Well this clears things up.
Background of the Mandamus Petition
We've talked about how Chief Judge Connolly has held multiple hearings in the Mavexar actions, examining the owners of several patent assertion LLCs and discovering that the real party in interest seems to be Mavexar LLC. The witnesses testified that Mavexar recruits people to serve as plaintiffs, but then runs the litigation themselves—including seemingly all substantive decisions, even settlement.
After the most recent hearings, Chief Judge Connolly issued a series of orders requiring production to the Court of various communications between the LLCs, their attorneys, and Mavexar. One of the entities involved, Nimitz, immediately filed a petition for a writ of mandamus to stop the Court's "judicial inquisition." It argued that the documents are irrelevant and privileged.
In response, the Federal Circuit immediately stayed the order requiring production of documents—but said nothing about the alleged "judicial inquisition." That was a week and a half ago, just before Thanksgiving.
The Court Responds
Today, Chief Judge Connolly issued a 78-page opinion explaining the full history of the Court's investigation, starting with the Longbeam case back in May (which we posted about after the fact, but didn't quite grasp the scope of at the time).
Yes, the Order Seeks Relevant Information
The opinion easily answers both of the points in the mandamus petition. On relevance, the Court explained its rationale for seeking this information (it's definitely not FRCP 17, as the petition claimed):
The records sought are all manifestly relevant to addressing the concerns I raised during the November 4 hearing. Lest there be any doubt, those concerns are: Did counsel comply with the Rules of Professional Conduct? Did counsel and Nimitz comply with the orders of this Court? Are there real parties in interest other than Nimitz, such as Mavexar and IP Edge, that have been hidden from the Court and the defendants?
Beyond those issues, the Court specifically pointed to the need to investigate a possible fraud on the Court:
Have those real parties in interest perpetrated a fraud on the court by fraudulently conveying to a shell LLC the #328 patent and filing a fictitious patent assignment with the PTO designed to shield those parties from the potential liability they would otherwise face in asserting the #328 patent in litigation?
(Honestly, that's terrifying. I would not want to be in those attorneys' shoes.)
The Court specifically explained that the powers it exercised are rooted in the Court's inherent authority:
It cannot be seriously disputed that I had the inherent authority to order the production of these records and to invite the parties to submit names of potential amici to assist me in addressing the matters I have raised. "It has long been understood that '[c]ertain implied powers must necessarily result to our Courts of justice from the nature of their institution,' powers 'which cannot be dispensed with in a Court, because they are necessary to the exercise of all others."' Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991) (quoting United States v. Hudson, 11 U.S. 32, 34 (1812)). "These powers are 'governed not by rule or statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases." ' Id. (quoting Link v. Wabash R. Co., 370 U.S. 626, 630-31 (1962)).
. . .
District judges can often point to a specific federal statute or the Federal Rules to explain their actions. "But if in the informed discretion of the court, neither [a] statute nor the Rules are up to the task, the court may safely rely on its inherent power." . . . I have so relied here.
That inherent authority extends to conducting an investigation, even as to a non-party:
The Supreme Court has expressly held that a federal court's inherent powers include the powers I have exercised here: "the power to control admission to its bar and to discipline attorneys who appear before it," id., the power to enforce compliance with court orders, see id., and "the power to conduct an independent investigation in order to determine whether [the court] has been the victim of fraud." Id. at 44. These powers extend to nonparties. See Manez v. Bridgestone Firestone N Am. Tire, LLC, 533 F.3d 578, 585 (7th Cir. 2008) ("No matter who allegedly commits a fraud on the court-a party, an attorney, or a nonparty witness-the court has the inherent power to conduct proceedings to investigate that allegation and, if it is proven, to punish that conduct.") . . . .
No, the Order Won't Require Waiver of Privilege
The Court made clear that Nimitz can still assert privilege over the documents, at least as to the public:
Notably, the Memorandum Order does not require Nimitz to docket these records or otherwise make them public. Thus, Nimitz is free to submit and to publicly file at the time of its production of the records in question an assertion that the records are covered by the attorney-client privilege and/or work product doctrine and a request that for that reason (and perhaps other reasons) the Court maintain the records under seal.
This seems to resolve the privilege issues raised in the petition for a writ of mandamus.
The Court Suggests Counsel May Have Violated Their Ethical Duties
In Delaware, the Court does not lightly suggest that an attorney breached their ethical obligations. The default assumption—as in many other jurisdictions—is that all of the attorneys here are observing their ethical duties to their clients and the Court.
