Friday, October 22, 2010

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 $100Mil 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 ask them.