Novo Terapeutisk Laboratorium A/s v. Baxter Travenol Laboratories, Inc., Gist-Brocades Fermentation Industries, Inc., and Gist-Brocades N. V.

GRANT, Senior District Judge.

The questions presented in this appeal arise from the district court’s denial of the defendant’s motion to disqualify plaintiff’s counsel.

A clarification of the counsel in this action is essential. The opposing attorneys in this present appeal were, at one time, members of the same firm, known as Hume, Clements, Brinks, Willian, Olds & Cook, Ltd., (the Hume firm). On 31 December 1976, Granger Cook, Jr., left the Hume firm, and Mr. Cook is presently representing the defendants-appellants while, at the same time, attorneys from the Hume firm are presently representing the plaintiff-appellee.

The corporations listed as defendants-appellants have the following relationship: The original corporation involved was Baxter Laboratories (Baxter). Baxter Travenol Laboratories is its successor in interest and Travenol Laboratories is a wholly-owned subsidiary. Baxter Travenol Laboratories had an operation called the Wallerstein Division. On 11 July 1977, Gist-Brocades Fermentation, Inc., and Gist-Brocades, N.V., acquired V/allerstein from Baxter and agreed to indemnify Baxter with respect to this patent litigation, because it was allegedly the Wallerstein Division that was infringing the patent owned by plaintiffappellee (Novo).

The original dispute stems from two competing patent applications. Plaintiff (Novo) filed its patent application for a milk-coagulating enzyme on 21 November 1966, while defendants filed a similar patent application on 6 December 1967. In 1971 the U.S. Patent Office declared an interference proceeding between the parties, which was finally resolved in favor of the plaintiff on 23 February 1976 when the Supreme Court denied certiorari. The parties apparently agree that the old Hume firm did not represent Baxter in this interference litigation, although contemporaneously during 1975, the Hume firm was retained by Baxter for what the plaintiff characterizes as unrelated matters. Defendants claim that Attorney Granger Cook, Jr., was in charge of the Baxter account while he was with the Hume firm and that other present members of the Hume firm (including Mr. Ropski, who is now listed as counsel for plaintiff) rendered services to defendants. The key contention of defendants is that during 1976, Baxter anticipated a patent infringement action against them by Novo; and that during July of 1976, Cook, then a partner in the Hume firm, spent several hours reviewing legal authorities and conferring with Baxter attorneys in connection with a matter identified as “Microbial Rennet”. It is suggested that the 2Vi hours were spent in consideration of initiating a declaratory judgment action against Novo (plaintiff in the present action), rather than wait for the patentee to bring an infringement action. However, no declaratory judgment action was brought and in December, 1976, Cook left the Hume firm, taking the Baxter account with him.

In February 1977, plaintiff filed the present patent infringement action against Baxter in the U.S. District Court for the District of South Carolina. On 1 August 1977, this case was transferred from South Carolina to the Northern District of Illinois. On 30 August 1977, the Hume firm filed motions to appear for plaintiff which were granted despite defendants’ objections. Defendants thereafter filed motions to disqualify the Hume firm, but the district court' denied the motions, holding that the “Canons of Ethics” have not been violated. The district court stated in part:

Assuming, arguendo that the services rendered by Hume were related to the patents here in issue, these services con*188stituted approximately two percent of the total representation of Travenol. Furthermore, those services were rendered primarily under the direction of Granger Cook. Travenol’s current counsel who left Hume in 1976. Under these circumstances, this Court does not find that legal services by Hume were substantially related to the subject matter of this suit.

The defendants have perfected this interlocutory appéal from the district court’s denial of the disqualification motions.

The issues presented are: (1) What is the proper standard for appellate review of orders on disqualification motions; (2) whether the subject matters in the two representations in the case at bar are substantially related; and (3) whether the presumptions of access to confidential information should be given conclusive status.

I — STANDARD FOR APPELLATE REVIEW

Plaintiff asserts that the proper standard for appellate review of a district court’s decision on attorney disqualification is whether the appellant can establish an abuse of discretion by the trial court. Defendants argue that a strict abuse of discretion standard is inappropriate where the district court has applied the wrong rule of law.

