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Former IP Client Goes After Heller for $50 Million
The Recorder
May 01, 2009
A well-known patent-holding company, and one of Heller Ehrman's most lucrative former clients, wants $50 million from the firm's estate for extra costs incurred for having to find other lawyers to cover its cases.
Ron A. Katz Technology Licensing could owe Heller an undisclosed amount of contingency fees on pending cases against 48 companies, according to the company's filing in bankruptcy court (pdf), so the move appears to be a play in negotiations with the estate.
The company played an indirect role in Heller's demise. Its outside lawyers were among the 14 partners in the IP group that moved to Covington & Burling when the firm was days away from a merger with Mayer Brown last summer.
The move cost the dying firm the huge revenue stream from Katz's prolific patent fights. The loss of the partners also triggered a contract clause with Heller's banks, Bank of America and Citibank, that allowed them to seize control of Heller's cash. Two weeks later, on Sept. 26, Heller dissolved. It filed for bankruptcy on Dec. 28.
The lawyers who went to Covington & Burling now say they are conflicted out of continuing to work on the cases, according to the company's filing.
Because it involved contingency fees, the Katz cases that went to Covington & Burling could be considered unfinished business under the Jewel v. Boxer doctrine, leaving those partners vulnerable to a suit by the Heller estate or its creditors. Under Jewel, a law firm can seek to recover profits from cases and clients lost when a partner exits. Heller's final partnership agreement waived other types of unfinished business, but not those that involved contingency fees.
Monday was the last day for creditors to file a claim in the bankruptcy, and this was the largest claim filed overall. The claim, filed Friday, was first reported by the blog Heller Highwater.
It's unclear how the amount Heller might owe could add up to $50 million. Katz's lawyer, Michael Kogan, a partner with Ervin, Cohen & Jessup, declined to comment.
"RAKTL's damages include, without limitation, amounts RAKTL was forced to pay for legal services Heller had been pre-paid to provide," says the filing, which asks the court to allow supporting documents to be filed under seal.
John Fiero, a partner at Pachulski Stang Ziehl & Jones who represents the estate, and Thomas Willoughby, a partner at Felderstein Fitzgerald Willoughby & Pascuzzi who represents the creditors committee, declined to comment.
In 2005, Forbes called Ron Katz a "telecom patent king" who aimed to collect $2 billion in fees by 2009 on 52 patents that could cover any software and hardware that allows a company to interact with customers through computerized phone services.
He has licensed the patents to 275 companies, the filing says.
Just this year, several companies, including Citibank, Global Crossing and Humana Inc., have settled with Katz, now in his 70s, and agreed to pay licensing fees for his technology.
In 2007, Heller and Katz entered an agreement whereby Heller worked for a series of upfront payments and a single contingency fee based on recovery from the cases.
"The cases represented a tremendous undertaking by RAKTL to enforce its patent rights," the filing says. "The undertaking was made possible, at least in part, by the fee arrangement set forth in the legal services agreement. ... RAKTL paid all required fixed-fee payments on or before the required payment dates. [The contingency fee] is not payable yet because cases are still pending."