But this opinion shows that the Court is willing to go there when it's warranted:
I also made very clear during the hearing—in the presence of Nimitz's counsel . . . and its owner[]—that I had serious concerns that counsel had violated the Rules of Professional Conduct. I purposely did not repeat in the Memorandum Order my concerns about counsel's professionalism and potential role in the abuse of the Court because I have made no definitive conclusions about those issues, and I did not want to unnecessarily embarrass counsel; the Order's "include but are not limited to" wording was intentional. But in light of the Federal Circuit's stay order and the fact that I issued the Memorandum Order to protect important interests of this Court and not at Defendants' request, I think it prudent to explain more fulsomely and in writing the reasons I issued the Memorandum Order.
The Court suggested that the Mavexar arrangement—where the attorney communicates only with Mavexar and not the client—could have implications under MRPC 1.2 and 1.4(b):
Based on . . . representations from [Nimitz's attorney], I was concerned that, like [Mellaconic's attorney], [Nimitz's attorney] may not have acted consistent with the Rules of Professional Conduct. Although [Nimitz's attorney] stated, "[T]here is communications between me and Mr. Hall, i.e. Nimitz," his comments overall indicated that he communicated with Nimitz exclusively through Linh Dietz, whom [Nimitz's attorney] had said was not a lawyer. . . . That made me question, for example, how [Nimitz's attorney] could fulfill his ethical obligation under Rule 1.4(b) to "explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation"; and how could he be confident that he had satisfied his professional obligations under Rule 1.2, which provides that "a lawyer shall abide by a client's decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued"?
. . .
By the time [Nimitz's owner] Mr. Hall's testimony concluded, my concerns about whether [Nimitz's attorney] had acted consistent with the Rules of Professional Conduct had only grown. [Nimitz's attorney] was the only lawyer representing Nimitz in these cases; Mr. Hall was the only owner and the only identified member of Nimitz. And yet [Nimitz's attorney] had apparently had no communications with Mr. Hall before the cases were filed and had had no communications with Mr. Hall about settling the seven Nimitz cases [Nimitz's attorney] had moved to voluntarily dismiss . . . .
Chief Judge Connolly then cited MRPC 1.8(f) regarding third-party payment for representing a client, and raised concerns that a Mavexar-like arrangement may violate that rule:
"[T]hird-party payers frequently have interests that differ from those of the client[."] Thus, "lawyers are prohibited from accepting or continuing such representations unless the lawyer determines that there will be no interference with the lawyer's independent professional judgment and there is informed consent from the client." . . . .
Like Mr. Hall in Nimitz's cases, Mr. Bui appeared to have had no communication with Mellaconic's lawyers before the complaints were filed, before settlements were reached, and before voluntary dismissals of the cases were filed in this Court. . . . I did not, and do not as of this date, understand how, in the absence of direct communication with Mr. Bui, Mellaconic's lawyers could have determined that Mellaconic gave informed consent to the initiation and settlement of the lawsuits brought in Mellaconic's name in this Court. For that reason, I was and remain concerned that [Mellaconic's local and lead counsel] did not act consistent with their professional obligations under the Model Rules.
Court Suggests Patent Assignment May Be Invalid
The Court also pointed out the possibility that the patent assignment to Nimitz may be invalid, due to restrictions imposed by Mavexar:
The Consulting Agreement also added to my concerns about Mavexar' s role in these cases and whether the assignment of the #328 patent to Nimitz recorded in the PTO was a fiction. The Consulting Agreement between Mavexar and Mellaconic looks to be a form agreement, and it provides that "the Client"—in this case, Mellaconic—"agrees to maintain clear and exclusive title to the Patents, and not incur any liens, encumbrances, or third[-]party claims with respect to the Patents." . . . . If Nimitz had a similar provision in its agreement with Mavexar, that provision would seem to call into question the validity of the assignment filed by an IP Edge email accountholder in the PTO that purported to transfer to Nimitz all right, title, and interest in the #328 patent.
Read This Opinion
I try not to say this too often, but if you practice patent litigation in Delaware and you are going to read one 78-page opinion this year, this is the one to read. The whole thing is interesting, and sets out the story from beginning to end (or, more likely, middle). Honestly those 78 pages fly by.
There are a number of other fascinating points in there, including an explanation of where the litigation funding standing order came from (it mirrors a New Jersey local rule, as some had suggested) and the story of an un-admitted, out-of-town attorney trying to object during the Court's questioning of a witness—plus more. Go read it!
[UPDATE 2022-12-01: This page was updated to make clear that the substance of the opinion is 78 pages. The previous version used the 80-page figure for the total PDF.]
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