CHRIS E. MALING vs. FINNEGAN, HENDERSON, FARABOW, GARRETT & DUNNER, LLP, & others.
Supreme Judicial Court of Massachusetts
December 23, 2015
473 Mass. 336 (2015)
Suffolk. September 8, 2015. - December 23, 2015.
Present: GANTS, C.J., SPINA, CORDY, BOTSFORD, DUFFLY, LENK, & HINES, JJ.
In a civil action, in which the plaintiff alleged harm under various legal theories resulting from the failure of the defendant law firm and attorneys (who represented him in connection with the prosecution of patents for his inventions before the United States Patent and Trademark Office [USPTO]) to disclose an alleged conflict of interest in violation of
Discussion of the rules of professional conduct requiring law firms to implement procedures to identify and remedy actual and potential conflicts of interest. [348-349]
CIVIL ACTION commenced in the Superior Court Department on April 25, 2013.
A motion to dismiss was heard by Janet L. Sanders, J.
The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.
Thomas M. Bond for the plaintiff.
Erin K. Higgins (Christopher K. Sweeney with her) for the defendants.
Paul A. Stewart, of California, & Sara E. Hirshon, for Knobbe, Martens, Olson & Bear, LLP, & others, amici curiae, submitted a brief.
Heather B. Repicky & Lauren E. Ingegneri, for Boston Patent Law Association, amicus curiae, submitted a brief.
CORDY, J. In this case we consider whether an actionable conflict of interest arises under
The plaintiff, Chris E. Maling, engaged the defendant law firm Finnegan, Henderson, Farabow, Garrett & Dunner, LLP (Finnegan), including the three individual attorneys named in this suit, to represent him in connection with the prosecution of patents for Maling‘s inventions for a new screwless eyeglass. After obtaining his patents, Maling learned that Finnegan had been simultaneously representing another client that competed with Maling in the screwless eyeglass market. Maling then commenced this action, alleging harm under various legal theories resulting from Finnegan‘s failure to disclose the alleged conflict of interest. A judge in the Superior Court dismissed Maling‘s complaint for failure to state a claim under
1. Background. In 2003, Maling engaged Finnegan to perform legal services in connection with the filing and prosecution of patents for Maling‘s inventions for a new screwless eyeglass, including a screwless eyeglass hinge block design. Finnegan prepared patent applications for Maling‘s inventions after ordering “prior art” searches. Over the next several years, Finnegan successfully obtained four separate patents for Maling.
Attorneys in Finnegan‘s Boston office represented Maling from approximately April, 2003, to May, 2009.3 During this period of time, attorneys in Finnegan‘s Washington, D.C., office repre-
Maling alleges that he engaged Finnegan to “file and prosecute a patent for [his] inventions for a new screw-less eyeglass, including without limitation, his invention of a ‘screwless’ eyeglasses hinge block design,” and that in September, 2003, Finnegan ordered prior art searches relating to Maling‘s inventions.5 Maling alleges that Finnegan “belatedly” commenced preparation of a patent application for his inventions in or about May, 2004, and that it “[inexplicably] took [fourteen] months” to do so. Maling also alleges that Finnegan filed patent applications for Masunaga more quickly than it did for him. At the same time, Maling acknowledges that Finnegan successfully obtained patents for his inventions. Maling further claims that he paid Finnegan in excess of $100,000 for its services, and that he invested “millions of dollars” to develop his product. He claims he would not have made this investment had Finnegan “disclosed its conflict of interest and/or its work on the competing Masunaga patent.” He further alleges that the Masunaga applications are very similar to the Maling applications, and that Finnegan knew it was performing work in the “same patent space” for both clients. Maling also alleges that he was harmed when Finnegan,
Finnegan moved to dismiss Maling‘s complaint for failure to state a claim under
2. Discussion. We review the sufficiency of Maling‘s complaint de novo, taking as true the factual allegations set forth therein and drawing all inferences in his favor. Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674, 676 (2011). “[W]e look beyond the conclusory allegations in the complaint and focus on whether the factual allegations plausibly suggest an entitlement to relief.” Id., citing Iannacchino v. Ford Motor Co., 451 Mass. 623, 635-636 (2008).
