United States: Company Principals Who Act As Litigation Counsel May Be Barred From Reviewing Confidential Information And From Prosecuting Patents

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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