June 2015 - Ethically Speaking: When Conflicts of Rights Between Patent Clients Preclude Presentation

When Conflicts of Rights Between Patent Clients Preclude Representation

The practice of patent law often gives rise to difficult ethical issues that, unfortunately, are rarely addressed by the courts or by ethics opinions. Attorneys who file patent applications for clients are routinely faced with a seemingly simple question: is it appropriate to represent two direct competitors who are seeking patents on inventions in the same technological field? I have found no direct guidance on this issue from the courts, the Patent and Trademark Office (PTO), or anyone else.

That will be changing soon. Massachusetts’ highest court will be weighing in on this issue directly in the next few months. The Supreme Judicial Court of Massachusetts has granted review in the case of Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Case No. SJC-11800 (Mass. Dec. 17, 2014), to decide the issue of whether “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.” Massachusetts Supreme Judicial Court, Dec. 2014 Amicus Announcements, http://www.mass.gov/courts/case-legal-res/case-information/amicus-announcements (emphasis added).
 
To resolve this issue, it is helpful to have an understanding of the patent examination process at the PTO. It is commonplace for two inventors to apply for patents in the same field of technology at roughly the same time. However, contrary to common perception, the two inventors generally are not competing with each other for a single patent. Instead, the PTO examines each patent application independently. The PTO compares each patent application to the “prior art,” the collection of all earlier patents and publications in the same technological field. If the invention set forth in one patent application is sufficiently different from the prior art, the application will be allowed to issue as a patent. Similarly, if the invention set forth in the other patent application is sufficiently different from the prior art, that application too will be allowed to issue as a patent.

A problem can arise, however, if both patent applications are directed to the same invention. The PTO will issue only one patent per invention. See In re McGrew, 120 F.3d 1236, 1237 (Fed. Cir. 1997). Thus, where two patent applications are directed to the same invention, the PTO will institute a proceeding known as an “interference” to determine which application will issue as a patent. See 35 U.S.C.§ 135(a) (2006). An interference is declared only when the inventions defined by both patent applications are identical or merely obvious variants of each other. 37 C.F.R. § 41.203(a) (2014); Noelle v. Lederman, 355 F.3d 1343, 1350-51 (Fed. Cir. 2004). Generally speaking, the PTO will award the patent to the first inventor of the disputed subject matter. See 35 U.S.C. § 102(g) (2006).

Interferences are rare. There are currently only twenty-eight interferences pending. See February 2015 Patent Trial and Appeal Board (PTAB) Data, USPTO, www.uspto.gov/dashboards/patenttrialandappealboard/main.dashxml. This compares to the more than half-a-million patent applications processed by the PTO each year. See U.S. Patent Statistics, Calendar Years 1963–2014, USPTO, www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.pdf. Thus, as these statistics indicate, inventors who file patent applications at roughly the same time are not ordinarily competing with each other for a single patent. Instead, each inventor is seeking his or her own patent from the PTO, directed to a particular claimed invention, even if both patent applications happen to relate to the same field of technology.

With this background in mind, we can now address the issue of whether the representation of both inventors before the PTO creates a conflict of interest. In most states, the basic rule governing conflicts between two current clients is ABA Model Rule 1.7, which also has been adopted by the PTO as 37 C.F.R. § 11.107 (2013). California has an analogous rule: California Rule of Professional Conduct 3-310(C)(3). 

Model Rule 1.7 recognizes two types of conflicts of interest. The first occurs when a lawyer represents two clients whose interests are “directly adverse.” ABA Model Rule 1.7(a) (2013). The official commentary to the Rule makes clear that the mere representation of clients with competing economic interests does not give rise to a conflict under the Rule. As stated in Comment 3:

[S]imultaneous representation in unrelated matters of clients whose interests are only generally adverse, such as competing economic enterprises, does not require consent of the respective clients.

ABA Model Rule 1.7, cmt. 3 (2013). In short, “[d]irect adversity requires a conflict as to the legal rights and duties of the clients, not merely conflicting economic interests.” Amer. Bar Assoc. Standing Com. on Ethics and Prof. Resp., Formal Opinion 05-434 (Dec. 8, 2004).

The difference between conflicting legal rights and conflicting economic interests is well illustrated by the case of Curtis v. Radio Representatives, Inc., 696 F. Supp. 729 (D.C. Cir. 1988). There, a law firm represented a client, Radio Representatives, in preparing and prosecuting applications for radio broadcast licenses from the Federal Communications Commission (FCC). Id. at 731. At the same time, the law firm also represented various competitors of Radio Representatives in preparing and prosecuting applications for other radio and television broadcast licenses from the FCC. Id. at 731-32. All of the representations were successful, with each of the clients receiving the requested broadcast licenses from the FCC. Id. Radio Representatives alleged that its law firm was laboring under a conflict of interest, and refused to pay its attorneys’ fees.

The court found no conflict of interest to exist. Id. at 734-37. The law firm represented its various clients in separate proceedings before the FCC to obtain separate broadcast licenses. The success of one client before the FCC did not harm the chances of the other clients before the FCC, as all clients successfully received their requested licenses. Thus, no conflict of legal rights existed. Id. at 736-37. The only conflict between the clients was the economic conflict inherent between competitors. Id. That, the court held, was not a conflict of interest. Id. “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)). 

