Maling Decision Highlights Ethical Booby Traps in Patent Prosecution

Patent practice, like many other forms of legal practice, is becoming more and more specialized, and the same counsel often has multiple clients operating in the same space and even creating inventions expected to compete. This increasingly focused expertise of patent attorneys raises significant ethical issues.

A recent decision of the Supreme Judicial Court of Massachusetts, Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner LLP, 473 Mass. 336, 42 N.E.3d 199 (2015), considered a malpractice claim brought by an aggrieved client alleging conflicts of interest by the defendant firm during patent prosecution (the process of obtaining patents from the Patent Office). A review of the Maling case yields several takeaways in terms of the issues faced by patent counsel when called upon to represent conflicting patent applications.

Patent practice, like many other forms of legal practice, is becoming more and more specialized. It is not uncommon that patent prosecution counsel develops experience and expertise in obtaining patent protection in one area of technology (e.g., biotechnology, pharmaceuticals, etc.). The same counsel often has multiple clients operating in the same space and even creating inventions expected to compete with one another when they reach the marketplace. While the increasingly focused expertise of patent attorneys benefits clients, it also raises significant ethical issues.

On December 23, 2015, the Supreme Judicial Court of Massachusetts affirmed dismissal of a malpractice claim brought by an aggrieved client alleging conflicts of interest by the defendant firm during patent prosecution (the process of obtaining patents from the Patent Office). Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner LLP, 473 Mass. 336, 42 N.E.3d 199 (2015).

Although the malpractice claims were dismissed, the case nevertheless highlights possible ethical problems that patent counsel face when representing multiple clients in the same technology area. A review of the Maling case yields several takeaways in terms of the issues faced by patent counsel when called upon to represent conflicting patent applications.

The Facts of Maling

Chris E. Maling, an inventor and principal of his own company, The Formula, LLC, engaged the Finnegan law firm from 2003 to 2009 to prosecute patents for inventions in the field of eyeglasses, specifically for screwless eyeglasses that included a screwless hinge.
The Boston office of the firm handled the prosecution, conducting prior art searches, and eventually obtaining four separate patents for Maling. At the time Maling engaged the Finnegan firm, its Washington D.C. office was already representing a Japanese company, Masunaga Optical Manufacturing Co. Ltd., which also was seeking and obtaining patents for screwless eyeglasses.

Maling later learned of Finnegan’s representation of Masunaga and brought suit. His primary claim was for conflict of interest, which he asserted resulted in less effective patents and a waste of his investment of significant sums to develop his patented product.

He added that the patents Finnegan obtained for Masunaga were “very similar” to his, and that Finnegan performed work in the “same patent space.” He also cited delays in obtaining his own patents, and that the Finnegan firm acted more quickly to prosecute Masunaga’s applications than his.

Maling also complained that in 2008 he requested Finnegan to provide an opinion about his products and whether they infringed the Masunaga patents, but Finnegan declined, citing a conflict. This failure, he asserted, negatively affected the marketability of his products, and cut into the value of his patents.

The Court’s Analysis: Two Kinds of Conflict And “Subject Matter Conflict”

The Massachusetts Rules of Professional Responsibility (modeled after the ABA Rules, which are more or less copied throughout the U.S.), recognize two kinds of conflicts: (1) where representation is “directly adverse to another client” or (2) 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, a former client or a third person . . .” The purpose of the rule is both to protect client confidences and ensure attorney loyalty to a single interest.

The Maling court noted that, in the patent law ethics field, there is a concept named “subject matter conflict”– representation of clients competing for patents in the same technology area. This was presumably what Maling alluded to when pressing his claim of conflict by prosecution of patents in the same “patent space.”

Unfortunately for Maling, this kind of conflict does not fit neatly into either of the two kinds of conflicts recognized in the Model Rules. While the Maling court acknowledged that this kind of conflict can raise thorny problems for patent counsel, at the same time it rejected Maling’s argument that such a situation raises a per se conflict. As we shall see, Maling’s inability to show more than the fact that the firm was prosecuting patents in the same field was fatal to his claim.

