Adversity and Material Limitations in Patent Practice: Litigation, Opinions, and Prosecution

By David Hricik Excerpted with permission from

David Hricik & Mercedes Meyer, Ethics: Patent Prosecution (Lexis/Nexis 2015-16 ed.)

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Chapter 10 Adversity and Material Limitations in Patent Practice: Litigation, Opinions, and Prosecution

§ 10.01 Scope § 10.02 Choice of Law in Disqualification Matters [1] The Important Role of the Rules in Determining Adversity, Especially in Federal Court or in the USPTO [2] The Questionable Value of Federal Precedent in State Court § 10.03 “Adversity” and “Material Limitations” as Ethical Boundaries [1] Introduction [2] The Model Rules and the USPTO Provisions [3] The Meaning of “Adversity” [4] The Meaning of “Material Limitations” § 10.04 Conflicts in Patent Litigation [1] Introduction [2] Helping Out Behind the Scenes [3] Making Assertions in Pleadings and Motions Adverse in a Case Not Naming a Client, but which Make the Case Against a Client [4] Representing a Patentee in Parallel Co-Pending Patent Suits, Only One of which Is Against a Client [a] Adversity? [b] Materially Limited? [c] What to Do? [5] Adversity in Opinion Practice [a] The Two Existing Decisions [b] What to Do? [6] Adversity from Concurrent Representations in Patent Prosecution § 10.05 Conflicts Created by the Property Right in a Patent [1] The Conflict Created by the Right of Priority [2] The Conflict Created by the Right to Exclude § 10.06 Information as a Source of Conflict and Liability [1] Information as a Source of Liability: Trade Secret Misuse [2] Information as a Source of Conflict: Possession of Confidential Information of One Client that Is Material to the Patentability of Another Client’s Claim [a] The Federal Circuit’s Three Answers [b] 10.08 The USPTO’s Preliminary Answer § 10.07 Is There “Adversity” in Common Prosecution Activities? [1] Introduction [2] What to Do?

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§ 10.01 Scope

A basic principle of the fiduciary duty is that a practitioner must be loyal to his client. A practitioner cannot act adversely to a client. But loyalty goes further: loyalty requires that a practitioner represent a client with full vigor. Thus, a practitioner whose representation of a client is materially limited by the practitioner’s obligations to anyone – including the interests of the practitioner -- else violates the obligations to a current client. Both of these aspects of loyalty are discussed in this chapter. The loyalty principle is weaker once a representation ends. Thus, as Chapter 11 shows, a practitioner may be adverse to a former client, but not in a matter that is “substantially related” to the work the practitioner did for the client. However, the same principle concerning material limitations holds true: if the practitioner is unable to vigorously represent a current client due to a former representation, the practitioner cannot represent the client in that matter. In addition, specific, but narrower, duties of confidentiality remain in force.

§ 10.02 Choice of Law in Disqualification Matters [1] The Important Role of the Rules in Determining Adversity, Especially in

Federal Court or in the USPTO Chapter 3 contains a reasonably comprehensive discussion of choice of law. However, because differences on approaches to conflicts of interest among the courts and the USPTO are sometimes outcome determinative in the context of conflicts of interest, we lay out some additional details here. At the outset, disciplinary rules of a state are just that—disciplinary rules. Invariably, they state that they should not be used as a basis for determining disqualification or civil liability—but courts routinely use them for those purposes.. However, the courts disagree on precisely their role: are they controlling “minimum standards,” or merely guidelines for the court to consider in determining an ethical issue? For example, the Arizona Supreme Court has “declined to use the court’s own ethical standards as a basis upon which to impose legal malpractice liability,” but stated that Arizona’s disciplinary rules “may provide evidence of how a professional would act, they do not create a duty or establish a standard of care as a matter of law.”2 The space between those two propositions is often not great. Thus, while the focus in many parts of this chapter is on disciplinary rules and authorities interpreting them, in actual practice, the rules may not bind a state court in a disqualification matter. Moreover, federal courts are deeply divided—sometimes even within the same circuit—on what role state disciplinary rules play in deciding federal ethical issues. That is important because many patent practitioners litigate beyond their home state. What may be proper in an Arizona state court or in the Fifth Circuit may be entirely inappropriate in the Northern District of California, for example.

2Stirling Bridge, L.L.C. v. Quarles & Brady, LLP, 2009 Ariz. App. Unpub. LEXIS 968 (Ariz. Ct. App. Dec. 10, 2009) (quoting Stanley v. McCarver, 92 P.3d 849 (Ariz. 2004)) (quotation marks and citations omitted).

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This is exacerbated, because federal courts disagree – sometimes openly, sometimes unknowingly -- on what role, if any, state disciplinary rules play in determining ethical issues that arise in federal court. One common approach some circuits or district courts follow in determining ethical issues facing counsel appearing in federal court litigation is to disqualify counsel if it is appropriate under either “federal common law” or ethical rules (state or Model Rules) as adopted by a court’s local rules.3 Practice before the USPTO, as shown in Chapters 2 and 3, is governed by the USPTO’s own unique code, and now rules. Generally speaking, application of most choice-of-law rules would end up causing a tribunal to apply only the PTO Code or the USPTO Rules to a practitioner’s conduct occurring before the Office, as we saw in Chapter 3. In other words, even if a disciplinary proceeding were brought by the Illinois, Michigan, or Iowa bar, that bar would likely apply the PTO Code or only the USPTO Rules to the practitioner.9 Whether the USPTO Rules or PTO Code applies depends on the timing of the alleged misconduct at issue. But determining that the PTO Code or USPTO Rules applies does not give the complete answer as to what law applies. Instead, and as shown in Chapter 3 and amplified here, in deciding petitions to disqualify the USPTO has taken different views of whether—even if a matter is adverse to a current client—the petition to disqualify should be granted. Unsettling as it is, even if the USTPO denied a petition to disqualify, the OED nevertheless could discipline the lawyer.

§ 10.03 “Adversity” and “Material Limitations” as Ethical Boundaries [1] Introduction

Two general principles govern the obligations that outside counsel owe to current clients, and are found in all ethical rules and the law of fiduciaries or agents. One relates to representations that are directly adverse to a current client; the other relates to “pulling punches”—when the practitioner’s duties to someone else, including the practitioner herself, materially limit her ability to represent a client.

