Massachusetts Supreme Court To Tackle Thorny Issue Of Subject Matter Conflicts In Patent Prosecution

Michael E. McCabe, Jr.Conflicts of Interest, IP Ethics, MalpracticeLeave a Comment

On December 26, 2014, the Supreme Judicial Court of Massachusetts issued the following Announcement in an appeal pending before the court:

ANNOUNCEMENT: The Justices are soliciting amicus briefs. Whether, under Mass. R. Prof. C. 1.7, an actionable conflict of interest arose when, according to the allegations in the complaint, attorneys in different offices of the same law firm simultaneously represented the plaintiffs and a competitor in prosecuting patents on similar inventions, without informing the plaintiffs or obtaining their consent to the simultaneous representation.

conflict

This action arose from a civil malpractice lawsuit filed in April 2012 in federal court by a sole inventor and his assignee against an IP law firm and several of its attorneys. The complaint alleged that the inventor hired the IP firm to file and prosecute a patent application on an allegedly new eyeglass hinge invention. The complaint further alleged that during the same time it was representing the inventor, the law firm also was representing another client in a similar invention, albeit using different attorneys working from a different office.

As a result of the law firm’s representation, the plaintiff as well as the firm’s other client were awarded patents on their respective inventions.  The complaint alleged that the invention disclosed in the other client’s patent was “similar in many important respects” to plaintiff’s  invention.  The complaint further alleged that the law firm had a conflict of interest which “should have been disclosed before and during” the representation and that, due to the purported conflict, the law firm was unable to “fully and without restraint represent” the inventor and his assignee. The complaint still further alleged that plaintiff was unable to market his product as a result of the “similarities” between the other client’s invention and plaintiff’s invention.

Notably, the complaint failed to allege that any of the services provided by the law firm or any of its attorneys fell below the standard of care applicable to the legal profession generally or to lawyers with a specialty in patents.  Moreover, the complaint failed to allege that conflict-free counsel would have represented the client or his assignee any differently or produced a different or better result.  In fact, as a result of the law firm’s representation, plaintiff was issued several patents on his invention.

malpractice imageThe law firm filed a motion to dismiss the complaint for failure to state a claim. While that motion was pending, the United States Supreme Court, on February 20, 2013, issued its decision in Gunn v. Minton, holding that state law legal malpractice claims based on patent issues do not arise under the patent laws of the United States, and do not raise substantial enough federal issues to justify the exercise of exclusive federal jurisdiction. The district court sua sponte dismissed the case for lack of subject matter jurisdiction.

Plaintiff re-filed his complaint in Massachusetts state court.  The law firm again moved to dismiss.  On October 29, 2013, the court granted the motion.  In ordering dismissal, the court explained:

All four counts are premised on the assertion that [the law firm] had a conflict of interest in representing both the plaintiffs and [its other client].  Massachusetts Rule of Professional Conduct 1.7(a) requires that a lawyer not represent a client if that representation would be ‘directly adverse’ to another client.  Here, the Complaint states only that [the other client] was a competitor of plaintiffs who was seeking a patent for a similar device, but that does not necessarily make them ‘adverse’ for purposes of Rule 1.7.  Indeed, both [the other client] and plaintiffs were successful in obtaining their patents as a consequence of [the law firm’s] representation.  More important, the Complaint does not allege any facts to suggest that [the law firm’s] representation of plaintiffs in applying for the patents was in any way affected by the fact that it also represented [its other client].

The court held that, “In the absence of any allegation that [the law firm’s] independent professional judgment was impaired as a result of the dual representation or that it otherwise failed to do something that it would have done had it not been representing [its other client], it is difficult to see how there was a true conflict of interest as defined by Rule 1.7.”  The court additionally held that even if there were a conflict of interest, the complaint failed to allege facts sufficient to establish that such a “conflict” caused plaintiff any harm.

supreme court massachusetts sealPlaintiff appealed the dismissal to the Massachusetts Appeals Court – the state’s intermediate court of appeal.  While that appeal was pending, on December 10, 2014, the Supreme Judicial Court agreed to hear the case.  It subsequently issued its public announcement soliciting amicus briefs.

Whether two inventions handled simultaneously by the same law firm are “similar” enough to raise an ethical conflict of interest is an issue of considerable importance to the intellectual property bar and clients of IP services.  To be sure, Baker Botts recently found itself facing a malpractice award of $41 million due to a patent subject matter conflict of interest (the firm escaped liability after the court determined the claim was barred by limitations).

Mass Rule 1.7(a) prohibits a lawyer from representing a client if the representation of that client will be “directly adverse” to another client, unless:

(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and

(2) each client consents after consultation.