Maling‘s complaint sets forth four bases for relief: (1) breach of fiduciary duty; (2) legal malpractice; (3) unfair or deceptive practices in violation of
Rule 1.7 of the Massachusetts Rules of Professional Conduct, which applies to conflicts of interests between current clients, governs the issues in this case.6 By its terms, rule 1.7, with limited exceptions, provides that a lawyer shall not represent a client if the representation is “directly adverse to another client,”
In the practice of patent law, the simultaneous representation of clients competing for patents in the same technology area is
a. Adverse representation under rule 1.7 (a) (1). Representation is “directly adverse” in violation of rule 1.7 (a) (1) when a lawyer “act[s] as an advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated.”
In the instant case, Maling and Masunaga were not adversaries in the traditional sense, as they did not appear on opposite sides of litigation. Rather, they each appeared before the USPTO in separate proceedings to seek patents for their respective screwless eyeglass devices.
Maling contends, however, that he and Masunaga were directly adverse within the meaning of rule 1.7 (a) (1) because they were competing in the “same patent space.” We disagree that the meaning of “directly adverse” stretches so far. The rules of professional conduct make clear that
“simultaneous representation in unrelated matters of clients whose interests are only economically adverse, such as representation of competing economic enterprises in unrelated litigation, does not ordinarily constitute a conflict of interest and thus may not require consent of the respective clients.”
Curtis v. Radio Representatives, Inc., 696 F. Supp. 729 (D.D.C. 1988), a case involving broadcast licenses, offers a useful example. In Curtis, the United States District Court for the District of Columbia found that no actionable conflict of interest existed where a law firm simultaneously represented clients in the preparation and prosecution of applications for radio broadcast licenses from the Federal Communications Commission (FCC). Id. at 731-732, 737.8 The court reasoned that “the fact that an attorney is simultaneously representing two companies that are competitors in the same industry does not itself establish an actionable breach of an attorney‘s fiduciary duty.” Id. at 736, quoting D.J. Horan & G.W. Spellmire, Jr., Attorney Malpractice: Prevention and Defense 17-1 (1987). It went on to explain that a conflict of interest could develop between clients seeking broadcast licenses under circumstances where “objectionable electrical interference existed between two stations.” Curtis, supra. However, because the defendant failed to assert such interference, or even the potential for such interference, the court could not conclude that a conflict of interest existed in violation of the rules of professional conduct adopted by the District of Columbia. Id. at 736-37.
The analysis undertaken by the court in Curtis is instructive in our evaluation of Maling‘s claims. Finnegan‘s representation of Maling and Masunaga is analogous to that undertaken by the law firm in Curtis. Finnegan represented two clients competing in the screwless eyeglass device market in proceedings before the USPTO. As Maling acknowledges, Finnegan was able successfully to obtain patents from the USPTO 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 each of its clients from the FCC. Maling and Masunaga were not competing for the same patent, but rather different patents for similar devices.
Like the court in Curtis, we acknowledge that an actionable conflict of interest could arise under different factual circumstances. For example, where claims in two patent applications filed prior to March 16, 2013, are identical or obvious variants of
Maling‘s conclusory allegations as to the high degree of similarity between his device and the Masunaga device are contradicted by his acknowledgment elsewhere in the complaint that
We also recognize that subject matter conflicts can give rise to conflicts of interest under rule 1.7 (a) (1) in nonlitigation contexts. Comment 7 to rule 1.7 explains that directly adverse conflicts may also arise in the course of transactional matters. For example, “a lawyer would be precluded . . . from advising a client as to his rights under a contract with another client of the lawyer . . . . Such conflict involves the legal rights and duties of the two clients vis-à-vis one another.” ABA Op. 05-434, supra at 140.
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 arguably 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 ob-
b. 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.”
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 USPTO. He has failed, however, to allege sufficient facts to support such a proposition.