This holding is probably the most important one of the Maling court to the patent bar. Had the court accepted Maling’s “patent space” argument, then patent prosecution practice would become much more difficult. However, the Maling court itself acknowledged that “subject matter conflicts in patent prosecutions often may present a number of potential legal, ethical, and practical problems for lawyers and their clients.” These conflicts, however, must be analyzed under the traditional conflict types set forth in Rule 7.1, which is what the Maling court proceeded to do.

No "Direct Adverse" Conflict

The Massachusetts rules, like all state rules, bar simultaneous representation of one client that is “directly adverse to another client.” A lawyer or firm that represents Client A in one matter cannot simultaneously represent Client B adversely to Client A, even if the matters are completely unrelated. If the firm is doing patent work for Client A, absent a waiver, it cannot at the same time sue Client A on behalf of Client B, even on an unrelated slip-and-fall claim.

Maling contended that the representation of two clients in the same “patent space” was “directly adverse” and thus per se a conflict. The court rejected that contention – the mere fact that the clients seek patents in the same field, and that such might lead to economic competition, is not sufficient to create an ethical conflict.

Critical to that conclusion was the principle that “direct adverseness requires a conflict as to the legal rights and duties of the clients, not merely conflicting economic interests.” Although the respective inventions of Maling and Masunaga would be expected to compete economically in the marketplace, that alone did not create a conflict.

The Maling court relied on Curtis v. Radio Representatives, 696 F.Supp. 729 (D.D.C. 1988) for support. There, a firm represented two clients in preparing applications for radio broadcast licenses to be submitted to the FCC. The district court found no conflict from the mere economic competition in the same industry. The Curtis court did caution, however, that there potentially might be a conflict if the two clients had sought licenses for stations that created electrical interference between them. Analogizing to Curtis, the Maling court reasoned that all the firm did was try to obtain patents for different clients in the same market (which in fact it did successfully – the plaintiff obtained four patents).

It acknowledged that sometimes there might be potential for a conflict – for example if the applications were obvious variants of one another, and then the PTO could (under the pre-2011 Patent Act) institute an “interference proceeding” to determine who was the first to invent. If the Finnegan firm had believed, based on the disclosures, that such proceedings were likely, then it would have had to decline representation.

Maling, however, did not allege that the patent claims were “identical or obvious variants of each other.” The contention that there was a “directly adverse” type conflict was thus rejected.

The Maling court did note another kind of “directly adverse” conflict – advising one client about its rights vis-à-vis another client (e.g., what potential liabilities Client A may have to Client B under a contract).

Such a conflict in fact arose in Maling when the plaintiff asked the Finnegan firm to provide a non-infringement opinion as to the Masunaga patents. Rendering such advice would indeed have been ethically problematic. But the firm in fact declined to provide such an opinion.

No “Material Limitation” Conflict

Rule 1.7 also identifies a second type of conflict in which attorneys may not engage: where one representation impinges on another by limiting the attorney’s ability to fully represent his client – e.g., by affecting his professional judgment or foreclosing courses of action that otherwise would reasonably be pursued on behalf of the client.

In other words, a lawyer cannot “pull his punches” for Client A because of fear of overstepping into the interests of Client B.

In the context of patent prosecution, this type of conflict can occur when firms engage in “patent shaving,” meaning seeking claims that are less than what they would seek without the second representation. For example, the attorney may fear that the claims might cover Client B’s own patent application or its product, potentially causing it to infringe.

Maling argued that such a conflict existed in his case, but his complaint offered no specifics as to how the firm’s judgment had been impaired by the simultaneous representation.

The Maling court did consider one other variation of a “material limitation” conflict: given that the Finnegan firm ultimately declined to take on the opinion work from Maling, “it is possible that Finnegan should have declined to represent Maling from the outset” to avoid such a conflict.

But that kind of conflict depended on the scope of the original engagement and whether, at the time, it was contemplated that the Finnegan firm would be called upon to give such advice. The allegations in Maling’s complaint, however, were too sparse to sustain this kind of “foreseeable future conflict” as a basis for malpractice.

