by Michael STEWART
Conflict of Interest
(Topics for Discussion Provided by FICPI)
(1) The search reveals a trademark prosecuted to registration by the firm. Does it make any difference whether the relevance is remote or the last contact with the former client was 10 years ago?
The facts of this hypothetical situation set forth a potential conflict rather than an actual conflict. There is no indication that the newer client will apply for a mark, that the mark will be granted, or that the older client will oppose the mark. Thus, the attorney is in the difficult position of trying to anticipate a conflict.
In the United States, a practitioner is bound by nine ethical canons, which are incorporated into the Model Rules of Professional Conduct and the Code of Federal Regulations, which apply to practitioners before the USPTO.
Ethical Canon 9 applies to this hypothetical and states that "[a] lawyer should avoid even the appearance of professional impropriety."
Whether the relevance of the trademark of the former client is remote to the current search plays an important part in the analysis for an appearance of impropriety. As a general rule, a conflict arises if the representation of the new client is in a matter adverse to another/former client and if the subject matter of the current representation is substantially related to the subject matter of the prior representation.
This is the "substantial relationship test." Under this test, the closer the client's interests are to being "directly" adverse, the more likely an impermissible conflict will occur.
Ethics rules strictly prohibit concurrent representation of clients with directly conflicting interests. Unfortunately, this rule raises many questions of interpretation without much guidance. For example, what is "directly" adverse? When might an attorney have a reasonable belief that the representation is permissible? How much of a conflict does it take to adversely affect the relationship?
If the matter is potentially adverse to the first client, and the first client does not agree to your representation of the second client, the representation will likely be impermissible. Thus, in this type of situation, the practitioner is forced to decide whether the potential conflict will become an actual conflict.
The duty to preserve a client's confidences survives the termination of the attorney-client relationship (or, in the context of this topic, a dormant trademark file). The "substantial relationship test" is used in this context as well. Courts focus on whether the attorney would have or reasonably could have learned information in the first representation that would be of significance in the second.
Other than any effect on the relevance of the search to the trademark, the timing of the last client contact should not become a factor in determining a conflict. The key question is still whether the attorney should expect a potential conflict.
The Seventh Circuit set forth a three-step test for determining substantial relatedness. First, the court will try to recreate the actual scope of the prior representation. Secondly, the court will ask what confidential information a reasonable client would have given to a reasonable attorney in the course of such representation. Finally, after the first two inquiries, the court will presume that the client did share any information a reasonable client would have given his attorney, and ask whether this information is relevant to the second representation. If the information is relevant, the Court will find that the attorney had an improper conflict of interest in representing the second client.
One way to handle the matter is by seeking the informed consent of both parties, particularly if the chances of a potential conflict becoming an actual conflict are remote. A written consent agreement should fully inform the parties of the potential conflict and the risks involved. Most conflict of interest problems can be waived by the affected parties (the only exception is where the conflict is so great that an impaired relationship with one of the parties is inevitable).
(2) The inventor asks your advice when a similar concept was the subject of an application handled by one of your partners last year.
Rule 1.10 of the Model Rules of Professional Conduct establishes a two-step analysis for attorneys associated in a firm. The first step (a) is to decide whether an attorney practicing alone would be barred from taking on a matter under the conflict of interest rules. If so, the second step (b) is automatic. The same bar applies to all attorneys who are associated in the same firm. No distinction is made between partners, associates, or "of counsel" attorneys.
A "firm" as defined in the Rules can be interpreted as a private firm, an organization's legal department, or a legal services organization. The key is the exact nature of the relationship; the relationship is decided on a case-by-case basis. Relevant factual inquiries could even include attorneys sharing the same office space, libraries, or secretaries.
The purpose of this rule is to prevent an attorney who is barred from representation from simply handing the matter over to a partner or associate. "The exact relationship is immaterial, so long as they were in some way associated in the practice of law."
An attorney in Chicago represented a major corporation in litigation against several oil companies. An attorney in the firm's Washington, D.C. branch office was preparing a lobbying effort for the same oil companies. The matters were substantially related, and neither attorney knew of the other's involvement. The court applied the automatic bar rule and considered the firm's large size, separate offices, or the fact that the attorneys did not talk to one another as irrelevant facts. Once the relationship was discovered, the firm had to take remedial action and withdraw from the case. A client had already paid the firm $2.5 million in fees, resulting in a suit against the firm by the shareholders of the client.
In some cases, because of the timing of the notice of the conflict, judges have refused to disqualify the firm when balancing the conflict and potential damages to the client with the hardship it would impose on the client if the relationship were to be severed.
(3) You take a partnership in a firm acting for the opponent in an opposition handled by you at your previous firm.
Canon 4 states that "[a] lawyer should preserve the confidences of his client."
Disciplinary Rule 4-101 and 37 CFR 10.57 indicate that the "confidences" that should be preserved relate to information that would be protected by the attorney-client privilege. "Secrets" refers to other information that the client has requested be kept secret or which would be embarrassing or detrimental to the client if disclosed.
The law is quite clear that the new partner (or a new associate) is prevented from representing the former client's opponent (the new client at the new firm) in an action that involves matters substantially related to the attorney's former relationship.
