Companies have been increasingly issuing guidelines to their outside counsel. These rules govern a range of practices that firms must follow such as billing, staffing – and how they manage conflicts of interests.
Such guidelines have increased because in-house counsel are under additional pressure to obtain favourable engagement terms and, in a competitive market, businesses often have the leverage to get private practice lawyers to agree to these conditions.
Firms that agree to these guidelines must keep track of the individual demands in addition to the firms’ standardised conflicts checks. Even though lawyers are well-accustomed to these processes, they can be challenging and cumbersome, especially in the intellectual property space.
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Elham Dehbozorgi, general counsel at Sterne Kessler in Washington DC, says conflicts checks are more difficult for IP firms because they have to worry about issues that other firms don’t.
For example, they have to review technology, which involves looking at clients’ competitors and products, and isn’t as straightforward as just checking the patent number, she says.
Fortunately, there are several steps that attorneys can follow to navigate these issues. For one thing, they can take advantage of their internal electronic systems to check for any problems.
They can also keep track of the greater business interests of their clients to understand whether taking on certain work would result in conflicts. And they can request waivers – either at the time they engage clients or when specific matters come up – to ensure that they can handle additional work.
Checks and conflicts
Firms have generally developed pretty robust procedures for implementing conflicts checks and catching a range of issues.
Robert Counihan, partner at Fenwick & West in New York, says his firm runs new clients, adverse parties and patent numbers through its system to make sure there aren’t any problems. He says it’s important to review the patents because they may be assigned to different entities than the original applicants.
But conflicts checks can still require constant work from lawyers, say sources.
Paul Stewart, partner at Knobbe Martens in California, says one of the most challenging aspects of conducting these searches is making sure that all the attorneys take time out of their busy days to look over conflicts issues each morning.
“It’s just human nature that people are busy and want to do other things,” he says. Still, the firm generally has a good handle on getting people to do this work, he adds.
Even when firms go through these processes, they may not always pick up on every conflict of interest.
William Jay, partner at Goodwin in Washington DC, says sometimes a lawsuit might harm the interests of a client that isn’t a party to the case. For example, he says, a company may have taken an exclusive licence to a patent and built a business strategy on the ability to take advantage of it when others can’t.
A traditional conflicts search may not pick up on the interests of the licensee if a different party wants to invalidate that patent.
To address these issues, his firm tries to maintain robust internal communications about new matters and do more than just run conflicts through computers. The firm also tries to stay on top of information about its clients’ activities.
Picking sides
Attorneys may want to stay away from certain types of companies if those businesses tend to have a lot of disputes with their existing clients. Some sources say, for example, that firms representing innovator pharma businesses should avoid generic brands.
Sanya Sukduang, partner at Cooley in Washington DC, says his company advises brand-name pharma businesses in Hatch-Waxman cases. But a relationship with a generic drug business could prevent the firm from representing an innovator company down the line – especially if the brand-name client was suing the generic business – he adds.
Some sources say, however, that representing both innovator and generic businesses is perfectly fine.
Jay at Goodwin says the hard-and-fast distinction between innovator and generic companies is breaking down because many businesses do work in each sector. He adds that representing both sides makes his firm more valuable to each type of company.
Sometimes a client that has both innovator and generic businesses may tell the firm not to advance certain arguments that will have significant implications for a particular side, he notes. “But that’s driven by the client rather than us.”
Other firms say they have to be careful about representing both types of companies, but that they are willing to do so.
Dehbozorgi at Sterne Kessler says her firm does a sizable amount of work for generics, but also represents some brand-name businesses.
She says it’s important for firms like hers to know which innovators they are regularly opposing in litigation and to avoid advising these companies. Her firm also pays attention to the types of products that are coming out of the pharma industry.
“You have to carefully pick and choose your portfolio of clients in pharma, or you’re going to end up with an inevitable conflict.”
Too close for comfort
A firm may also want to pay extra attention when a potential new client is a close competitor of an existing one. Normally, lawyers can and do advise clients that are competitors without causing conflicts of interests.
But some attorneys say they may be hesitant to advise competitors if the technology areas are too close.
Counihan at Fenwick says that although the firm wouldn’t hesitate to advise two companies that were both in the biotech industry, it might be wary of representing two companies that were working on antibody treatments for the same specific disease.
And anyway, businesses may have their own problems with firms advising their competitors.
Jay at Goodwin says some companies have issued guidelines to outside counsel that prevent firms from representing their main rivals. If clients don’t have these guidelines, he still tries to make them aware that the firm is active in certain fields and may represent competitors on unrelated matters.
“But that’s not something that we’re cramming down clients’ throats. A client that sees a law firm that is active in its business sector is going to find a law firm that knows a lot about the issues and challenges that the company is facing.”
Waiving goodbye
Sources say that if firms have good relationships with companies and are upfront about their potentially conflicting engagements, then clients will be more likely to grant waivers.
Jay at Goodwin says businesses that have been beneficiaries of waivers in the past are often more likely to grant them in the future.
But there are some cases where firms won’t even bother trying to work on a potentially conflicting matter.
Jay says that if someone wanted the firm to handle a case against a large longstanding and trusted client that would require Goodwin to make wild or obnoxious accusations, he expects that the firm would turn down the work rather than ask the initial client for permission to sue it.
Furthermore, there may be times when companies can’t ask about waivers because of confidentiality issues. If two businesses want to work with a firm, there may be no way to explain the conflict without alluding to the existence of the other company.
Dehbozorgi at Sterne Kessler says that firms can ask clients to sign prospective waivers, which relinquish future conflict of interest issues.
Some companies may specify in their outside counsel guidelines that they want lawyers to check in with them about conflicts issues on a case-by-case basis. But Dehbozorgi says firms can try to negotiate this clause when they take on new business.
Managing conflicts of interest can be difficult, but it is a crucial part of any firm’s day-to-day operations, especially when companies are weighing in with individual demands.
Firms that manage this process successfully will not only avoid legal trouble for themselves but will also maintain stronger relationships and better trust with their clients in the long term.
