Elan Transdermal Ltd. v. Cygnus Therapeutic Systems

809 F. Supp. 1383, 93 Daily Journal DAR 662, 27 U.S.P.Q. 2d (BNA) 1308, 1992 U.S. Dist. LEXIS 20150, 1992 WL 394718
CourtDistrict Court, N.D. California
DecidedNovember 17, 1992
DocketC-91-1413 WHO
StatusPublished
Cited by19 cases

This text of 809 F. Supp. 1383 (Elan Transdermal Ltd. v. Cygnus Therapeutic Systems) is published on Counsel Stack Legal Research, covering District Court, N.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Elan Transdermal Ltd. v. Cygnus Therapeutic Systems, 809 F. Supp. 1383, 93 Daily Journal DAR 662, 27 U.S.P.Q. 2d (BNA) 1308, 1992 U.S. Dist. LEXIS 20150, 1992 WL 394718 (N.D. Cal. 1992).

Opinion

OPINION AND ORDER

ORRICK, District Judge.

Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘disintegrating erosion’ of particular exceptions, [cite omitted] Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.

Meinkard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (1928).

The standard of behavior for fiduciaries, articulated by Justice Cardozo (then Chief Judge), is the standard for the fiduciary relationship that exists between lawyer and client, and is the standard this Court upholds in granting plaintiff’s motion to disqualify defendant’s counsel.

I.

Elan Transdermal Limited (“Elan”), an Irish corporation, initiated this suit against rival Cygnus Therapeutic Systems (“Cygnus”), a California corporation, alleging infringement of its patent (United States patent No. 4,946,853 (“’853 patent”)) for a patch that delivers nicotine transdermally. When Elan replaced its original counsel with the Los Angeles firm of Irell & Manella (“Irell”), the firm that had provided Cygnus with intellectual property advice for *1385 over four years during the development of Cygnus’ nicotine patch, Cygnus brought this motion for disqualification of Irell. This motion has raised serious issues about the duties attorneys owe their former clients and the lingering aftereffects of the law firm merger boom, which the Court has considered carefully.

The relevant facts are not in dispute.

Elan received the ’853 patent on August 7, 1990. On May 10, 1991, when Elan filed its complaint, both Elan and Cygnus had nicotine patches before the Food and Drug Administration (“FDA”) for testing and eventual clearance for marketing. Elan claimed that the product for which Cygnus was seeking FDA clearance is within the scope of the ’853 patent, and that Cygnus has already infringed its patent rights.

Irell (and its predecessor firm, Ciotti & Murashige, Irell & Manella) 1 was intellectual property counsel to Cygnus from March 1, 1987, to August 31, 1991. Thomas Ciotti was the partner in charge of work for Cygnus, and both he and most of the other attorneys who worked on the Cygnus representation were based in the Menlo Park office of Irell. In September 1991, the Menlo Park office of Irell “de-merged,” and almost all the personnel, including Ciotti, affiliated themselves with the firm of Morrison & Foerster. Cygnus has since used that firm to handle its patent work.

As intellectual property counsel to Cygnus, Irell provided a range of services, including advice regarding patents and patent applications around the world that might affect Cygnus’ business, determinations regarding the patentability of Cygnus’ inventions, advice about protection of Cygnus’ patentable inventions, and prosecution of Cygnus patents nationally and internationally. During its representation by Irell, Cygnus was developing its nicotine transdermal patch as its first commercial product. An Irell attorney represented Cygnus in several patent applications related to the patch. During this time, Irell attorneys had free access both to Cygnus personnel and to its business and scientific records.

Irell’s work for Cygnus included matters specifically related to this lawsuit. Irell lawyers provided written advice to Cygnus regarding previously asserted Elan patent claims, claims that are similar to those before the Court in this action, 2 oral and written advice regarding the ’853 patent, the very patent-in-suit, and advice concerning a public offering prospectus, part of which Elan now alleges proves Cygnus’ knowledge of its infringement.

Cygnus submitted, in camera, parts of an opinion letter Ciotti wrote to Cygnus in the summer of 1990 regarding the ’853 patent. Cygnus’ chairman and chief technical officer, Gary Cleary, declares that Cygnus gave its corporate securities counsel Irell’s advice, as expressed in that opinion letter and also in a November 1990 conversation with Ciotti, and that securities counsel relied exclusively upon that advice when drafting the portion of the public offering prospectus regarding the ’853 patent, the same portion Elan is now asserting is proof of Cygnus’ liability.

According to Cygnus, which is relying on the billings it received, twenty-nine different Irell partners and employees worked on projects for Cygnus between March 1, 1987, and August 31, 1991. Cygnus has identified four of these people as current Irell lawyers — Messrs. Cost, Rothman, Smith and Winslow. Irell admits that one other current partner, Mr. Dull, also did Cygnus-related work, according to its internal time records. 3

*1386 Smith and Winslow were co-chairs of the firm ethics committee during the relevant time period, and charged time to Cygnus in November 1990 that they spent deciding whether the firm could undertake representation of Elan regarding the ’853 patent. Smith and Winslow met with Mr. Chu, the partner whom Elan had asked to represent it in the matter, and called Ciotti to discuss the conflict. The committee decided the firm could not accept the work for Elan and, further, that it had to stop doing work for Cygnus related to Elan and the ’853 patent. Nonetheless, the committee decided the firm could continue to represent both Elan and Cygnus in matters not pertaining to the '853 patent. There is no indication that Irell provided Cygnus with advice regarding Elan after December 1990. 4

Cost and Rothman are corporate securities lawyers who reviewed an opinion letter written by Ciotti to underwriters of Cygnus’ public offering, and the public offering prospectus itself. Cost reviewed the letter as a member of the firm opinion committee. Rothman was a corporate associate practicing in the Menlo Park office. Cost charged three-quarters of an hour and Rothman one and one-half hours. The letter, written after the ethics committee meeting, specifically disavows any opinion of Elan’s patents. 5 The prospectus, as discussed above, mentions Elan’s patents.

Irell also offers information regarding four other current firm lawyers who, although they did not charge time to Cygnus, were mentioned in the time sheets of attorneys who were charging time to Cygnus as discussing Cygnus-related matters. 6 All these people, and all attorneys mentioned above, deny having any confidential information substantially related to the current representation.

Although the bulk of the Menlo Park lawyers stayed in Menlo Park after the merger ended and affiliated with Morrison & Foerster,' several current Irell partners worked at the Menlo Park office. Dull was listed in the

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809 F. Supp. 1383, 93 Daily Journal DAR 662, 27 U.S.P.Q. 2d (BNA) 1308, 1992 U.S. Dist. LEXIS 20150, 1992 WL 394718, Counsel Stack Legal Research, https://law.counselstack.com/opinion/elan-transdermal-ltd-v-cygnus-therapeutic-systems-cand-1992.