Category Archives: Legal practice

When your lawyer should resist your pressure

The last article on this blog involved a quiz, which asked readers to state which of 5 scenarios should prompt their lawyer to say no to a commercial team (probably annoying them in the process). The results were largely as IP Draughts expected, with the most acceptance of legal push-back when a criminal offence (bribery) was suspected, and the least acceptance where the questions could be viewed as business decisions for commercial management, e.g. on disclosure of a third party infringement issue to a licensee.

This article discusses some of the ethical and practice issues that those 5 scenarios raise. The discussion is based on English law, and different considerations may apply in other jurisdictions. First, though, we need to examine the exact role of the lawyer in question. Specifically:

  1. Regulated lawyer. Is she acting as a lawyer, subject to the control of a regulator such as the Solicitors’ Regulation Authority (SRA), or is she acting in another capacity, e.g. as a contracts manager? Sometimes, this is blurred where an organisation (e.g. a university) hires someone essentially as a contracts manager, but they happen to be qualified as a lawyer and they are given a courtesy title that may suggest that they are performing a legal role. This may involve skating on thin ice when it comes to legal restrictions on calling oneself a lawyer. This article assumes that the person is acting as a regulated lawyer.
  2. Acting only as a lawyer. Is she simply giving advice and not participating in management decisions, e.g. as a member of an executive committee? External lawyers may be more likely to have this limited role, though the lines may be blurred if there is a commercial team managing the negotiation of an agreement and the lawyer is considered to be part of that team.
  3. General Counsel. Is she the general counsel (or equivalent) of the organisation? Particularly where the organisation employs more than one lawyer, the junior lawyer may be able to refer ethical or practice questions “upstairs” to the general counsel. Leaving aside regulatory responsibilities that come with the role of general counsel, the organisation may have given the general counsel specific tasks to safeguard the corporate interests of the organisation. For example, IP Draughts has come across sales-driven organisations where everyone up to and including the chief executive really only care about getting deals on the books, and it is left to the general counsel to point out – and fight for – any legal issues (e.g. if the terms required by the customer do not meet the organisations policies, e.g. on limiting liability).

To keep matters simple, the following discussion assumes that the lawyer is acting as a regulated lawyer and has the role of general counsel (GC). It is also assumed that the lawyer has considered the issue carefully, has discussed it with commercial colleagues and they have rejected her advice (but not convinced her to withdraw her concerns).

  1. Bribery question. The GC suspects that a payment to a consultant may amount to a bribe. She and other senior management may have personal liability under the UK Bribery Act 2010 for offences committed by the organisation. One of the factors that may influence the Serious Fraud Office not to prosecute is “the existence of a genuinely proactive and effective corporate compliance programme“. Let us hope this organisation has such a programme and that the GC is following it, even if some of her colleagues think there is no issue.
  2. Recommending that an unrepresented party take legal advice. The SRA Handbook, at section 11.1, imposes a professional obligation on solicitors in the following terms: “you do not take unfair advantage of third parties in either your professional or personal capacity”. One of the standard techniques for complying with this obligation is to recommend that an unrepresented party should take their own legal advice (and make it clear that you are not providing legal advice to them). Many solicitors regard it as important to make this statement in writing to the unrepresented party. In the case of in-house lawyers dealing with employees, a suitably-worded email to the employee may also mitigate the risk that the lawyer’s employer is regarded as providing the party with legal advice or holding themselves out as acting in the employee’s interests.
  3. Making a whistleblower redundant. One might query what the commercial team has done to make it obvious to the GC that they are trying to sack a whistleblower, rather than going through a legitimate redundancy process. Perhaps there was a stupid email (this happens too often). Depending on what the whistleblowing was about and how it was done, a UK employee may be protected under the Public Interest Disclosure Act 1998. Under the Act, an employee’s dismissal (or selection for redundancy) is automatically considered ‘unfair’ (and therefore entitles the employee to statutory compensation) if it is wholly or mainly for making a protected disclosure. There may also be a reputational issue for the employer, which the GC is no doubt also considering.
  4. Board approval is required. Whether Board approval is required for an agreement involves questions of company law, as well as internal rules on signing authority. The commercial team would do well to take the legal advice of its GC on this point. In any event, the GC probably has a duty to raise it with the Board if she is concerned about a matter of this kind. If a manager signs an agreement on behalf of an organisation and does not have authority to do so, they may be personally liable for misrepresenting their authority to the other side.
  5. Not telling a licensee about a third party IP claim. This issue has, so far, received the fewest votes as a matter on which their lawyer should hold firm against pressure from her commercial colleagues. This is understandable, as it may be considered a matter of commercial judgment whether and when to notify the licensee, and we don’t know how likely the claim is to succeed. But in coming to that decision, the commercial team should consider any advice from the GC, e.g. that there is a clause in the licence agreement that requires such a notification to be made, or that such a term is implied under the general duty of good faith in relational contracts. In many situations, this will not be a matter of professional conduct for the GC, as long as they don’t personally mislead the other party. If the third party claim had been made before the agreement was signed, different considerations might apply. Under section 183 of the Law of Property Act 1925:

183(1) Any person disposing of property or any interest therein for money or money’s worth to a purchaser, or the solicitor or other agent of such person, who—

(a) conceals from the purchaser any instrument or incumbrance material to the title; or

(b) falsifies any pedigree upon which the title may depend in order to induce the purchaser to accept the title offered or produced;

with intent in any of such cases to defraud, is guilty of a misdemeanour punishable by fine, or by imprisonment for a term not exceeding two years, or by both.

(2) Any such person or his solicitor or agent is also liable to an action for damages by the purchaser or the persons deriving title under him for any loss sustained by reason of—

(a) the concealment of the instrument or incumbrance; or

(b) any claim made by a person under such pedigree whose right was concealed by such falsification as aforesaid.

A third party interest in IP might be regarded as an incumbrance. An assignment of IP is a disposition of property. The grant of a licence under IP is probably not “disposing of property or an interest therein”, as a licence is usually regarded (under English law) as purely contractual right, but the matter is not entirely free from doubt. Thus, if section 183 applies, there is a potential, personal liability on the part of both the organisation (and perhaps its commercial managers?) and its solicitor or other agent. However, IP Draughts has not come across any case where this law has been applied to a disposition of IP, and he suspects most IP lawyers are blissfully unaware of this piece of traditional property law.

So, in all of the above cases, the GC may have good reasons for not simply going along with the collective view of her commercial colleagues. Voters in the poll are probably about right in the respective seriousness of the ethical issues that were described in the previous article on this blog.

 

 

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Ethics quiz: when should your lawyer say no?

The last article on this blog attracted some interest, particularly on LinkedIn. Most readers were supportive of IP Draughts’ comments, but at least one didn’t see the problem. He said:

I am a Business Developer with 14 years experience, build at 2 Technology Transfer Offices. I therefore have a better understanding of contracts than most Junior lawyers. FYI: I always collaborate with a lawyer, we have different expertises. The point is that you could also say that lawyers should not be Business Developers. My experience is that with the right expertise, combination of the both is possible.

IP Draughts replied in the following terms:

My point is about not giving up the professional role of a lawyer, if that is what you are employed to be. By all means apply any skills you have learnt, including negotiation and business judgment (though be clear who is taking any business decisions). For example, the lawyer should be able to tell her BD colleague that the licence agreement shouldn’t be signed until the IP has been formally assigned to the university, no matter how desperate everyone is to get the deal done and no matter how much of a formality this is thought to be.

This is a simple enough example, designed to address the scenario raised in the earlier comment. It is perhaps not at the worst end of the ethical spectrum. It set IP Draughts thinking about other examples, and led to the following QUIZ!!!

IP Draughts’ past experience with quizzes has not been good. Not many people have deigned to participate. He hopes you will do better this time! (As far as he knows, your answers are completely anonymous and he has no way of finding out who said what. So say what you really think, not what you think is politically correct!)

Assume that a lawyer is working closely with business colleagues. She could be in-house or external, it doesn’t really matter. Assume also that in each of the following scenarios, all the business colleagues want to take a particular action, but the lawyer is not sure it is appropriate. They apply pressure on her to be a team player and stop being a “typical negative lawyer”. Tick those questions where you think the lawyer should hold firm and ignore her colleagues’ pressure.

(P.S. You can tick more than one, but no more than four. For some reason this was the maximum number that PollDaddy allowed.)