Identifying Conflicts Of Interest

As a parting shot, the Maling court noted that the Professional Rules generally impute conflicts to all lawyers associated in a firm, and require the firm to implement adequate procedures to identify and deal with conflicts. The Maling court recognized that modern practice involves large multi-national firms, reorganizations and mergers, and rampant lateral transfers that conflicts can be a complex and daunting task. Nevertheless, the court emphasized the need “to implement robust processes that will detect potential conflicts.”

Lessons To Be Learned From Maling

Patent counsel should not be overly assured by the favorable result in Maling. The primary reason that the plaintiff lost was his failure to articulate cogent legal reasons why there was a conflict of interest. Whether this was inherent in the facts, a result of poor representation, or lack of adequate information is not clear. However, patent counsel acting in the course of regular practice has an affirmative duty to act ethically and ascertain any facts relevant to that end.

Maling raises many more questions than it answers and makes clear that representing two clients seeking patents in the same “patent space,” while possible, is still fraught with ethical pitfalls. What are some of the lessons identified by the Maling decision? What areas require further refinement or definition?

  • Mere Economic Competition Does Not Create A Conflict* At bottom, Maling’s contention was that patent counsel cannot represent clients seeking to patent technogies that would compete economically, regardless of how legally disparate the inventions are. The court rejected that contention.

    Thus, if Client A invents aspirin and Client B invents acetaminophen, a patent firm could represent both, even though the two compete for customers on the drugstore shelf.

  • Overlap In Inventions May Create A Directly Adverse Conflict* As a general principle, this is fairly obvious; a patent attorney clearly cannot at the same time seek a “monopoly” for two different clients over the very same technology. What Maling did not define well, however, is how close can the inventions be for there to be a conflict.

    The Maling court looked to interference practice – where the Patent Office determines that the inventions are close variations of each other, requiring a special proceeding to determine who is the first to invent. (As of 2013, the United States adopted a first-to-file system, and the interference procedure has been abolished with respect to applications filed after that date.) But this test seems too narrow.

    Patents are a grant of the right to exclude – specifically to exclude others from using, offering to sell, and selling the patented invention. So long as there is some overlap between the monopolies sought by the respective clients, there would be a conflict of interest.

    As in a land deed, a patent claim defines the metes and bounds of what others are excluded from doing. Just as a lawyer (or firm) could not represent two clients both seeking title to the same strip of land, it seems to us that there is a “directly adverse” relationship where two clients seek to claim overlapping patent claim scope.

  • Applications For Related Technology May Result In A Material Limitation Conflict Here again, while the general principle is certainly sound, the Maling court gave little guidance in how to determine when representation of one client for a patent application would “materially limit” representation of the others.

    What circumstances could lead to a potential situation of “patent shaving?” Are such conflicts limited to impact on the scope of claims sought before the Patent Office, or are there other considerations that might “materially limit” the ability to represent one client?

  • Robust Conflict Clearance Procedures Are A Must This is of course not unique to patent practice. But what patent practitioners in particular need to be asking includes:

    • What kind of information needs to be provided in a conflict check. Since the scope and technology and the invention may give rise to a conflict, how much do the attorneys in the firm need to know initially to even identify a potential problem.

      Clearly, it is not enough to disclose that two different clients seek patents on the proverbial better mousetrap. What is enough simply to identify a potential problem?

    • How does one analyze whether there is or is not a potential conflict? Once a conflict check discloses a potential problem, what is the analytic framework to determine the problem? What additional facts are needed to determine this?

Conclusion

As courts have recognized, representing two clients seeking patents for competing technologies is a position “fraught with possible conflict of interest” and this perilous situation can continue even after one representation is completed.

We have highlighted some of the pitfalls practitioners should be alert for and questions they should be asking when confronted with this situation. We discuss some of these open questions in a later post.


A previous version of this post appeared in the New York Law Journal, March 22, 2016