Friday, October 22, 2010 3:43 PM ET
Ported from B's original article:
EEStor's Law Firm Sued: Intellectual Property Conflict of Interest Claimed
Former Entrepreneur
In the United States, we are proud of our entrepreneurs. They create. They innovate. They take risks and create new businesses and jobs. Venture capital firms seize upon this sentiment and often claim loudly that they deserve credit for sharing the risk and providing the financing and connections required by start up businesses. Often times what turns out to be the most valuable asset of such start up firms is the intellectual property it wins through the work of it's attorneys. Therefore, this legal work is an important essential component of the success of American innovation. To be a successful entrepreneur then one must go beyond having a workable idea--you have to hang on to it and fight off more powerful entities such as VC's and law firms. Therefore, the entrepreneur is always the underdog which gives us all the more reason to admire their accomplishments.
So, it is accordingly horrendously shocking when an IP firm teams with a VC firm to bully an entrepreneur. A lawsuit by a biotech startup against Wilson Sonsini Goodrich & Rosati--EEStor's legal team-- raises this awful spector. The claim advanced by startup Existence Genetics is that WSGR was hired to advance their IP claims but failed to disclose they were also working for a competitor. How was this discovered? Navigenics patents were published by the USPTO revealing the same firm was supporting both organizations.
Even if WSGR successfully defend themselves against this lawsuit, this is NOT GOOD AT ALL for entrepreneurs wishing to work with this law firm. Here's why. Even if they throw a couple of their attorneys under the bus (namely Vern Norviel who apparently caused this mess to ensue by apparently failing to identify the COI), it strongly suggests that as an organization, WSGR does not have good controls over prevention of conflicts of interest. I mean really---it's 2010, how can something like this really happen from a technological & procedural point of view? Are there no checks and balances against such an arrangement or are attorneys able to be judge, jury and attorney when bringing in new clients? WSGR will no doubt have a spirited defense but they are certainly not going to extend an olive branch here due to the $100 Million damages figure appended to the complaint.
In the complaint, we learn a bit about how WSGR may have interfaced with EEStor in terms of deal structure which allowed them to become part owners of EEStor. According to Existence Genetics, they were offered $20,000 worth of patent protection work in exchange for 1.5% and a 10% discount on legal fees. WSGR apparently also said they would not require payment til the fees hit $100,000.
Apparently in the dealings leading up to inking an agreement, Vern Norviel advised against working with Kleiner Perkins. The claim makes it seem like he did this in order to conceal an already established arrangement with Navigenics. But, one wonders whether this is about billing legal fees or possibly there was also an equity stake in Navigenics in play. Additionally, when the conflict was discovered, why was the non Kleiner funded company the one severed?
Personally, I want to believe that the most powerful law firm in Silicon Valley is cleanly run by people entrepreneurs can trust. I want to believe that if the claims have merit then they reflect only the actions of an individual and not an organization. Because let me tell you something, if you bully entrepreneurs you are bullying American Innovation!
If I were WSGR, I would begin making some courtesy calls to all of my Intellectual Property clients to assure them that conflicts of interest do not exist in relation to their support of their particular firm. Better to be proactive than to have the USPTO running public affairs for you. If it turns out that WSGR has actually more instances of this problematic case, then all trust is certainly lost when it comes to WSGR providing IP support to entrepreneurs. There's a reason why law firms are named after the individuals who compose it--because trust is the fundamental grounding for the services they provide.
If you're with me, and you see a problem here, then take a moment to think about Venture Capital firms. Luckily, legal firms have these conflict of interest issues to deal with when bringing on new clients. But what about VC's? Do they have any legal obligations to ensure conflicts of interest do not occur and that firms into which they invest receive undivided support? I don't know the answer to that. We know VC's often back two or three battery companies, solar companies, wind companies, software companies, etc etc. What transpires when these investment firms are actually competitors? Would a VC with a larger stake in one company use its access to the competitor to gain valuable information? I don't even like to think about the answer to that question. But I definitely think VC's should answer to it...so ask them.
Posted by B
You send around a Conflict Memo and either all of the attorneys/agents sign off on it or you don't take the client. In some cases an 'ethical wall' is set up - but this is always risky. Such was probably the case here.
B - you may find several interesting stories regarding Wilson Sonsini. Start at the top.
You might also find that it is 'horrendously shocking' that some companies will work in a certain research area and then spread the fruits of that work around to several key law firms - with the intent of intentionally setting up such a conflict of interest so that their competitors have to scramble to find good legal representation.
My brother in law is a very successful lawyer, an ambulance chaser, like John Edwards, with 2 decades experience. We were having a glass of whisky one day, and talking about lawyering. He set down his glass. He looked me in the eye, and said,
"Tim, 90% of the lawyers I have met are crooks"
I took a sip, then set down my glass, and replied,
"That low?"
I read about an economist who figured out that lawyers are about a 10% drain, on the American economy. Sounds about right to me. Of course, we need lawyers. The problem is, they are so corrupt, and encourage corruption, in order to make money.
Charles Dickens said it best: "These sequestered nooks are the public offices of the legal profession, where writs are issued, judgments signed, declarations filed, and numerous other ingenious machines put in motion for the torture and torment of His Majesty's liege subjects, and the comfort and emolument of the practitioners of the law."
And, "The one great principle of the English law is to make business for itself. There is no other principle distinctly, certainly, and consistently maintained through all its narrow turnings."
Lawyering is just about making money, and using the law to attack people, fairly, or unfairly, corruptly, or not, and has very little to do with justice, fairness, or making anything better.
Lawyers are meddlesome people, generally too incompetent to do anything that would be useful to society, so they turn to lawyering.
The difference between a lawyer, and a catfish? One is a bottom dwelling scum sucker, and the other one is a fish.
I rate lawyers somewhere between septic tank cleaners, and proctologists. Either way, you're dealing with shit and assholes.
Ha, good one Tim. I would argue that there is a far greater drain on the economy than ten percent though. Let's not even talk about citizens loss of personal freedom which the lawyers have pretty much axed with all their threat of lawsuit crap. It is no wonder that the Trial Lawyers Association are the largest contributor to the Democrat party. 2 peas in a pod.
DAP, thanks for posting that info. Yours is a very enlightening viewpoint into how things actually work in the patent field.
@TimBitts649, don't be so tough on yourself.
FWIW - I had many of the same prejudices before I started working in the legal field. Maybe there is a difference between patent law and other legal disciplines, but I can honestly say that I've never worked around a more ethical group of professionals in my life. Patent lawyers certainly put research scientists to shame.
pgl, I considered being a lawyer, while I was a resident, at a state mental institution. However, upon reflection, I thought it best not to take a step down, on the social ladder!
Having just read most of the legal filing, I can't see how WSGR can dig itself out of this hole. Someone there has dug a rather deep hole for themselves, with steep and slippery sides.
That having been said, I'm sure they'll get off on a technicality.
If I were EEStor, I'd be finding myself a new lawyer.
Get off on a technicality? You mean a technicality such as the complaint containing some incorrect factual information? There are two sides to every story. WSGR is an absolutely monstrous law firm. I'm not saying that something is not amiss here. But there are certainly enough red flags in the complaint to cause a discerning reader to pause.
As far as Eestor's representation is concerned, it doesn't seem like WSGR has been doing such a bad job.