What is a Joint Prosecution Agreement?
A Joint Prosecution Agreement is an informal, nonpublic, and typically unwritten agreement among two or more parties that are injured by the same, or similar, wrongdoing so that they may jointly pursue legal action against one or more tortfeasors. Under such agreements, the parties will commit to a joint effort to pursue a single, unified course of action in pursuit of their collective recovery. This form of cooperative litigation typically takes the form of a joint complaint in which the claims of each injured party are consolidated. While a specific percentage of the recovery to which parties to a joint prosecution are entitled is not universally agreed upon, it is common for parties to a joint prosecution to share equally in any recovery. An interest in maximizing the efficiency, speed, and potential return of a lawsuit typically motivates the parties to enter into a joint prosecution or group litigation agreement .
Joint litigation agreements differ from a common interest agreements, which typically entail the sharing discovery and documents among co-defendants. While joint prosecutions require cooperation among multiple claimants, common interest agreements require no such cooperation among defendants. The legal theory underlying these types of agreements is that the litigation involves many of the same questions and issues of fact, and the evidence to be presented at trial by each party will be similar. As explained in Unilab Corp. v. Washington Public Power Supply System, a joint defense or common interest agreement is essentially an attorney-client relationship between and among those in the agreement, with the provision that the information derived from the common interests, including discovery, will not be shared absent consent of the parties.
Statutory and Jurisdictional Framework
Jurisdictional considerations pervade every aspect of antitrust law and doctrine. Neither of the above rules creates an exhaustive list of circumstances where jurisdictional issues are relevant to the analysis of antitrust law and doctrine. Although the existence of jurisdiction can be a fatal flaw to the claim, in the right hands, it can also be a powerful tool. I have previously written about the ins-and-outs of international jurisdiction before. This post looks at jurisdiction in the United States.
Lawyers representing defendants sued in California often challenge the jurisdiction of that court over the defendant. In the antitrust arena, there are two distinct lines of authority dealing with personal jurisdiction for "participant" cases with certain over-the-top content. The first, is the typical "anti-bundle" jurisdictional line, in which the plaintiff is entitled to sue a contractor in the forum where it was hired. The second, is where the antitrust claim (often conspiracy) is brought against numerous entities (co-conspirators) but the only connection the forum has with the case is one of participation, not antitrust. The case frequently involves the assertion of jurisdiction over publicly traded companies, made by non-residents of the forum. This type of jurisdiction differs from the traditional "anti-bundle" jurisdiction in that the defendants in a particular forum frequently will not be directly motivated to enter into the forum for the purposes of violating the antitrust laws. This is a key distinction in interpreting the case law and the doctrine. I explain this difference below.
A leading case on point is Bunn-O-Matic Corp. v. Norton Co., 617 F.Supp. 832, 837 (C.D.Ill. 1985), the court notes that the standards for establishing personal jurisdiction over foreign defendants based upon antitrust violations varies among the circuits; however "generally all of the circuits employ a ‘sliding scale’ analysis whereby some lesser level of contact with the forum is required before a defendant may be subject to jurisdiction based solely upon an infringement of Section 1 of the Sherman Act." (Emphasis added.) Of course, the court points out that it is important whether the plaintiff is a resident of the forum, the number of non-forum residents as compared to the number of forum residents, and the nature of the alleged violation.
Many other courts have adopted the sliding scale or sliding impact analysis. However, even in the circumstances of the sliding scale or sliding impact test, a defendant must still have purposefully availed itself of the privilege of conducting activities in the forum and the litigation must be based on these activities (Candela Corp. v. Applied Robotics, 2008 WL 3982544 (S.D. Fla. 2008). Therefore, even though the plaintiff’s connections with the forum may be slight, the plaintiff must present grounds for jurisdiction other than the allegations of antitrust violations, because without the additional evidence, there is no purposeful availment (compare The P. & R. Co. v. Reliance Ins. Co., 470 F.Supp. 225 (D.Del. 1979) (where the requisite "minimum contacts" were established through defendants’ solicitation of business in forum and business transactions which occurred therein); with Mendenhall v. Mobil Oil Corp., 650 F.2d 102 (3rd Cir. 1981) (where no jurisdiction could be asserted over foreign defendant where plaintiff was not a resident of forum).
To establish personal jurisdiction the plaintiff must show that the relationship between the parties created by the transaction giving rise to the cause of action is the source of specific jurisdiction. Compare Dodd v. McGoldrick, 95 F.2d 760 (2nd Cir. 1938). A defendant who commits a tort in the forum shall be subject to personal jurisdiction of the courts of the forum state (Section 11-401)(b)(5), 735 ILCS 5/2-209 (West 1992); however, if the claim is not grounded on tort, a "transacting business" test must be met (Dodd v. McGoldrick, 95 F.2d 760 (2nd Cir. 1938)).
Under the sliding scale (sliding impact) approach, the claim for jurisdiction should be based on the alleged impact on the forum (Mendenhall v. Mobil Oil Corp., 650 F.2d 102 (3rd Cir. 1980), although the forum need not be the situs of the alleged injury (Compare Township of Boxford v. W.R. Grace & Co., 38 F.Supp.2d 71 (D.Mass. 1999)). Further, the claim must arise as a consequence of the defendant’s activities within the forum.
