Dr. Falk Pharma Gmbh v. Generico, LLC , 916 F.3d 975 ( 2019 )

United States Court of Appeals
for the Federal Circuit
______________________
DR. FALK PHARMA GMBH,
Appellant
AND
SALIX PHARMACEUTICALS, INC., VALEANT
PHARMACEUTICALS INTERNATIONAL, INC.,
Intervenors
v.
GENERICO, LLC, FLAT LINE CAPITAL LLC,
MYLAN PHARMACEUTICALS INC.,
Appellees
______________________
2017-2312
______________________
Appeals from the United States Patent and Trademark
Office, Patent Trial and Appeal Board in Nos. IPR2016-
00297, IPR2016-01386, IPR2016-01409.
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SALIX PHARMACEUTICALS, INC., DR. FALK
PHARMA GMBH,
Plaintiffs-Appellants
v.
2 DR. FALK PHARMA GMBH v. GENERICO, LLC.
MYLAN PHARMACEUTICALS INC., MYLAN INC.,
Defendants-Appellees
______________________
2017-2636, 2018-1320
______________________
Appeals from the United States District Court for the
Northern District of West Virginia in No. 1:15-cv-00109-
IMK, Judge Irene M. Keeley.
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VALEANT PHARMACEUTICALS
INTERNATIONAL, INC., SALIX
PHARMACEUTICALS, INC., PROGENICS
PHARMACEUTICALS, INC., WYETH LLC, FKA
WYETH,
Plaintiffs-Appellees
v.
MYLAN PHARMACEUTICALS INC., MYLAN INC.,
MYLAN LABORATORIES LIMITED,
Defendants-Appellants
ACTAVIS LLC,
Defendant
______________________
2018-2097
______________________
Appeal from the United States District Court for the
District of New Jersey in Nos. 2:15-cv-08180-SRC-CLW,
2:15-cv-08353-SRC-CLW, 2:16-cv-00035-SRC-CLW, 2:16-
cv-00889-SRC-CLW, 2:17-cv-06714-SRC-CLW, Judge
Stanley R. Chesler.
DR. FALK PHARMA GMBH v. GENERICO, LLC 3
______________________
ON MOTIONS
______________________
SEALED ORDER FILED: February 8, 2019
PUBLIC ORDER FILED: February 20, 2019 *
______________________
MARY W. BOURKE, Womble Bond Dickinson (US) LLP,
Wilmington, DE, argued for appellant and intervenors in
17-2312 and plaintiffs-appellants in 17-2636. Also repre-
sented by KRISTEN HEALEY CRAMER, DANA KATHRYN
SEVERANCE, DANIEL M. ATTAWAY; JOHN W. COX, Atlanta,
GA.
CHARLES E. LIPSEY, Finnegan, Henderson, Farabow,
Garrett & Dunner, LLP, Reston, VA, argued for plaintiffs-
appellees Valeant Pharmaceuticals International, Inc., Sa-
lix Pharmaceuticals, Inc. in 18-2097. Also represented by
BRYAN DINER, JUSTIN JAMES HASFORD, ESTHER LIM, KRISTI
L. MCINTYRE, Washington, DC; JESSICA C. LEBEIS, Boston,
MA.
MICHAEL ISIDORO VERDE, Katten Muchin Rosenman
LLP, New York, NY, argued for appellee Mylan Pharma-
ceuticals Inc. in 17-2312, for defendants-appellees in 17-
2636, and for defendants-appellants in 18-2097. Also rep-
resented by DEEPRO MUKERJEE, LANCE SODERSTROM,
JONATHAN ROTENBERG, STEPHANIE MAE ROBERTS; HOWARD
ROBERT RUBIN, RAJESH RAM SRINIVASAN, ERIC THOMAS
WERLINGER, Washington, DC; ROBERT FLORENCE, SHARAD
KOTAGIRI BIJANKI, MICHEAL L. BINNS, KAREN L. CARROLL,
* This order was originally filed under seal and has
been unsealed in full.
4 DR. FALK PHARMA GMBH v. GENERICO, LLC.
Parker Poe Adams & Bernstein LLP, Atlanta, GA;
CHRISTOPHER THOMAS, Raleigh, NC.
______________________
Before LOURIE, O’MALLEY, and REYNA, Circuit Judges.
O’MALLEY, Circuit Judge.
ORDER
At issue are three motions to disqualify Katten Muchin
Rosenman LLP as counsel for Mylan Pharmaceuticals Inc.
