The Court held a lengthy hearing in the Backertop cases today. These are Mavexar-related actions and, if you recall, they involve a Mavexar attorney and his wife, who he appointed as the sole member of a Mavexar patent assertion entity.
How a Patent Assertion Entity is Born
Some of the Court's questions focused on exactly what Mavexar does, and confirmed that they operate basically as set out in the earlier hearings.
Here, from the lawyer's perspective, Mavexar attorneys reached out and said that Mavexar wanted to start several litigation campaigns, and asked whether the attorney was interested. They said that they would figure out what entity would actually assert the patents later.
In this case, Mavexar called the campaign the Daedalus campaign, apparently because that was the name of the entity from which they received the patents. The attorney reviewed the portfolio and signed up—all via communication only with Mavexar. The patents were assigned to Backertop, and then it's off to the races, with the attorneys filing and settling complaints against a variety of entities.
As Chief Judge Connolly pointed out, the attorneys formed this relationship via communications exclusively with Mavexar—a non-legal "agent" of Backertop (even though Mavexar created Backertop for the purpose of asserting the patents in this campaign, Mavexar seemingly directs target selection and settlement, and Mavexar as "agent" receives 95% of the profits from the campaign).
The Court questioned whether this could be a violation of the rules of professional conduct. I wasn't able to stay until the end—the hearing went long—but my co-blogger Nate tells me that the Court invited the attorneys to brief whether it is a violation of the ethics rules to work exclusively with an "agent" of a client (as opposed to working with the client or the client's attorney).
Delaware Counsel Safe
The judge clearly distinguished between being retained by an "agent" of a client, and by an attorney of the client, stating that an attorney retaining another attorney on behalf of the client is acceptable.
That's good, because in my experience, that's exactly how many local counsel cases start. Attorneys tend to be protective of their client contacts, so it's not unusual for a firm acting as lead counsel to coordinate retention of a local counsel firm, and for the local counsel firm to have little direct contact with the client.
It's clear that that practice is still fine and appropriate, as long as Delaware counsel is retained by an attorney not an "agent."
Mavexar Attorneys Form Circular Firing Squad
Prior to today's hearing, both Backertop's lead and Delaware counsel had moved to withdraw. Oddly, the docket reflects that early on April 25, Backertop's lead counsel had e-mailed a motion to withdraw to the Clerk's office, stating that he could not reach his local counsel:
Per the instructions from my conversation with Joel, just a few minutes ago, l am sending you my Local Rule 83.7 Withdrawals for filing, due to the fact that I cannot get a response from my local counsel. Time is of the essence, because l've started a new job, and do not and cannot represent the plaintiff any longer.
Backertop Licensing LLC v. Canary Connect, Inc., C.A. No. 22-57-CFC, D.I. 31 (D. Del. May 1, 2023). The clerk's office did not docket the actual motion.
Later that day, Backertop's local counsel filed their own motion to withdraw, stating that "th[e] attorney is unable to effectively communicate with Client in a manner consistent with good attorney-client relations." Id., D.I. 29 at 1-2.
The Court questioned both attorneys on what happened. First, Delaware counsel explained that it had not actually had a failure to communicate with the client—they are communicating just fine—but they have a difference in opinion on strategy. The Court did not seem pleased with that.
The Court also questioned who "the client" was, and local counsel explained that it is both Backertop and "the consulting company" Backertop had retained. He seemed hesitant to just say "Mavexar."
Local counsel claimed that he never failed to respond to lead counsel, but had refused to file lead counsel's motion to withdraw "due to the duty of candor that [he] had to the Court," citing certain unidentified language in the motion. He said that he told lead counsel that he would file the motion without that language.
Lead counsel fired back, explaining his view on what had really happened. He said that he had sent his motion to withdraw to local counsel, and that local counsel held it until local counsel filed his own motion to withdraw. Then, local counsel insisted that lead counsel remove the statement—true originally, but not later—that Backertop would remain represented by local counsel.
Lead counsel refused, leading to the e-mail to the clerk's office. The clerk's office never actually docketed lead counsel's motion to withdraw.
Ultimately, the Court denied both motions, holding that both counsel must remain for now.
Court Grills Attorneys About Internal E-mails Directing Them Not to Disclose Mavexar to the Court
Next, the Court went document-by-document through some of the production that the Mavexar entities had supplied to the Court.
The documents touched on many interesting things, including suggesting that some kind of agreement or contractual obligation between Mavexar and the patents' original owners continued to influence strategy even after they were gone.
Many of the Court's questions seemed geared towards teasing out who the real client was, and whether—or how—the attorneys could have been truthful and met their ethical obligations while communicating only with Mavexar.
The Court also asked about why Mavexar specifically contracts to provide its LLCs with only non-legal services. The attorneys had no answers, but pushed back on the idea that Mavexar was providing legal services at all. The Court then pointed the attorneys to documents that seem to indicate otherwise, including for example an e-mail from lead counsel to Mavexar asking for templates or strategy ideas for responding to a § 101 motion to dismiss.
(My guess is that while Mavexar is made up of a bunch of lawyers, it tries to avoid providing legal advice as a way to evade legal ethics rules and obligations to the entities that it creates and then acts as an agent for).
Apparently, several of the documents that the Mavexar entities produced revealed the attorneys' reactions and strategy on how to respond to Chief Judge Connolly's disclosure orders. In multiple of the documents that the Court read, a Mavexar attorney specifically directed the other attorneys not to disclose Mavexar by name to Chief Judge Connolly:
To be very clear, we want to disclose the attorney contingency fee, and that the plaintiff does not have a non-recourse funding agreement, but does have a recourse funding agreeement, without [underlined in original] disclosing Mavexar LLC.
. . .
Again we reiterate that we do not [underlined in original] want to disclose Mavexar by name, but we do want to disclose that recourse funding exists.
(paraphrased)
The Court asked the attorneys why the Mavexar attorney seemed "so insistent that it was so important to not disclose Mavexar to the Court"—but neither could recall.
Next Up: July 20 Hearing
The Court has already set another hearing set in the Backertop cases, for July 20th. At that hearing, the Court will again examine the sole member of the Backertop LLC, this time with the benefit of the additional documents Backertop produced.
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