Addressing conflict of interest issues in a case involving the plaintiff’s in-house lawyer representing her new company in an infringement lawsuit against her former company over substantially related subject matter, the US Court of Appeals for the Federal Circuit affirmed a district court’s disqualification of all of the plaintiff’s in-house and outside counsel, finding that the plaintiff failed to rebut a presumption that those lawyers received the defendant’s confidential information. Dynamic 3D Geosolutions LLC v. Schlumberger Ltd., Case Nos. 15-1628; -1629 (Fed. Cir., Sept. 12, 2016) (Lourie, J) (Wallach, J, concurring).
Dynamic 3D Geosolutions is a subsidiary of Acacia. Acacia’s senior vice president and associate general counsel, Charlotte Rutherford, took her position after serving in various high-level counsel positions in Schlumberger’s intellectual property department over a period of seven years. At Schlumberger, Rutherford’s job duties included developing and implementing the worldwide intellectual property strategy; protecting and preserving Schlumberger’s intellectual property assets, including patents, trademarks and trade secrets; and advising senior Schlumberger executives regarding risk issues relating to intellectual property. Among other projects at Schlumberger, Rutherford was specifically involved in evaluating the risks of infringement for a product later accused of infringement by Acacia.
After joining Acacia, Rutherford participated in discussions with Acacia’s in-house lawyers and outside counsel regarding the possibility of acquiring a patent to assert in an infringement suit against Schlumberger. Rutherford also spoke to the inventor of the patent prior to the acquisition. Following those discussions, Rutherford approved a recommendation to Acacia’s CEO to acquire and assert the patent against Schlumberger.
The parties disputed Rutherford’s level of involvement in the plan to acquire and assert the patent against Schlumberger, but the court found that the level of Rutherford’s involvement was sufficient to cause disqualification in either case. Specifically, the district court found that the evidence created an irrebuttable presumption that Rutherford acquired confidential information as a Schlumberger lawyer that disqualified her from involvement in a case on behalf of Acacia. The district court also determined that Rutherford’s acquired knowledge should be imputed to all Acacia in-house lawyers for purposes of the suit against Schlumberger because Acacia failed to rebut the presumption that Schlumberger’s confidential information was disclosed to those lawyers. As for outside counsel, the district court disqualified them as well, finding that Schlumberger had shifted the evidentiary burden to Acacia to prove non-disclosure of confidential information to the outside counsel. Acacia appealed.
In affirming Rutherford’s disqualification, the Federal Circuit looked to Texas Disciplinary Rule of Professional Conduct 1.09(a) and the corresponding ABA Model Rule, and found that Rutherford’s former representation of Schlumberger was substantially related to her alleged representation in this case. The Court found that Rutherford’s participation at Acacia entailed assessing the patent’s value as a litigation tool against Schlumberger with knowledge of her former employer’s confidential information.
The Court rejected Acacia’s argument that US Court of Appeals for the Fifth Circuit law does not require a presumption of disclosure for in-house lawyers. The Court found that regardless of whether the presumption of disclosure of confidential information was rebuttable, Acacia could not rebut the presumption after admitting that it did not wall Rutherford off from Acacia’s other lawyers, and that all four employees in Acacia’s office reported to Rutherford even after the conflict issue was raised.
In affirming the disqualification of Acacia’s outside counsel, the Court found that Rutherford disregarded her duty of loyalty and communicated Schlumberger’s confidential information not only to other in-house counsel but also to outside counsel. The Court affirmed the dismissal of Acacia’s complaint without prejudice as a result of the logistics presented following the extensive lawyer disqualification.
The concurring opinion included as strong rebuke of Rutherford’s actions in view of the disputed circumstances.