Insufficient Evidence to Find Finnegan Guilty of Conflict of Interest

michaelfinnegan  Finnegan’s Wake here.

The Supreme Judicial Court of the State of Massachusetts has upheld a decision to dismiss claims against Finnegan, Henderson, Farabow, Garrett & Dunner, LLP (henceforth Finnegan) for conflict of interest. A copy of the opinion may be found here.

The Facts

Chris Maling hired patent prosecuting attorneys at Finnegan Henderson to prosecute a set of patent applications relating to screwless eyeglass hinges. According to Maling’s complaint, Finnegan was representing his competitor in the screwless eyeglass market, filing patent applications for that competitor.

Maling claimed that:

  1. He would not have hired Finnegan if he had known that the firm was representing the competitor in the same “patent space.”
  2. He was harmed when he asked the law firm to provide him with a legal opinion addressing similarities between Maling’s patents and the competitor’s patents, and the firm declined to do so. Without the opinion, Maling said, he was unable to obtain funding for his invention, and his product was unmarketable due to similarities with the competitor’s device.
  3. Maling alleged that 14 month delays in drafting patents for his invention were caused by Finnegan favoring the other client.

Maling engaged the Boston Office of Finnegan’s services in 2003 and, after various prior art searches, Finnegan filed and obtained four patents for Maling. The relationship terminated in May 2009. Over this same time period, attorneys in the Washington DC office represented Msunaga Optical Manufacturing Co. LTD. (henceforth Masunaga), a Japanese company also seeking patents for screwless eyeglasses. Maling considers it unacceptable and inexplicable that it took 14 months, until May 2004 for Finnegan to start drafting his applications, whereas Masunga’s were filed more quickly. He claimed to pay in excess of $100,000 to Finnegan for their services, and would not have done so had he been aware of the (alleged) conflict.

Maling requested relief based on:

  1. Breach of Fiduciary Duty
  2. Legal malpractice
  3. Unfair or deceptive practices
  4. inequitable conduct

Maling’s complaint alleged several claims for relief, including legal malpractice, all hinging on the existence of an alleged undisclosed conflict of interest arising from Finnegan’s representation of both Maling and his competitor.

The complaint was dismissed by the court of first instance and their decision was upheld on appeal on two grounds:

  1. The simultaneous representation by a law firm in the prosecution of patents for two clients competing in the same technology area for similar inventions is not a per se violation of Mass. R. Prof. Conduct 1.7.
  2. Based on the facts alleged in his complaint, Maling failed to state a claim for relief.

The case is Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, SJC-11800, in the Massachusetts Supreme Judicial Court.

The Ruling

The relevant law is Rule 1.7 of the Massachusetts Rules of Professional Conduct. This law provides that a lawyer shall not represent a client if the representation is “directly adverse to another client,” Mass. R. Prof. C. 1.7 (a) (1), 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, a former client or a third person or by a personal interest of the lawyer.” Mass. R. Prof. C. 1.7 (a).

At the time this action was brought, concurrent conflicts of interest were governed by 37 C.F.R. § 10.66 (2012) (entitled, “Refusing to accept or continue employment if the interests of another client may impair the independent professional judgment of the practitioner”), which provided:

“(a) A practitioner shall decline proffered employment if the exercise of the practitioner’s independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve the practitioner in representing differing interests, except to the extent permitted under paragraph (c) of this section.

(b) A practitioner shall not continue multiple employment if the exercise of the practitioner’s independent professional judgment in behalf of a client will be or is likely to be adversely affected by the practitioner’s representation of another client, or if it would be likely to involve the practitioner in representing differing interests, except to the extent permitted under paragraph (c) of this section.

(c) In the situations covered by paragraphs (a) and (b) of this section a practitioner may represent multiple clients if it is obvious that the practitioner can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of the practitioner’s independent professional judgment on behalf of each.

(d) If a practitioner is required to decline employment or to withdraw from employment under a Disciplinary Rule, no partner, or associate, or any other practitioner affiliated with the practitioner or the practitioner’s firm, may accept or continue such employment unless otherwise ordered by the Director or Commissioner.”

The court ruled that “subject matter conflicts” do not fit neatly into the traditional conflict analysis. They opined that Maling’s interpretation of rule 1.7 would render all subject matter conflicts actionable per se. The court disagrees with this position. It considers that subject matter conflicts may present a number of potential legal, ethical and practical problems doe lawyers and their clients, but do not themselves consititute actionable conflicts of interest under rule 1.7.

What is forbidden is to represent a client in an adversarial matter against another entity that is a client, even if not in the same case unless one has the consent of both sides. In this instance, the two companies were each represented by Finnegan at the USPTO in patent prosecution, There was no inter partes proceeding. The fact that the two clients were economic rivals is insufficient to create an actionable conflict. Of note, there was no interference proceeding between applications of the two clients. Since both clients’ patents issued, there is no overlap in inventions.  Furthermore, there is no indication that an interference was likely.

The court further recognized that Finnegan opined regarding the Masunga patents, that would have been actionable, but Finnegan declined to do so. (the reason why they declined is not given).

