Celgard, LLC v. LG Chem, Ltd.

Disqualifying Celgard’s appellate counsel due to a conflict of interest, the U.S. Court of Appeals for the Federal Circuit, in a non-precedential opinion, found that Celgard’s preliminary injunction preventing LG Chem from supplying batteries was directly adverse to the appellate firm’s client who purchased batteries from LG Chem.  Celgard, LLC v. LG Chem, Ltd., Case Nos. 14-1675, -1733, -1806 (Fed. Cir., Dec. 10, 2014) (Dyk, J.).

Celgard, a manufacturer of lithium battery components, filed suit alleging that LG Chem’s manufacture and sale of lithium batteries infringed a Celgard patent.  After filing the complaint, Celgard moved for a preliminary injunction preventing LG Chem from supplying the allegedly infringing products to customers, including Apple.  Celgard sent Apple a copy of the motion and suggested that Apple and Celgard work to find a mutually beneficial arrangement to resolve the infringement issues.

The district court granted the injunction, but later stayed the injunction pending LG Chem’s appeal to the Federal Circuit.  Jones Day then filed an appearance to represent Celgard in both the appeal and at the district court.  Apple, who is represented by Jones Day in other matters, moved to intervene for the purpose of moving to disqualify the firm.

In determining whether the representation of Celgard amounted to a conflict of interest requiring disqualification, the Federal Circuit applied the professional conduct rules of the forum state.  These rules prohibit any representation which is “directly adverse to another client.”  The Federal Circuit found that the representation of Celgard was “‘directly adverse’ to the interests of Apple, and [was] not merely adverse in an ‘economic sense.’”

Specifically, the Federal Circuit focused on the effect that Celgard’s preliminary injunction would have on Apple.  It noted that the injunction would not only force Apple to find a new battery supplier, but also expose Apple to “additional targeting by Celgard in an attempt to use the injunction issue as leverage in negotiating a business relationship.”

Even though Apple was not a named defendant in the litigation, the Federal Circuit found that a conflict existed based on the “total context” of the case.  Furthermore, the Federal Circuit rejected Celgard’s argument that finding a conflict in this case would give lawyers and clients “no reliable way of determining whether conflicts of interest exist in deciding whether to commence engagements.”  Instead, the Federal Circuit held that “the duty of loyalty protect[ed] Apple from further representation of Celgard.”