(“Mylan”) in three appeals before this court. Valeant Phar-
maceuticals International, Inc. (“Valeant-CA”) and Salix
Pharmaceuticals, Inc. (“Salix”) move to disqualify in Vale-
ant Pharmaceuticals International, Inc. v. Mylan Pharma-
ceuticals Inc., No. 2018-2097 (“Valeant II”), Salix moves to
disqualify in Salix Pharmaceuticals, Inc. v. Mylan Pharma-
ceuticals Inc., Nos. 2017-2636, 2018-1320 (“Salix II”), and
Valeant-CA and Salix move to disqualify in Dr. Falk
Pharma GmbH v. GeneriCo, LLC, No. 2017-2312 (“Dr. Falk
II”). Because we find that Katten has an ongoing attorney-
client relationship with Valeant-CA and its subsidiaries,
including Salix, we conclude that Katten’s representation
of Mylan in these appeals presents concurrent conflicts of
interest. Therefore, we grant the motions to disqualify.
I. BACKGROUND
The motions to disqualify stem from Katten’s represen-
tation of Bausch & Lomb Inc. (“Bausch & Lomb”), a corpo-
rate affiliate of Valeant-CA and Salix (collectively,
“movants”), in a trademark litigation and its concurrent
representation of Mylan, adverse to movants, in the pend-
ing appeals. Specifically, Katten signed an engagement
letter with Bausch & Lomb that broadly defined Katten’s
client as any Valeant entity. Attorneys Deepro Mukerjee
and Lance Soderstrom represented Mylan during various
stages of the Valeant, Salix, and Dr. Falk proceedings—
first, as attorneys from Alston & Bird LLP, but later, as
DR. FALK PHARMA GMBH v. GENERICO, LLC 5
attorneys from Katten. The parties agree that Mukerjee
and Soderstrom moved to Katten as of May 3, 2018. The
parties, the engagement letter, and the procedural history
are detailed below.
A. The Parties
The parties relevant to the motions to disqualify in-
clude, Valeant-CA 1, Valeant Pharmaceuticals Interna-
tional (“Valeant-DE”), Salix, and Bausch & Lomb.
Valeant-CA, a Canadian corporation and the movant in Va-
leant II and Dr. Falk II, is the ultimate parent of these en-
tities. Specifically, Salix—a movant in all three appeals—
is a wholly-owned subsidiary of Salix Pharmaceuticals,
Limited, which is a wholly-owned subsidiary of Valeant-
DE, which is an indirect, wholly-owned subsidiary of Vale-
ant-CA. Bausch & Lomb is also an indirect subsidiary of
Valeant-CA and an affiliate of the above-listed entities.
Valeant-CA contends that it has been a longstanding
client of Katten, both directly and through its subsidiaries.
Specifically, movants allege that a concurrent conflict
arises in all three appeals from Katten’s ongoing represen-
tation of Bausch & Lomb in a trademark matter regarding
the mark MOISTURE EYES. 2 A partner in Katten’s
1 On July 26, 2018, counsel for Valeant-CA filed a
notice of appearance in which it indicated that Valeant-CA
had changed its name to “Bausch Health Companies Inc.”
Valeant II, ECF No. 30. All filings pertaining to the pre-
sent motions refer to Bausch Health Companies Inc. by its
former name of “Valeant Pharmaceuticals International,
Inc.” To avoid any confusion, we will also refer to Bausch
Health Companies Inc. by its former name of Valeant Phar-
maceuticals International, Inc.” or, as abbreviated herein,
“Valeant-CA” for purposes of this order.
2 Movants also contend that a conflict arises from
Katten’s representation of another Valeant-CA subsidiary,
6 DR. FALK PHARMA GMBH v. GENERICO, LLC.
Chicago office has been representing Bausch & Lomb since
2001. Verde Decl. at ¶ 8 (“The only affiliate that Katten
identified as a current client was Bausch & Lomb, Inc. . . .
[A] partner in Katten’s Chicago office[] has been represent-
ing Bausch & Lomb on trademark, copyright and advertis-
ing issues since 2001.”). Mukerjee admits that he was
aware that Katten represents Bausch & Lomb when he
moved to the firm. Mukerjee Decl. at ¶ 17 (“During my
discussions with Katten in late 2017, I was informed that
Katten represents Bausch & Lomb, Inc.”).
B. The Engagement Letter & OC Guidelines
In the course of representing Bausch & Lomb, Katten
signed a general engagement letter “governing the overall
relationship between [Katten] and Valeant Pharmaceuti-
cals International, Inc.”—i.e., Valeant-CA. Gorman Decl.
Ex. A, at 1. This engagement letter incorporates by refer-
ence Valeant’s Outside Counsel Guidelines (“OC Guide-
lines” or “Annex 1”).