Essentials of a Joint Prosecution Agreement
At its core, a joint prosecution agreement is a contract between two or more parties who come together for the purpose of pursuing a common legal goal. In practice, the ability of the patent owner and accused infringer to satisfy each other’s objectives may be illusive. The agreement should contain a number of important provisions to protect all signatories. These include:
Mutual Goals. The first thing a joint prosecution agreement should do is clearly set forth each party’s goals. Without being on the same page as the start, a joint prosecution effort is unlikely to survive for long. However, things don’t always go to plan. If one party seeks to file a patent that is entirely at odds with the goals of the agreement, the agreement should spell out how the parties will resolve this situation.
Sharing of Information. Every joint prosecution agreement should spell out the extent to which sharing of information will be protected. It should also ensure that any shared confidential information cannot be shared with third-parties. This is especially important when there are multiple accused infringers and/or any intervening entities, such as joint research entities and research consortia that jointly own the end patent.
Confidentiality Clauses. The terms of a joint prosecution agreement should require the parties to keep confidential all information relating to joint prosecution of patent applications. In addition, the agreement should set forth penalties for unauthorized breach of confidentiality.
Advantages and Disadvantages
On balance, there are clear benefits to entering into joint prosecution agreements, and such agreements might become more common if the United States takes over the prosecution of certain health care fraud cases under the current congressional proposal, the Fraud Enforcement Recovery Act of 2009, (H.R. 4574/S. 386) (the "FERA").
It is worthwhile to note that agreements between private parties to prosecute a case jointly will be thoroughly vetted by both criminal and civil law enforcement because FERA would only enable the attorney general to enter a joint enforcement agreement after the attorney general satisfies himself or herself that the private party has complied with all federal and state laws relating to the use of False Claims Act (FCA) recovery, including all laws relating to the electronic storage of documents.
The opportunity for lower cost, earlier resolution of cases is another clear advantage to such an agreement. Collaboration between the parties also can be quite beneficial because parties to a joint prosecution agreement gain open access to information that can be useful to discovery or at trial. Access to information can mitigate some of the difficulties associated with the discovery process in FCA cases. The challenge of obtaining discovery is particularly acute while the government continues its investigation. Because FCA cases are often investigated in secrecy, access to information can lead to earlier resolution and settlements.
Another potential advantage to entering into a joint prosecution agreement is that it can help: (1) define the scope of the investigation; and (2) eliminate duplicating efforts of private parties and the government in the investigation.
There are some downs sides to joint prosecution agreements, from both a legal and practical perspective. Joint prosecution agreements can create conflict and ethical issues that may limit settlements. If the government decides to settle a case, a joint-litigation defense counsel will need to be able to address any potential conflicts that may prevent such an outcome. Moreover, it may be difficult to persuade the government to dismiss a case it views as strong, if the government is relying on private plaintiffs to litigate a case that has the potential to be extremely damaging to the defendant.
The preservation and monitoring of privileged and confidential information between parties is also a potential concern because the United States Department of Justice (DOJ) has taken the position in other areas of the law that a party’s waiver of privilege is effective for all parties. Further, it is a known fact that prosecutors often try to shift their focus from the alleged wrongdoing of a corporate defendant to the individual who is responsible for the harmful acts that are the subject of an indictment. Therefore, the ability of all parties to maintain separate counsel is critical to lessen the effects of such events.
Joint Prosecution Agreements in Action
In practice, joint prosecution agreements are often used in settings where two plaintiffs want to join forces to prosecute a patent of mutual interest. Such settings can be especially useful when the expected costs for a successful enforcement action are high, but a single plaintiff lacks or expects to lack sufficient resources to bear the costs of the action. This was the situation in the Electronic Communication Technologies, LLC v. ShoppersChoice.com, LLC, et al., case, where the two plaintiff patent holders were seeking to consolidate their efforts to prosecute a patent relating to an electronic ticketing system.
In that case, the plaintiff filed an action for patent infringement against 47 defendants in July 2013. Twelve of those defendants, i.e., 25% of the original action, had been dismissed before the joint prosecution agreement was executed. Then, as part of the joint prosecution agreement, the plaintiffs agreed to execute a series of 13 voluntary dismissals without prejudice of the 22 remaining defendants. Coalition Technologies LLC and Tenda USA, Inc. later executed separate joint prosecution agreements with Electronic Communication Technologies, LLC, the plaintiff in this case, that were virtually identical to the one at issue in the case here .
The Court questioned whether proposed joint prosecution agreements that seek to avoid an adverse determination as to standing, such as defendants’ alleged sales of accused products through subsidiaries, would prohibit defendants from raising defenses in the litigation based on the alleged sales through subsidiaries. The Court found that the proposed agreement did not preclude the defendants from asserting any defenses in the case, including any based on alleged sales through subsidiaries.