[2] The Model Rules and the USPTO Provisions MODEL RULE 1.7 contains two prohibitions concerning conflicts of interest between two current clients: (a) a lawyer may not represent one client “directly adverse to another client”; and (b) he may not “represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client.”12 Under the principle of imputed disqualification, if

3Cole v. Ruidoso Mun. Schools, 43 F.3d 1373 (10th Cir. 1994). See Hermann v. Gutterguard, Inc., 199 F. App’x 745 (11th Cir. Sept. 11, 2006). 9See, e.g., MODEL RULE 8.5(b)(1) (if lawyer’s conduct occurs before a tribunal, its rules should apply); ILL. R. 8.5(b)(1) (same); MICH. R. 8.5(b)(1) (same). 12Rule 1.7 provides: Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: the representation of one client will be directly adverse to another client; or

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one lawyer may not undertake a representation, generally no lawyer in the firm can.13 Clients can consent, under some circumstances, after full disclosure, as discussed in the chapter on consent. The USPTO Rule is substantively identical with the Model Rule. It provides in full:

(a) Except as provided in paragraph (b) of this section, a practitioner shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(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 the practitioner’s responsibilities to another client, a former client or a third person or by a personal interest of the practitioner.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a) of this section, a practitioner may represent a client if:

(1) The practitioner reasonably believes that the practitioner will be able to provide competent and diligent representation to each affected client; (2) The representation is not prohibited by law; (3) The representation does not involve the assertion of a claim by one client against another client represented by the practitioner in the same litigation or other proceeding before a tribunal; and (4) Each affected client gives informed consent, confirmed in writing.1

Thus, if either direct adversity or a material limitation on the practitioner arises, the practitioner faces a conflict of interest that precludes representation without – at a minimum -- obtaining informed consent confirmed in writing from the client. (Again, consent is discussed in a separate chapter.)

[3] The Meaning of “Adversity” The courts have generally interpreted Model Rule 1.7(a) —upon which most rules are based—to mean what it says: a lawyer may never be adverse to a current client unless the client consents or

there is 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. Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if each affected client consents after consultation, and: the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; the representation is not prohibited by law; and the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal. 13In most states, this the combined effect of Rules 1.9 and 1.10. However, under some circumstances, some states permit screening of “migrating” lawyers under Rule 1.10. 1 37 C.F.R. 11.107

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waives any objection, with some courts denying motions to disqualify if the lawyer demonstrates that there are exceptional circumstances that would serve either a professional or societal interests that would outweigh the public’s perception of impropriety.18 In the context of disqualification, at least, the PTO Code had not been as strictly interpreted, however, There is no authority, yet, interpreting the USPTO Rule provision on current client conflicts. Again, and under the Model Rules (and so most states), or the USPTO authorities, generally, if one lawyer in a firm is disqualified, all are.19 Thus identifying adversity is critical. Sometimes this is easy.

The line between permissive economic adversity and the kind of adversity prohibited by the disciplinary rules is seldom litigated. However, a recent decision from the International Trade Commission (ITC) involving a motion to disqualify brought by Google against the Pepper Hamilton firm is one of the rare cases actually litigating the issue and finding only economic harm and no legal conflict of interest.25 In that case, Pepper Hamilton was prosecuting a few patent applications for Google. The firm undertook to represent a patentee, Digitude, in an exclusion proceeding before the ITC. Digitude was seeking an order preventing importation of certain cell phones and other devices. Google was not a defendant, and its products and services were not accused of infringing the patent. Nonetheless, the accused products used Google’s Android software, and that software allegedly satisfied one element of the claim-in-suit. Google intervened in the proceeding, contending that Pepper Hamilton was adverse to it because Google was a member of a consortium (the “Open Handset Alliance”) that provided, free of charge, the Android software as an open source product to the device makers. Further, the Open Handset Alliance specifically disclaimed any warranty of non-infringement when doing so. The staff recommended denying the motion to disqualify, and the administrative law judge (ALJ) did so. The ALJ rejected several arguments presented by Google to establish adversity despite the usual indicia under the burden of proof required in the ITC:

Based on the foregoing, I find that Google has not clearly demonstrated that Pepper Hamilton’s representation of Digitude is “directly adverse” to Google. Any finding of a violation of Section 337 in this investigation will not impact Google’s legal interests because of the wording of the Apache 2.0 license under

18In re Dresser Industries, 972 F.2d 540, 545 (5th Cir. 1992). 19E.g., MODEL RULE 1.10(a) (except when the conflict arises from a migrating lawyer, “while lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rule[] 1.7 … .”). 25In re Certain Portable Communication Devices, Inv. No. 337-TA-827 (Order No. 7 Feb. 13, 2012). In the interests of full disclosure, Professor Hricik served as an expert retained by Pepper Hamilton in this matter. Another case addressed a similar fact pattern but has far less discussion of the meaning of economic adversity. See In the Matter of Certain Baseband Processor Chips and Chipsets, Transmitter and Receiver (Radio) Chips, Power Control Chips, and Products Containing Same, Including Cellular Telephone Handsets, USITC Inv. No. 337-TA-543, Order No. 29 (March 6, 2006) (denying motion to disqualify).

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which Android is licensed [which disclaimed the warranty of non-infringement]. Moreover, I find that Google did not provide the full factual background when it asserted that Android is a “Google product,” as the evidence establishes that Android is an open source project run through the Open Handset Alliance, whereby the software is provided at no cost and everyone is invited to contribute. Google asserts that Pepper Hamilton’s representation of Digitude is adverse to Google’s business interests as well. Google offers no evidence regarding how Google’s business interests will be harmed through this litigation. Instead, Google offers a declaration from its in-house Litigation Counsel that makes conclusory assertions such as “Google has a strong interest in preserving the Respondents’ continued importation of devices that incorporate Google’s Android technology,” and, to the extent that Digitude’s infringement claims are directed to Android, “Google’s legal and business interests are harmed.” Such unsupported assertions do not demonstrate that Google’s business interests will be harmed if Digitude obtains relief against the respondents’ Android-based products. Google argues that respondents in this investigation who make products that do not run the Android operating system may assert Google’s patents or technology as prior art that invalidates Digitude’s patents, thereby requiring Pepper Hamilton to attack Google’s prior art patents or technology. Google offers no evidence that any Google patent or technology is being asserted as prior art in this investigation, making Google’s argument pure speculation. The mere possibility that Google prior art will be relied upon in this investigation does not give rise to a Rule 1. 7 violation. Google raises a concern regarding Google’s possible involvement in this investigation as a third party. Pepper Hamilton has assured Google that it will not seek any third party discovery from Google in the current investigation. (See Ex. F to Google Mot.) Pepper Hamilton has also assured Google that if another party seeks third party discovery from Google and a deposition takes place, no Pepper Hamilton attorney will examine a Google witness. (ld) I find that these assurances are sufficient, and that Pepper Hamilton will be held to these promises, and the other promises included in Mr. Zemaitis’ January 20, 2012 letter. (ld) Pepper Hamilton shall have no involvement in any Google third party discovery in this investigation. This prevents any potential direct adversity from arising. Google also raises a concern regarding the confidentiality of its information. Google has not offered any evidence that its confidential information has been viewed or used by Pepper Hamilton attorneys representing Digitude. Pepper Hamilton has already established an ethical screen. With this ethical screen in place, Pepper Hamilton attorneys working on this investigation on behalf of Digitude cannot access Google’s confidential information, and Pepper Hamilton attorneys working on behalf

