How to Prevent Outside Counsel from Building Precedent Against Your Industry

The ongoing law firm merger boom—marked by mega-consolidations like the Herbert Smith Freehills and Kramer Levin tie-up—is usually viewed through the lens of business growth. But for general counsel, this massive consolidation presents a quiet crisis. As elite legal talent concentrates into fewer, massive entities, the risk of conflicting industry interests skyrockets. GCs facing the possibility of their own outside counsel setting systemic, industry-damaging precedents in parallel litigation.

Every combination widens the roster of positions a firm holds, leaving fewer major players free from conflicts with your adversaries. The bigger a firm grows, the greater the chance that somewhere inside it, in a matter unrelated to you, it is advancing a theory your industry will have to answer for later.

Consider how that plays out. Your company retains a firm for its lending and restructuring work. Months later, you learn it is pressing an aggressive lender-liability theory for another client. No one is suing you, the matters are unrelated, and none of your confidential information is in play. Yet your own counsel is helping to build precedent that may land on your desk.

Most general counsel have a version of this story. The instinct is to call it a conflict of interest, but under standard ethics rules, it usually is not. That gap is why in-house counsel cannot rely on professional rules to stop a firm from building adverse precedent against their industry—and why the engagement letter must become your primary tool for protection.

The limits of ethical rules and Rule 1.7

Rule 1.7 of the American Bar Association (ABA) Model Rules of Professional Conduct on conflict of interest is built around direct adversity and around representations that materially limit a lawyer’s duties to another client. Your objection is neither. The firm is not adverse to you in any case; it is advancing a position, for someone else, that may later be used against your industry. The rule was not written for that.

The profession calls this a positional or issue conflict: a firm taking inconsistent positions for different clients in unrelated matters, one helped by a broad rule and another by a narrow one. The leading authority, ABA Formal Opinion 93-377, accepts that lawyers routinely do this and that it ordinarily creates no conflict requiring consent or withdrawal. It warns of closer scrutiny only when the positions are urged simultaneously, when the lawyer’s independent judgment may suffer, or when success for one client could “materially undercut” the position urged for another. The opinion’s own examples, though, involve directly contrary positions on the same issue in the same jurisdiction—far narrower than a firm building industry-wide precedent you dislike.

Judicial skepticism and broad precedent

Courts have been no more receptive. They have not recognized any broad doctrine of precedent adversity, and the reported decisions are thin. In Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner LLP, the Massachusetts Supreme Judicial Court ruled that a law firm does not have a disqualifying conflict of interest simply because it represents competing companies in patent prosecutions. The court held that competing economic interests, on their own, are not enough to create a legal conflict. On disqualification motions, courts look for direct adversity, confidential information, or material limitation, not the diffuse concern that an argument may someday cut against another client. Unified Sewerage Agency v. Jelco Inc. is one example of this.

This risk is not distributed evenly across a legal practice. Instead, it intensifies where three factors align: a recurring question impacts multiple cases, the governing doctrine is unsettled enough to be shaped by active advocacy, and a single ruling could decide the issue for an entire industry.

Above all, the danger depends on whether your firm operates on both sides of the debate. A firm that consistently represents only one side maintains a unified front and avoids conflict. The real issue arises when a firm argues both ways across its portfolio—advocating a legal interpretation for one client that directly contradicts the position another of your clients must defend later.

Where professional conflicts hit hardest

Insurance coverage is the clearest example. Insurers are the ultimate repeat players, and questions of trigger, allocation, number of occurrences, and the reach of an exclusion govern an entire book of business. A firm that represents policyholders in some cases and insurers in others routinely argues both sides of the same legal doctrines. Consequently, a broad-coverage victory secured for a policyholder creates a binding precedent that its insurer clients must live with everywhere else. Patent work runs the same way, firms both asserting and defending infringement; Maling itself arose in patent prosecution. Antitrust and commercial litigation follow the pattern.

Mass torts and environmental defense raise a subtler version. Because the plaintiff’s side in these cases is dominated by a specialized contingency bar, the most intense conflict is rarely between plaintiff and defendant. Instead, the real battle happens among the co-defendants themselves, who frequently clash over liability allocation, divisibility, and the scope of successor or arranger liability. The divisibility argument your firm wins for one manufacturer can enlarge the share borne by another it represents down the hall—a real positional conflict, defendant to defendant rather than across the plaintiff line.

Protecting your interests via the engagement letter

Standard disciplinary rules rarely compel a firm to step down. If you want true protection, you must build it directly into your engagement letter rather than relying on the Model Rules.

Sophisticated clients now address this vulnerability through their outside counsel guidelines. To do this effectively, consider adding a provision that bars the firm from representing interests adverse to your legal or business strategy—not just representations where you are an opposing party. This effectively addresses “positional conflicts” that Rule 1.7 fails to cover. Additionally, include a notice-and-consultation requirement forcing the firm to alert you before accepting any matter that impacts specific, defined issues. Ultimately, you want to hear about an adverse lender-liability brief before it is filed, not after it is cited against you in court.

Law firms resist these clauses, and their objection deserves a straight answer. A large firm cannot run a conflicts check against a position you haven’t explicitly named. Because their intake systems search for parties and matters—not arguments—no partner will realize that a “failure-to-warn” brief filed three offices away undermines your strategy. This highlights the core problem: the firm cannot police what you do not identify.

To work effectively, your clause must be highly specific. “Adverse to our interests” is too vague to enforce. Name the theories that would hurt you—lender liability, a broader failure-to-warn standard, an expansive reading of a privacy or employment statute—and make those the subject of your notice and waiver terms. A defined list gives the firm something to flag and you something to hold it to.

Advance waivers deserve particular attention, because larger firms ask for broader ones, and the sweeping versions absorb exactly the situations you care about. Read them. Where an issue is strategically important, negotiate a carve-out so your consent does not extend to matters advancing positions against your industry’s core defenses. A blanket waiver signed at intake can quietly forfeit the objection you would most want to make later.

When a situation surfaces, treat it as a business conversation, not an ethics complaint. Is the issue one your company will face? Could a win there affect your exposure? Is your relationship important enough that the firm should weigh your objection against the other engagement? Firms balance representations against client tension all the time; there is no reason your view should not count.

Shifting the focus from conflicts to leverage

You will not win every one. Firms advance inconsistent positions as a matter of course, and you have no veto over a firm’s docket. What you are owed is a relationship with clear terms, early warning, and a firm that knows which developments in your industry you actually care about.

The question, then, is not whether your firm’s other work creates a conflict; usually it does not. It is whether your engagement terms give you notice and leverage when the firm’s advocacy in an unrelated matter threatens to make law you will have to live with. As firms consolidate and the field of unconflicted alternatives narrows, that question only sharpens—and in regulated industries, where one appellate decision can reset the risk for a whole field, it is better answered in the engagement letter than after the opinion comes down.