Taylor v. Hunton Andrews Kurth LLP: A Cautionary Tale for Inventors and Startups

The Harris County Texas appellate court recently affirmed summary judgment favoring the Hunton Andrews Kurth law firm and its attorneys. Taylor v. Hunton Andrews Kurth, LLP, 14-22-00410-CV (Tex. App.–Hous. [14th Dist.] July 13, 2023). Taylor and his companies WPEM and W2W had sued the firm for legal malpractice after first losing its infringement lawsuit and being stuck with the defendants attorney fees. The case offers a few key takeaways for entrepreneurs delving into the patent system.

Background: William Taylor and his business partner developed a software application called SafeCell and assigned the patent rights to their startup company W2W. They hired Hunton AK to handle the patent application process. Hunton filed provisional and non-provisional patent applications on behalf of W2W. Several years later, after a patent was granted (and their legal bill still unpaid), Taylor and his partner transferred patent rights back to themselves as individuals and terminated W2W. They then formed a new company called WPEM and assigned the patent to WPEM so it could sue another company for infringement. That lawsuit failed with a complete reversal — WPEM was ordered to pay $180,000 in attorneys’ fees to the defendant.

Taylor, his partner, WPEM, and W2W then sued Hunton for legal malpractice, alleging negligence in the handling of the original patent application. The trial court dismissed all claims except Taylor’s individual claims against one Hunton attorney, which were later severed and dismissed in a separate order. The appellate court affirmed, holding (1) Taylor was not the firm’s client, and neither was WPEM; (2) although W2W as a client its had been terminated in 2017 — more than 3 years before hand. That was a problem because Texas has a 3-year limitation on actions following dissolution of a corporation.

Key Takeaways for Inventors and Startups

1. Be careful when assigning IP rights from individuals to businesses, and back again.

The engagement letter was between W2W and Hunton, not with Taylor or his partner as individuals. And, Hunton had the individuals sign a particular statement that they were not the clients. The court found this disclaimer made clear Hunton only represented W2W. The transfer of the patent from W2W to the individuals did not transfer W2W’s attorney-client relationship.

Key quote: “The assignment of a patent does not transfer an attorney-client relationship.” (quoting Telectronics Proprietary, Ltd. v. Medtronic, Inc., 836 F.2d 1332 (Fed. Cir. 1988)).

2. Understand the effects of terminating a business entity.

W2W lacked standing to sue because it had been terminated as an entity outside the 3-year winding up period permitted under Texas law. Its claims were extinguished.

Key quote: “Once dissolved, the corporation could neither sue nor be sued, and all legal proceedings in which it was a party abated.” (quoting Hunter v. FW, 620 S.W.2d 547 (Tex. 1981)).

3. Individual shareholders generally can’t sue for harms to the company.

The court applied the corporate injury rule, which bars owners from recovering personally for injuries to the company. Taylor owned no individual losses because he did not own the patent rights at any relevant time.

Key quote: “Under the corporate injury rule, an owner of a company cannot sue to recover damages personally for a wrong done to the company. ”

The outcome here is a classic corporate defense strategy — the defense used the complex corporate structure and ownership changes to ultimately defeated of the claims. For inventors and startups seeking to protect IP, it makes sense to also consult with a corporate attorney along the way to ensure consistent protection.

I’ll note here that although Hunton Andrews Kurth won on technicalities, they also denied the substance of the claims.

Law Professor at the University of Missouri School of Law. View all posts by Dennis Crouch →