The plaintiffs unsuccessfully argued that if the action was dismissed as to all of the remaining defendants, this dismissal would not act as a bar to any future action by the same plaintiff against the same defendants and/or their affiliates based on the same patent. The Court found, based on Federal Rule of Civil Procedure 41(a)(1)(B), that any action subsequently filed by the same plaintiff against the same defendants, or their affiliates, based on the same patent, would be subject to dismissal on the grounds of claim preclusion (res judicata). The Court concluded, therefore, that the right accorded by Rule 41(a)(1)(B) to bring a subsequent action on the same claims was limited to the same plaintiff, and that rights under joint prosecution agreements alleging infringement of the same patent by the same defendants could not be assigned or transferred in a way that a future infringement action could be brought against those defendants.
Ethical and Confidentiality Issues
Joint prosecution agreements present several ethical issues. These issues arise from the obligations to the client and to the government.
First, a lawyer may not reveal information relating to the representation of a client unless the client gives informed consent. Rule 1.6, 1.9(c) of the Model Rules of Professional Conduct. There is an exception: a lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary (1) to prevent reasonably certain death or substantial bodily harm; (2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer’s services; (3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the commission of a crime or fraud in furtherance of which the client has used the lawyer’s services; (4) to secure legal advice about the lawyer’s compliance with these Rules; concerning conformation with Model Rules and the law pertaining to confidentiality (5) to detect and resolve conflicts of interest arising out of the lawyer’s change of employment or change in a joint venture.
Second, an attorney will have obligations under the conflict of interest provision of the MRPC and its state equivalent. Rule 1.7, 1.9 and 1.13 and their state equivalents cover the issues that arise when two or more attorneys represent clients on the same matters. Paragraph 4 of Rule 1.9 refers to the use of confidential information and the prohibition of a lawyer representing clients with interests adverse to former clients concerning the same or substantially related matters unless informed consent is given by the former client after consultation on the disadvantages of such representation.
As for most issues in ethics, an attorney should consult the bar association ethics opinion guide and the state bar for guidance on a particular issue.
Drafting and Negotiation Tactics
Strategies for Drafting and Negotiating a Joint Prosecution Agreement
As with many areas of legal practice, drafting and negotiating a joint prosecution agreement ("JPA") involves strategic considerations relevant not only to the terms of the JPA, but also to the broader negotiation context. In-house counsel should ensure that the terms of the JPA reflect the economic interests of the company and take into account any other legal considerations relevant to an ATB investment. One example of the latter is the ability of the in-house counsel to represent the ATB investor in the ATB investment initiative. Outside counsel attorneys should be very mindful of confidentiality obligations owed to the client investor, and ensure that no potential ATB investments have been disclosed without the client’s prior consent. Also, many attorneys routinely include an indemnity provision in their engagement letters, which would typically be construed as covering any claims arising under a JPA as well.
Negotiation of a JPA can be an important point in the negotiation of a transaction involving multiple ATB partners. It is an opportunity to address items such as what happens if the parties cannot agree on a proposed transaction. The parties can also negotiate a timeframe in which they will execute a definitive transaction, the period of exclusivity (if any) the parties are willing to provide to one another, the timing for payment of each participant’s share of expenses and how to handle the contributions of a particular joint participant who has not yet committed to the relevant transaction.
A JPA will generally have the effect of committing either expressly or by implication the investor company involved in the investment initiative to continue to pay its share of expenses during the JPA period, and may restrict the investor from pursuing its own investment in the initiative. Whether that is desirable will depend on the investor’s view of the merits of the investment in the initiative being considered and on whether the investor has sufficient capital to commit to the JPA. Assuming the investor wishes to proceed with a JPA, outside counsel and the investor counsel then only need to ensure that their respective draft terms on points of disagreement are reasonable in all the circumstances. For example, outside counsel should endeavor to have the JPA limit the timing of the parties to negotiate a definitive agreement. Counsel for the investor may be willing to agree to longer time limits to allow the investor to carry out due diligence before committing, but in doing so the investor may be accepting that the confidential terms of the JPA may be leaked to third parties, with no ability to offer further assurances of confidentiality.
Future Considerations and Developments
As the legal landscape continues to evolve, so too may the use of joint prosecution agreements. With the advent of cloud computing and shared databases, we may see more collaborative efforts across larger scales than previously possible. For instance, pharmaceutical companies in different parts of the world may enter into agreements for joint patent filings and enforcement. Technology firms and other corporations involved in substantial research and development may increasingly become aware of their common need for protective measures in a globalized world.
Additionally, borderless technology and enhanced communication may allow joint prosecution agreements between smaller patent filers and enforcement groups who wish to collaborate across a broad range of geographical areas .
As patent trolls continue to be a problem in North America, joint prosecution agreements may allow small players to tag-team and defend themselves against these trolls and compete more vigorously in an increasingly competitive market. Both the opportunities and risks of joint prosecution agreements in terms of patents or trade secrets may prove to be significant. Even the most detached observer will sound a warning on the future of joint prosecution agreements. They are likely to facilitate cartel-like competition under the guise of legitimate cooperation.