Lawyers’ outsourcing of client data may jeopardize attorney-client privilege
May 24, 2008
Some lawyers are concerned that if they outsource legal work to non-U.S. firms, they could be jeopardizing the attorney-client privilege because of the U.S. Government’s position that it is free to monitor communications with foreigners. See this Legal Times article about a lawyer suing for a ruling on that point. (Pedro Ruz Gutierrez, Law Firm Files Suit to Bar Outsourcing of Client Data [sic], Legal Times, May 27, 2008)
A better way of nipping business legal disputes in the bud
April 16, 2008
As I mentioned a few minutes ago, the CEO of Blue Jeans Cable, a former litigator, responded pretty forcefully to a cease and desist letter from Monster Cable, alleging various forms of infringement. One of the things I liked about the Blue Jeans response was its detailed requests for additional information — “If you expect to persuade me, you had better start making full, open and honest disclosures; I will find out the facts sooner or later in any event ….” (Emphasis added; hat tip Jeff Nolan at Venture Chronicles.)
The horrors of lawsuit discovery
The Blue Jeans Cable approach recognizes one of the grim realities of U.S. litigation, which is the American legal system’s premise that “the law is entitled to every man’s evidence.” Proceeding from that premise, the discovery rules allow adversaries’ lawyers to demand copies of each others’ relevant documents and to interview potential witnesses in depositions; one of the few limitations is that the requested information must be either relevant in itself or “reasonably calculated to lead to the discovery of admissible evidence.”
Disputes about discovery are one of the major reasons litigation is so expensive in this country:
- Party A’s lawyers demand that Party B produce copies of Documents X, Y, and Z;
- Party B’s lawyers object and refuse to comply;
- Party A’s lawyers file a motion to compel discovery; they spend lots of time writing a brief in support of the motion;
- Party B’s lawyers file an opposition to the motion, with its own brief;
- Party A’s lawyers file a reply brief;
- the judge orders an oral hearing — incidentally, there’s nothing judges hate worse than discovery disputes;
- the parties’ lawyers prepare for and attend the hearing;
- the lawyers’ meters are running the whole way.
Discovery disputes can also get in the way of coming to a sensible business resolution to the dispute: The parties and their lawyers get ticked off at each other, and over the money they’re spending on legal fees; as a result, they can sometimes have their judgment clouded about the true legal merits of their positions.
Cut the crap
In commercial litigation, it often makes sense for both sides to just cut the crap and exchange documents under a nondisclosure agreement, even before a lawsuit is filed. This lets the lawyers and management evaluate the case in a less stressful environment, and improves the chances of coming to an agreeable settlement (not just a nuisance settlement) before the parties’ backs have stiffened. When I was a software-company general counsel, I used this basic approach in quite a few disputes. It didn’t matter whether we were the potential defendant or the potential plaintiff: If preliminary due diligence suggested that the other side and its lawyers could be trusted to honor a nondisclosure agreement, I’d tell them something more or less like this:
- If our company is in the wrong, we want to know it early.
- We hope the same is true for you.
- If litigation were to come to pass, we’d each get the information we wanted during the discovery process anyway.
- So let’s put a nondisclosure agreement in place, and we’ll give your lawyer whatever s/he wants to look at that we can conveniently collect, as long as you agree to do the same for us.
- And then let’s talk, before we’ve both spent a ton of money on legal fees.
That approach generally worked out pretty well.
Monster Cables picked the wrong guy to threaten
April 16, 2008
Monster Cables, which makes extremely high-priced stereo cables, has apparently sent a cease-and-desist letter to Blue Jeans Cable, alleging various kinds of infringement. Bad move - the president of Blue Jeans Cable, Kurt Denke, is a former litigator who responded pretty forcefully:
… Once I have received the above materials and explanations from you, I will undertake to analyze this information and let you know whether we are willing to accede to any of the demands made in your letter. If my analysis shows that there is any reasonable likelihood that we have infringed in any way any of Monster Cable’s intellectual property rights, we will of course take any and all action necessary to resolve the situation. If I do not hear from you within the next fourteen days, or if I do hear from you but do not receive all of the information requested above, I will assume that you have abandoned these claims and closed your file.