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of Google cannot access confidential information in the current investigation. Digitude offered declarations from the Pepper Hamilton attorneys who have made an appearance in this investigation, with each declaration stating that the attorney has not, inter alia, performed legal work for Google or accessed any Google confidential information while at Pepper Hamilton. Moreover, there is a physical separation of any hard copy documents, as Pepper Hamilton’s work for Google takes place in its Pennsylvania and Delaware offices, while Pepper Hamilton’s work for Digitude takes place in its Massachusetts and Washington, DC offices. I find that the actions taken by Pepper Hamilton serve as a reasonable precaution to keep the confidential information of Google and Digitude separate. Pepper Hamilton shall ensure that these safeguards are kept in place. In sum, I find that Google has not met its heavy burden in demonstrating that Pepper Hamilton should be disqualified from representing Digitude in this investigation.26

In other cases, the courts have determined, based upon the particular facts and law that a case fell on one side or the other of the dividing line between acceptable economic adversity of two clients and unethical adversity by the lawyer.27 For example, in a somewhat more prolonged analysis than some courts engage in, a Massachusetts court wrote:

The parties agree on little, but each concedes that none of the authorities relied upon—within Massachusetts or without—is closely on point. The real claim here is one for conflict of financial interests, or “economic adversity” conflict. As such, Micromet’s motion “touches on an unsettled and vigorously

26Id. (citations omitted). 27E.g., ABA Formal Op. 05-435 (Dec. 8, 2004) (concluding that a lawyer who represents as a client an insurance company named as a party in litigation could represent another client in a suit against a defendant who is insured by a policy issued by the insurance company client); Texarkana College Bowl, Inc. v. Phillips, 408 S.W.2d 537, 540 (Tex. App. 1966, no writ) (rejecting as evidence that corporate directors were not acting in the best interest of the corporation because their lawyers represented a competing bowling alley and finding that “[l]egal counsel may, within very narrow limits, represent clients having adverse economic interests.”); Gursky & Ederer, LLP v. GMT Corp., 5 Misc. 3d 1022(A), 799 N.Y.S.2d 160, 2004 NY Slip Op 51508(U) (N.Y. Sup. Ct. Oct. 5, 2004) (concluding that client stated claim upon which relief could be granted where it alleged that lawyers assisted former employee of current client establish competing business); Ackerman v. Miotke, 2006 Mich. App. LEXIS 942 (Mich. Ct. App. Apr. 4, 2006) (suit against attorneys who had represented clients with similarly situated properties where attorney helped one client to site casino on its property, but both clients were trying to sell to the casino); In re Cardinal Health, Inc. ERISA Litig., 225 F.R.D. 552 (S.D. Ohio 2005) (common fund class action); N.C. State B. v. Whitted, 347 S.E.2d 60 (N.C. Ct. App. 1986) (finite fund case); Fiandaca v. Cunningham, 827 F.2d 825 (1st Cir. 1987) (conflict among class members with different equitable remedial goals); Tex. Ethics Op. 500 (1994) (lawyer representing multiple plaintiffs has a conflict if the defendant has inadequate damages to pay reasonable damages).

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debated area of professional ethics.” On one side of the spectrum we have examples of competing economic enterprises which fear unfair competition as a result of attorney conflict. On the other side of the spectrum are situations of closely held businesses or estates, where the clients have close financial or personal relationships but find themselves as direct adversaries, and counsel literally appears on both sides of an issue closely related in both time and subject matter. Neither of these two extremes is true here.28

The court went on to hold that there was no adversity, even though the firm, if successful, apparently would have reduced the value of stock owned by one of its clients by roughly $1 million if it was successful in an arbitration against a non-client: “economic loss alone does not usually rise to the level of irreparable harm.”29 Illustrating the fact-intensive nature of this inquiry, facing somewhat distinct facts, the Federal Circuit reached a different conclusion in a rare case where the movant sought to disqualify a lawyer from representing a party on appeal.2 Conflict-free firms were representing a patentee in a suit against a lithium battery supplier. That supplier was the only source of specialized batteries that Apple uses. The patentee obtained a preliminary injunction against the battery supplier. Apple was not a party to the suit against the battery supplier.

At that point, Jones Day appeared in the trial court and to handle the appeal. Jones Day had realized that it could not be adverse to Apple, and so structured its relationship with the patentee to avoid counseling the patentee in any matter against Apple, including licensing negotiations. On appeal, Jones Day refused to withdraw and Apple moved to intervene to disqualify Jones Day.

The Federal Circuit granted the motion in an unpublished disposition. The court held that

this was not merely permitted economic adversity but was adverse because “Apple faces not only the possibility of finding a new battery supplier, but also additional targeting by [Jones Day’s client, the patentee] to use the injunction as leverage in negotiation a business relationship.” To the court, this meant Jones Day was adverse “in every relevant sense.”

The differing results in Google and the Jones Day appeal illustrate the difficult issues that

arise, and line drawing needed, in patent litigation. Lawyers cannot simply look at the parties to the suit. Perhaps one question that can be asked at the time of matter intake is whether a supply chain problem can arise with one client with respect to another client that would materially limit the vigor with which the firm could represent a client in litigation.

