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Illustrating the ease with which conflicts of interest can arise at a big firm, attorneys at Morrison & Foerster recently found themselves with clashing interests in the same trial, thanks to a third party’s neglecting to disclose key information. San Francisco-based partners Adam Lewis and Michael Jacobs discovered the conflict Friday when they realized that an objection filed on behalf of their client, Novell Inc., would delay a transaction in which the buyer was another Morrison & Foerster client. The attorneys, representing Novell as a creditor in the Chapter 11 bankruptcy case of SCO Group Inc., notified the court in Delaware on Monday. In the filing, they wrote that the firm was working with Morrison & Foerster’s conflicts counsel, had established an internal “wall” barring communication among the attorneys involved, and had notified their client, Novell, of the potential conflict. The firm also ceased representing the buyer (whom the firm has refused to identify to the bankruptcy court) until the court approves. The bankruptcy trial, which began in September, is the latest in a series of trials – mostly lawsuits brought by SCO Group, a software developer. The company has been involved in long-running suits against IBM, Novell and others over patent rights relating to the UNIX and Linux computer operating systems. News related to the trials has been covered by a number of Web sites, including Groklaw, which reported on Morrison & Foerster’s notice to the court on Monday. That blog also noted that San Diego Morrison & Foerster associate Jacob Handy’s name was on documents connected to the sale. A spokeswoman for Morrison & Foerster was unable to name the attorney or attorneys involved in the attempted patent sale. But how does the conflict affect the trial going forward? “It doesn’t,” Jacobs said. While such conflicts can disrupt an ongoing case, Morrison & Foerster responded in the right way, said Jeffrey Neuburger, the New York-based chairman of the technology, media and communications department at Thelen Reid Brown Raysman & Steiner who’s familiar with technology and intellectual property law. “When acquiring intellectual property, if possible, you want to check to make sure that the intellectual property isn’t the subject of litigation against another client,” he said. “In this case there were probably factors involved that made it a little more complicated.” Those factors came in the form of layers of companies involved in the patent sale. In July, SCO created a subsidiary called Cattleback Intellectual Property Holdings Inc. A patent was then transferred to Cattleback, which in turn hired a company to sell the patent. After a buyer was found, SCO filed a motion in the bankruptcy trial to allow the patent sale to the unnamed party. Novell objected not to the sale, but to demand full disclosure of the proposed transaction’s details. CONFLICT RESOLUTION As ever-bigger firms have to be ever more alert for conflicts, solutions such as “ethical walls” come into play – but what’s good for the law firm’s bottom line might not be what’s best for the clients. “There’s no doubt that lawyers, especially in big firms, have moved toward new and more inventive ways of ‘curing conflicts,’” said Richard Zitrin, former director of the Center for Applied Legal Ethics at the University of San Francisco School of Law. “Unfortunately, many of those ‘cures’ can be worse than the disease.” Zitrin, a lawyer in San Francisco, said there’s a dangerous shift from a client-centered model of conflict to a lawyer-centered model. “It should be the client and not the law firm that’s determining whether the conflict is ‘a big deal,’” he said. Most of the parties involved wouldn’t comment for the record. Regardless of the immediate impact, Neuburger says, attorneys at big firms should take notice. “There’s a lesson there for us all,” he said. This article originally appeared in The Recorder , a publication of ALM.

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