“Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP”: The SJC Addresses the Ethics of Patent Subject Matter Conflicts

solomont_charlespalmer_julieby Charles L. Solomont and Julie Silva Palmer

Case Focus  

In Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, 473 Mass. 336 (2015), the Supreme Judicial Court (“SJC”) ruled that a law firm does not violate the Rules of Professional Conduct per se when it simultaneously represents business competitors. The SJC warned, however, that a conflict of interest could arise where the representation of one competitor impairs the law firm’s ability to fully represent the interests of another. The opinion provides nuanced guidance for all lawyers in Massachusetts, and all patent attorneys throughout the United States.

The Rules of Professional Conduct

Mass. R. Prof. C. 1.7 prohibits a lawyer (with limited exceptions) from representing a client where there exists a “concurrent conflict of interest.” A conflict occurs where either (1) “the representation of one client will be directly adverse to another client;” or (2) “there is a significant risk that the representation of one or more clients will be materially limited” by a lawyer’s other responsibilities.  In Maling, the SJC considered both prongs in the context of “subject matter” conflicts, a special category of conflict that may arise in the patent arena because of “the simultaneous representation of clients competing for patents in the same technology area.” Id. at 337. The SJC addressed whether such situations render the competing interests of two clients “directly adverse” to each other, and whether they “materially limit” a lawyer’s ability to represent either client.

Maling v. Finnegan

The plaintiff, Maling, engaged the defendant law firm (“Finnegan”) to prosecute patents in the screwless eyeglass market.  Finnegan accepted this representation without disclosing to Maling that it also prosecuted patents for Masunaga Optical Manufacturing Co., Ltd. (“Masunaga”), a company in the same market.  During the period that Finnegan’s Boston office successfully obtained four patents for Maling, Finnegan’s Washington D.C. office prosecuted patents on behalf of Masunaga.  When Maling learned that Finnegan represented Masunaga, he brought suit.

Maling claimed that Finnegan’s simultaneous representation of Maling and Masunaga was a conflict of interest that Finnegan had a duty to disclose. Maling alleged that he would not have invested millions of dollars to develop his product if Finnegan had disclosed the alleged conflict.  Maling also claimed that he lost critical financing when Finnegan refused to provide him an opinion letter concerning similarities between the Maling patents and the Masunaga patents.  The trial court granted Finnegan’s motion to dismiss. The SJC, on its own motion, transferred the case and affirmed.

Were the Representations Directly Adverse?

In ruling on whether Finnegan’s simultaneous representation of Maling and Masunaga was directly adverse to Maling’s interests, the SJC relied in part on Curtis v. Radio Representatives, Inc., 696 F. Supp. 729 (D.D.C. 1998),  in which the D.C. District Court held that a law firm’s simultaneous, successful representation of two radio stations applying for broadcast licenses posed no conflict.  That Court further held 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.  Rather, a breach of the duty would require an actual conflict of interest, such as both clients seeking broadcast licenses where “objectionable electrical interference existed between two stations.”  Id.

Analogizing Curtis to the case at bar, the SJC noted that Finnegan successfully obtained patents for both Maling and Masunaga, and held that, on the facts presented, there was no directly adverse representation.  Quoting the American Bar Association Standing Committee on Ethics and Professional Responsibility (ABA Op. 05-434), the SJC confirmed that “direct adverseness requires a conflict as to the legal rights and duties of the clients, not merely conflicting economic interests.”  Maling, 473 Mass. at 341. For example, the SJC opined, a conflict likely would have occurred had Finnegan provided the opinion letter Maling requested, because such a letter would have involved “the legal rights and duties of the two clients vis-à-vis one another.”  Id. at 344.  But in the absence of an allegation that Finnegan agreed in advance to provide opinion letters, Maling’s complaint for a breach of duty failed to allege an actionable conflict.

Was the Representation Materially Limited?

With respect to whether the simultaneous representation “materially limited” Finnegan’s ability to perform its duties, the SJC reaffirmed its holding in Matter of Driscoll, 447 Mass 676, 686 (2006):  The “critical inquiry” is “whether the lawyer has a competing interest or responsibility that will materially interfere with the lawyer’s independent judgment in considering alternatives or forecloses courses of action that reasonably should be pursued on behalf of the client.”  Maling, 473 Mass. at 345.  The SJC also distinguished Maling from Sentinel Prods. Corp. v. Platt, 2002 WL 1613713 (D. Mass. July 22, 2002), in which a conflict of interest was found to exist when a law firm narrowed the claims in one client’s patent application so as to avoid overlap with the claims in a second client’s patent application.  Maling failed to allege an analogous, actionable conflict because the complaint did not allege “that Finnegan’s judgment was impaired,” that it pursued “a less robust patent,” or that either client gained any advantage because Finnegan’s dual representation “materially limited” its ability to discharge its responsibilities to both clients. Maling, 473 Mass. at 346.

SJC Commentary on the Rules of Professional Conduct

While the holding of Maling v. Finnegan is arguably limited to the specific context of subject matter conflicts arising from patent prosecutions, the SJC’s decision provides some important insights into its interpretation of the Rules of Professional Conduct.  The SJC explained that the “purpose of rule 1.7 is twofold.  It serves as a prophylactic measure to protect confidences that a client may have shared with his or her attorney and safeguards loyalty as a feature of the lawyer-client relationship.”  Maling, 473 Mass. at 340.

The SJC also commented on Mass. R. Prof. C. 1.10, which prohibits a firm from representing a client when any one of its lawyers alone would be prohibited from doing so (except in limited circumstances).  The SJC reiterated that this rule obligates firms to “implement procedures to identify and remedy actual and potential conflicts of interest.”  Maling, 473 Mass. at 348.  While the SJC declined to define a minimum protocol for conflicts checks, it noted that firms must “avail themselves of a robust conflict system adequate to the nature of their practice.”  Id.

Finally, the SJC also emphasized what most attorneys likely view as obvious: “[b]efore engaging a client, a lawyer must determine whether the potential for conflict counsels against undertaking representation.”  The SJC cited Comment 8 to Rule 1.7 for elaboration.  That Comment instructs that “[t]he 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 . . . .”

Charles L. Solomont is a partner at Morgan, Lewis & Bockius LLP. He has handled complex litigation, class action, and regulatory matters for 20 years.

Julie Silva Palmer is a senior associate at Morgan, Lewis & Bockius LLP. Her practice focuses on complex business litigation matters.

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