[4] The Meaning of “Material Limitations”

The notion of when a lawyer’s obligations to one client will materially limit her ability to represent another client is less well defined. The limitation must not only be “material;” it must

28Micromet, Inc. v. Curis, Inc., 2009 Mass. Super. LEXIS 404 (Mass. Superior Ct. Oct. 26, 2009) (citations omitted). 29Id. at *4. The case involved a preliminary injunction, not a typical motion to disqualify. 2 Celgard, LLC v. LG Chem Ltd., 2014 WL 7691765 (Fed. Cir. Dec. 10, 2014).

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be “significantly” likely to arise. Finally, this limitation must arise out of “the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.”33 The rule thus requires first visualizing how a lawyer should represent a client without any other relationship between the lawyer and the client. Then, visualize that lawyer with two clients, or some other relationship. If there is a significant (i.e., not slight) risk that the lawyer will provide the client with materially (not slightly) less zeal and dedication than the baseline because of the lawyer’s responsibilities to another client, a conflict of interest exists.34

§ 10.04 Conflicts in Patent Litigation [1] Introduction

Obviously, appearing as counsel representing a patentee against a current client in an infringement suit is an adverse representation. Beyond that, there are two less obvious actions that have been held, under some circumstances, to constitute an adverse representation.

[2] Helping Out Behind the Scenes Two non-IP cases are often cited for the proposition that a firm that cannot openly act adverse to a current client cannot help some other firm to do the same thing.35 A recent district court in a patent infringement suit distinguished Fund of Funds. In Emblaze Ltd. v. Microsoft Corp.,37 the court reasoned that disqualification of co-counsel was not required unless there was proof of substantial participation by co-counsel with the tainted lawyer. Whether all courts will recognize that “line” remains to be seen.

[3] Adversity From Making Assertions in Pleadings and Motions in a Case Not Naming a Client, but Which Help Make the Case Against a Client

Even if a lawyer’s representation of a client is not in any clear sense directly adverse to another client, there are circumstances “in which a lawyer’s pursuit of a client’s lawsuit or defense may be at odds with or detrimental to the interests of a person or entity that has not been joined in the litigation but is being represented by the lawyer in a different litigation or transactional matter.”38 Identifying precisely when this sort of indirect adverse representation becomes an ethical

33E.g., MODEL RULE 1.7(a)(2); ARIZ. R. 1.7(a)(2); ILL. R. 1.7(a)(2); IOWA R. 1.7(a)(2); MICH. R. 1.7(a)(2). 34See Berkeley Ltd. P’ship v. Arnold, White & Durkee, 118 F. Supp. 2d 668 (D. Md. 2000) (firm breached fiduciary duty when it represented patentee-client without telling it that it represented a party who should have been sued for infringement). 35E.F. Hutton & Co. v. Brown, 305 F. Supp. 371, 378–79 (S.D. Tex. 1969) (disqualifying New York firm that had represented employee from assisting Houston firm from litigating against him in substantially related matter); Fund of Funds, Ltd. v. Arthur Andersen & Co., 567 F.2d 225 (2d Cir. 1977) (trial counsel disqualified for receiving assistance from law firm that breached its duty of undivided loyalty). 372014 U.S. Dist. LEXIS 74992 (N.D. Cal. May 30, 2014). 3851 Laws. Man. on Prof. Conduct 111 (ABA/BNA (2001).

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violation is “difficult.”39

[4] Representing a Patentee in Parallel Co-Pending Patent Suits or Proceedings, Only One of which Is Against a Client

[a] Adversity? Suppose, as happens, a patentee approaches a firm with a list of possible infringers. The firm determines that of the five possible targets, one is a client of the firm. As shown above, the firm cannot represent the patentee against its client. Also as shown above, it cannot act adversely, even though not appearing in court by acting through some other firm in that suit. As a result, suppose the patentee-client retains the firm, but only to sue the non-client defendants. It retains another firm to act separately and file suit against the first firm’s client. Is the first firm, nonetheless, disqualified from representing the patentee against non-clients? Several district courts and the ITC have addressed this issue in the context of patent litigation. Naturally, the courts split on their answer to the question, but focused on whether arguing a Markman46 construction in the case against the non-client that could be used against the client in the other case was enough to create “adversity.” The cases are fact specific,4 and so a fact- and law-intensive inquiry is required to determine if a firm has a conflict of interest even where it is not adverse to a current client, and even if it is not helping a firm to sue a current client, if there is “enough” practical impact to establish direct adversity. That requires careful analysis and thought.

In 2013 a Florida district court found adversity in Arrowpac Inc. v. Sea Star Line, LLC,5 the magistrate judge disqualified the Baker Hostetler firm from acting as counsel for Sea Star in a proceeding against non-clients while other lawyers represented Sea Star in a proceeding against two of Baker Hostetler’s clients, Nestle and YRCW. The parties to all of the cases had stated to the court that the first substantive issue would be a motion filed by the defendants to dismiss Sea Star’s claims, and that the motions would be essentially identical to each other. Baker Hostetler argued that “even if the motion seeking to dismiss the claims of Nestle and YRCS is researched, drafted, and signed by a Baker lawyer, Baker will not be taking a directly adverse position to Nestle and YRCW.”6

The magistrate disagreed. He wrote that “the arguments formulated and advanced by

Baker lawyers could result in the dismissal of the case brought by Nestle and YRCW,” and that “realistic and practical effect is far from general adversity.”7 The magistrate then went on to catalog the various ways that Baker Hostetler’s involvement would complicate the case, including

39Id. 46Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996). 4 It is interesting to note that such cases appear to be supplier / buyer related, with multiple suppliers of products. These more frequently appear in patent litigations over devices. One means of ascertaining potential risk of whether there can be downstream conflicts would be to discuss competitor suppliers when taking on a representation. However, potential risk and potential litigation of competitors rarely if ever can be foretold. 5 2013 WL 5460027 (M.D. Fla. Apr. 30, 2013). 6 Id. 7 Id.

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the need for other lawyers to depose witnesses of that firm’s clients. Because of the finding of adversity, and the fact that the motion was filed early in the proceedings and so would not prejudice Sea Star by losing Baker Hostetler as its counsel, the firm was disqualified.