Section 1.1 of the OC Guidelines states that “[t]hese
guidelines will govern the relationship between Valeant
Pharmaceuticals International[, i.e. Valeant-DE], its sub-
sidiaries and affiliates. . . and outside counsel.” Gorman
Decl. Ex. A, at § 1.1. The terms of the OC Guidelines also
require that Katten complete a conflict check “before rep-
resentation of [Valeant-DE and its subsidiaries and affili-
ates] commences.” Gorman Decl. Ex. A, at § 1.2. The terms
further state that “[a]ny conflict of interest that is discov-
ered in such a check or that develops during an ongoing
Valeant Pharmaceuticals North America (“VPNA”), in a
counseling matter. The parties dispute whether this mat-
ter is truly ongoing. Because we find that a conflict arises
from the Bausch & Lomb litigation, which is undisputedly
ongoing, we need not decide whether this counseling mat-
ter involving VPNA also presents a conflict.
DR. FALK PHARMA GMBH v. GENERICO, LLC 7
representation can only be approved, waived or otherwise
cleared by the written agreement of the Valeant General
Counsel.” Gorman Decl. Ex. A, at § 1.2. The OC Guidelines
do not define “conflict of interest,” but state that “Valeant
expects its firms to adhere to local rules and ethics rules
relating to conflict of interest and client representation.”
Gorman Decl. Ex. A, at § 1.2.
The OC Guidelines also specify that “Valeant expects a
significant degree of loyalty from its key external firms,”
defined as “firms with 12 month billings exceeding one mil-
lion dollars.” Gorman Decl. Ex. A, at § 1.2. These key firms
should “not represent any party in any matters where such
party’s interests conflict with the interests of any Valeant
entity.” Gorman Decl. Ex. A, at § 1.2. Finally, the OC
Guidelines state that they “will continue to apply unless
revoked in writing by either party or modified by a subse-
quent letter signed by Valeant General Counsel and out-
side counsel.” Gorman Decl. Ex. A, at § 1.5. Salix and
Valeant-CA contend, and Mylan does not dispute, that the
engagement letter, including the OC Guidelines, remains
active under this provision.
B. The Procedural History
1. Valeant proceedings
Valeant-CA and Salix sued Mylan on November 19,
2015, alleging that Mylan’s submission of an abbreviated
new drug application constituted an act of infringement
under 35 U.S.C. § 271(e) of, inter alia, U.S. Patent No.
8,552,025 (“the ’025 patent”). Valeant Pharms. Int’l, Inc. v.
Mylan Pharms. Inc., 2:15-cv-08180-SRC-CLW (D.N.J. May
1, 2018) (“Valeant I”). Valeant-CA and Salix hold substan-
tial rights in the ’025 patent, which is listed in the FDA’s
Approved Drug Products with Therapeutic Equivalence
Evaluations (commonly known as the “Orange Book”). Va-
leant-CA and Salix moved for summary judgment of no in-
validity for claim 8 of the ’025 patent. The district court
8 DR. FALK PHARMA GMBH v. GENERICO, LLC.
granted the motion on May 1, 2018. Valeant I, ECF No.
300.
Mukerjee and Soderstrom, then at Alston & Bird, rep-
resented Mylan throughout the district court litigation. On
May 3, 2018, Mylan notified the district court that Muker-
jee and Soderstrom had left Alston & Bird to join Katten.
On May 25, 2018, Valeant-CA filed a motion to disqualify
Katten in the district court action. Mylan timely appealed
the district court’s summary judgment on June 22, 2018.
Valeant-CA then filed a motion to disqualify Katten in this
court on July 9, 2018, and the district court stayed a deci-
sion on the motion to disqualify pending before it. We
stayed the parties’ briefing on the merits in this appeal
pending our decision on the motion. Valeant II, ECF No.
24.
2. Salix & Dr. Falk proceedings
Salix and Dr. Falk are related, parallel proceedings be-
fore a district court and the U.S. Patent Trial and Appeal
Board (“Board”), respectively. Salix Pharms., Inc. v. Mylan
Pharms. Inc., 1:15-cv-00109-IMK (N.D. W. Va. Sept. 12,
2017) (“Salix I”); GeneriCo, LLC v. Dr. Falk Pharma
GmbH, IPR2016-00297, 2017 WL 2211672 (P.T.A.B. May
19, 2017) (“Dr. Falk I”). Both proceedings involve U.S. Pa-
tent No. 8,865,688 (“the ’688 patent”), which is owned by
Dr. Falk and exclusively licensed to Salix.
