Rader, Fishman & Grauer has been hit with a malpractice suit by a former client for providing allegedly faulty advice in an intellectual property dispute.
The 45-lawyer IP boutique, which has offices in Michigan, Washington DC, California and Tokyo, was sued by ex-client KBK Inc. in a case filed in U.S. District Court for the District of Columbia on Feb. 10. KBK, a New York-based export/import company, is represented by Zuckerman Spaeder.
The dispute has its roots in 2007, when KBK began selling a lighting product that was made in China to American Induction Technologies Inc., which used it in its 120 watt “Cobra Head” light fixture.
Osram Sylvania Inc., which is part of Siemens AG, claimed the product infringed its “Icetron lighting system” patent, and sued American Induction in 2009 in U.S. District Court for the Central District of California.
The potential exposure for infringement was small – a maximum of $13,000 in damages, according to KBK’s malpractice complaint – and KBK said it wanted to explore a settlement.
American Induction, however, wanted to fight. “We could not permit the whole industry, as well as the public, to be held hostage by a billion-dollar company and its invalid patent,” American Induction President Polo Rosas said in an April 2011 press release.
He described the suit as a “fierce and costly legal battle” but said that “we believed it was the right thing to do” because the heart of the litigation concerned “well-known, century-old induction lighting technology.”
American Induction asked KBK to pay for the litigation. In response, KBK turned to Rader Fishman partner Yoichiro Yamaguchi, who is based in Washington, as lead counsel, along with partner Thomas Bejin, who is based in Bloomfield Hills, Mich.
According to KBK, the Rader lawyers advised KBK that it was “not contractually obligated to indemnify [American Induction] with respect to the patent lawsuit.”
American Induction went on to successfully litigate the patent suit against Osram Sylvania – but racked up more than $1 million in legal bills along the way.
In December 2010, American Induction again asked KBK to pay for the suit, but on new grounds, citing Section 2312 of the Uniform Commercial Code that purchased goods be free of any third-party infringement claims.
“Rader Fishman had never before advised KBK that such a claim could be made against it,” states the malpractice complaint penned by Zuckerman Spaeder’s Thomas Mason, Eric Delinsky and John Timmer.
The commercial code also stipulated that KBK had the right to assume the defense of the patent suit – and would have been free to pursue any settlement. If American Induction had refused to let KBK run the litigation, then American Induction alone would have been on the hook for the costs.
American Induction sued KBK in 2011 in a case now removed to U.S. District Court for the Central District of California, seeking $1.5 million in legal fees plus lost profits of $11 million. In that suit, American Induction is represented by Bingham McCutchen’s Michael Sherman.
KBK says it has already paid $1 million of American Induction’s legal bills. Now, KBK is suing Rader Fishman for malpractice, claiming the lawyers “should have known of the potential for a statutory warranty and indemnification claim.” The complaint notes that Rader lawyers reviewed KBK’s insurance policy, which specifically recites the same provision of the Uniform Commercial Code now being relied on by American Induction.
KBK also blasts the Rader lawyers for advising that the cost of settlement might be “enormous,” even though American Induction by its own admission says damages were no more than $13,000. KBK is also suing the law firm for breach of contract, breach of implied duty of good faith and fair dealing and breach of fiduciary duty.
Rader Fishman is represented by Alan Strasser of Robbins, Russell, Englert, Orseck, Untereiner & Sauber. "The facts alleged in the complaint are incomplete and give an inaccurate picute," he said. "Once we have a chance to tell our side of the case and complete the picture, it will be clear there was no malpractice."