Recently, an ITC judge disqualified Dentons in a patent case against Gap in Certain Laser

Abraded Denim Garments (Inv. No. 337-TA-930). The ITC judge disqualified Dentons, finding that the firm represented Gap Inc. in 14 other matters. Additionally, Dentons apparently realized that Gap Inc. was a firm client, but did not attempt to obtain informed consent. Dentons argued that Dentons US was legally separate from Dentons Canada and other branches under the Swiss “verein” structure. Gap countered Dentons’ argument that the firm “holds itself out to the world as one firm”. Additionally, Gap argued that it had been a client for some 20 years and Dentons had access to U.S. importation, exportation, financial, and taxation structure, records and information and accused products.8 The ITC judge disqualified Dentons US in the case based on the facts and the violation of Model Rule 1.7, which it applied to the motion.9

[b] Materially Limited? A firm that cannot represent a party opposing a current client in litigation also cannot help some other firm to do the same thing, trying to avoid adversity solely by not making an appearance in court.56 Put the other way, if a firm would be disqualified if it appeared in court, it cannot avoid disqualification by simply acting only out of court.

[c] What to Do? Assuming that the lawyer reasonably believes that he can competently and diligently represent a patentee against a non-client while not assisting another firm that is representing the patentee against the first lawyer’s client, the lawyer should analyze whether adversity likely exists. There are obviously few bright lines here. Among the factors that we believe would matter to the analysis are: (a) the relationship between the two forums in which the representations occur (e.g., is it the same court? same judge? different circuit?); (b) the importance of the legal issue to the representations (e.g., if it is some minor dispute over a claim term, as compared to one that is outcome determinative); (c) the degree of adversity between the two clients and the patentee on the issue; (d) the extent to which there may be a race to decide the issue and whether the winner of that race will be able to use any judgment to preclude the loser in the other case; and (e) whether there is, in fact, likely to be actual legal, as opposed to economic, harm.58

[5] Adversity in Opinion Practice [a] The Two Existing Decisions

Two decisions address whether it is a conflict for outside counsel to opine about the validity or

8 Order 43, Certain Laser Abraded Denim Garments, 1 (Inv. No. 337-TA-930) (May 7, 2015). 9 Id., 11-12. 56E.F. Hutton & Co. v. Brown, 305 F. Supp. 371, 378–79 (S.D. Tex. 1969) (disqualifying a New York firm that had represented employee from assisting a Houston firm from litigating against him in a substantially related matter). See also Arrowpac, supra. 58Cf. D.C. B. Legal Ethics Comm. Op. 301(2000).

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infringement of another client’s patent. Both reached the same result: it is unethical to do so.59 One commentator agreed with them, suggesting that a noninfringement opinion “goes beyond representing merely ‘economically adverse’ competitors.”60 The first, Virginia Opinion 1774 in substantial part states:

You have presented a hypothetical situation in which an associate attorney (“Associate”) in a law firm is assigned a case in which he is asked to write a validity opinion for Client A regarding a patent that Client A is attempting to invalidate. While reviewing this assignment, Associate discovers that the patent in question is held by B, another current client of the firm (“Client B”). Associate brings the issue to his Supervising Partner, suggesting to Supervising Partner that there is a conflict and that in order to proceed with this project, they need to obtain consent from both clients. Supervising Partner disagrees, reasoning that Client A would be adversely affected if Associate did not proceed with the analysis, since Supervising Partner had put in a substantial amount of time on the project before Associate discovered Client B’s involvement, and the patents that the firm wrote for Client B were in a different technology than that of the patent Client A is challenging. Under the facts you have presented, you have asked the committee to opine as to what steps are necessary for the attorneys involved in this situation to take in order to be able to write the validity opinion which Client A requested, assuming the opinion involves Technology X and the firm represents Client B regarding patents in Technology Y. The appropriate and controlling disciplinary rules relative to your inquiry are Rule 1.7, which governs conflicts of interest between existing clients, Rule 1.10, the imputed disqualification rule and Rule 5.1, which addresses the responsibilities of a partner or supervising attorney to his/her firm and those other attorneys over whom he/she has supervisory authority. Rule 1.7 provides: (a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another existing client, unless: (1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and (2) each client consents after consultation. Applying this provision to the facts you presented, the Committee finds that there is a conflict which, absent consent from both clients, precludes Associate and Supervising Partner

59See Andrew Corp. v. Beverly Mfg., 415 F. Supp. 2d 919 (N.D. Ill. 2006); Va. Legal Ethics. Op. 1774 (2003). 60Lisa A. Dolak, Ethical Intellectual Property Opinions (And It’s All Legal!), 843 PLI/Pat. 217 (2005).

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from providing further representation and proceeding to prepare the validity opinion for Client A, in light of the discovery that Client B holds the patent in question. Even though another attorney in the firm represents Client B on patents involving different technology than that involved in the patent in question, nevertheless, assisting Client A to invalidate a patent which Client B holds places the attorneys involved in a position directly adverse to an existing client. Invalidating a patent which Client B holds could be detrimental to Client B and could adversely affect the relationship between Client B and the firm. Rule 1.7 (a) directs that representation of Client A can only continue if the attorneys reasonably believe that the representation will not adversely affect the representation of Client B and both clients consent after consultation. Comment 3 to Rule 1.7 is instructive: As a general proposition, loyalty to a client prohibits undertaking representation directly adverse to that client without that client’s consent. Paragraph (a) expresses that general rule. Thus, a lawyer ordinarily may not act as advocate against a person the lawyer represents in some other matter, even if it is wholly unrelated. It is the Committee’s opinion, therefore, that consent must be obtained from both clients after full disclosure in order to continue representation and work for Client A. Under Rule 1.10, none of the attorneys in a firm “shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so” by Rule 1.7. Disqualification under Rule 1.10 may be waived as provided by Rule 1.7. Thus one must consider the fact situation presented from the point of view of the attorney handling Client B’s patents. Could he, if alone, represent Client A and prepare a validity statement challenging another patent of Client B? If not, then neither Associate nor Supervising Partner can do so without the consent required by Rule 1.7. It is the opinion of the Committee, based on the facts herein, that the attorney representing Client B would not be able to represent Client A in these matters and therefore everyone else in the firm is disqualified unless consent is obtained from both clients.61

Similarly, the Illinois federal district court in Andrew excluded an opinion given to one client about another client’s patent. In that case, the accused infringer tried to rely on an opinion of counsel to defend against a charge of willful infringement. The lawyers who had drafted the opinion, however, had, at the time the opinion was written, been affiliated with a firm that was also representing the patentee. When the accused infringer sought to admit the opinion, the patentee objected. The district court held that the opinion was inadmissible because the opinion was deemed to not be competent:

Barnes & Thornburg’s conflict, which arose from the concurrent

61Va. Legal Ethics. Op., 1774, supra note 56.