The case of Sentinel Prods. Corp. vs. Platt, U.S. Dist. Ct., No. 98-11143-GAO (D. Mass. July 22, 2002) (Sentinel), illustrates how a subject matter conflict resulting from the prosecution of patents for competing clients could give rise to a conflict of interest under rule 1.7 (a) (2). In the Sentinel case, a law firm prosecuted patents for two clients, a company (Sentinel), and one of Sentinel‘s former employees. Id. at 1. Sentinel brought suit, claiming that because of the simultaneous representation, its patent applications “were denied, delayed, or otherwise impeded” and that it suffered economic losses as a result. Id. at 5. On a
The so-called “claim shaving,” see Hricik, supra at 415, 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 whether “courses of action that reasonably should be pursued on behalf of the client” were foreclosed.
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 does not allege that the claims contained in his applications were altered or narrowed in light of the Masunaga applications, as the plaintiffs demonstrated in Sentinel, or, importantly, that his client confidences were disclosed or used in any way to Masunaga‘s advantage.13 Nor does he allege that Finnegan delayed filing his patent application to ensure the success of Masunaga‘s application over his own. Ultimately, Maling‘s bare assertions that Masunaga was given preferential treatment and was “enrich[ed]” 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 inability or unwillingness to provide a legal opinion regarding the similarities between the Maling and
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. See, e.g., Vaxiion Therapeutics, Inc. v. Foley & Lardner LLP, 593 F. Supp. 2d 1153, 1173 (S.D. Cal. 2008) (deciding that expert testimony created question of fact as to likelihood that conflict of interest would develop from firm‘s simultaneous representation of competitor clients in patent prosecution). Based on these inadequacies, we agree with the motion judge 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.
Because Maling‘s claims hinge on the existence of a conflict of interest, and because we conclude there was none adequately alleged in this case, he fails to state a claim on each of the counts
c. Identifying conflicts of interest. This case also raises important considerations under
This court has not defined a minimum protocol for carrying out a conflict check in the area of patent practice, or in any other area of law. However, no matter how complex such a protocol might be, law firms run significant risks, financial and reputational, 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.
3. Conclusion. As noted throughout this opinion, there are various factual scenarios in the context of patent practice in which a subject matter conflict may give rise to an actionable violation of rule 1.7. On the facts alleged in Maling‘s complaint, however, we find that no actionable conflict of interest existed. The dismissal of the complaint is affirmed.
So ordered.
Notes
At the time this action was brought, concurrent conflicts of interest were governed by
“(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.”
Because the Maling and Masunaga Optical Manufacturing Co., Ltd. (Masunaga), patents were filed prior to the effective date of the relevant provisions of
“Whenever an application is made for a patent which, in the opinion of the Director [of the USPTO], would interfere with any pending application, or with any unexpired patent, an interference may be declared and the Director shall give notice of such declaration to the applicants, or applicant and patentee, as the case may be. The Board of Patent Appeals and Interferences shall determine questions of priority of the inventions and may determine questions of patentability.”
Even if this claim arises from conduct unrelated to the alleged conflict of interest, Maling nonetheless fails to state a claim. First, it is unsettled whether the “inequitable conduct” doctrine is merely a defense or whether it provides an independent cause of action against counsel. See ShieldMark, Inc. vs. Creative Safety Supply, LLC, No. 1:12-CV-221, slip op. at 12-13 (N.D. Ohio Oct. 9, 2012), report and recommendation adopted, No. 1:12-CV-221 (N.D. Ohio Jan. 9, 2013) (describing “the dearth of case law on the issue“). We need not decide the issue, however, as Maling failed to plead sufficient facts to state a claim for inequitable conduct. “To successfully prove inequitable conduct, the accused infringer must provide evidence that the applicant (1) made an affirmative misrepresentation of material fact, failed to disclose material information, or submitted false material information, and (2) did so with intent to deceive the [USPTO].” Cancer Research Tech. Ltd. v. Barr Labs., Inc., 625 F.3d 724, 732 (Fed. Cir. 2010), cert. denied, 132 S. Ct. 499 (2011). At a minimum, Maling makes no allegations as to Finnegan‘s intent to deceive the USPTO, and therefore fails to state a claim of inequitable conduct.