The basic inquiry is whether it reasonably could be said that the attorney, in the former relationship, acquired privileged information relevant to the new firm's representation against the former client. Since the facts of this hypothetical indicate that the attorney was directly involved, the answer will be in the affirmative. The court will find that a substantial relationship existed between the former and present representation. Thus, the second relationship will be improper unless the former client consents that the attorney, as a member of another firm, may represent the opponent.
A more difficult variation of the above hypothetical is if the entire new firm can be disqualified from representing the new attorney's former opponent as a result of the new attorney's disqualification.
If the new attorney is disqualified, there exists a rebuttable presumption that the new attorney shared confidences with the new firm. If the new firm fails to rebut the presumption, the firm will be vicariously disqualified from representing its client.
In order to rebut the presumption of shared confidences, it is necessary to demonstrate that sufficient institutional mechanisms have been set up to prevent the flow of confidential information. The factors a court will consider are: (1) the size of the firm (small firm or large firm with the new attorney in a different practice group or branch office), (2) likelihood of contact with attorneys handling the representation, (3) whether the attorney shares in fees from the litigation, and (4) internal rules which prevent the attorney from gaining access to litigation information.
The bottom line is that when a firm makes a lateral hire, the firm should make sure that mechanisms are in place to assure that the new attorney is isolated from any matter even remotely connected with the attorney's prior employment.
A law firm hired a judge's law clerk who was assigned to an infringement case that the law firm had handled. However, the court refused to disqualify the firm because the firm had established a "Chinese Wall" around the new hire. Before the new hire started, the firm notified all of its attorneys that a "Chinese Wall" had been established around the new hire. The firm placed locks on the doors of offices and storage rooms where files relating to the case were kept. Furthermore, documents related to the case were stored separately from the main file room. In view of these and other precautions, the firm was not disqualified.
(4) You are appointed Patent manager in a company, the main rival to your previous employer for whom you were Patent Officer.
As an attorney for the company, the company takes the role of the client. Thus, the attorney would be under the same duty to maintain the confidences of the company as an attorney who changed law firms.
Courts have applied the concept of "substantially related matters" in this situation.
In Guzewicz , the court ruled that a former general counsel for a corporation may represent stockholders in a derivative action against management where the claim does not involve matters substantially related to the attorney's prior work in the corporation.
In addition to conflict of interest situations, non-competition and/or confidentiality agreements may apply in the corporate setting.
An interesting corporate-related case discussing conflicts of interest occurred in Telectronics v. Medtronic. In Telectronics, an attorney was in-house counsel for Corporation A. The attorney obtained a patent for an employee's invention who assigned the rights to Corporation A. The employee later left Corporation A for Corporation B. The attorney left Corporation A for Corporation C. Years later, Corporations B and C both thought that they had rights to the original patent through a license. Corporation B sued Corporation C for infringement. Part of Corporation C's defense was to attack the patent. Accordingly, the attorney who helped procure the original patent was now attacking his own work product. In the suit, Corporation B tried to have the attorney (who now worked for C) disqualified based on the "former client" status of Corporation B and Employee.
The Federal Circuit stated that Corporation B and the employee were never clients of the attorney (the attorney/client relationship as to the attorney and Corporation A was not disputed, and A waived the privilege). The Court ruled that an assignment of a patent does not transfer an attorney-client relationship. Also, the Court ruled that Corporation A was the client, not Employee. Employee could not have expected his confidences to be withheld from Corporation A. Thus, the attorney/client privilege runs to the client, not the patented property or the attorney's work product.
(A) Should there be minimum standards set forth for an IP firm's trademark and patent due date docketing system?
Discussion: Yes. The more difficult question is what those standards should be. To be safe, a firm should use a standard that exceeds the normal "due care" malpractice standard. Firms should have a dual docketing system in which all important dates go into both a central docketing system (some firms have "group" or "office" systems), and into individual calendar systems maintained by each attorney involved in a matter. Some large full-service firms use a separate (and more extensive) docketing system for their IP groups, because of the heightened importance of the docketing system in the IP practice area.
(B) You agree to act as an expert in a patent case. You state an opinion as to law and certain facts. A few years later, your Client A (represented by you) is on the reverse side of the identical issues. Should you advise Client A as to your prior "on the record" position? What if you do not?
Discussion: If the position that you have taken is material to the outcome, the safest course is to inform the client. ABA Formal Ethics Opinion 93-377 holds that if a law firm takes different positions on the same legal question for two separate clients, and it is likely that the firm's position in one could adversely affect the contrary arguments in the other case, a Model Rule 1.7(b) conflict exists, requiring disclosure and consent by each client. Here, it is arguable that Client A should be informed that opposing counsel might cite your testimony against you (particularly if there is reason to believe they may become aware of it). Some ethics attorneys disagree with 93-377, and some would probably distinguish the "expert testimony" situation, but caution suggests disclosure would be advisable. At a minimum, there is a potentially serious business conflict that would be exacerbated by non-disclosure.
The Law of Lawyering, Hazard et al., Second Edition;
Avoiding Conflicts of Interest in an Era of Corporate Change, 14 AIPLA Q. J. 104 (1986)
Lawyer Liability and Ethics Problems in Patent or Intellectual Property Practice - What are the Toughest Issues?, Loss Prevention Journal (January 1998).
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