The ends of the spectrum between a strict or liberal standard are represented by two cases — the most stringent viewpoint is exemplified in Gas-A-Tron of Arizona v. Union Oil Company of California, 534 F.2d 1322, 1325 (9th Cir. 1976), where the court stated that it would not disturb the district court’s exercise of its discretion in fulfilling the responsibility of controlling the conduct of lawyers practicing before it, if the record reveals any sound basis for its discretion in disqualifying or refusing to disqualify a lawyer.1

In Aetna Casualty and Surety Company et al. v. United States, 570 F.2d 1197 (4th Cir. 1978), the Fourth Circuit took a more lenient view of an appellate court’s scope of review:

Turning to the merits of the appeal, the plaintiffs contend that the scope of our review is limited to a determination of whether the district court abused its permissible discretion. While some of the cases support the position of the plaintiffs on this point, more recently the courts have expressed serious reservations about whether the limited abuse of discretion standard is appropriate in disqualification cases where only a purely legal question is at issue. Woods v. Covington Cty. Bank, 537 F.2d 804 (5 Cir. 1976); Kroungold v. Triester, 521 F.2d 763, 765, n.2 (3 Cir. 1975); American Roller Company v. Budinger, 513 F.2d 982, 985, n.3 (3 Cir. 1975). We are inclined to agree with the Fifth Circuit that “[i]n disqualification cases such as this, where the facts are not in dispute, District Courts enjoy no particular functional advantage over appellate courts in their formulation and application of ethical norms,” and that it is appropriate for us “to determine whether the District Court’s disqualification order was predicated upon a proper understanding of applicable ethical principles.” (Footnotes omitted.)

570 F.2d 1197, 1200.

In our own Circuit, there are four recent cases that have involved the disqualification question, Cannon v. U. S. Acoustics Corp., 398 F.Supp. 209 (N.D.Ill.1975) adopted and affirmed, 532 F.2d 1118 (7th Cir. 1976); Schloetter v. Railoc of Indiana, Inc., 546 F.2d 706 (7th Cir. 1976); Westinghouse Electric Corp. v. Kerr-McGee Corp., 580 F.2d 1311 (7th Cir. 1978); and Westinghouse Electric Corp. v. Gulf Oil Corp. and United Nuclear Corp., 588 F.2d 221 (7th Cir. 1978); but no case has clearly addressed the scope of appellate review. This court has *189relied on the broad discretion of the district court in refusing to disturb a disqualification order, e. g., Schloetter, supra, but we have not allowed a strict standard of review to prevent reversal when the district court predicated its disqualification ruling on a misunderstanding of the law, e. g., Gulf Oil, supra. This court agrees in general with the Fourth Circuit in Aetna Casualty, supra. In the case at bar, the district court did not hold an evidentiary hearing on the disqualification motions, and all testimony comes via affidavits. Under such circumstances, district courts enjoy no particular advantage over appellate courts in their formulation of ethical norms. See Thompson v. United States, 477 F.2d 164, 167 (7th Cir. 1973).

II — SUBSTANTIAL RELATIONSHIP TEST

We find that the subject matter of the two representations are substantially related and that the district court erred in its holding that the prior services rendered by Cook (as a member of the Hume firm) must not only be related, but must also be substantial in a quantitative sense. The district court calculated that the services arguably related to the patents at issue constituted only two percent of the total representation of Baxter by the Hume firm, and therefore held that the services, even though arguably related, were not substantially related.

This transformation of the substantial relationship test to merely a mathematical evaluation cannot be permitted. A confidence can be revealed on a related subject matter in a brief moment and without the client being charged a nickel. See Kerr-McGee, supra. It is true that the duration of time spent by an attorney on a particular matter may be a factor in considering disqualification,2 but it should not be given the weight allowed by the court below.

In Gulf Oil, supra, this court recently restated the substantial relationship test:

The substantial relationship rule embodies the substance of Canons 4 and 9 of the A.B.A. Code of Professional Responsibility. Canon 4 provides that “a lawyer should preserve the confidences and secrets of a client,” and Canon 9 provides that “a lawyer should avoid even the appearance of professional impropriety.” As a result it is clear that the determination of whether there is a substantial relationship turns on the possibility, or appearance thereof, that confidential information might have been given to the attorney in relation to the subsequent matter in which disqualification is sought. The rule thus does not necessarily involve any inquiry into the imponderables involved in the degree of relationship between the two matters but instead involves a realistic appraisal of the possibility that confidences had been disclosed in the one matter which will be harmful to the client in the other. The effect of the Canons is necessarily to restrict the inquiry to the possibility of disclosure; it is not appropriate for the court to inquire into whether actual confidences were disclosed.
The substantial relationship test is not a rule of substantive law but a measure of the quantum of evidence required for proof of the existence of the professional obligation. Consolidated Theaters, Inc. v. Warner Bros. Circuit Management Corp., 216 F.2d 920, 924 (2d Cir. 1954). The evidence need only establish the scope of the legal representation and not the actual receipt of the allegedly relevant confidential information. Then only where it is clearly discernible, “that the issues involved in a current case do not relate to matters in which the attorney formerly represented the adverse party will the attorney’s present representation be treated as measuring up to the standard of legal ethics.” Fleischer v. A. A. P., Inc., 163 F.Supp. 548, 553 (S.D.N.Y.1958). Doubts as to the existence of an asserted *190conflict of interest should be resolved in favor of disqualification. International Business Machines Corp. v. Levin, 579 F.2d 271, 283 (3d Cir. 1978); Hull v. Celanese Corp., 513 F.2d 568, 571 (2d Cir. 1975); Chugach Electric Association v. United States District Court, 370 F.2d 441, 444 (9th Cir. 1966), cert. denied, 389 U.S. 820, 88 S.Ct. 40, 19 L.Ed.2d 71 (1967).
In Judge Marshall’s opinion in Canon, [supra], adopted and affirmed by us, he paraphrased the T. C. Theatre [T. C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F.Supp. 265 (S.D.N.Y.1953)] formulation that substantial relationship “is determined by asking whether it could reasonably be said that during the former representation that attorney might have acquired information related to the subject matter of the subsequent representation.” 398 F.Supp. at 223. The opinion in T. C. Theatre continued “[i]f so, then the relationship between the two matters is sufficiently close to bring the later representation within the prohibition of . [the canons]”. 113 F.Supp. at 269. Essentially then, disqualification questions require three levels of inquiry. Initially, the trial judge must make a factual reconstruction of the scope of the prior legal representation. Second, it must be determined whether it is reasonable to infer that the confidential information allegedly given would have been given to a lawyer representing a client in those matters. Finally, it must be determined whether that information is relevant to the issues raised in the litigation pending against the former client.

588 F.2d at 224.

Applying this three-part test to the case at bar:

(1) We find that the record adequately establishes a factual reconstruction of the scope of the prior representation. The 2Vi hours spent by Attorney Cook in July 1976 on the “Microbial Rennet” matter is the key representation at issue. The 16 September 1977 affidavit of Attorney Cook states that the subject matter of the July 1976 representation is “identical to the subject matter of the present litigation.”3 The factual connection between the two matters is the enzyme “Microbial Rennet”, in that Attorney Cook avers that this enzyme is identical to the enzyme accused of infringing the patents in the present litigation.

Plaintiff has voiced two arguments in support of the contention that the subject matter of the July 1976 services is not substantially related to the subject matter of the present litigation, (a) Plaintiff has vigorously argued the significance of an affidavit of Cook, made 19 May 1977, in support of a 1977 motion for an extension of time to answer the complaint filed in the present case. The affidavit states that Cook had neither consulted with experts nor studied the files necessary to answer the complaint. Plaintiff interprets the affidavit as an admission that the legal services performed by Cook in July 1976 were not substantially related to the issues of this case. We are not persuaded, and we believe that nothing further than that which appears on its face should be read into the 19 May 1977 affidavit, considering the type of motion it supports, (b) Plaintiff argues that the services rendered by Cook did not amount to representation as would require disqualification under the substantially related test, citing Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., 518 F.2d 751 (2d Cir. 1975). Plaintiff further contends that Cook was not heavily involved in the facts of the “Microbial Rennet” matter, and entered only briefly on the periphery and, therefore, that Cook’s role cannot be considered “representation” that would require disqualification. Plaintiff argues that the record does not indicate that Cook advised Baxter on the validity of the patent at issue in the case at bar. We find plaintiff’s *191arguments without merit. The central purpose of Canon 4 is to encourage the free transfer of confidential information from client to attorney, and this Canon comes into force regardless of whether an attorney has rendered legal advice. In Westinghouse Elec. Corp. v. Kerr-McGee Corp., supra, this court rejected a similar narrow viewpoint regarding whether a lawyer’s fiduciary obligation has arisen. While we do not reject the Chrysler viewpoint that there are circumstances where an attorney can have only peripheral contact with the matter and, therefore, not be under a fiduciary obligation, we simply do not find that principle applicable to the case at bar.

