Date: 20070924
Docket: T-830-05
Citation: 2007 FC 957
Vancouver,
British Columbia,
September 24, 2007
PRESENT: Roger R. Lafrenière, Esquire
Prothonotary
BETWEEN:
ROBBINS & MYERS CANADA, LTD.
Plaintiff
(Defendant by Counterclaim)
and
TORQUE CONTROL SYSTEMS LTD;
and ANDREW WRIGHT
Defendants
(Plaintiffs by Counterclaim)
REASONS FOR ORDER AND ORDER
[1]
The
Plaintiff,
Robbins
& Myers Canada, Ltd.
(Robbins), seeks an order disqualifying the law firm of Ridout & Maybee,
LLP (Ridout) from acting for Torque
Control Systems Ltd (TCS) and Andrew Wright (Wright), the Defendants in this action for
patent infringement, based on conflict of interest.
[2]
The
Defendants oppose the motion on the grounds that their solicitors have never
had any relationship with Robbins and are not privy to any confidential
information that would give rise to a conflict of interest. They also complain
that they have been prejudiced by Robbins’ delay in objecting to the alleged
conflict of interest.
[3]
The key
issue on this motion is whether a lawyer who has acted on behalf of a former
client by drafting and filing an application from which a patent issued can
then turn around and accept a retainer from another client for the purpose of
invalidating the very same patent acquired by a third party.
[4]
A careful
analysis of the facts adduced by the parties on this motion leads me to
conclude that acceptance of the retainer by Ridout has every appearance of impropriety and
constitutes a disqualifying conflict of interest.
Factual background
[5]
In
support of its motion, Robbins relied on four affidavits: the affidavit of
Curtis Ring (Ring) sworn June 28, 2006; the affidavit of Amy L. Jobson sworn
August 20, 2006; a second affidavit of Ring sworn October 18, 2006; and the
affidavit of Chris Blundell (Blundell) sworn October 12, 2006. In support of their position, the Defendants
filed two affidavits, both sworn by Wright. Ring and Wright were cross-examined
on their respective affidavits.
[6]
The patent at issue in
this proceeding is entitled "Pull-through Tubing String Rotator for An Oil
Well" (the '975 Patent).
The
invention that is the subject matter of the '975 Patent (the Invention), was
initially owned by a company named Alberta Basic Industries Ltd. (ABIL), whose
employees conceived the Invention.
[7]
ABIL
retained Peter Everitt (Everitt), then of Kvas Miller Everitt (Kvas Miller), to
prepare and file patent applications for the Invention in the United States and Canada. Everitt arranged for
the filing of a U.S. patent application on
February 25, 1999 (the US Application), naming three ABIL employees as
inventors: Ring, Blundell and Wright.
[8]
Ring
was Engineering Manager of ABIL from 1997 to 2001. He states that Everitt and
his prior firm, Kvas Miller, were privy to confidential and privileged
information concerning the '975 Patent as a result of Everitt’s involvement in
preparing and filing the '975 Patent.
[9]
Ring
declares that the specification of the Invention was drafted by Everitt. He
states that Everitt had previously been retained to draft several patent
applications for other inventions owned by ABIL and that, for matters in which
he was named as an inventor, he would typically have discussions with Everitt
prior to filing such applications. According to Ring, such discussions would
usually focus on the inventive features of the invention, the advantages of the
invention over other products previously disclosed or known to be available to
the public, alternative embodiments of the invention (including the advantages
of various embodiments), the meaning of various terms to appear in the patent
specification, and the appropriate scope of the claims in the applications for
the invention.
Ring claims that he had numerous discussions by telephone with Everitt
regarding the Invention, including two calls that took place in February 1999.
[10]
In
cross-examination, Ring admitted that he could not recall specific information
or details regarding his conversations with Everitt in relation to the
Invention. He also admitted that he had mixed up the prosecution of the ‘975
Patent with the prosecution of other patents on behalf of ABIL by Everitt. He insisted
however, in re-examination, that he had conversations with Everitt prior to the
filing of the ‘975 Patent.