A fundamentally different situation, arising from superficially similar facts, is discussed in the Restatement. There, a lawyer was retained by two companies, “each a competitor for a single broadcast license.” Restatement (Third) of the Law Governing Lawyers § 121, cmt. c(i), illustration 1 (2000) (emphasis added). Because only one license existed, and both clients were competing for it, the lawyer could not properly represent both clients in their pursuit of the single license. id. The success of one client necessarily would doom the other client to failure. 

The typical situation in which a lawyer represents two inventors in the same technological field is directly analogous to the facts of Curtis, and is very different from the facts presented in the Restatement. The patent attorney represents two clients in seeking patents from the PTO, just as the law firm in Curtis represented multiple clients in seeking broadcast licenses from the FCC. As in Curtis, the attorney could represent both clients successfully before the government, obtaining patents for each client. The attorney’s success in obtaining a patent for one client ordinarily does not in any way hinder the attorney’s ability to obtain a patent for the other client. Thus, as in Curtis, there is no conflict.

The illustration in the Restatement is analogous to an interference. When the PTO declares an interference, the parties to the interference are indeed competing for a single patent, much like the competitors in the Restatement are competing for a single broadcast license. One client will be awarded the patent and the other will not. That would be direct adversity and would create a conflict, precisely as the Restatement suggests.

Thus, under Model Rule 1.7(a), a conflict arises when a lawyer is asked to file two patent applications that are so similar that the PTO may declare an interference. This occurs only if the two patent applications are directed to the same invention or mere obvious variants of each other. In the ordinary case, where the two inventions are merely “similar” in a colloquial sense, no conflict arises under Model Rule 1.7(a).

A second type of conflict is recognized by Model Rule 1.7(b), which provides that a lawyer may not represent a client if his representation would be “materially limited” by his responsibilities to another client. A patent lawyer representing two clients in the same area of technology does not suffer from any such material limitation. As discussed above, the two clients in such a situation are not competing with each other for a single patent. They are each attempting to obtain separate patents for separate inventions from the PTO. Accordingly, nothing that the lawyer does for the first client will materially impair his or her ability to obtain a patent for the second client. Of course, if the two patent applications are directed to the same invention, and an interference therefore could be declared, a conflict of interest would arise. In that situation, everything the lawyer does for one client would materially limit the lawyer’s ability to obtain a patent for the other client.

If the Massachusetts Supreme Judicial Court agrees with this analysis, it will find that the question it has asked is at best ambiguous. The court has asked whether a conflict of interest arises when a lawyer represents two clients in prosecuting patents on “similar” inventions. However, the concept of “similar” inventions has no meaning in patent law. Instead, patent law recognizes only that two inventions may be identical or obvious variants of each other. When two inventions are “similar” in this sense, a conflict arises. When two inventions are not “similar” in this sense, no conflict arises. Let us hope that the Massachusetts court recognizes this, and does not throw patent lawyers into an impossible thicket of trying to determine whether inventions are “similar” by some other poorly defined standard.

No discussion of this topic would be complete without mentioning a recent set of changes to patent law that will affect conflict of interest considerations for patent applications filed in the future. The America Invents Act (AIA) was signed into law on September 16, 2011, and makes a number of significant changes to patent law. See generally Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011). Most relevant here, the AIA changes the rules for determining who will be awarded a patent when two inventors file patent applications for the same invention. Under pre-AIA law, an interference would be declared to decide which applicant was the first inventor of the disputed invention. The AIA adopts a much simpler procedure. For all patent applications filed after March 16, 2013, the patent will be awarded to the first inventor to file his or her patent application. See generally 3A D. Chisum, Chisum on Patents § 10.10 (2012). 

The AIA thus creates a “race” to the PTO between inventors. See, Robert Braun, America Invents Act: First-to-File and a Race to the Patent Office, 8 Entrepreneur Bus. L.J. 47, 62 (2014). The winner of that race will receive a patent, regardless of what is in the loser’s patent application, assuming the winner’s invention meets all of the criteria for patentability. The loser of the race, however, will receive a patent only if its invention is sufficiently different from the winner’s invention. 35 U.S.C. §§ 102(a)(2), 103 (2015). This places the loser of the race at a serious disadvantage. 

A lawyer who attempts to represent both parties to the race may face different ethical obligations than a similarly situated attorney before passage of the AIA. The lawyer may have an ethical obligation to help each client win the race to the PTO. But the lawyer cannot possibly achieve this goal for both clients. One client will win the race, and the other client will lose it. And the lawyer will decide the winner and the loser depending upon which application the lawyer chooses to prepare and file first. 

Passage of the AIA thus raises a new set of potentially complex ethical issues for lawyers who prosecute patent applications for different clients in the same technological field. The Massachusetts court presumably will not address these issues because they are not raised by the facts presented to it. We can only hope that other courts will provide guidance on this issue more quickly than they have addressed the issue with respect to pre-AIA patent applications.

Paul Stewart practices patent, trademark, and copyright law at Knobbe, Martens, Olson & Bear LLP. He can be reached at paul.stewart@knobbe.com.
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