There are few things that get lawyers worked up like questions about their integrity – which is why the Akzo Nobel case has them all in a fluster. One company's fight with European regulators has blown up into an existential battle. This week the Law Society of England and Wales joined in, applying for official permission to intervene when the European Court of Justice hears an upcoming appeal.

The issue at stake is legal privilege, the longstanding convention whereby someone accused of a crime can discuss his defence with his lawyer without fear that those discussions could be used against him. Details revealed in private conversations with your lawyer can't be passed to prosecutors to bolster a case against you — it's a simple principle that almost everyone agrees serves the interests of justice.

It also applies in a business context. If a company, wary of operating in an increasingly aggressive regulatory environment, discusses its sales techniques or the method it uses to price its products with its lawyers, those “privileged” discussions should not find their way into the hands of competition regulators investigating allegations of price fixing.

In 2003, the UK subsidiary of Akzo Nobel, a Dutch chemicals business, was raided by the European Commission's competition arm. While rummaging around Akzo’s offices collecting evidence, the EC investigators seized documents that had passed between business managers and internal lawyers. Akzo said the documents were legally privileged; the EC disagreed, arguing that a business can only rely on legal privilege to restrict access to documents if they were prepared or used by external lawyers.

The argument ended up before the European Court of First Instance. Last September, the court sided with the Commission, reaffirming an earlier ruling that said only outside counsel were entitled to legal privilege. The CFI effectively said that the bond of employment between an in-house lawyer and the business he works for erodes his privileged position. In-house lawyers are too close to their bosses and are therefore tainted; they are not sufficiently independent from their clients.

The profession took this as a kick in the teeth. Although the ruling merely upheld an earlier judgment, there had been an expectation that the CFI would sieze the opportunity to overturn it and place in-house lawyers on the same footing as outside counsel.

In purely practical terms, lawyers complain, the judgment impedes the ability of an in house lawyer to do their job. In-house lawyers at British companies, dealing with domestic regulators, enjoy privilege under UK law, but they can't now assume the same in Europe. If they find themselves the subject of a European investigation, they may not be able to have the kind of free and frank discussions with business managers that they need to, out of fear that the information could end up in the hands of regulators. Instead, if they want certainty that their discussions remain confidential, they will have to spend money on outside lawyers.

Managing competition issues is difficult enough as markets become more globalised and intertwined and regulators become more aggressive, but the Akzo decision makes it that much harder.

On first look, the ruling might seem like manna from heaven for lawyers in private practice. A European court has effectively sidelined in-house lawyers while affirming the importance of external counsel, who can sit and wait for the work to roll in. But it’s not just in-house lawyers who have been leading the charge to overturn the Akzo decision. Private practices have been equally aggressive.

Why are they showing such staunch solidarity with their in-house brethren? Partly because they want to be seen to be going into bat for their clients, but mainly because the issue hits right at the heart of the way lawyers see themselves and the profession. According to the European Commission's formulation, a lawyer who leaves private practice to work in-house, regardless of whether they remain a member of and subject to the guidelines of a professional regulator, is crossing a line: they're no longer a lawyer but the employee of a business.

But for all the talk about getting under the skin of clients and understanding their needs, lawyers still don't see themselves this way. They see themselves first and foremost as independent advisers — wherever they happen to work.

Explore Law

• Columnists

• Law Panel

• Law Reports

• Student Law

Times Recommends

• BGC 'set aside £40m to lure Tullett brokers'
• Legal aid review to ensure value
• Fears as 21 magistrates' courts face closure