In Salix I—the district court proceeding—Salix and
Dr. Falk sued Mylan on June 26, 2015, alleging that
Mylan’s submission of an abbreviated new drug application
constituted an act of infringement under § 271(e) of the
’688 patent, which is listed in the Orange Book. Attorneys
from Parker Poe represented Mylan throughout the district
court litigation in Salix I. On April 22, 2017, a month after
trial was complete, Mukerjee and Soderstrom, then of Al-
ston & Bird, entered appearances in the district court ac-
tion. After entering an appearance, Mukerjee took part in
negotiating the stipulation to dismiss Mylan’s
DR. FALK PHARMA GMBH v. GENERICO, LLC 9
counterclaims. The district court entered judgment on Sep-
tember 12, 2017, finding that Dr. Falk and Salix had failed
to demonstrate by a preponderance of the evidence that
Mylan’s proposed product would infringe claim 1 of the ’688
patent.
Salix appealed the judgment on September 27, 2017.
Mukerjee and Soderstrom, who were still at Alston & Bird
at that time, and five attorneys from Parker Poe all entered
appearances before this court. The parties completed brief-
ing in February 2018. On June 5, 2018, after Mukerjee and
Soderstrom moved to Katten, Salix filed the present motion
to disqualify.
In Dr. Falk I—the parallel Board proceeding—Mylan
petitioned for inter partes review of claims 1 and 16 of the
’688 patent. Dr. Falk identified Salix as a real party in in-
terest. The Board granted institution and, in a final writ-
ten decision dated May 19, 2017, found claims 1 and 16 of
the ’688 patent unpatentable as obvious. Dr. Falk timely
appealed that decision on July 18, 2017. On appeal, Muk-
erjee and Soderstrom, then of Alston & Bird, entered ap-
pearances in that case for the first time. The parties
completed briefing in February 2018. On June 5, 2018, af-
ter Mukerjee and Soderstrom moved to Katten, Salix and
Valeant-CA moved to intervene and filed the present mo-
tion to disqualify. On September 12, 2018, we granted the
motion to intervene in an oral order just prior to commenc-
ing oral argument on the motions to disqualify. See Oral
Arg. at 0:39, available at http://oralargu-
ments.cafc.uscourts.gov/default.aspx?fl=2018-2097.mp3.
Movants contend that Katten’s representation of
Bausch & Lomb presents a concurrent conflict with Kat-
ten’s representation of Mylan against Valeant-CA and Sa-
lix in either of two ways—first, they contend that the
engagement letter creates an ongoing relationship between
Katten and Valeant-CA, including all of its subsidiaries;
and second, they contend that all Valeant-CA subsidiaries
10 DR. FALK PHARMA GMBH v. GENERICO, LLC.
are so interrelated that representation of one constitutes
representation of all. Accordingly, Valeant-CA and Salix
move to disqualify Katten as counsel in these appeals.
Mylan opposes. We have jurisdiction over these appeals
pursuant to 28 U.S.C. § 1295(a)(1), (4).
II. DISCUSSION
We apply regional circuit law to disqualification mat-
ters. Celgard, LLC v. LG Chem, Ltd., 594 F. App’x 669, 671
(Fed. Cir. 2014); accord Atasi Corp. v. Seagate Tech., 847
F.2d 826, 829 (Fed. Cir. 1988). The relevant regional cir-
cuits in all three appeals apply the Model Rules of Profes-
sional Conduct. 3 Thus, all three motions allege violations
of the same rule—Rule 1.7(a) of the Model Rules of Profes-
sional Conduct—which states:
a lawyer shall not represent a client if the repre-
sentation involves a concurrent conflict of interest.
A concurrent conflict of interest exists if:
(1) the representation of one client will be directly
adverse to another client . . . .
3 In Valeant, the relevant regional circuit is the
Third Circuit, which applies the professional conduct rules
of the forum state. See United States v. Miller, 624 F.2d
1198, 1200 (3d Cir. 1980). The forum state, New Jersey,
has adopted the Model Rules of Professional Conduct. N.J.
Rule of Prof’l Conduct 1.7(a). In Salix, the relevant re-
gional circuit is the Fourth Circuit, which applies the rules
of professional conduct of the forum state. See Shaffer v.
Farm Fresh, Inc., 966 F.2d 142, 145 (4th Cir. 1992). The
forum state, West Virginia, has also adopted the Model
Rules. W. Va. Rule of Prof’l Conduct 1.7(a). Finally, in Dr.
Falk, the U.S. Patent and Trademark Office is the relevant
forum and it has also adopted the Model Rules. 37 C.F.R.
§ 11.107(a).
