Trial Looms in Former IP Client's Case Against Baker Botts

Trial Looms in Former IP Client's Case Against Baker Botts

Did Baker Botts betray one of its clients by sharing its secrets with a rival and hiding its duplicity? Or is the law firm a victim of attempts by an unsuccessful company to blame its failings on others?

A state court jury in Dallas is expected to begin considering those questions in less than two weeks in a trial that pits Baker Botts against its former client. The plaintiff, a small wireless technology company called Axcess International, is seeking more than $50 million from Baker Botts on claims of breach of fiduciary duty, material nondisclosure and negligence. (Read the complaint here.)

Axcess, which provides radio frequency identification systems, first sued Baker Botts in 2010 in U.S. district court in Dallas, accusing the firm of sharing its patent applications with a major competitor and of failing to disclose a conflict of interest when it represented both companies. After the U.S. Supreme Court ruled last year in Gunn v. Minton that state judges can hear legal malpractice suits related to patent disputes, Axcess moved to dismiss its own case so it could sue in state court. That case is now scheduled for a jury trial on April 21 before Judge Mark Greenberg.

For its defense, Baker Botts has turned to founding partner Paul Koning of the Dallas firm Koning Rubarts and to Murray Fogler, a veteran Texas litigator at the Houston boutique Beck Redden. They’re likely to tell the jury that Baker Botts did nothing wrong, and that Axcess is just trying to get its former law firm to pay for its own business failures.

“Axcess’ products and business strategy failed, and Axcess suffered no legal losses at all, much less any caused by Baker Botts,” Koning said in an emailed statement.

Axcess’ lawyers—Steven Aldous of the Dallas firm Braden, Varner & Aldous and Jonath Suder of Friedman, Suder & Cooke in Fort Worth—paint a very different picture. They say their client first retained Baker Botts in 1998 to provide intellectual property advice and strategy, and to draft and file patent applications for its inventions. Unbeknownst to Axcess, the company alleges, Baker Botts agreed in 1999 to represent Savi Technology Inc., another player in the radio frequency identification (RFID) industry.

Axcess claims that Baker Botts filed multiple patent applications for Savi in the ensuing years, including some with claims that resembled those in applications that the firm had already filed on behalf of Axcess. Axcess was never told that the firm was representing Savi, the company alleges.

In 2001, after Savi announced a new product that Axcess believed infringed its patents, Axcess went to its lawyers at Baker Botts for advice. But according to the complaint, the lawyers failed to disclose to Axcess that the firm represented Savi—an obvious conflict of interest. When asked about Savi’s potential infringing products, Baker Botts responded by “deflecting the issue,” according to the complaint.

Dissatisfied with the answers it was getting from Baker Botts, Axcess says it hired Haynes and Boone for the limited purpose of sending a letter to Savi about licensing Axcess’ patents. Savi forwarded that letter and the attached patents to Baker Botts, which performed an analysis for the company. It was clear from the attached patents that Baker Botts had prosecuted them, but the firm still failed to inform Axcess that it represented Savi, the complaint asserts.

Baker Botts advised Axcess about patent matters on numerous occasions in subsequent years, but Axcess says the firm repeatedly failed to speak up about the apparent conflict of interest. Then, in 2008, Savi threatened a patent infringement suit against a company called Aeroscout. That company responded by filing a declaratory judgment action in California, claiming Savi’s RFID patents were invalid because of fraud on the U.S. Patent and Trademark Office. Not only did Baker Botts represent both Axcess and Savi, Aeroscout alleged, but Savi should have known that Axcess’ patents had priority.

It was only after Aeroscout subpoenaed Axcess to testify about Baker Botts’ conflicting role that Axcess finally became aware of the Baker Botts–Savi connection, the complaint alleges. Meanwhile, Savi had become the biggest provider of RFID technology to the government. By the time Axcess discovered Baker Botts’ alleged misconduct in 2009, Savi’s government contracts had run their course.

Axcess’ lawyers say Baker Botts’ actions cost the company millions of dollars over the years. Since Baker Botts never informed Axcess about the Savi patents, they allege, Axcess couldn’t act to enforce its rights. “Axcess lost an opportunity to go to the PTO so that Savi’s patents would have become our patents,” Aldous said. “If Axcess had had lawyers on its side, it would be in a very different position today.”

In addition, “Baker Botts failed to recommend that Axcess pursue patent claims against Savi, failed to alter Axcess’ patent application strategy based upon Savi’s use of Axcess’ prior invention, failed to inform Axcess of the conflict that existed, actively concealed its knowledge of the conflict and failed to make any effort to inform Axcess of its rights,” the complaint asserts.

“Axcess lost its chance to get a royalty on almost $500 million in sales,” Aldous said, noting that 10 percent is considered a reasonable royalty.

In a bit of pretrial maneuvering, last week Baker Botts informed Axcess’ attorneys that it would not produce two important witnesses—both lawyers at the firm who had previously been deposed. The firm said it could not accept subpoena service for them, and since they work in Baker Botts’ Austin office, they are out of range of the trial subpoena. In a motion to compel, Aldous called the move a “last-minute procedural parlor trick” to prevent Axcess from calling the two attorneys to testify. Judge Greenberg has not yet ruled on the motion.

Either way, Baker Botts will try to show during the trial that it did the job Axcess hired it to do and that the allegations have no merit.

“Axcess engaged Baker Botts to prosecute patent applications, and Baker Botts successfully secured many patents for Axcess,” Koning said. “In doing so, it acted ethically and without conflict.”

Axcess is separately pursuing a patent infringement suit against Savi in Dallas federal court. That case has been stayed pending a review by the PTO’s Patent Trial and Appeal Board.

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