[11]
Wright was
employed by ABIL as a manager/salesman from 1996 to 1999 and is listed as one
of the inventors of the ‘975 Patent. He was not present during any of the
conversations between Ring and Everitt. He was informed, however, by Everitt
(who declined to file his own affidavit in response to Robbins’ motion) that
Everitt “has no confidential information” concerning any aspect of the
invention set forth in the ‘975 Patent, or concerning the preparation and
filing of the patent application that led to the ‘975 Patent. Everitt also told
Wright that any information he had concerning the nature, structure and
function of the device described in the ‘975 Patent, its inventive features and
advantages over prior devices, and the scope of the patent’s claims, can be
found within the text of the document that was published by the Canadian Patent
Office.
[12]
On
January 24, 2000, Everitt filed an application in Canada on behalf of ABIL for
the Invention, which later issued to the '975 Patent, claiming priority from
the US Application. The
petition accompanying the application identifies the firm of Kvas Miller as ABIL’s
agents of record. The firm remained the agent and representative of record for ABIL in
respect of the '975 Application in Canada until April 24, 2001.
[13]
On
June 12, 2001, ABIL assigned the Invention, including the '975 Application, to Robbins. The '975 Patent issued on December 14, 2004,
reflecting Robbins as owner thereof.
[14]
In
its Statement of Claim issued in May 2005, Robbins alleges that the Defendants
have infringed various claims of the '975 Patent. On May 27, 2005, Everitt
spoke to Robbins’ solicitor, Michael Manson, to give notice that Kvas Miller
had been retained to defend the action and to request an extension of time
within which to file a statement of defence. Wright was advised by Everitt that
Kvas Miller’s former representation of ABIL was brought to Manson’s attention,
and that no objection was raised at the time. The Defendants filed their
Statement of Defence and Counterclaim on June 27, 2005, in which Kvas and
Everitt, and the firm of Kvas Miller were reflected as the Defendants’
solicitors of record.
[15]
On March
16, 2006,
counsel for Robbins wrote to Kvas Miller requesting that the firm immediately
withdraw as counsel due to a “clear conflict of interests” arising from its
previous involvement with the ‘975 Patent. Kvas Miller refused to do so.
[16]
In
June 2006, Chris Kvas (Kvas) and Everitt both joined the law firm of Ridout,
which has also refused to withdraw as counsel for the Defendants, and continues
to act on their behalf.
Analysis
[17]
In
the seminal decision of Macdonald Estate v. Martin,
[1990] 3 S.C.R. 1235 (Martin), the Supreme Court of Canada determined that a
law firm should be disqualified when: (a) a lawyer at the firm has confidential
information attributable to a previous or current solicitor-and-client
relationship; (b) the confidential information is relevant to a current matter;
and (c) the lawyer or the law firm are in a position to use the information
against the former client.
[18]
In
considering whether there is a disqualifying conflict of interest, the moving
party does not need to show that there is a probability of mischief. Rather,
the test is whether the public, as represented by a reasonably-informed person,
would be satisfied that no use of confidential information would occur. That is the over-riding
policy that applies and will inform the Court in answering the question: “Is
there a disqualifying interest?”
[19]
Had
ABIL retained ownership of the Invention and instituted the present action on
its own behalf, I would have no difficulty in concluding that Ridout has placed
itself in a conflict of interest. It is clear that there was a solicitor-client
relationship between Kvas Miller and ABIL when the application for the ‘975
Patent was prepared and filed. Moreover, there is no question that the original
retainer between ABIL and Kvas Miller is sufficiently related to the present
proceeding, namely a patent infringement action based on the '975 Patent which
Ridout now seeks to invalidate on behalf of the Defendants.
[20]
The Defendants would
have me believe that Everitt did not obtain any confidential information in his
dealings with Ring. However, all the evidence submitted by the Defendants in
relation to whether or not confidential information was disclosed is based on
information and belief. Wright, the only deponent for the Defendants, was not
privy to any of the conversations between Ring and Everitt in relation to the
Invention, and therefore cannot testify as to the nature of the information
discussed between Ring and Everitt. In fact, Wright had no dealings whatsoever with
Everitt in relation to the Invention at the time of drafting the US Application
and the '975 Application, or at any other time during prosecution of the
application.
[21]
While
some of the information disclosed by Ring to Everitt regarding the Invention
would have been incorporated into the text of the '975 Patent, the same cannot
be said about Ring's private thoughts, concerns, and musings, which he no doubt
shared with Everitt. I am satisfied, based on
Ring’s account, that Everitt engaged in confidential discussions with Ring in
preparing and filing the US Application and the '975 Application, which would
have included canvassing the prior art, the inventive features, different
embodiments, the meaning of the language, and the scope of the claims.