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representation of both Andrew and Beverly, who were adverse to one another, prevents Barnes & Thornburg from being able to provide the type of competent, independent advice and opinion letters that the law requires … . The only remedy available to enforce adherence to the Rules of Professional Conduct is, to the extent possible, place the parties in the position they would have been in had counsel acted competently in accordance with the Rules of Professional Conduct. Consequently, it appears that to be fair and to uphold the integrity of the profession, no opinion letter by Barnes & Thornburg while laboring under the unwaived conflict of interest, should be used in any manner in this case.62

In a third case, the Fulbright firm had provided a non-infringement opinion to a corporation. Later, certain assets of that corporation were acquired by a third party.63 Fulbright was then retained by the patentee to sue that third party for infringement. The third party settled the case but then sued Fulbright for breach of fiduciary duty. Fulbright was awarded summary judgment, because the third party had only acquired certain assets of Fulbright’s former client, and so had not succeeded to the attorney-client relationship between Fulbright and its former client. In addition to adversity, a “pulling punches” claim could be brought by the recipient of the opinion, contending the firm had been materially limited in its ability to give an objective opinion due to its obligations to the owner of the patent. Clearly, opining for one client about another client’s patent presents risks.

[b] What to Do? The suit against Fulbright & Jaworski suggests that firms ensure that conflicts databases include patent numbers and perhaps inventors’ names (to catch CIPs, for instance) for any patent that is the subject of an opinion of counsel by a firm. The database should also mean that corporate names be included in the database. While it may be appropriate to undertake litigation for infringement of a patent that a firm had previously stated was not infringed under the facts presented, the possible litigation costs that could arise, along with the competency issues that could be raised by the patentee, indicate that this should be a matter of concern for outside counsel. Both of the other two cases take extremely broad views that, we believe, ignore the finer issues that can actual arise in opinion practice. In the abstract, writing an opinion for a client that another client’s patent is invalid likely will be an adverse representation; however, the grey is not that far away. Neither the Illinois federal court’s decision in Andrew nor Virginia Opinion 1774 is the last word on this complex issue.64

62415 F. Supp. 2d at 928. 63Greene’s Pressure Treating & Rentals, Inc. v. Fulbright & Jaworski, L.L.P., 178 S.W.3d 40 (Tex. App. 2005, no pet.). 64It may also not be the last word on patent conflicts from the Virginia Bar Association: though Op. 1774 addresses invalidity opinions, it is titled “Firm Writing Patents for One Client and Also Writing Patents for Competitor of the First Client.” But, what both clearly mean is that lawyers should be particularly careful when providing opinions to be sure that there is no conflict of interest. The liability that could result could be staggering.

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Until there is definitive authority, firms may want to analyze whether any current client now owns the patent at issue and perhaps—given the case against Fulbright & Jaworski—whether any current client ever owned the particular patent. The bigger problem is keeping track of the ownership history of particular patents given the sale of portfolios and the mergers and acquisitions of different corporate entities, especially given the consolidation of certain industries.

[6] Adversity from Concurrent Representations in Patent Prosecution Conflicts of interest in patent prosecution can arise because a firm prosecutes applications for different clients that are in the same, or nearly the same, area of technology. The issue is one of line drawing, risk identification, and risk management. First, the good news. A firm will not face conflicts arising out of patent prosecution if it represents only one prosecution client. That, obviously, is unrealistic. Moving past that point, a firm could choose to represent more than one prosecution client, but not to represent any two clients in analogous art fields.65 If a firm does so, it should not face informational conflicts (it is hard to imagine information of one client being material to another application in a nonanalogous art field); nor should the firm face competing applications; nor should it even have an examiner cite one client’s application or previously issued patent against another unless it is a very large client covering a broad spectrum of technologies. Again, however, this is probably unrealistic for most firms. And over time, with industry and legal consolidation as discussed above, probably not possible. Further, it denies clients efficiency and imposes unnecessary costs on lawyers, clients, and the system. Once a firm is past that point, where it decides that it will undertake the risk of prosecuting applications for multiple clients within analogous art fields, the risk increases that a conflict of interest will arise. There are several ways this can occur. The next section explores them.

§ 10.05 Conflicts Created by the Property Right in a Patent [1] The Conflict Created by the Right of Priority

In the broadest sense, a practitioner who obtains a patent for one client thereby reduces to all other clients the property available to those clients. What one client patents no other can. Thus, merely obtaining a patent for one client is in that sense adverse to every other client. Yet the mere patenting of subject matter for one client creates no conflict of interest with all other clients, even though by definition the lawyer has helped to take property away from them. The concept of adversity plainly cannot be stretched that far.

65One commentator noted that prosecuting patents in “analogous arts” can create a conflict of interest. Paul W. Vapnek, Fundamentals of Patent Prosecution, Winter 2002: A Boot Camp for Claim Drafting & Amendment Writing, 729 PLI 43, 52 (2002). Mr. Vapnek correctly noted that “drawing boundaries in accordance with the definition of analogous art may be the only way to assure that one client’s patent or patent application is sufficiently remote that it could not legitimately be cited against another client’s application.” Id. Drawing the boundaries that broadly would no doubt eliminate any conflict would also unduly restrict the ability of different clients to hire the same lawyer, or, under some circumstances, the same firm, with expertise in a narrow area of technology.