As for your requests for information, or for action, directed to me: I would remind you that it is you, not I, who are making claims; and it is you, not I, who must substantiate those claims. You have not done so.
I have seen Monster Cable take untenable IP positions in various different scenarios in the past, and am generally familiar with what seems to be Monster Cable’s modus operandi in these matters. I therefore think that it is important that, before closing, I make you aware of a few points.
After graduating from the University of Pennsylvania Law School in 1985, I spent nineteen years in litigation practice, with a focus upon federal litigation involving large damages and complex issues. My first seven years were spent primarily on the defense side, where I developed an intense frustration with insurance carriers who would settle meritless claims for nuisance value when the better long-term view would have been to fight against vexatious litigation as a matter of principle. In plaintiffs’ practice, likewise, I was always a strong advocate of standing upon principle and taking cases all the way to judgment, even when substantial offers of settlement were on the table. I am “uncompromising” in the most literal sense of the word. If Monster Cable proceeds with litigation against me I will pursue the same merits-driven approach; I do not compromise with bullies and I would rather spend fifty thousand dollars on defense than give you a dollar of unmerited settlement funds. As for signing a licensing agreement for intellectual property which I have not infringed: that will not happen, under any circumstances, whether it makes economic sense or not.
I say this because my observation has been that Monster Cable typically operates in a hit-and-run fashion. Your client threatens litigation, expecting the victim to panic and plead for mercy; and what follows is a quickie negotiation session that ends with payment and a licensing agreement. Your client then uses this collection of licensing agreements to convince others under similar threat to accede to its demands. Let me be clear about this: there are only two ways for you to get anything out of me. You will either need to (1) convince me that I have infringed, or (2) obtain a final judgment to that effect from a court of competent jurisdiction. It may be that my inability to see the pragmatic value of settling frivolous claims is a deep character flaw, and I am sure a few of the insurance carriers for whom I have done work have seen it that way; but it is how I have done business for the last quarter-century and you are not going to change my mind. If you sue me, the case will go to judgment, and I will hold the court’s attention upon the merits of your claims–or, to speak more precisely, the absence of merit from your claims–from start to finish. Not only am I unintimidated by litigation; I sometimes rather miss it.
(Emphasis added; hat tip: Jeff Nolan at Venture Chronicles.)
I can relate to Denke’s final comment quoted above …. I wonder what the attendant publicity is doing for his sales.
Keep your legal bills down when changing jobs: Leave your former employer’s files behind
April 1, 2008
If you’re leaving a job, you can keep your legal bills down by not taking copies of your former employer’s non-public business information with you.
If you take files, it might not be clear
that you’ve done nothing wrong
You might not have any intention of using the former employer’s information for an improper purpose. You might swear up and down that you never even looked at the copies you took with you — or that you did look at the copies, but not for anything the former employer might object to.
Your former employer might not believe you. In fact, if there’s any bad blood at all between you, your former employer probably won’t believe you.
The mere fact that you took the copies might be deemed evidence of possible wrongdoing. It might be enough evidence to entitle your former employer to a trial.
A case study
For an interesting case study, read the court’s opinion in L-3 Communications Westwood Corp. v. Robichaux, No. 06-279 (E.D. La. Feb. 29, 2008) (granting in part but denying in part defendants’ motion for partial summary judgment).
In the L-3 case, two former employees (a husband and wife) some months before being fired, had backed up the entire contents of their laptops to an external hard disk. They admitted looking at source code on the backup after they were fired. The husband had also provided his father (himself a former employee) with company documents.
All three denied doing anything improper with the information. But the court held that there was sufficient evidence of possible wrongdoing to require a trial. See id., slip op. at 11-12.