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Lawyers should not be business people with a law degree

A recent article on Lexology got IP Draughts’ blood boiling.

The article, titled “Don’t Just Scale Your Company, Scale Yourself” was written by Neil Peretz, co-founder of Contract Wrangler, and Stephan Eberle, general counsel of Scale Venture Partners. The article was branded with the logo of the Association of Corporate Counsel.

Much in the article was sensible, good advice about how lawyers can provide useful and user-friendly support to one’s business colleagues. But the bit that raised IP Draughts’ blood above 98.4 degrees (or 98.6 in the USA) was the following statement, near the beginning of the article:

Start from the mindset that an in-house lawyer is a businessperson with a legal degree.

In the words of the late, great Frankie Howerd, nay, nay and thrice nay. That way darkness lies.

It is true that some business people think they would like their lawyers to be business people first, and lawyers second. It is also true that some commercial lawyers need to be more business-focussed, and sometimes this means helping the client to find solutions rather than pointing out obstacles. But the starting point for any commercial lawyer, whether in-house or external, who is hired as a lawyer and not a general business person, should be that they are lawyers first and foremost.

This doesn’t mean that they have to communicate in a pompous or unclear way. They can and should try to be helpful, and to understand their client thoroughly. But the substance of their advice should be based on independence and professional values, not being a business person with a law degree.

As this blog has previously noted, the trend in international regulation is towards imposing personal responsibilities on general counsel to be, if you like, the conscience of the organisation. They must report certain wrongdoings to regulators. Commentators on ethical issues are increasingly focussing on the role of lawyers in identifying corporate bad behaviours and stopping them.

These roles and others require independence of mind, and a willingness to say and do things that some business colleagues may find unpalatable.

This is a high-wire act, and sometimes clients will shoot the messenger. But the answer is not to compromise by becoming a yes-man who provides comfort to business colleagues by being one of them but with a law degree.

 

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Identifying your professional strengths

Let’s start with what we have in common. Most readers of this blog are likely to be hard-working, responsible, and able to hold down a professional role. Some will be good at passing exams. A fair number will be intellectually curious, and keen to increase their knowledge of subjects that help in their careers.

But then it starts to be more difficult to categorise people. Communication skills vary. Some are better at public-speaking and debate, while others thrive in a quieter environment. Some are more competitive than others, while others are better at collaboration. Some are more comfortable in a large organisation than in a small one.

Those are basic, crude differentiators. There are also more subtle, but equally important differences. IP Draughts has noticed that he brings intuition to his work. Armed with 80% of the relevant information, he likes to join the dots quickly and find the answer. This can be a gift, but it can also lead to error. In his early years, supervisors who thought differently to him were sometimes critical of his approach. He learnt the hard way, for example, that working out the answer to company law issues depended on meticulous accuracy; jumping to the answer was a mug’s game. Recognising that this is a weakness for some types of work, he tried to train himself not to make mistakes.

He was reminded of this recently when identifying the legal roadblocks to setting up a share option scheme for a non-executive director. There is no substitute for checking, checking and checking again, in company law, in the Articles of Association, and in the shareholders agreement, until you are 100% certain of the answer. After IP Draughts thought he had identified all the roadblocks (including waiver of pre-emption rights, shareholder approval, the non-applicability of a clause creating an employee share option pool, and the need to execute a deed of adherence to the shareholders agreement), he stumbled across another one: any agreement with a director had to be approved by an Investor Majority.

On the other hand, an intuitive approach can sometimes help you to find the answer quickly. He was recently asked by a colleague about a (very long) agreement in which the answer to a question about royalty obligations was not obvious. His colleague, more accurate than him, had searched unsuccessfully in all the obvious places for an answer. He found the answer quickly by looking in some unexpected places, by mentally jumping about in the document.

It is difficult for someone at the start of their career to work out all their strengths and weaknesses, because they don’t have the experience to test their approach against different situations. They may be in an environment that values some strengths and has no interest in others. For those who lack self-confidence and resilience, it is too easy to assume that one doesn’t have the necessary skills to succeed in one’s chosen career.

Having the skills to succeed in corporate finance in a City law firm doesn’t necessarily make you “top of the tree” as a lawyer. There are other routes to excellence. Finding them can take some time.

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