DR. FALK PHARMA GMBH v. GENERICO, LLC 11
When applying this rule, we look to “the total context,
and not whether a party is named in a lawsuit,” to assess
“whether the adversity is sufficient to warrant disqualifi-
cation.” Celgard, 594 F. App’x at 672; see also Freedom
Wireless, Inc. v. Bos. Commc’ns Grp., Inc., No. 2006-1020,
2006 WL 8071423, at *2 (Fed. Cir. Mar. 20, 2006) (“The
parties debate whether Freedom Wireless and Nextel are
‘directly adverse’ in these circumstances, where Nextel was
not a named party to the initial lawsuit. We conclude, on
the facts of the case, that the parties are directly adverse
for purposes of analyzing a conflict of interest and deter-
mining the need for disqualification.”). Indeed, Comment
34 to Rule 1.7, which addresses “organizational clients,”
states:
A lawyer who represents a corporation or other or-
ganization does not, by virtue of that representa-
tion, necessarily represent any constituent or
affiliated organization, such as a parent or subsid-
iary. See Rule 1.13(a). Thus, the lawyer for an or-
ganization is not barred from accepting
representation adverse to an affiliate in an unre-
lated matter, unless the circumstances are such
that the affiliate should also be considered a client
of the lawyer, there is an understanding between
the lawyer and the organizational client that the
lawyer will avoid representation adverse to the cli-
ent’s affiliates, or the lawyer’s obligations to either
the organizational client or the new client are
likely to limit materially the lawyer’s representa-
tion of the other client.
Model Rules of Prof’l Conduct r. 1.7 cmt. 34 (Am. Bar Ass’n
2018) (emphasis added). Circumstances in which an affili-
ate is considered a client of a lawyer can arise by express
agreement or when affiliates are so interrelated that rep-
resentation of one constitutes representation of all. GSI
Commerce Sols., Inc. v. BabyCenter, LLC, 618 F.3d 204,
210–12 (2d Cir. 2010) (finding that client and client’s
12 DR. FALK PHARMA GMBH v. GENERICO, LLC.
corporate affiliate were so interrelated such that “represen-
tation adverse to a client’s corporate affiliate implicate[d]
the duty of loyalty owed to the client”).
For the reasons stated below, Katten’s representation
of Mylan in Valeant II, Salix II, and Dr. Falk II adverse to
the movants presents concurrent conflicts of interest with
its representation of Bausch & Lomb in the ongoing trade-
mark litigation under Rule 1.7.
A. Katten’s Representation of Mylan in Valeant II
Katten’s representation of Mylan adverse to Valeant-
CA and Salix in Valeant II and its ongoing representation
of Bausch & Lomb, an affiliate of movants, presents a con-
current conflict of interest in violation of Rule 1.7. This is
true even though movants are affiliates of Bausch & Lomb
because the terms of the engagement letter and movants’
demonstration of interrelatedness between the various Va-
leant affiliates presents circumstances such that movants
should also be considered a client of Katten.
1. The Engagement Letter
Because the engagement letter creates an ongoing at-
torney-client relationship between the law firm, Katten,
and its organizational clients, Valeant-CA and Salix, Kat-
ten’s representation of Mylan adverse to movants in Vale-
ant II gives rise to a concurrent conflict of interest under
Rule 1.7. The express terms of the engagement letter and
accompanying OC Guidelines indicate that Katten formed
such a relationship with the movants when it signed the
engagement letter for the Bausch & Lomb trademark liti-
gation. Specifically, the engagement letter states that it
“represents the general terms of engagement governing the
overall relationship between [Katten] and Valeant Phar-
maceuticals International, Inc.,” i.e. Valeant-CA. Gorman
Decl. Ex. A, at 1. This sentence, on its face, demonstrates
that Katten’s relationship extends beyond just Bausch &
Lomb to at least Valeant-CA.
DR. FALK PHARMA GMBH v. GENERICO, LLC 13
The OC Guidelines, which are expressly incorporated
into the engagement letter, further extend the relationship
to include any Valeant entity. Section 1.1 of the OC Guide-
lines states that the guidelines “will govern the relation-
ship between Valeant[-DE], its subsidiaries and
affiliates, . . . and outside counsel.” Gorman Decl. Ex. A, at
§ 1.1. And section 1.2 of the OC Guidelines requires that
Katten complete a conflict check “before representation of
[Valeant-DE and its subsidiaries and affiliates] com-
mences.” Gorman Decl. Ex. A, at § 1.2. While these sec-
tions reference Valeant-DE and not Valeant-CA, the
phrase “its subsidiaries and affiliates” encompasses Vale-
ant-CA because Valeant-CA is the parent company, i.e. af-
filiate, of Valeant-DE. That same phrase also encompasses
another movant in Valeant II, Salix, because Salix is a sub-
sidiary of Valeant-DE. For these reasons, the engagement
letter creates an ongoing relationship between Katten and
both Valeant-CA and Salix.