[22]
Ring
acknowledged in cross-examination that he did not have any specific
recollection of what was discussed with Everitt. However, a client cannot be
expected to remember all of the information imparted to the solicitor, nor
appreciate what may be confidential in the sense of being relevant to the
second matter.
[23]
In
any event, given the pivotal role played by a patent lawyer, I fail to see how
Everitt could have been effective or useful without having first obtained
confidential information and instructions from his client. By its very nature,
a lawyer’s retainer entails consultation with the client, solicitation of
information, and provision of legal advice. Accordingly, in the absence of any
direct evidence to contradict Ring’s evidence, I conclude that relevant confidential
information was likely imparted to Everitt by Ring on behalf of ABIL.
[24]
But
what of Robbins,
the successor in title of the Invention and the '975 Patent? A threshold condition which
a moving party must satisfy is that there was a previous relationship
sufficiently related to the retainer from which it is sought to remove the
solicitor. In the present case, the Defendants correctly point out that their
former and current solicitors have never had any relationship with Robbins.
[25]
However,
in deciding
whether a previous relationship exists, the word "client" can be
taken to include "persons who were involved in or associated with” the
client in connection with the original matter: UCB Sidac International Ltd.
v. Lancaster Packaging Inc., (1993), 51 C.P.R. (3d) 449 at 452 (Ont Ct GD)
(Sidac). This expansion of the definition of client was adopted by Justice
Barry Strayer in Almecon Industries Ltd. v. Nutron Manufacturing Ltd.
(1994), 55 C.P.R. (3d) 327, and subsequently affirmed by the Federal Court of
Appeal at (1994), 57 C.P.R. (3d) 69.
[26]
Almecon involved two patent
infringement actions, involving the same patent, against two different
defendants, Anchortek and Nutron. The solicitor in question was originally
involved in the defence on behalf of the Anchortek for one of these two
infringement suits. The solicitor then changed employment to another law firm,
this new law firm representing the patent owner in respect of the other patent infringement
suit against the other defendant, Nutron. After noting that discussions took
place between the solicitors for Anchortek and Nutron regarding the patent in
issue, the Court then presumed that, Nutron being entitled to assume that the
confidentiality of a solicitor-client relationship existed with respect to the
information and opinions conveyed by its lawyers to Anchortek's lawyers,
"confidential information was imparted". The new firm of the lawyer
originally involved with Anchortek was therefore not entitled to act for the
patent owner against Nutron, notwithstanding the fact that Nutron had not been
in a solicitor-client relationship with the lawyer's original firm.
[27]
In
light of the Sidac and Almecon decisions, the Court is required to
look beyond the strict solicitor-client relationship. As stated by the Federal
Court of Appeal in Almecon at p. 88: “[i]t is possible, in cases where a
previous relationship establishes a clear nexus with the solicitor's retainer,
to conclude that the Martin test should be applied.”
[28]
ABIL
assigned the Invention and the '975 Application to Robbins in a commercial
transaction for value. ABIL had a vested interest in ensuring that the
purchaser of its intellectual property obtained good title, including all
rights, interests, and advantages associated to the property. As an assignee of
rights in and to the Invention and the '975 Application, Robbins could
reasonably expect that ABIL’s counsel would not act against its interests with
respect to the validity of the patent, to the
extent such interests are consistent with those of ABIL.
[29]
In R. v. Neil,
[2002] 3 S.C.R. 631, the Supreme Court of Canada concluded that the fiduciary
relationship between a lawyer and client imposes on the lawyer more than a duty
not to disclose confidential information. It includes a duty of loyalty and, in
particular, a duty to avoid conflicting interests if there is a
substantial risk that a lawyer's representation of a client would be materially
and adversely affected by the lawyer's duties to a former client.
[30]
The
fiduciary duty of loyalty owed by a lawyer to a former client continues after
termination of the solicitor-client relationship such that a lawyer may not act
in a manner that will injure the former client in matters involving the prior
representation. Having represented
a party in applying for a patent, a lawyer may not thereafter represent another
party in an action against his former client’s interests arising out of, or closely
related to, the patent at issue. Such conduct would involve the lawyer in the
representation of interests directly in conflict with those of the first client
for whom he acted as counsel and to whom he still owes a duty of loyalty. To hold otherwise would
go against the fundamental principle the conflict of interest laws are designed
to prevent, namely the appearance of impropriety. The lawyer could also be called as a
witness by either party, compounding the potential conflict of interest.