(2) Applying the second prong of the test, we find that it is reasonable to infer that confidential information allegedly given to Cook would have been given to a lawyer under the circumstances occurring in July 1976. Cook’s 16 September 1977 affidavit states that confidential information was received, and it is not necessary that an attorney divulge any confidences in order to prove they were revealed. The question of whether this presumption is rebuttable is addressed below.

(3) Applying the third prong, we have little trouble concluding that information regarding the enzyme labeled “Microbial Rennet” is relevant to the present patent infringement action that alleges improper use of patented milk-coagulating enzymes. Certainly information regarding the enzymes used by Baxter is potentially useful evidence in establishing patent infringement. “Relevance, . . . , must be measured against the potential avenues of proof and not against the expected.” Gulf Oil, supra, 588 F.2d p. 226.

Application of the Gulf Oil factors to the case at bar leads us to the conclusion that the subject matter involved in the services rendered in July 1976 is substantially related to the subject matter of the case at bar. The Schloetter case requires that we now consider presumptions regarding the transfer of confidential information.

Ill — PRESUMPTIONS OF ACCESS TO INFORMATION

There are two presumptions that must be addressed: (1) whether confidences were transferred from Baxter employees to Cook, and (2) whether confidential information is imputed to other members of the Hume firm.

In Schloetter, this court made a two-level decision regarding these presumptions. The facts of that case are slightly reversed from those of the case at bar, in that a plaintiff in a re-issue patent infringement action sought to have defense counsel disqualified because a member of the defense firm had once performed services for the plaintiff in prosecuting the original patent application. The lower court disqualified the defense firm and this court approved. The presumptions we are now faced with were addressed in Schloetter, i. e., with respect to the individual attorney and client, if the subject matter of the two representations are substantially related, the “court, . . . , makes no inquiry into whether confidential information relating to the matter involved in the subsequent representation did in fact pass to the attorney during the course of his former representation, his possession of such information will be presumed.” T. C. Theatre Corp. v. Warner Bros. Pictures, Inc., supra, (emphasis added), this language clearly contemplates an irrebuttable presumption. However, we are aware that this question is not settled. In Government of India v. Cook Industries, Inc., 569 F.2d 737, 741 (2d Cir. 1978), this question of rebuttable/irrebuttable presumption was addressed by Judge Mansfield in his concurring opinion: “However, I am reluctant to endorse the district court’s unqualified statement to the effect that once a substantial relationship is shown between the subject matters of the two representations and that the lawyer’s personal role in the former representation was more than peripheral, the presumption that the attorney had access to confidential information is ‘irrebuttable’, . . . ” Judge Mansfield then cited the Chrysler *192case4 to support his belief that the presumption should be rebuttable. The quoted portion from Chrysler in turn cites Laskey Bros. of W. Va., Inc. v. Warner Bros. Pictures, 224 F.2d 824 (2d Cir. 1955), cert. denied 350 U.S. 932, 76 S.Ct. 300, 100 L.Ed. 814 (1956). We believe Judge Mansfield has taken language from Chrysler and Laskey out of context.5 As Judge Mansfield’s opinion reads, one would think that the Laskey case stands for the proposition that even though a substantial relationship has been found, the presumption of access to confidential information is rebuttable. We believe that the Laskey court intended the opposite to be true: “Once the partnership is dissolved, however, the inference from access to receipt of information, in a new case having no relationship to the old partnership, becomes logically less compelling and should therefore become rebuttable legally, lest the chain of disqualification becomes endless.” 224 F.2d 824, 827 (emphasis added). Once the court made it clear it was talking about matters not substantially related, it went on to make the statement quoted by Judge Mansfield.6

We do not find that Laskey or United States v. Standard Oil Co., 136 F.Supp. 345 (S.D.N.Y.1955), (cited in Chrysler, supra), detract from the proposition that once a substantial relationship is found, it will be irrebuttably presumed that the attorney had access to confidential information. See Gulf Oil, supra, 588 F.2d at 224.