Mylan argues that the engagement letter and OC
Guidelines do not prevent Katten from representing a
party that is adverse to Valeant-CA or Salix and that the
terms of the letter actually authorize Katten to do so. In
support of its position, Katten points to section 1.2 of the
OC Guidelines, which provides that:
Valeant expects a significant degree of loyalty from
its key external firms (key firms being firms with
12 month billings exceeding one million dollars
($1,000,000)). Such firms should therefore not rep-
resent any party in any matters where such party’s
interests conflict with the interests of any Valeant
entity.
Gorman Decl. Ex. A, at § 1.2 (emphases added).
Mylan contends that, “[t]he clear converse of this pro-
vision is that firms that are not ‘key external firms,’ may
take on matters adverse to a Valeant entity as long as they
otherwise comply with the [Rules of Professional
14 DR. FALK PHARMA GMBH v. GENERICO, LLC.
Conduct].” Valeant II, Mylan’s Opp. at 11. Because it is
undisputed that, despite having represented various Vale-
ant-related entities in certain matters over the years, Kat-
ten is not a key firm, Mylan argues that Katten is not
bound by the provisions of the engagement letter that
broadly define the client as any Valeant entity.
We find this reading of the engagement letter to be ir-
rational. Section 1.2 does not indirectly authorize Katten
to represent parties adverse to Valeant-CA and Salix so
long as Katten remains a non-key firm. Rather, section 1.2
expects a heightened degree of loyalty from key firms, re-
quiring something more than mere adherence to the ethical
rules. It states that key firms should not represent “any
party” in “any matters” that would conflict with “any Vale-
ant entity.” Gorman Decl. Ex. A, at § 1.2. This reference
to “any matters” encompasses, as Valeant-CA stated at oral
argument, a “blunderbuss” limitation on key firms to avoid,
not only matters that give rise to ethical conflicts, but also
those that give rise to other types of conflicts. See Oral Arg.
at 9:36. Other types of conflicts could include, for example,
a matter involving the filing of an amicus brief that pre-
sents no ethical conflict under the rules of professional con-
duct, but that espouses a legal position contrary to one
taken by a Valeant entity in another case. Thus, section
1.2 broadens the degree and type of loyalty expected from
key firms.
But for firms generally, the OC Guidelines state that
“Valeant expects its firms to adhere to local rules and eth-
ics rules relating to conflict of interest and client represen-
tation.” Gorman Decl. Ex. A, at § 1.2. This in no way
narrows the definition of Katten’s client to only Bausch &
Lomb. Such a reading would be contrary to the various
other provisions that define the client generally to include
Valeant-CA and Salix. Mylan’s argument fails.
Mylan also argues that the engagement letter creates
a relationship between only Katten and Bausch & Lomb
DR. FALK PHARMA GMBH v. GENERICO, LLC 15
because both Valeant-CA and Bausch & Lomb appear on
the letterhead of the engagement letter and because Denis
A. Polyn, who Mylan contends was a Bausch & Lomb attor-
ney with a Bausch & Lomb email address, signed the en-
gagement letter. But Mylan ignores the fact that Polyn
was also the Vice President and Assistant General Counsel
of Intellectual Property at Valeant-CA at that time. Gor-
man Decl. Ex. A, at 3. The fact that Polyn had a Bausch &
Lomb email address and, according to Katten, was also a
Bausch & Lomb attorney, does not mean that this engage-
ment governed only the relationship between Katten and
Bausch & Lomb. Rather, that the two entities appear to
share a common letterhead and common employees only
further underscores that Valeant-CA is a client of Katten
because it demonstrates, as detailed below, that the two af-
filiates are interrelated. Thus, because the engagement
letter creates an ongoing attorney-client relationship be-
tween Katten and Valeant-CA and its subsidiary Salix,
Katten’s representation of Mylan adverse to movants in
Valeant II gives rise to a concurrent conflict of interest un-
der Rule 1.7.
2. Interrelated Affiliates
Even if there were any plausible ambiguity in the en-
gagement letter, Mylan’s arguments would still fail be-
cause Valeant-CA, Salix, and Bausch & Lomb have
demonstrated that the three entities are sufficiently inter-
related to give rise to a corporate affiliate conflict.
The relevant regional circuits have not previously set
out factors governing corporate interrelatedness in this
context. In GSI Commerce Solutions, Inc. v. BabyCenter,
L.L.C., 618 F.3d 204, 211–12 (2d Cir. 2010), the Second Cir-
cuit considered the circumstances in which “representation
adverse to a client’s corporate affiliate implicates the duty
of loyalty owed to the client.” Id. at 210. It found that the
factors relevant to this inquiry include “(i) the degree of op-
erational commonality between affiliated entities, and (ii)
16 DR. FALK PHARMA GMBH v. GENERICO, LLC.
the extent to which one depends financially on the other.”