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On the other end of the spectrum, it is certain that a lawyer could not represent two clients with interfering subject matter in an interference proceeding. This is no different from representing two clients with competing claims to title to the same property or, indeed, a plaintiff and defendant to the typical lawsuit. What one wins, the other loses. Risks can arise without actual pending claims to the same subject matter, however. Foremost, one client may contend that the practitioner’s duty of loyalty to another client constituted an impermissible limitation on the practitioner’s ability to represent it. In a nutshell, the client will contend that, by reason of her obligations to the other client, the practitioner “pulled her punches” in prosecution and got the client less than it deserved. This can happen directly. Pursuing narrow claims for the disfavored client has already been the subject of a malpractice claim. In Sentinel Products Corp v. Platt,66 a law firm prosecuted patents for two clients, Sentinel and Knaus. The evidence showed that the firm had filed applications for Sentinel and then two weeks later filed applications for Knaus.67 There was evidence that the firm changed the disclosure provided to it by Sentinel, but no evidence that changes had been made to avoid Knaus’ application.68 However, the firm’s attorneys testified that they thought the applications “overlapped” and lacked a “patentable difference.”69 Knaus’ application was issued first, and Sentinel’s claims were then rejected in light of Knaus.70 Sentinel narrowed its claims to avoid Knaus, and eventually Sentinel was issued patents with narrower claims.71 Not only was there evidence that the claims of one client, Sentinel, had been narrowed to avoid reading on the claims of the other client, Knaus, but also Sentinel’s application was rejected in light of the other client’s patents, which the firm had obtained for it. Despite this evidence, the court granted the attorneys’ motion for summary judgment, holding that—although “the defendants may have had a conflict of interest when they simultaneously represented Knaus and Sentinel—there was no evidence that the plaintiff had been damaged as a result of this alleged breach of fiduciary duty,” and further stating that:

At best, the evidence shows that Sentinel’s applications were delayed and narrowed because of Knaus’s patents. What is not shown by any of the evidence offered is that if Sentinel had been represented by a different, conflict-free attorney, it would not have experienced the same delays and narrowing. That is to say, Sentinel has not offered evidence to prove that the [the lawyers] intentionally or inadvertently pulled their punches in prosecuting Sentinel’s interest. Instead, it appears that any potential or actual conflict of interest was not the cause of Sentinel’s difficulties. Though the Knaus patents themselves may have limited Sentinel’s ability to achieve broad patents, there is no evidence

6664 U.S.P.Q.2d (BNA) 1536 (D. Mass. 2002). 67Id. at 1538. 68Id. 69Id. 70Id. at 1537. 71Id. at 1538.

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offered that if Sentinel had had different representation, its patent applications would have fared any better. The client will not need to show that the patents interfered; it will contend that they should have interfered but the practitioner “pulled her punches” in order to obtain coverage for the favored client.72

This illustrates that the client will not need to show that the patents interfered; it can contend that they should have interfered, but the practitioner “pulled her punches” in order to obtain coverage for the favored client. A case in California, provides the cautionary tale for the need for adequate keywords in a firm’s client database, even if the issue of overlapping claims was not the primary issue. In Vaxiion Therapeutics, Vaxiion argued that its law firm, Foley & Lardner, had breached its fiduciary duty to Vaxiion when it simultaneously represented it and a competitor in proceedings before the PTO.73 In this case, a PCT application was filed for Vaxiion one day late such that it could not claim benefit to the earlier of two provisional applications.74 In another Foley & Lardner office and with another attorney, another PCT application was filed on behalf of an Australian company, EnGeneIC, which had claims covering some aspects of the same technology. And, because of the missed date in the PCT application, EnGeneIC would end up having the earlier priority date rather than Vaxiion.75 Thus, the issues here were one of both keywords and missed dates. Vaxiion moved its patent application to another firm because of the missed date. EnGeneIC remained a client of Foley & Lardner. During the prosecution of EnGeneIC’s application, the Vaxiion nonprovisional application was cited in the rejection of some of EnGeneIC’s claims. Foley & Lardner then sought to antedate the Vaxiion application. The USPTO withdrew the rejection over Vaxiion’s application and applied a patent owned by Vaxxion. While Vaxiion argued that no conflict check was performed by Foley & Lardner before taking them on as client, they could provide no evidence as to what conflict check was performed relating to EnGeneIC.76 Thus, the advice to firms is to make sure that your conflicts database encompasses at least the following: 1. Name and address of the corporation/entity and a check of corporate relationships through a business report such as a Dun and Bradstreet report. 2. Keywords of the claimed invention 3. Synonyms for keywords. Synonyms can be an important issue in many industry sectors for catching potential conflicts. Making sure your database has sufficient detail to distinguish between invention is important for minimizing time for the conflict search as well as having confidence in the reliability of the search results. Perhaps entering the entire application Abstract in the database

72Id. at 1539. But see Beasley v. Avery Dennison Corp., 2005 U.S. Dist. LEXIS 15133 (W.D. Tex. 2005) (holding complaint adequately alleged causation by alleging lawyers did not competently attempt to overcome rejection of claims). 73Vaxiion Therapeutics, Inc. v. Foley & Lardner LLP, 2008 U.S. Dist. LEXIS 51171 (S.D. Cal. Dec. 4, 2008). 74Id., 2008 U.S. Dist. LEXIS 51171, at *1. 75Id. at *1–2. 76Id. at *15.

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may be helpful to distinguish between certain technological areas, such as LEDs or other electronics. Synonyms in the biotechnology field can be especially complex. A practitioner can for example go to the database iHOP (information hyperlinked over proteins) to obtain a list of synonyms. For example, let us take the example of CD40, a common drug target. CD40 has the following synonyms: B-cell surface antigen CD40, Bp50, CD40L receptor, CDw40, CDW40, MGC9013, p50, TNFRSF5, and Tumor necrosis factor receptor superfamily member 5. If a practitioner wants to be careful, they may also want to search the ligand to CD40, or CD40L along with its synonyms.10 By including the ligand if it is known in the key words for searching, the practitioner could catch potential competing drugs against the ligand. We point out that claims in different applications targeting CD40 and CD40L can never be in an interference with each other, and may not even share common prior art. However, a practitioner may receive confidential information on competing drugs that may be remotely be put in an application. By knowing that there is someone else in the firm working on a CD40L agonist as well as a CD40 agonist can be helpful to assess whether the representations can create in some fashion a material limitation on the ability to represent both clients to the full extent. The point here is that the practitioner should not provide keywords only, for example, as an anti-CD40 antibody or CD40 inhibitor, or worse the generic name of the antibody. The keywords need to be broader given the multitude of names that can exist for a biological target as well as the reagent that modulates it. Searching by drug name alone is not helpful as each CD40 antibody will have vastly different names and even different protein structures. The subject matter conflict may have to change for divisional applications or continuation-in-part applications if they are directed to different inventions in order to make sure the information in the database is robust (i.e., the keywords should track the claimed subject matter). This can be very useful after law firm mergers to make sure that the combined databases will be robust with keywords for searching. By entering data for the non-provisional and the PCT application from the provisional, a practitioner will not only make sure all application information is covered but even correct clerical entry errors, and improve keyword robustness over time. While it is unclear what, if any, defect there was in Foley & Lardner’s conflict database such that the overlapping technology was missed, the overlooked date became more egregious in the case because of the simultaneous representation of a competitor in the same space. Allegations of pulling punches can also arise without claim shaving. Lawyers who represent clients in closely related fields can be accused of narrowing the scope of disclosure in a client’s application, for example, or of not including claims for the disfavored client in order to leave the subject matter available to other clients. Similarly, a firm could be accused of drafting claims to deliberately avoid coverage of another client’s products. Each of these could be viewed as “pulling punches” or of having represented clients either with adverse interests or, at least, where the interests of one client impose a material limitation on the lawyer’s representation of the other. Certainly, the same rules discussed above regarding adversity can be applied for determining whether adversity exists when attacking patents in post-grant review (PGR) proceedings, derivation proceedings, inter partes review (IPR) proceedings, and reexamination proceedings after implementation of the American Invents Act (AIA). The question of whether a

