I want to offer some thoughts on Andrew v. Beverly, which David mentioned in his earlier post. I share (what I read as) David's reaction that, absent some evidence that the conflict in that case tainted the analysis in the infringement opinion letter, there is no reason to believe counsel was not legally competent with regard to patent issues. There is less than no reason to believe that Beverly failed to act with due care (as that term is understood in this context) in securing and relying on the letter.
I don't think the court seriously questioned the competence of the patent analysis in the letter, however. I read the court as excluding the letter as part of a strategy to solve an enforcement problem.
The firm that issued the letter wisely declined to represent either side in the litigation, so it could not be disqualified from the litigation as a penalty for undertaking conflicted representation. The firm probably will not be disciplined for the violation. (I do not have data on the question, but my sense is that bar counsel do not consider conflicts in commercial matters to be a high priority.)
For these reasons, I think the court thought it had to exclude the letter from evidence in order to ensure that the firm would be punished for engaging in conflicted representation. The basic logic is simple enough--if the letter is not excluded, the infringement defendant client suffers no harm from the conflict, and therefore has no claim against counsel based on the conflict. That would imply a "free" violation of rule 1.7, a prospect the court found unacceptable. The court issues a ruling prejudicial to the infringement defendant precisely in order to create harm from the conflict, thus providing that client with a basis to sue the lawyers. In the court's words, "Beverly may seek recourse from Barnes & Thornburg elsewhere if it desires."
The strategy of making the client suffer for the lawyer's errors is common enough. (It is made explicit in Judge Easterbrook's opinion in U.S. v. 7108 West Grand Avenue, 15 F.3d 632 (7th Cir. 1994).) Opinions would no doubt vary on whether it is desirable as a general rule. (It is worth noting, however, that disqualification is itself a form of discretionary non-disciplinary enforcement, which we can think of as an economic sanction in the amount of foregone fees.)
There are several reasons to question the strategy in this context, however. To begin with, suppose the defendant prevails on liability in the infringement action. There then would be no damages to enhance (the letter is part of a due care defense against a claim of willful infringement, and the penalty for a finding of willful infringement is the enhancement of damages), and the conflicted representation would go unpunished.
Even if the defendant lost on liability, and damages were enhanced for willful infringement, the amount of the enhancement would depend on the baseline amount of infringement damages, and that amount bears no logical relationship to the conflict. The fit between the violation and the contemplated enforcement is therefore pretty poor.
Another objection is that the fact of the conflict would seem to make the letter more reliable, not less. If the patentee's own lawyers think there is no infringement, what more could a prospective defendant want? (I'd love to argue that to the jury, though I bet the court would grant a motion to exclude references to the conflict when considering the letter.)
In addition, the court was wrong to say, as it did, that the letter had to be excluded in order to put the parties in the position they would have been in absent the conflict. If the firm had caught the conflict and refused to write the letters, the defendant no doubt would have sought (and, presuming the actual letter was competently researched, probably obtained) a letter from some other firm. The defendant would not have gone without a letter at trial, which is the position the court's ruling put it in.
This point raises a final one. The conflict did indeed deprive the patentee of the loyalty of it's counsel, but if I am right that the defendant could have obtained an opinion somewhere else, the court's ruling puts the patentee in a better position than it would have been in had counsel remained loyal, and turned down the request to draft the letters. Had the firm done that, the patentee still would have faced a letter at trial, whereas under the court's ruling it does not.
The court did not have to do that. The patentee could sue the firm for writing the letter, just as the infringement defendant could sue the firm because the letter was excluded. There is no reason why the infringement defendant is a more appropriate breach of fiduciary duty plaintiff than the patentee. If anything, the party deprived of loyalty should sue for that deprivation, and in this case that is the patentee.
My guess is that liability in such a case would be easy to establish, but that the plaintiff/patentee would have a hard time establishing much in the way of damages (beyond, possibly, fee disgorgement for work on the patents in suit). Although causation would probably not be a good defense to liability for breach of the duty of loyalty (as opposed to care), the causation argument would be valid with regard to the existence and extent of damages. If that argument works (and I bet the depositions would provide a strong basis for it), then the court's ruling puts the firm in a worse position than it should be in, because its violation caused little harm as a practical matter.
What the firm did was wrong, true enough, but the court's remedy seems out of proportion to a realistic assessment of probable harm.
DM