Id. Regarding the first factor, it noted that “courts have
considered the extent to which entities rely on a common
infrastructure,” focusing “on shared or dependent control
over legal and management issues,” which “reflects the
view that neither management nor in-house legal counsel
should, without their consent, have to place their trust in
outside counsel in one matter while opposing the same
counsel in another.” Id. Regarding the second factor, it
noted that, “several courts have considered the extent to
which an adverse outcome in the matter at issue would re-
sult in substantial and measurable loss to the client or its
affiliate.” Id. at 211. The Second Circuit applied these fac-
tors to find that a parent and its subsidiary were suffi-
ciently interrelated to give rise to a corporate affiliate
conflict.
In the absence of evidence to the contrary, we conclude
that the relevant regional circuits would likely find the Sec-
ond Circuit’s reasoning persuasive and would therefore
adopt its factors here. In particular, we find that they
would agree that shared or dependent control over opera-
tional and legal matters between the affiliates is signifi-
cant to the inquiry. Accordingly, we apply the Second
Circuit’s interrelatedness test to the facts in this case, and
find that Valeant-CA, Salix, and Bausch & Lomb all share
a high degree of operational commonality and are finan-
cially interdependent. Gorman Suppl. Decl. at ¶¶ 5, 6, 7,
10, 11, 12.
Valeant-CA and Bausch & Lomb “have a common in-
frastructure whereby [Valeant-CA] provides administra-
tive and general support services to Bausch & Lomb. This
includes “accounting, cash management, employee bene-
fits, finance, human resources, travel, computer systems,
insurance, and payroll services.” Gorman Suppl. Decl. at
¶ 5. The two also “share the same in-house Valeant legal
department.” Gorman Suppl. Decl. at ¶ 6. Robert Gorman,
the Vice President and Head of Global Intellectual
DR. FALK PHARMA GMBH v. GENERICO, LLC 17
Property at Valeant-CA, is a member of the shared legal
department and is “responsible for managing and control-
ling all of their IP related matters and disputes.” Gorman
Suppl. Decl. at ¶ 6. The current Vice President and Assis-
tant General Counsel at Valeant-CA and former Vice Pres-
ident and Assistant General Counsel at Bausch & Lomb,
John F. Lafave, states that, since his “transition to the cur-
rent position at [Valeant-CA] in 2013, [he] still use[s his]
email address at bausch.com.” Lafave Suppl. Decl. at ¶¶
1–2. Finally, Valeant-CA’s public filings to the U.S. Secu-
rities and Exchange Commission (“SEC”) from May 8, 2018
show that Bausch & Lomb contributed over $1 billion to
Valeant-CA’s reported revenues for the first quarter of
2018. Gorman Suppl. Decl. at ¶ 7. This all demonstrates
that Valeant-CA and Bausch & Lomb share a high degree
of operational commonality and are financially interde-
pendent.
The same is true with regard to Salix and Valeant-CA.
Salix and Valeant-CA also share an in-house legal depart-
ment; indeed, Salix does not have its own legal department.
Gorman Decl. at ¶ 6. Valeant-CA and Salix share a com-
mon infrastructure whereby Valeant-CA provides adminis-
trative and general support services to Salix, such as
accounting, cash management, employee benefits, finance,
human resources, travel, computer systems, insurance,
and payroll services. Gorman Decl. at ¶ 5. The two enti-
ties are also financially interdependent because Salix’s
sales directly affect Valeant-CA’s bottom line. Specifically,
Valeant-CA’s SEC filings demonstrate that its “revenue de-
pends on Salix’s gastrointestinal product sales,” the sales
of Salix products in the U.S. totaled $593 million of Vale-
ant-CA’s revenue from branded prescription products for
the first quarter of 2018, and Salix’s drug Apriso® is the
second-highest revenue producer of Valeant-CA’s branded
prescription drugs. Gorman Decl. at ¶¶ 9–10. All of this
demonstrates that Valeant-CA and Salix share a high de-
gree of operational commonality and are financially
18 DR. FALK PHARMA GMBH v. GENERICO, LLC.
interdependent. For these reasons, we find that Valeant-
CA, Bausch & Lomb, and Salix are sufficiently interrelated
to give rise to a corporate affiliate conflict.
B. Katten’s Representation of Mylan
in Salix II & Dr. Falk II
Katten’s representation of Mylan in Salix II and in Dr.
