Fresh From the Bench: Precedential Patent Cases From the Federal Circuit
Maling v. Finnegan– Maling retained attorneys in Finnegan's Boston office, who were successful in obtaining patent protection for his screwless eyeglass hinges. Finnegan's D.C. office simultaneously represented Masunaga in obtaining a patent to similar screwless eyeglass hinges. After the patents issued, Maling asked Finnegan to opine on the similarities between the two patents, and Finnegan declined. As a result, Maling alleges, he was unsuccessful in obtaining investors, his patent was reduced in value, and his invention was unmarketable due to similarities to the Masunaga device. According to Maling's complaint, all of this directly resulted from the conflict of interest at Finnegan, which had not been disclosed to him at the time of retention.
The Massachusetts Supreme Court affirms the dismissal of the complaint due to failure to state a claim, rejecting Maling's contention that there was an actionable conflict of interest. The ruling is based on Massachusetts Rules of Professional Conduct 1.7, which is identical to Oregon's and Washington's Rule 1.7. In so ruling, however, the court cautions that firms need to have systems in place to avoid actual conflicts, as could occur when patent firms represent multiple clients in the same technology area. It will not be an excuse that the law firm is large or that the conflict results from recent mergers or lateral integration.
Chris E. Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP,Mass. Sup. Ct.,
Case SJC-11800 (December 23, 2015)
Rule 1.7 of the Massachusetts Rules of Professional Conduct ("MRPC"), provides that a lawyer shall not represent a client if the representation is "directly adverse to another client," or where "there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client." At the time this action was brought, conflicts of interest in the PTO were governed by 37 C.F.R. § 10.66, which also provided that an attorney must refuse to accept employment if the interests of another client may impair the independent professional judgment of the practitioner.
In the practice of patent law, the simultaneous representation of clients competing for patents in the same technology area is sometimes referred to as a subject matter conflict. Maling advocates for a broad interpretation of rule 1.7 that would render all subject matter conflicts per se violations. We disagree, and conclude that although subject matter conflicts in patent prosecutions often may present a number of potential legal, ethical, and practical problems for lawyers and their clients, they do not, standing alone, constitute an actionable conflict of interest that violates rule 1.7.
Adverse Representation Under Rule 1.7(a)(1)
Representation is "directly adverse" in violation of rule 1.7(a)(1) when a lawyer acts as an advocate in one matter against a person the lawyer represents in some other, even unrelated, matter, at least without the consent of both clients. Maling and Masunaga were not adversaries in the traditional sense, but Maling contends that they were directly adverse within the meaning of rule 1.7 because they were competing in the "same patent space." However, direct adverseness requires a conflict as to the legal rights and duties of the clients, not merely conflicting economic interests. Finnegan's representation of Maling and Masunaga is analogous to that undertaken by the law firm in Curtis v. Radio Representatives, Inc., 696 F. Supp. 729 (D. D.C. 1988). Finnegan represented two clients competing in the screwless eyeglass device market in proceedings before the PTO. As Maling acknowledges, Finnegan was able successfully to obtain patents for both his device and Masunaga's, in the same way that the law firm in Curtis was able to obtain radio broadcast licenses for its clients from the FCC. Maling and Masunaga were not competing for the same patent, but rather different patents for similar devices.
An actionable conflict of interest could arise under different circumstances. For example, where claims in two patent applications filed prior to March 16, 2013, are identical or obvious variants of each other, the PTO can institute an interference proceeding to determine which inventor would be awarded the claims. If the PTO had called an interference proceeding to resolve conflicting claims in the patent applications, or if Finnegan, acting as a reasonable patent attorney, believed such a proceeding was likely, the legal rights of the parties would have been in conflict, as only one inventor can prevail in an interference proceeding. In such a case, rule 1.7 would have obliged Finnegan to disclose the conflict and obtain consent from both clients or withdraw from representation.
Although Maling alleges that the Masunaga and Maling applications are similar, he does not allege that the claims are identical or obvious variants such that the claims in one application would necessarily preclude claims contained in the other. Accordingly, Maling's allegations do not permit any inference as to whether the similarities between the inventions at the time Finnegan was retained were of such a degree that Finnegan should have reasonably foreseen the potential for an interference proceeding.
Comment 7 to rule 1.7 explains that directly adverse conflicts may also arise in the course of transactional matters. Here, such a conflict likely arose in 2008 when Maling sought a legal opinion from Finnegan regarding the likelihood that he might be exposed to claims by Masunaga for patent infringement. Finnegan declined to provide the opinion, and Maling alleges that he lost financing as a result. Providing the opinion would have rendered the interests of Maling and Masunaga "directly adverse" within the meaning of rule 1.7 (a) (1), and either declining representation or disclosing the conflict and obtaining consent would have been the proper course of action. But there is no allegation that Finnegan had agreed to provide such opinions in its engagement to prosecute Maling's patents. Without such a claim, we cannot conclude that a conflict based on direct adversity has been adequately alleged.