[31]
In the particular circumstances
of this case, I conclude that the
duty of loyalty owed by Everitt to ABIL extends to Robbins, as a customer of
ABIL and assignee of the patent.
Waiver of conflict and Delay
by Robbins
[32]
The
Defendants submit that at the commencement of the proceedings, Robbins
expressly consented to the representation of the Defendants by their counsel
and thereby waived any right that it may have had to challenge the
representation of the Defendants by Ridout. The Defendants also argue that
because Robbins has delayed in bringing this motion, they should be allowed to
continue with counsel of their choice.
[33]
The fact that counsel
for Robbins did not raise any objection when he was informed that Kvas Miller
was representing the Defendants does not establish that the conflict of
interest was waived. The matter was raised in an informal manner between
counsel for the parties in the context of a request for an extension of time. It
is unclear whether the implications of the information were fully understood by
Robbins’ counsel at the time. In the circumstances, I am not satisfied that
Robbins ever condoned, let alone waived, the conflict of interest.
[34]
Robbins
concedes that there was some delay on its part in acting when it became aware of the
conflict of interest.
Regrettably, there is no evidence to account for the failure by Robbins to object to the
conflict between the date of filing the Statement of Claim and its first
request in writing over eight months later. At the same time, the Defendants
have not established any serious prejudice as a result of the delay.
[35]
It
remains that delay in objecting to a conflict of interest does not correct the
existence of the conflict. The Defendants in fact contributed to the delay
by failing to provide full and frank disclosure of a potential
conflict of interest that they themselves identified. Since any prejudice the
Defendants may have suffered can be addressed by an order of costs, I
conclude that Robbins ought not to be unduly penalized for failing to object in a timely
manner to Everitt or Kvas Miller remaining as counsel of record.
Conclusion
[36]
In Macdonald
Estate, the Supreme Court of Canada identified three competing values
that must be taken into account when dealing with a potential conflict of
interest:
(a) maintaining
the high standards of the legal profession and the integrity of our system
of justice;
(b) not
depriving litigants of their counsel of choice without good cause; and,
(c) allowing
reasonable mobility in the legal profession.
[37]
Disqualification of a
party’s chosen counsel is an extraordinary remedy which should be resorted to
sparingly. However, the
appearance of impropriety remains an over-riding principle in conflict of
interest cases.
[38]
Part
of the Defendants' defence in this proceeding is the impugnment of the validity of the
'975 Patent, for which the application was prepared and filed by the very
lawyer whose firm now seeks to invalidate it. A
reasonably-informed person could not, in such circumstances, be satisfied that
there would be no improper use of confidential information imparted as a result
of a solicitor-client relationship. The present circumstances have every
appearance of impropriety.
[39]
There are no
hard-and-fast rules to avoid all potential conflicts of interest. And those
rules that do exist are not absolute.
As Everitt
has received confidential information and could potentially use it to Robbins’
disadvantage or the Defendants’ advantage, he is automatically disqualified
from acting in respect of this proceeding. The Defendants have submitted no
evidence that proper safeguards have been put in place to prevent Everitt from
disclosing confidential information relating to the Invention or the '975
Application to Kvas or other members of Ridout. It follows that Ridout is tainted by the
same conflict of interest. In the interests of the integrity of justice and the
solicitor-client relationship, Ridout must accordingly be disqualified as the
solicitors for the Defendants in these proceedings.
[40]
As for costs of the
motion, none will be awarded. The parties agree that the assessed costs of the
motion would have been approximately $5000.00, based on a draft Bill of Costs
prepared by Robbins’ counsel. Such costs would have been ordered payable by the
Defendants to Robbins in light of its substantial success on the motion. However,
they are completely off-set by an equivalent amount of costs thrown-away by the
Defendants for discovery preparation resulting from Robbins’ delay in bringing
this motion.
ORDER
THIS
COURT ORDERS that:
1.
The firm of Ridout
& Maybee, LLP is hereby disqualified from acting for the Defendants, Torque
Control Systems Ltd. and Andrew Wright, in respect of this proceeding.
2.
There shall be no
order as to costs on this motion.
3.
The firm of Ridout
& Maybee, LLP is not disqualified from acting for the Defendants, Torque
Control Systems Ltd. and Andrew Wright, for the limited purpose of any appeal
to this Order.
“Roger R. Lafrenière”
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