Mass. Rule 1.7(b) states a lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless:

(1) the lawyer reasonably believes the representation will not be adversely affected; and

(2) the client consents after consultation.

No easy answer exists to the question of whether the subject matter of one client’s patent or application is “directly adverse” to that of another client.  Some courts focus on the alleged “similarity” of the inventions as a proxy for Rule 1.7.  But whether a particular invention is sufficiently “similar” to another invention is itself an extremely difficult question to answer.  As Professor Lisa Dolak notes: “Obviously, there is no easy way to decide, for example, how related is too related, or to otherwise predict which clients are someday likely to be adverse to which prospective clients.”

The “similarity of inventions” test (assuming this is an appropriate test under Rule 1.7) raises more questions than it answers.  What objective criteria, for example, should be considered in measuring “similarity” of “inventions?”  When do inventions become “too similar” to one another?  Is similarity based on the specification, the drawings, the claims, or something else?  Moreover, at what level of particularity should “similarity” of inventions be measured?  Must prosecution counsel reevaluate the “similarity” of inventions after the claims are amended?  Little guidance exists for an ethical patent practitioner to be able to assess the risk of whether, during the representation of one client, the “invention” that is the subject of the client’s patent application is, or later will be found to be, “too similar” to the invention of another client.

Even if one could objectively define and determine that inventions are too “similar,” in the context of the ethical rules, that finding alone begs the question:  So what?  The comments to Rule 1.7 affirmatively state it is not unethical, as a general rule, to represent competitors.  Rule 1.7(a) prohibits a lawyer from simultaneously representing a client in a matter that is “directly adverse” to another client, and Rule 1.7(b) applies when the lawyer’s duty to one client is “materially limited” by its duty to another.  But patent prosecution is not normally an act of “direct adversity” between clients.  If anything, the clients could be said to be “directly adverse” to the USPTO, but not necessarily to each other — at least not in the context of Rule 1.7.  And determining when a lawyer’s representation of one client is “materially limited” by its duty to another client of the lawyer or the lawyer’s firm is, again, difficult to measure by an objective standard.

It seems that simply prosecuting patents in the same technical field for different clients, without more, cannot reasonably be found to be an ethical conflict of interest.  Any suggestion that the mere act of prosecuting two patent applications for two different clients in “similar” (whatever that means)  fields of technology equates to an ethical conflict under Rule 1.7 is flawed; there is no apparent “direct adversity” or “material limitation” in such dual representation.

That is not to say that a prosecution conflict could not exist under the right circumstances.  For example, one client may instruct patent counsel to draft claims with the intention of having those claims cover a particular third-party’s product or process.  If the third-party is a client of the firm, then counsel’s act of drafting claims to cover another client’s product or process would present a stronger case for an ethical conflict, absent a waiver from the affected clients.  But this is not the fact scenario raised by the Massachusetts court.

Moreover, clients who operate in the same field of technology routinely use the services of the same law firm to prosecute their patent applications because that law firm has developed specialized knowledge in the underlying technology.  Developing such specialized technical expertise can provide substantial economic benefits to clients.  A law firm that prosecutes patent applications for more than one client in the same field of technology should not be “punished” because the firm’s expertise is beneficial to multiple clients.

Some may suggest that the solution to the ethical dilemma is for the firm to have its clients execute advanced waivers of conflicts as part of the engagement.  While that may have some appeal, disciplinary authorities are divided on whether an advanced waiver is enforceable in the absence of informed consent, especially when the client agreeing to the advanced waiver is unsophisticated.

A court decision that limits a client’s right to choose its counsel, or that effectively imposes a prior restraint on a law firm’s ability to service more than one client in the same technical field or industry, could have significant adverse consequences for both clients and patent counsel.  Such a ruling could deter IP firms’ willingness to represent more than one client in the same or “similar” fields of industry for fear of running afoul of a later claim that the dual representation was a “subject matter” conflict.

Adding to the concern in the present case is that the Supreme Judicial Court of Massachusetts has no particular expertise in patent law, the issues that arise in patent prosecution, and the practical difficulties of identifying conflicting subject matter in multiple patents or applications.  And while the Massachusetts court’s jurisdiction is limited geographically, its decision in this matter — for better or worse — will at least be up for consideration in other jurisdictions.

The stakes in what appeared to be a straightforward case of a court ordering dismissal of a bare bones claim of patent malpractice have just gotten significantly higher.  The intellectual property bar should answer the call for amicus briefing.  The IP bar needs to speak loudly, clearly, and with one voice, in response to the question raised by the Massachusetts court.

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