Trial preparation legal bills can be killers
Trials are expensive enough for the parties, but trial preparation is what really runs up the legal bills. (The vast majority of cases settle before trial anyway.) During pre-trial prep, the lawyers for both sides will spend a lot of time reviewing documents; interviewing potential witnesses; figuring out how to present it all to the judge and jury; and arguing to the judge about what the jury should be allowed to hear and see.
You probably aren’t keen on spending that kind of money on legal fees. That being the case, you’re usually better off making it a point not to take anything with you that’s even arguably confidential to your former employer.
(It’s another story if the business information is publicly available, but that in itself can be another fight.)
In the L-3 case mentioned above, the three defendants are likely to settle the case, possibly on unfavorable terms. If they don’t settle, their legal bills, for trial preparation and the actual trial, could be devastating.
The lesson: When leaving a job, it’s usually best not to take anything with you that you’re not indisputably entitled to keep.
Signing a contract without indicating it’s for your company can get you sued personally
March 24, 2008
I recently ran across a case from California where:
• a company officer signed a letter agreement, on his company’s letterhead, but with no indication of his title;
• the company backed out of the deal;
• the other side sued both the company and the officer in his personal capacity; and
• the company’s D&O insurance carrier successfully denied coverage, on grounds that D&O coverage doesn’t include garden-variety breaches of contract; and
• the insurance carrier therefore didn’t have to pay for the officer’s litigation defense expenses.
See August Entertainment, Inc. v. Philadelphia Indemnity Ins. Co., 146 Cal.App.4th 565 (2007).
Of course, there was a wrinkle, one that likely didn’t sit well with the court. The two companies had settled their dispute. Under the settlement, the officer agreed to allow a $2 million judgment to be entered against him. The plaintiff agreed to look solely to the insurance carrier for recovery of the money, and to dismiss its claims against the officer’s company, which was now insolvent.
Regardless, the court had no trouble holding that the D&O policy did not cover the plaintiff company’s claim for breach of contract.
ABA Project: Model Case Management Orders
for Patent Cases
June 16, 2004
Several years ago, I chaired a special committee of the American Bar Association’s Section of Intellectual Property Law. We set out to develop some model orders for implementing “best practices” in managing patent litigation cases.
(Of course, many of the model orders could be used in non-patent litigation as well.)
Corporate Governance Changes
as Settlement Currency?
June 15, 2004
An article by Stephen Taub in today’s Compliance Week ($) gives some examples of how companies seem to be using their executive compensation and other corporate-governance policies as “settlement currency” to help resolve shareholder lawsuits. The article’s list of companies includes Cendant, Citrix, Enterasys, MCI, Sprint., and Siebel Systems.
Counseling an Employee for Poor Performance?
Consider Getting a Signed Written Acknowledgement
June 14, 2004
In an age-discrimination lawsuit against American Airlines by a former employee, the court recently denied American’s motion for a summary judgment dismissing the case. The court’s reason offers a lesson for managers and HR personnel.
That $1.45 Million House May Not Look So Great Now
June 14, 2004
You’re a public-company officer. Your company’s been having — or will soon have — financial troubles. You’ve had a hankering for a million-dollar home in Florida. You might want to think twice about buying that house. A former officer of Homestore, Inc., who is now a defendant in a variety of securities lawsuits. recently learned that his purchase of a $1.45 million home in Florida could eventually be found to constitute a sheltering of his assets from creditors, which in turn could make him ineligible to have the company advance his defense costs in various securities lawsuits. See the opinion by the Delaware Chancery Court. (Link via BNA Corporate Counsel Weekly [$])
Adelphia Vendors Motorola, Scientific-Atlanta Implicated in Executives’ Securites-Fraud Trial
June 9, 2004
Today’s WSJ ($) reports that, in the trial of two former Adelphia executives, an email and witness testimony have implicated Adelphia vendors Motorola and Scientific-Atlanta as “allegedly help[ing] Adelphia cook its books.”