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:
- 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.
- 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.
- 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).
- 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.
- 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.
- 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.
- 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.
- 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.