In-House and Outside Counsel Disqualified and Complaint Dismissed Where In-House Counsel Played Significant Role in Preparing Lawsuit Against Former Employer

In Dynamic 3D Geosolutions LLC v. Schlumberger Ltd., Nos. 15-1628, -1629 (Fed. Cir. Sept. 12, 2016), the Federal Circuit affirmed the district court’s decision to disqualify Dynamic 3D’s counsel and dismiss its patent infringement complaint without prejudice because Charlotte Rutherford, Dynamic 3D’s in-house counsel at a related subsidiary, previously worked for Schlumberger and was presumed to possess relevant confidential information.

Dynamic 3D sued Schlumberger, alleging infringement of U.S. Patent 7,986,319, which discloses three-dimensional displays of geological data. After Schlumberger raised the potential conflict of interest, the district court found that Rutherford’s work at Schlumberger was substantially related to her current work at Acacia Research Group LLC, a wholly-owned subsidiary of Acacia Research Corporation, the parent company of Dynamic 3D. The district court disqualified Rutherford, other Acacia in-house counsel, and Dynamic 3D’s outside counsel from representing Dynamic 3D. The district court also dismissed Dynamic 3D’s claims against Schlumberger without prejudice because the pleadings were drafted by counsel Rutherford interacted with who were presumed to possess Schlumberger’s confidential information.

The Federal Circuit agreed with the district court’s conclusion that Rutherford’s work for Schlumberger and for Acacia and Dynamic 3D were substantially related. The Court noted Rutherford’s senior roles at Schlumberger and her involvement in a project evaluating the Schlumberger product later accused of infringement by Dynamic 3D. The Court also agreed that Rutherford’s interactions with other in-house and outside counsel warranted that Rutherford’s knowledge be imputed to those attorneys and that those attorneys be disqualified from representing Dynamic 3D. Noting that Rutherford’s actions contaminated all aspects of the case, including her involvement with the purchase of the asserted patent and her preparation to file suit against Schlumberger, the Court also found that the district court did not abuse its discretion in requiring Dynamic 3D to begin with a fresh complaint rather than “to continue drawing from a poisoned well.”