Who is an IP firm’s patent prosecution client when the firm represents a limited liability company and one of its members is the sole inventor? Does the answer change if the LLC is never actually formed, and no one ever advises the law firm? Those are just two questions that appear to be at the center of a malpractice lawsuit filed recently by a Massachusetts business against the IP law firm of Finnegan, Henderson, Farabow, Garrett & Dunner LLP. Click here for a copy of the Accutrax malpractice complaint.
The Accutrax complaint claims that Finnegan represented Accutrax LLC and negligently failed to document or record properly an assignment of patent rights from the inventor to the company. The lawsuit also alleges that Finnegan engaged in a conflict of interest by representing the inventor, who purportedly was a member of Accutrax LLC, directly adverse to the interests of Accutrax LLC. Finnegan’s alleged failure to document an assignment from the inventor to the company, and its alleged conflicting representation of the inventor, allegedly caused Accutrax LLC to lose out on a manufacturing contract. Accutrax’s lawsuit seeks to recover lost profits and other damages from Finnegan.
The action was filed in a Massachusetts state court, and Finnegan has yet to file its answer. Nevertheless, in a statement published in the Boston Business Journal, Finnegan denies that it ever represented Accutrax.
The following is a brief summary of the facts alleged in the lawsuit. Keep in mind that these are only allegations, and Finnegan has yet to file its response.
The Marking Blade Invention
This much is undisputed: in June 2012, Michael Kildavaeld conceived of a razor utility knife with a graphite pencil blade. The “marking blade” invention marks surfaces with far greater precision than a standard carpenter’s pencil.
It is also not disputed that between June and October 2012, Kildavaeld filed in the USPTO four pro se provisional patent applications relating to his marking blade invention.
In October 2012, Kildavaeld met Robert Cumings, who allegedly had extensive experience in the marketing and manufacturing of tools. That same month, Cumings introduced Kildavaeld to Harry Billado, who allegedly had experience in patent prosecution, licensing of patents, and bringing inventions to market.
In January 2013, Kildavaeld, Cumings and Billado attended the International Builder Show (IBS) in Las Vegas, at which they jointly presented to the public Kildavaeld’s marking blade. The product was very well received. Companies including Stanley Black and Decker and Home Depot expressed interest in making or selling the product.
The complaint alleges that on January 27, 2013, the three individuals agreed via an email to the terms of an “operating agreement” for a to-be-formed Delaware limited liability company. Kildavaeld allegedly agreed to assign any patent rights into the future LLC in exchange for financial contributions by Billado and Cumings to prosecute the patent application, commercialize the patent, and market, manufacture, and sell the marking blade.
The complaint further alleges that the three individuals initially intended to operate under the business name of “Contractor Trusted LLC” and that they marketed the commercial product under the trademark “Accutrax.”
The Finnegan Engagement Agreement
In March 2013, Contractor Trusted LLC hired Finnegan Henderson to obtain patent protection on the marking blade invention. Attached to the complaint is an engagement agreement between Finnegan Henderson and “Contractor Trusted, LLC c/o Mr. Michael Kildavaeld.” The engagement agreement states in relevant part as follows:
Contractor Trusted, LLC (“you,” “your”) has engaged Finnegan, Henderson, Farabow, Garrett & Dunner, LLP (“we,” “us,” “our”) to represent it in connection only with a U.S. Patent Application relating to your innovation concerning a razor utility knife with a graphic pencil blade.”
The engagement agreement also states that Finnegan represents “only Contractor Trusted, LLC and not any corporate parent, subsidiary or affiliate, joint venture, investor, or other related entity. Also, we do not represent any officer, director, shareholder, or employee. If any other related entity or individual wants to retain our legal services, we are pleased to consider that representation separately.”
Although it was addressed “c/o Michael Kildavaeld,” the engagement agreement was signed by Billado, who stated that he was with “SealPro Products, LLC.” According to the complaint, when he submitted the engagement agreement to Finnegan, Billado allegedly advised the law firm that he had signed the agreement and provided a retainer check from his SealPro Products, LLC account because “Contractor Trusted, LLC” had not yet been formed.
On March 15, 2013, Finnegan filed a non-provisional application on the “marking blade” invention.
The complaint alleges that on June 6, 2013, Kildavaeld, Cumings and Billado formed a Delaware limited liability company, which they called Accutrax, LLC. The complaint alleges that the three partners “did not use the name Contractor Trusted, LLC” and that “Contractor Trusted, LLC was never formed as a legal entity.”
Notably, the complaint fails to provide any documentation that reflects that Finnegan Henderson was actually advised of the alleged fact that “Contractor Trusted, LLC” was never an existing entity. The complaint nevertheless alleges that Finnegan had “actual and constructive knowledge” that Kildavaeld, Cumings and Billado used the name Accutrax LLC instead of Contractor Trusted, LLC. The complaint fails to elaborate on the details of this “knowledge.” Interestingly, however, the only “LLC” identified in Finnegan’s invoices from its representation, copies of which were included as exhibits to the complaint, is “Contractor Trusted, LLC.” None of the Finnegan law firm’s invoices included in the complaint mentions any “Accutrax LLC.”
The complaint alleges that, “In no way did using a different corporate name change the client relationship: Finnegan’s client at all times was the LLC.” Here, it is notable that the complaint fails to indicate which “LLC” was “the LLC.” Was it Contractor Trusted LLC? Or was it Accutrax LLC? Or was it someone else, such as “SealPro LLC,” which apparently signed the engagement agreement?