With respect to the second level of presumption (the imputation of knowledge to other members of the firm) we again turn to Schloetter. The question of whether this presumption is rebuttable was never clearly answered by this court in Schloetter because we found that the district court’s decision supported the ban in Canon 9 on the appearance of impropriety, particularly when the subject matters involved in the former and present representations are so closely related [patents]. 546 F.2d 706, 710, 711.7

In the case at bar, because we have already found the matters to be substantially related, we will follow the direction of Canon 9, which means that actual receipt of confidential information by other members of the Hume firm is irrelevant.

Moreover, the conflicting affidavits presented by Cook and his former associates merely create a doubt as to the existence of the asserted conflict of interest, and this doubt should be resolved in favor of disqualification.8 International Business Ma*193chines Corp. v. Levin, 579 F.2d 271, 283 (3d Cir. 1978); Hull v. Celanese Corp., 513 F.2d 568, 571 (2d Cir. 1975); Chugach Electric Association v. United States District Court, 370 F.2d 441, 444 (9th Cir. 1966), cert. denied 389 U.S. 820, 88 S.Ct. 40, 19 L.Ed.2d 71 (1967); Gulf Oil, supra 588 F.2d at 224.

Finally, we wish to retreat slightly from the appearance that we have encouraged inflexible irrebuttable presumptions that could possibly lead to unreasonable results under unforeseen circumstances. These presumptions are designed to promote the Code of Professional Responsibility, yet all courts should keep in mind a reasonable balance between a client’s right to his own freely chosen counsel and the need to maintain the highest ethical standards. Emle Industries, Inc. v. Patentex, Inc., 478 F.2d 562 (2d Cir. 1973).9 In the case at bar, we believe that the proper balance has been maintained by our decision.

The district court is REVERSED and the motion of defendant Baxter to disqualify the Hume firm is GRANTED.

. The Gas-A-Tron court nevertheless reversed a district court disqualification order in that un controverted testimony showed that the disqualified lawyer had not actually obtained any confidential information relevant to the pending litigation, and, more importantly, that he had not worked on matters that were substantially related to the pending litigation.

. See Judge Adams’ concurring opinion in Silver Chrysler Plymouth v. Chrysler Motors Corp., 518 F.2d 751, 760 (2d Cir. 1975).

. Defendants suggest that the purpose of this representation was to consider the possibility of initiating a declaratory judgment action (rather than wait for plaintiff to bring the present infringement action) regarding the identical patents at issue in the case at bar. The plaintiff has not presented evidence that controverts the alleged purpose of the July 1976 representation.

. The Chrysler court quoted a passage from Laskey at a point where it was addressing a situation involving no substantial relationship, as opposed to Judge Mansfield’s discussion of a situation involving substantially related matters.

. The quoted portion of Laskey deals with what we have characterized as the second level inquiry, i. e., whether confidential information can be imputed to other members of an attorney’s firm. Nevertheless, it has been used in discussing whether the actual attorney can be conclusively held to have had access to confidential information.

. “It will not do to make the presumption of confidential information rebuttable and then to make the standard of proof for rebuttal unattainably high. This is particularly true where, as here, the attorney must prove a negative, which is always a difficult burden to meet.” 224 F.2d at 827; 569 F.2d 737, 741.

. Likewise, as discussed earlier, in Laskey the court addressed the situation where a law partnership has been totally dissolved. In the case at bar, Cook has apparently made a complete split with the Hume firm. The Laskey court stated that once the partnership is dissolved, the inference (that knowledge is imputed to other members of the firm) becomes rebuttable when a new case arises that has no relationship to the old partnership. This implies that if a subsequent case is substantially related, the inference remains irrebuttable.

. Judge Fairchild, in his dissent, is of the opinion that Attorney Cook did not allege, even in general terms, that any confidences were shared or exist. We read Paragraphs 5 and 9 of the Cook affidavit in a different light. In addition, at oral argument, Judge Cummings asked counsel for Baxter to explain the affidavits of the members of the present Hume firm, in which it is alleged that the “Microbial Rennet” matter was never discussed with Cook. Counsel responded that the affidavits are in factual dispute. Although further questioning by Judge Fairchild revealed that there was no specific allegation in the Cook affidavit that confidences received in the 2'M hours were shared, we find enough of a doubt to resolve the question in favor of disqualification.

. See also Gruenberg, Ethical Considerations when an Attorney Opposes a former Client: The Need for a Realistic Application of Canon Nine, 52 Chicago-Kent L.Rev. 525 (1975).