No Disqualification Where Disclosure of Confidential Information Controlled by Joint Defense Agreement

Determining whether a law firm should be disqualified from representing plaintiff because one of its partners received a defendant’s confidential information under a joint defense agreement in a previous lawsuit and in a previous employment, the U.S. Court of Appeals for the Federal Circuit overturned a district court decision disqualifying the firm and upheld the waiver provision of the joint defense agreement, which waived future conflicts of interest. In re Shared Memory Graphics LLC, Misc. Dkt. No. 978 (Fed. Cir., Sept. 22, 2011) (Dyk, J.) (Newman, J., dissenting).

Shared Memory Graphics (SMG), represented by the law firm of Floyd & Buss (F&B), sued Nintendo for patent infringement. In turn, Nintendo brought a motion to disqualify F&B because one of F&B’s attorneys, Kent Cooper, received Nintendo confidential information during a previous employment with Advanced Micro Devices (AMD). Cooper received the information under a joint defense agreement when AMD and Nintendo were co-defendants in a prior litigation concerning the same microchip being accused of infringement by SMG in this litigation. Although the joint defense agreement contained a waiver provision stating “compliance with the terms of this Agreement by either party, [shall not] be used as a basis to seek to disqualify the respective counsel of such party in any future litigation,” the district court nevertheless granted Nintendo’s motion and disqualified the entire F&B firm from representing SMG against Nintendo. In response, F&B petitioned the Federal Circuit for a writ of mandamus.

The Court noted that California state law applies to disqualification motions brought in the U.S. District Court for the Northern District of California and found that under California law an advance waiver of future conflicts is generally enforceable if a non-attorney-client relationship exists in a matter involving sophisticated parties. The Court then considered the language of the joint defense agreement and Nintendo’s argument that the agreement does not apply to Cooper because he is no longer with AMD. Considering the joint defense agreement as a whole and its use of the term “respective counsel” throughout, the Court rejected Nintendo’s argument, reasoning that Nintendo should have had the expectation that Cooper was a “respective counsel” who would be bound by the agreement’s confidentiality provisions. By analogy, the Court ruled that Cooper was also a “respective counsel” for purposes of the agreement’s waiver provision. Having so ruled, the Court granted the petition for writ and vacated the district court’s decision disqualifying F&B.

In dissent, Judge Newman argued that, “professional responsibility in the legal system does not distinguish between a written agreement to protect information received as an attorney, and the ethical obligation to protect information received as an attorney. The possible adverse use of such information, flowing from a change in the layer’s employment, is prohibited under any theory.” Newman further explained that, “the issue is the integrity of the system of legal representation in today’s world of mobile lawyers and large law firms with interacting clients. […] [I]t appears that Cooper in his new employment is associated with issues involving his former employer, and that his former employment was at the highest level in interaction with Nintendo’s legal and strategic interests. If there is doubt, it must be resolved in favor of the entity whose information is in jeopardy.”