The complaint also alleges that Finnegan never took any steps to advise “the LLC” or to record for “the LLC” an assignment to “the LLC” of the Marking Blade patent application or patent rights. Again, “the LLC” is not identified, and it is unclear from the context which LLC was “the LLC.”
The Patent Assignment Not Mentioned In The Complaint
Although not alleged in the complaint, it is interesting to note that the assignment records of the USPTO reflect that on October 3, 2013, an attorney from a Massachusetts law firm—not Finnegan Henderson—recorded a purported assignment of all rights in the marking blade invention to “Accutrax LLC.” What was recorded in the USPTO was a heavily redacted version of the January 27, 2013 “operating agreement”/email document. See a copy of the “assignment” here.
Notably as well, the “assignment” document was not signed by Kildavaeld, the inventor, as one might expect. Rather, what was recorded was an email from Billado. That email mentions in one paragraph an agreement to assign patent rights as part of “our very basic verbal understanding between us.” The rest of the “operating agreement” — another 2 pages of text–is redacted from the USPTO’s assignment records.
Interestingly, Accutrax’s malpractice complaint fails to mention this assignment document. No allegations are directly advanced regarding whether Finnegan Henderson was ever made aware of the October 2013 recordation of the January 2013 “assignment” document, which was evidently filed by the law firm of Grossman, Tucker, Perreault & Pfleger as counsel for Accutrax LLC . One must wonder, therefore, how the alleged failure by Finnegan Henderson to advise “Accutrax” about any need to assign the invention to Accutrax could have proximately caused any harm to Accutrax since Accutrax itself had already represented to the USPTO that it owned the patent and it further represented to the USPTO that its January 2013 email was in fact an assignment agreement.
The Alleged Conflict of Interest
The Accutrax complaint further alleges that Finnegan violated its ethical duty of loyalty by encouraging Kildavaeld not to assign “the Marking Blade patent rights to the LLC and it encouraged him instead to seek to negotiate a new deal with the LLC.” Kildavaeld allegedly told Billado that an attorney from Finnegan’s D.C. office represented him “individually” in his negotiations with the LLC “concerning a new deal.” Billado objected to this arrangement as a conflict. As an aside, the USPTO Rules of Professional Conduct, 37 C.F.R. Section 11.107, prohibit a law firm from concurrently representing one client adverse to another client, at least without both clients’ informed written consent.
The complaint alleges that in an October 3, 2013 telephone call, Finnegan attorneys stated that the firm represented Kildavaeld personally, and that the firm did not represent Accutrax LLC or any other company.
Billado allegedly objected to this statement and asserted that the firm represented “the LLC, not any one individual member of it, and Finnegan could not represent Kildavaeld in a negotiation against the LLC.”
The complaint also alleges that after this phone conference, Kildavaeld obtained separate counsel not associated with the Finnegan firm. However, this new counsel was allegedly a Finnegan referral, and the complaint claims that Finnegan communicated with Kildavaeld’s new counsel concerning negotiations against the LLC over the terms of a revised operating agreement that were “adverse to the LLC’s interests.”
The complaint fails to mention the fact that Accutrax had already represented to the USPTO on October 3, 2013 that the January 2013 email was an assignment agreement. Moreover, Accutrax had its independent counsel (not Finnegan) record the January 2013 “assignment.” In light of these facts, it is unclear how “but for” Finnegan’s alleged conflict in failing to advise Accutrax about an assignment proximately caused harm to Accutrax since Accutrax already had represented to the fUSPTO that it was the owner by assignment of Kildavaeld’s invention, pursuant to the “operating agreement.”
Business Lost Due To Disputed Patent Ownership
Notwithstanding these disputes between the alleged owners of Accutrax, the “Marking Blade” product itself allegedly was enjoying commercial success. The complaint alleges that in February 2014, the three members of Accutrax LLC signed a manufacturing agreement with Snyder Manufacturing, Inc.
In addition, the complaint alleges that Accutrax LLC began marketing its product to Stanley Black and Decker. According to the complaint, in October 2014, while Stanley was negotiating with “the LLC” for a master purchase agreement, Kildavaeld individually contacted Stanley and tried to negotiate his own exclusive relationship with Stanley that eliminated Accutrax LLC from the picture.
According to the complaint, Stanley decided to back out of the deal rather than get caught in between the two sides who were in the midst of a patent ownership dispute.
On December 23, 2014, the USPTO issued Patent No. 8,915,662. No assignee was identified on the face of the ’662 Patent. According to the complaint, the “patent for the Marking Blade” was issued “to Kildavaeld.”
Accutrax alleges that but for Finnegan’s failure to document and record properly an assignment of the marking blade patent rights to Accutrax, as well as Finnegan’s conflict of interest in favoring the inventor over “the LLC,” the deal with Stanley would not have fallen through. The complaint alleges claims against Finnegan for legal malpractice (count 1), breach of fiduciary duty (count 2), breach of contract (count 3), and aiding and abetting the commission of torts and breach of fiduciary duty (count 4). Accutrax seeks an unspecified amount of monetary damages.
Finnegan’s response to the complaint is due by July 14, 2017.
The case is styled Accutrax LLC v. Finnegan, Henderson, Farabow, Garrett & Dunner LLP, Mass. Suffolk County Civil Superior Court, Case No. 1784CV01617.