Apple Can Add Counterclaims Against Flatworld

SAN FRANCISCO (CN) - Apple can add counterclaims to a touch-screen technology patent dispute with Flatworld Interactives, a federal judge ruled.

Apple says Flatworld co-founder Jennifer McAleese is married to a lawyer whose firm Morgan Lewis once did work for Apple, and that he helped his wife in her bid to sue Apple for patent infringement despite knowing about the conflict of interest.

While U.S. District Judge William Orrick shot down Apple's request to disqualify Flatworld's attorneys in an August ruling, he also ruled that John McAleese had acted contrary to Apple's interests by putting his wife in touch with Hagens Berman Sobol Shapiro and helping with the negotiations for their services.

Orrick allowed Apple to add counterclaims for breach of fiduciary duty against Flatworld for assisting and encouraging John McAleese. "It is enough that FlatWorld knew that John McAleese owed a duty of loyalty to Apple and that FlatWorld was 'actively asking for and using Mr. McAleese's free legal advice' to make FlatWorld liable for aiding and abetting," Orrick wrote.

Orrick also allowed Apple to add a tortious interference counterclaim, writing, "The court concludes that Apple's proposed amendments for tortious interference with contract are not futile or legally insufficient. Apple alleges that Morgan Lewis and John McAleese were bound to Apple through Engagement Agreements and a Master Legal Services Agreement. In addition, Morgan Lewis and John McAleese were bound to Apple through the rules of professional responsibility. Apple alleges that FlatWorld knew about such obligations, as evidenced by Jennifer McAleese's knowledge that John McAleese could be liable for conflicts of interest, John McAleese's drafting of a letter on FlatWorld's behalf referencing Apple, and a potential litigation counsel's knowledge of the conflict."

Apple said it would have terminated its attorney-client relationship with Morgan Lewis years ago had it known about the McAleese conflict. Instead, it continued to allow Morgan Lewis "to handle hundreds of matters over the years," and moving to a new firm will delay litigation.

While Orrick expressed skepticism over whether Apple could provide evidence of causation or damages, he said its allegations are enough to allow Apple's claims to move forward at this stage.

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