filing a motion for a
protective order and prosecution bar. While such motions are not
uncommon in patent litigation, companies that primarily exist to
monetize and litigate intellectual property could be hobbled in
carrying out their daily operations when their principals are also
the attorneys who evaluate, negotiate, or litigate cases against
potential licensees, or prosecute the patents that are being
licensed and enforced.
Courts may grant prosecution bars and protective orders to restrict
an individual attorney's access to trade secret or other
confidential information when there is an unacceptable risk for
inadvertent disclosure. To warrant a protective order or
prosecution bar, the party requesting the protective order or
prosecution bar must show, for each individual attorney, that the
risk of inadvertent disclosure outweighs the detriment to the other
party if that attorney cannot access the materials. Courts grant
such motions where in-house counsel are involved in competitive
decision-making activities such as pricing, product design, and
patent prosecution.
In this case, the accused infringers moved for a protective order
and prosecution bar against each of the three patent assertion
entity in-house lawyers who entered appearances in the litigation:
the company's President and CEO, its Vice President and Head of
Litigation, and its Senior Litigation Counsel. The accused
infringers argued that there was an unacceptably high risk that the
patent assertion entity's in-house lawyers might inadvertently
disclose or improperly use their trade secrets and confidential
research, development, and commercial information. They also argued
that disclosing their confidential information to the patent
assertion entity's in-house attorneys would allow the patent
assertion entity to tailor its patent assertion business model to
target the accused infringers in future actions.
The patent assertion entity, Blackbird Technologies, monetizes
intellectual property by acquiring patents and litigating on its
own behalf, rather than engaging outside counsel. Blackbird
admitted that its CEO and its Vice President are both involved in
the litigations as well as company management and strategy,
analyzing patents for acquisition and assertion, working with
outside counsel to prosecute ongoing patent applications, and
negotiating the terms of a settlement and license agreements. While
not involved in patent acquisition or prosecution, Blackbird's
Senior Litigation Counsel handles all aspects of Blackbird's
patent litigations, from pre-suit analysis through trial, appeal,
and settlement or license agreements.
Blackbird argued that if its in-house lawyers were prevented from
accessing the accused infringers' highly confidential
information, Blackbird would be prevented from pursuing cases
within its low-cost litigation business model, making continued
litigation of the cases extremely difficult. Blackbird also argued
that it does not compete with the accused infringers, so any risk
of inadvertent disclosure was far outweighed by the harm it would
incur if the court entered a protective order.
In addition to seeking a protective order barring Blackbird's
attorneys from accessing their confidential information, the
accused infringers sought a prosecution bar to prevent Blackbird
attorneys who reviewed their confidential information from
participating in both patent prosecution, and acquisition of a
patent or patent application, reflecting their concerns with
Blackbird's acquisition-based business model. Blackbird did not
oppose a prosecution bar, but argued that the bar should be limited
to prosecution activities, arguing that patent acquisition was not
an issue.
Order
Weighing the risk of inadvertent disclosure and misuse of the
accused infringers' confidential information against the harm
Blackbird would suffer from being unable to use its counsel of
choice in the cases, the court agreed that all three of
Blackbird's in-house attorneys were competitive decision-makers
in a business whose main practice is acquiring patents and
asserting them in litigation. And contrary to Blackbird's
argument that it did not compete with the accused infringers, the
court found that Blackbird's decision to bring a patent
infringement action was essentially a declaration by Blackbird that
the accused infringers were improperly competing with it in
contravention of Blackbird's patent monopoly.
The court held that because Blackbird's attorneys were involved
in patent acquisition, prosecution, and litigation, they would
likely have a difficult time compartmentalizing and not using their
knowledge of the accused infringers' financial and technical
information when making decisions on what patents to acquire and
assert. To give Blackbird's in-house attorneys access to the
accused infringers' confidential technical and financial
information would raise the specter that they would prosecute or
acquire patents that read on the accused infringers'
products.
While noting that the problem was one of Blackbird's own
creation, the court nonetheless agreed that preventing
Blackbird's in-house attorneys from participating in the cases
would harm Blackbird by essentially forcing it to shut down the
litigations. The court noted that the only competitive harm
Blackbird posed to any of the accused infringers arises out of
litigation, and that the harm to the accused infringers could be
minimized by eliminating the threat of such future
litigation.
While allowing Blackbird to use its in-house lawyers in the patent
enforcement litigation against the accused infringers, the court
ordered a prosecution bar preventing Blackbird's in-house
attorneys from being involved in any patent prosecution activity
(including directing outside patent counsel) related to lighting
technology during the litigations and for one year after their
conclusion. The court also imposed on Blackbird a covenant not to
sue the accused infringers on lighting industry patents that
Blackbird acquired at any time between the entry of the protective
order and one year after the conclusion of the current
litigation.
Strategy and Conclusion
This case illustrates complexities that may arise when attorneys serve in several roles at the same time—making business decisions, prosecuting and acquiring patents, and enforcing those patents. It also illustrates the potential consequences of protective orders and prosecution bars that may arise from those complexities, particularly when the attorneys represent a patent assertion entity.
Footnote
1 The Blackbird v. Service Lighting and Electrical Supplies, Inc. et al. opinion may be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/Order_5-18-2016.pdf.
Previously published in LES Insights
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