Although in Sentinel Prods. Corp. vs. Platt, U.S. Dist. Ct., No. 98-11143-GAO (D. Mass. July 22, 2002) (Sentinel), the concept of ‘claim shaving’ is discussed, in this instance, Maling provided no evidence that the scope of his protection was limited by Finnegan out of deference to Masunga. This is mere speculation.

Finnegan’s refusal to opine regarding Masunga’s patents is suspicious, but whether or not Finnegan should have declined to take on Maling as a client in 2003 depends on the potential for conflict appreciated back then.

The court noted that 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.”

In the oral argument, Maling’s counsel alleged malpractice or negligence in Finnegan’s failure to discover and disclose Masunga’s patents during their prior art search. As this allegation was not in Maling’s complaint, the court ignores the issue. In an interesting twist, Maling accused Finnegan of failing to disclose information to the USPTO (regarding the other client’s patents) and that this was inequitable conduct. The court noted a dearth of case law on the matter. The main issue seems to be that the attorneys working for the two clients were working from different offices.

In conclusion, although there are various factual scenarios under which client matter conflict may give rise to an actionable violation under Rule 1.7, the facts alleged to not amount to an actionable conflict. The dismissal of the complaint is reaffirmed.

COMMENTS
As noted by the Honorable J Cordy the issue at stake is whether there was an actionable conflict of interest (under Mass. R. Prof. C. 1.7, as appearing in 471 Mass. 1335 (2015)) when attorneys in different offices of the same law firm simultaneously represent business competitors in prosecuting patents for similar inventions without informing them or obtaining their consent to simultaneous representation.

The issue of Conflict of Interest is sometimes termed an ethical one. It is noted that there is a difference between legal ethics and ethics as generally understood. Once ethics are codified, they become regulations or laws. Ethics is appropriate behavior over and above that required by the law.

Various amicus briefs were filed. These include one by the Boston Patent Law Association and various ones by IP Law Firms including Knobbe, Martens, Olson & Bear, LLP; Honigman Miller Schwartz and Cohn LLP; Nixon & Vanderhye P.C.; Lewis Roca Rothgerber LLP; Schiff Hardin LLP; Steptoe & Johnson LLP; Snell & Wilmer LLP; Barnes & Thornburg LLP; Pillsbury Winthrop Shaw Pittman LLP; Verrill Dana LLP; and Morrison & Foerster LLP.

In large firms it is not unlikely that one attorney may be unaware of the clients of another. The client concerned about specific competitors can and should present a list of such competitors to his attorney to provide a clearance check.

Israeli standards of conflict of interest are different from those of the State of Massachusetts. An Israeli firm engaging Finnegan or another large US firm would probably have to bring complaints of alleged conflicts in US courts, which is not cheap and is not easy. There are, therefore, advantages in engaging local representation in Israel who are bound by local standards and can be sued locally.

It is more than likely that the two attorneys at Finnegan handling the spectacle hinge cases were unaware of the other client until the opinion issue arose. At that stage, it is clear from the front cover of the patent/application, who the attorney of record is.

One of the reasons suggested for employing a big IP firm is the fact that an attorney with relevant experience can handle specific cases. I don’t know to what extent practitioners pass work over to colleagues with specific experience. I expect it is rare, apart from partners who are essentially rain-makers rather than practitioners.

In general, it is much easier for small firms to avoid subject matter conflicts. Over the years, I have had client referrals from sole practitioners and smaller firms who had subject matter conflicts. I also have had referrals from colleagues that felt unhappy with their understanding of the subject matter. In some cases, this has been specific applications where the client has remained with the referrer and I have handled only the specific technology. In other cases, clients are referred. There are some attorneys who are specialists and only handle, say, telecommunication patents, or only handle pharmaceuticals. Other attorneys are generalists and are comfortable drafting and prosecuting a range of technologies. It is important that the attorney drafting the case understands the technology. Ideally the drafting attorney should have direct contact with the inventors.

Care should be taken to avoid working with attorneys that outsource work to unidentified sub-contractors, whether local or abroad. I don’t think that a 14 month drafting delay would happen in a small firm. suspect that in general smaller firms provide a better service and are more cost-effective than larger firms. However, at the end of the day, it is the attorney that handles the case and his/her experience that matters, not the size of the firm. It is where a file is touched by many hands, with trainees, junior associates and senior partners, paralegals and filing clerks all billing their time that prosecution gets delayed and costs escalate.

Maling’s allegation that Finnegan’s failure to disclose information to the USPTO regarding the other client’s patents was inequitable conduct was a dangerous argument. It undermines the validity of their own patents.

3 Responses to Insufficient Evidence to Find Finnegan Guilty of Conflict of Interest

  1. IPOwl says:

    I beg to disagree on one crucial point, IMHO.

    Delay of 14 Month is, by itself, wrong.

    • Ronen,

      This looks suspicious and wrong, but we only have the Applicant’s side of things. It is possible that it took him a year to provide sufficient disclosure to draft an application, or that the Attorneys requested a POA and a down payment and didn’t receive same.

      I’ve had clients not prepared to give me a POA. Most inventors are prepared to work with their professional representation. However, some inventors are neurotic. Others are nutters.

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