"Material Limitation" Under Rule 1.7 (a) (2)
We turn next to the question whether Finnegan's representation of Masunaga "materially limited" its representation of Maling in contravention of rule 1.7 (a) (2), which prohibits representation where there is no direct adverseness but there is a significant risk that a lawyer's ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities or interests. The inquiry under rule 1.7 (a) (2), is whether the lawyer has a competing interest or responsibility that will interfere with the lawyer's professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client.
In his complaint, Maling alleges in conclusory terms that Finnegan was unable to protect both his interests and Masunaga's, and ultimately chose to protect Masunaga at his expense in the patent prosecution process. In Maling's view, Finnegan "pulled its punches" and got more for Masunaga than for Maling before the PTO. He has failed, however, to allege sufficient facts to support such a proposition.
The case of Sentinel Prods. Corp. v. Platt, No. 98-11143-GAO, 2002 U.S. Dist. LEXIS 13217 (D. Mass. July 22, 2002), illustrates how a subject matter conflict resulting from the prosecution of patents could give rise to a conflict of interest under rule 1.7 (a) (2). In Sentinel, a law firm prosecuted patents for two clients, Sentinel and one of its former employees. Sentinel claimed that because of the simultaneous representation, its patent applications "were denied, delayed, or otherwise impeded" and that it suffered economic losses as a result. The law firm filed applications for Sentinel, and then two weeks later for the former employee. The firm's attorneys testified that they thought the applications overlapped and that they were unable to discern a patentable difference between the applications. A patent for the employee's application was issued first, and Sentinel's application was rejected based on the employee's patents. The firm subsequently narrowed the claims in Sentinel's application to overcome the rejection.
The so-called "claim shaving" that occurred in Sentinel clearly implicates rule 1.7 (a) (2). Altering the claims in one client's application because of information contained in a different client's application at least creates a question of fact as to whether "courses of action that reasonably should be pursued on behalf of the client" were foreclosed. But unlike the facts in Sentinel, Maling's complaint provides little more than speculation that Finnegan's judgment was impaired or that he obtained a less robust patent than if he had been represented by other, "conflict-free" counsel. Maling's bare assertions that Masunaga was given preferential treatment and was "enriched" to his "detriment" as a consequence do not support an inference that Finnegan was "materially limited" in its ability to obtain patents for Maling's inventions.
Finnegan's subsequent unwillingness to provide an opinion regarding the similarities between the Maling and Masunaga inventions also raises a question whether the simultaneous representation "foreclosed a course of action" that should have been pursued on Maling's behalf. Rendering such an opinion would likely have created a direct conflict, in violation of rule 1.7 (a) (1). To the extent that such a conflict was foreseeable, because, as Maling alleges, it is possible that Finnegan should have declined to represent Maling from the outset of his case so as to also avoid a violation of rule 1.7 (a) (2). This, however, depends in large measure on the nature of Finnegan's engagement by Maling in 2003.
Before engaging a client, a lawyer must determine whether the potential for conflict counsels against undertaking representation. Comment 8 to rule 1.7 elaborates:
"The mere possibility of subsequent harm does not itself require disclosure and consent. The critical questions are the likelihood that a difference in interests will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client."
Maling's complaint does not contain any allegations as to the services or scope of representation agreed upon by Maling and Finnegan other than that Finnegan "agreed to file and prosecute a patent for Maling's inventions." Nor is it adequately alleged that Finnegan should have reasonably anticipated that Maling would need a legal opinion that would create a conflict of interest. There are simply too few facts from which to infer that Finnegan reasonably should have foreseen the potential conflict in the first place. Based on these inadequacies, we agree that the complaint does not sufficiently allege that Finnegan violated its duties under rule 1.7 (a) (2) by undertaking representation of both Maling and Masunaga.
Identifying conflicts of interest
This case also raises important considerations under MRPC 1.10, which prohibits lawyers associated in a firm from knowingly representing a client when any one of them practicing alone would be prohibited from doing so by Rule 1.7. [Again, Oregon and Washington rules are the same.] To ensure compliance with both rules, firms must implement procedures to identify and remedy actual and potential conflicts of interest. What constitutes an adequate conflict check is a complex question. Nothing we say here today, however, should be construed to absolve law firms from the obligation to implement robust processes that will detect potential conflicts. No matter how complex such a protocol might be, law firms run significant risks if they do not avail themselves of a robust conflict system adequate to the nature of their practice. Although Maling's complaint does not plead an actionable violation of rule 1.7 sufficiently, the misuse of client confidences and the preferential treatment of the interests of one client, to the detriment of nearly identical interests of another, are serious matters that cannot be reconciled with the ethical obligations of our profession.