Federal Circuit Affirms Disqualification of Counsel, Dismissal of Complaint Based on Confidential Information

Judge Lourie, Federal Circuit.

Judge Lourie, Federal Circuit.

In re Dynamic 3D Geosolutions LLC v. Schlumberger Ltd. (Schlumberger N.V.), (Opinion for the court, Lourie, J.) Click Here for a copy of the opinion.

In a September 12, 2016 decision, the Federal Circuit affirmed a Western District of Texas decision disqualifying counsel for plaintiff (“Dynamic”) and dismissing its patent infringement complaint without prejudice.

Dynamic alleged that defendant Schlumberger’s “Petrel” software infringed Dynamic’s ‘319 Patent, for systems and methods of combining seismic and well log data into a real-time, interactive three dimensional display.

In 2006, Schlumberger hired Charlotte Rutherford who became Deputy General Counsel for Intellectual Property.  As part of her work, Rutherford managed a copyright lawsuit involving Petrel, evaluated patentable aspects of Petrel, and assessed the risk of lawsuits.  Rutherford in particular analyzed a product alleged to be the commercial embodiment of the Dynamic ’319 Patent. In mid-2013, Rutherford left Schlumberger and joined Acacia Research Group LLC, the parent company of various patent-holding entities, including Dynamic.

After joining Acacia, Rutherford met with the inventors of the ’319 Patent and Acacia’s outside counsel,  and discussed Schlumberger’s Petrel product as a potential target for patent infringement litigation. In February 2014, Dynamic filed several lawsuits, including this one. The complaint alleged infringement and actual knowledge of the ’319 patent by Schlumberger as early as the issuance of the patent in July 2011.

Schlumberger raised Rutherford’s potential conflict of interest to the court in April 2014, and subsequently filed a motion to disqualify Dynamic’s counsel.  The district court found that Rutherford’s work at Schlumberger was substantially related to her current work at Acacia.  The court found that because the accused features of Petrel existed in the older versions that Rutherford was exposed to, and because she was involved at Schlumberger in efforts to license Petrel to other companies, the evidence created an irrebuttable presumption that she acquired confidential information requiring her disqualification.  The court was persuaded by evidence of Rutherford’s involvement in acquiring the ’319 patent and in deciding to sue Schlumberger.  Thus, the district court granted Schlumberger’s motion, disqualifying Rutherford, other in-house counsel for Acacia and its subsidiaries, and outside counsel representing Dynamic in the district court litigation.  Because the pleadings were drafted by counsel presumed to possess Schlumberger’s confidential information, through Rutherford, the district court dismissed all of Dynamic’s claims against Schlumberger without prejudice.

On appeal, the Federal Circuit found that, indeed, “[a]ll aspects of the case were contaminated by Rutherford’s actions, from the purchase of the ’319 patent, to preparation for suit against Schlumberger, to the actual filing of the suit.” The Federal Circuit said it was therefore not an abuse of discretion to expect Dynamic to draft a fresh complaint instead of “drawing from a poisoned well.”

Potential plaintiffs should shield their outside counsel from any confidential information of the defendant that its employees may possess.

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