Falk II also gives rise to a concurrent conflict interest un-
der Rule 1.7. As noted above, the engagement letter and
accompanying OC Guidelines create an ongoing relation-
ship between Katten and Salix. Specifically, section 1.1 of
the OC Guidelines states that “[t]hese guidelines will gov-
ern the relationship between Valeant Pharmaceuticals In-
ternational[, i.e. Valeant-DE], its subsidiaries and
affiliates. . . and outside counsel.” Gorman Decl. Ex. A, at
§ 1.1. Section 1.2 of the OC Guidelines requires that Kat-
ten complete a conflict check “before representation of [Va-
leant-DE and its subsidiaries and affiliates] commences.”
Gorman Decl. Ex. A, at § 1.2. Because Salix is a subsidiary
of Valeant-DE, the term “subsidiaries” in sections 1.1 and
1.2 reasonably encompasses Salix. For these reasons, the
engagement letter creates an ongoing relationship between
Katten and Salix.
Again, even if there were an ambiguity in the engage-
ment letter, which there is not, Katten’s representation of
Mylan adverse to Salix would still give rise to a conflict of
interest. This is because Katten and Bausch & Lomb un-
disputedly have an attorney-client relationship and
Bausch & Lomb, Salix, and Valeant-CA are sufficiently in-
terrelated to give rise to a corporate affiliate conflict. See
supra II.A.2. For the reasons stated above, Katten’s repre-
sentation of Mylan in Salix II and Dr. Falk II present con-
flicts of interest in violation of Rule 1.7.
C. Additional Considerations
Mylan contends that, even if Katten has violated Rule
1.7, disqualification is not warranted under the
DR. FALK PHARMA GMBH v. GENERICO, LLC 19
circumstances. Some district courts have held that dis-
qualification is mandatory for violation of Rule 1.7. See,
e.g., Manoir-Electroalloys Corp. v. Amalloy Corp., 711 F.
Supp. 188, 195 (D.N.J. 1989) (finding that disqualification
should be mandatory for violation of Rule 1.7)). But other
district courts have considered whether the totality of the
circumstances—including the impact, nature, and degree
of a conflict, the prejudice or hardship to either party, and
which party was responsible for creating the conflict—war-
rants disqualification. Wyeth v. Abbott Labs.,
692 F. Supp. 2d 53, 457–59 (D.N.J. 2010) (citing Bos. Sci-
entific Corp. v. Johnson & Johnson Inc., 647 F. Supp. 2d
369, 374 (D. Del. 2009); Elonex I.P. Holdings, Ltd. v. Apple
Computer, Inc., 142 F. Supp. 2d 579, 583–84 (D. Del. 2001)
(balancing factors to find disqualification unwarranted)).
We have previously disqualified counsel without consider-
ation of any factor, other than the fact of the ethical viola-
tion, but did so in a nonprecedential decision. Freedom
Wireless, 2006 WL 8071423, at *3 (“Having concluded that
a conflict of interest exists, we further conclude that dis-
qualification . . . is warranted.”). Here, we need not decide
which approach is preferable because we find that, even if
additional considerations were necessary, they all weigh in
favor of disqualification.
Mylan will not face any prejudice or undue hardship as
a result of disqualification. Indeed, because movants seek
only prospective relief, Mylan will not need to submit new
briefs in Salix II or in Dr. Falk II. And, Parker Poe, who
represented Mylan in Salix I all the way through trial, re-
mains counsel of record along with Katten in that appeal.
In Valeant II, we stayed briefing on the merits, so Mylan
now has the opportunity to seek new counsel to draft its
briefs. Finally, we conclude that Katten’s erection of an
ethical wall is insufficient to resolve its violation of Rule
1.7. Katten claims that this wall cordons off Mukerjee and
Soderstrom from Katten attorneys who have worked on
matters for Bausch & Lomb, Valeant-CA, or affiliates in
20 DR. FALK PHARMA GMBH v. GENERICO, LLC.
the 18 months preceding May 7, 2018. But this wall does
nothing to address the concerns stemming from Katten’s
violation because it was created after Mukerjee and
Soderstrom joined Katten, it applies only partially to work
conducted within 18 months before May 7, 2018, and Kat-
ten never previously informed movants of any potential
conflict. We find that disqualification is warranted here,
whether or not disqualification is mandatory under Rule
1.7.
IV. CONCLUSION
For the reasons stated above, we find that Katten’s rep-
resentation of Bausch & Lomb in the trademark litigation
presents a concurrent conflict of interest with its represen-
tation of Mylan in Valeant II, Salix II, and Dr. Falk II. Un-
der Rule 1.7, Katten may not represent Mylan in these
appeals unless it previously obtained informed and written
consent from both clients. Katten has failed to do that
here, and therefore has violated Rule 1.7.
Accordingly,
It Is Ordered That:
The motions to disqualify are granted.
FOR THE COURT
February 8, 2019 /s/ Peter R. Marksteiner
Date Peter R. Marksteiner
Clerk of Court