Perkins Coie and Bracewell are facing allegations in New York state court that they allowed an electronic securities trading platform developer, Electron Trading LLC, to sign onto an unfavorable technology licensing agreement with Morgan Stanley & Co. LLC, costing Electron tens of millions of dollars.

Electron, represented by Rachel Fleishman and Jeffrey Gross of Reid Collins & Tsai, lodged a legal malpractice complaint against the two firms late last week, alleging that Perkins Coie and Bracewell repeatedly failed to advise the company properly in connection with the Morgan Stanley contract. Under the deal, Electron granted Morgan Stanley the rights to the intellectual property on a technology system for “spread trades,” a form of trading in which investors simultaneously buy and sell related securities to try to capture price differences between multiple financial instruments.

The malpractice suit alleged that before signing the licensing pact, Electron and Morgan Stanley agreed to terms that would have limited Electron's potential liability for any intellectual property claims made by third parties. Electron also alleged that it intended to retain its right to sue Morgan Stanley if the bank breached the licensing agreement, and that Morgan Stanley agreed to that term before the deal was finalized.

Despite those commitments, lawyers for Morgan Stanley later inserted terms into the licensing deal that effectively limited the bank's potential financial exposure if it breached the agreement.

“The license agreement was drafted with language that accomplished the opposite result: Electron's potential liability to indemnify Morgan Stanley against third party claims was unlimited while Morgan Stanley's liability to Electron for willfully breaching the license agreement was capped at the amount it had already paid Electron,” the suit said.

Electron alleges that as legal advisers on the licensing deal, Perkins Coie and Bracewell should have alerted the company that Morgan Stanley's lawyers inserted changes to the contract that were favorable to the bank. But, the suit said, the law firms “failed to fulfill their duties.”

Soon after the deal was finalized, Morgan Stanley allegedly breached the contract, but Electron's lawsuit against the bank failed to go anywhere. A New York trial court dismissed the case, holding that the agreement limited Electron's potential damages for that sort of claim, and an appeals court affirmed that decision. Electron said it was hampered in the Morgan Stanley suit as a result of the altered agreement.

“Electron was left negotiating against one of the most sophisticated financial entities in the world without receiving the basic and necessary legal advice that any reasonable and competent lawyer would have provided,” the malpractice suit said. Electron also alleged that, in light of the shoddy contract drafting, the two law firms caused the company damages that include lost royalties under the licensing pact and the costs of unsuccessfully litigating against Morgan Stanley.

In a statement, a Perkins Coie spokesman said, “We do not comment on pending litigation, but we will defend this matter vigorously.” A spokesman for Bracewell also said the firm does not comment on pending litigation.