R. Scott Jolliffe, Gowling Lafleur Henderson LLP Conflicts of Interest in IP An Overview of the Evolving Law and Regulation of Conflicts of Interest R. Scott Jolliffe, Gowling Lafleur Henderson LLP

Conflicting Interests (Duty of Loyalty) Fiduciaries owe a duty of loyalty to existing clients The duty of loyalty includes a duty to avoid: Conflicts between duty and interest Conflicts between duty and duty Conflicts between duty and relationship A conflict exists when there is a substantial risk that the representation of the client would be adversely affected Acting against a current client in an related matter is a conflict Acting against a client in an unrelated matter may be a conflict

Duty of Confidentiality The duty of loyalty is owed an existing client – the duty ends when the relationship ends The duty of confidentiality continues indefinitely Confidentiality of information of former clients must be protected even after the retainer ends It must be protected when other clients are represented, when new lawyers join the law firm, and when law firms merge

Confidentiality Screens and Timing The presumption is that lawyers who work together share confidential client information Confidentiality screens, properly erected, are regarded as being effective to protect client confidential information But a delay in the creation of the screen may lead to disqualification, even when it can be shown that no disclosure has taken place

Confidentiality - Law Firm Transfers The duty of confidentiality applies to staff, agents and lawyers All staff and professionals must be advised of their obligations of confidentiality Conflict searches must be conducted and screens erected before the new hire begins work

Clients, near-clients and non-clients It is essential to identify clearly the client to whom this duty is owed Unintended situations may result in a client-lawyer/agent relationship Where there is a reasonable expectation of a client-lawyer relationship The client is the corporation, partnership or entity, not its representative In the case of an agent, the client is the principal Duties of confidentiality may exist for near client and non-client information

Former Clients There is an on-going duty of confidentiality to former clients for as long as the information remains confidential Although there is no on-going duty of loyalty to former clients – There is an on-going duty not to undue, undercut or challenge the work done for the former client

Engagement Letters Strongly encourage the use of engagement letters (a) to identify the client and define the scope and terms of the engagement (b) to determine the nature and scope of the lawyer-client relationship (c) to clarify both client and lawyer expectations (d) where possible to waive future conflicts by clarifying that the firm will act against the interests of the client in unrelated matters

Duty of Loyalty – Bright Line Rule Before R. v. Neil (SCC 2002), acting against a current client in an unrelated matter was considered to be a business conflict Neil refers to a bright line rule when acting against an existing client in an unrelated matter: The bright line is provided by the general rule that a lawyer may not represent one client whose interests are directly adverse to the immediate interests of another current client - even if the two mandates are unrelated - unless both clients consent after receiving full disclosure (and preferably independent legal advice), and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other.(Neil, para 29; emphasis in original)

R. v. Neil – Professional Litigant SCC also referred to a ‘professional litigant exception’: Chartered banks and entities that could be described as professional litigants may have a...broad-minded attitude where the matters are sufficiently unrelated that there is no danger of confidential information being abused. These exceptional cases are explained by the notion of informed consent, express or implied. Governments would also fall within this exception

Wallace and McKercher v. CNR (Sask CA) The Court of Appeal in Wallace allowed for greater flexibility in the remedy awarded even if the bright line is crossed: Where the adverse representation is with respect to an unrelated matter and there is no danger of misuse of confidential information, consideration can be given to an appropriate remedy, which is something other than disqualification.

Wallace – Professional Litigant Exception Sask CA also adopted broad interpretation of professional litigant exception: ...the professional litigant exception can be justified on a principled basis where the client is not one ‘typically untrained in the law and lacking the skills of advocates’, and where in fiduciary law language there is less of a relationship of ‘dependence or reliance of the beneficiary upon the fiduciary’.

CNR v. McKercher - Appeal to the SCC The issue before the SCC will be whether the bright line rule is to apply even in situations where there is no substantial risk that the lawyer’s representation of the current client would be materially and adversely affected by the new unrelated matter

IPIC Code of Ethics Duty to avoid conflicts of interest imposed on agents - Rule 3(3): The agent must ensure that his or her relationship with the client and any other person or firm involved in any matter on which the agent is giving advice to the client does not and will not lead to a situation where there is or is likely to be a conflict between the interests of the client and the agent. No specific reference to the bright line rule in R. v. Neil, but the common law of conflicts of interest is likely to apply

FLSC Model Code – Rule 2.04(1) The new FLSC Model Conflicts Rule provides for a general requirement that: A lawyer must not act or continue to act for a client where there is a conflict of interest, except as permitted under this Code. A “conflict of interest” is defined to mean: the existence of a substantial risk that a lawyer’s loyalty to or representation of a client would be materially and adversely affected by the lawyer’s own interest or the lawyer’s duties to another client, a former client, or a third person. Substantial risk is a real risk, “more than a mere possibility; there must be a genuine, serious risk …”.

FLSC Model Code – Substantial Entity 2.04(2)(b) Consent may be inferred and need not be in writing where all of the following apply: i. the client is a government, financial institution, publicly traded or similarly substantial entity, or an entity with in-house counsel; ii. the matters are unrelated; iii the lawyer has no relevant confidential information from one client that might reasonably affect the other; and iv. the client has commonly consented to lawyers acting for and against it in unrelated matters.

Law Society Adoption of model Code Manitoba and Saskatchewan have adopted the FLSC Model Code without change BC, Alberta and Nova Scotia have adopted the Model Code with amendments Ontario is currently considering the adoption of the Model Code with amendments Quebec has just released a draft revised Code for consultation