10 The iHOP synonyms for homo sapient CD40L include: CD154, CD40L, CD40-L, gp39, hCD40L, HIGM1, IGM, IMD3, T-BAM, T-cell antigen Gp39, TNF-related activation protein, TNFSF5, TRAP, and Tumor necrosis factor ligand superfamily member 5.

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firm, with appropriate consent, would want to oppose a patent for client A when the firm represents client B in unrelated matters could occur. However, the client may have to be advised that if the matter is taken into litigation and is no longer before the USPTO, such consent may no longer suffice and if so another firm would have to conclude the representation. Such a transfer of cases between firms can create costly delay.

[2] The Conflict Created by the Right to Exclude A material limitation or perhaps adversity could also arise where, for example, a lawyer prosecuting an application for one client then drafts claims that covers another client’s products. This may happen every day in patent practice. A court should hold that such conduct is not unethical. Were the law otherwise, a firm would have to engage in an infringement analysis of all of its clients’ products to determine whether it could draft a patent application for a client. On the other hand, however, an adverse representation could arise where a firm drafts a claim for one client specifically intended to cover another client’s product where the firm represents that other client with respect to the design of that product, for example, and uses the other client’s confidential information to draft the claim. 77 In between those ends of the spectrum, there may be enough doubt to be cautious.

§ 10.06 Information as a Source of Conflict and Liability [1] Information as a Source of Liability: Trade Secret Misuse

In Chapter 6, we discuss the duty of confidentiality. Among other things, that chapter shows that even the use of the published specification of one client in another client’s case can constitute actionable conduct.78 Any time a practitioner is considering using information learned in confidence from one client—whether it was then or it later became public or generally known—the practitioner should exercise caution. To illustrate the potential damages from misuse of information, the Federal Circuit affirmed the award of full ownership of a patent to the plaintiff who had disclosed information to the defendant under a nondisclosure agreement (NDA), who in turn patented an improvement on the disclosure.79 The court did so based upon a jury finding of fraud and cited several prior cases to support its holding. The court recognized that inventorship could be correct, but the remedy of assigning the patents to the party whose trade secrets had been misused was, nonetheless, appropriate.

The remedy of assignment of the Tamaki patents is a different question from whether Richardson is a sole or joint inventor.

77See generally G.D. Searle & Co. v. Pennie & Edmonds, LLP, 308 A.D.2d 404, 764 N.Y.S.2d 686 (N.Y. Sup. Ct. Jan. 14, 2004) (determining that a violation of Model Code DR-105 had occurred under similar circumstances). 78See the discussion in that chapter involving Tethys Bioscience, Inc. v. Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC, 93 U.S.P.Q.2d 1248 (N.D. Cal. June 4, 2010). 79Richardson v. Suzuki Motor Co., 868 F.2d 1226 (Fed. Cir. 1989). The “Federal Circuit has approved the use of the remedy of mandatory assignment of patents in situations where there has been a wrongful appropriation of a party’s intellectual property.” Cargill, Inc. v. Sears Petroleum & Transport Corp., 388 F. Supp. 2d 37 (N.D.N.Y. 2004).

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The correction of inventorship is an administrative step, and is not before the court. Similarly, the presence of a further modification in one or two claims of the patent directed to the Alternate Shock Mount does not negate the imposition of an equitable remedy. To hold otherwise would ratify and indeed reward the wrongdoing. Based on the jury verdict, Richardson is entitled to ownership of the patents as against Suzuki. Such remedy is appropriate under the circumstances.80

Significantly, patent firms routinely come into possession of confidential information of one client that might serve to support a claim of trade secret misuse. The cost of defense alone can be significant, and so the closer in technology that a firm prosecutes for two different clients, the more likely it is that such a claim can be made. The client will contend that the lawyer used information that the client provided to the firm to obtain a patent for another client. This type of claim arose in Caliper Technology Corp. v. Rowland,81 where a client claimed that a law firm used trade secrets disclosed by the client to the firm to obtain a patent for a different firm client, one that was also a competitor. The firm reportedly paid $12 million to settle.82

[2] Information as a Source of Conflict: Possession of Confidential Information of One Client that Is Material to the Patentability of Another

Client’s Claim Practitioners have a duty of disclosure to the USPTO that is independent of the client’s similar duty. Material information known to the practitioner must be disclosed to the USPTO, even if the client is unaware of the information. If not disclosed, the client’s patent may be held unenforceable. As a consequence, when a practitioner prosecutes patents in related technologies for different clients, the risk of an information-based conflict arises. The duty to keep one client’s information confidential conflicts with the duty to disclose information to the USPTO where the information is material to another client’s application. If the practitioner decides to respect the obligation of confidentiality, the USPTO or, more likely, an accused infringer will contend that the firm, or a single practitioner, possessed material information belonging to one client that should have been disclosed to the USPTO while

80Richardson, 868 F.2d at 1249 (citing Colgate-Palmolive Co. v. Carter Products, Inc., 230 F.2d 855, 865, 108 U.S.P.Q. (BNA) 383, 391 (4th Cir. 1956) (corporate assignee of patent application ordered to assign to original holder of trade secrets all rights to patent applications based thereon); De Long Corp. v. Lucas, 176 F. Supp. 104, 134 (S.D.N.Y.1959), aff’d, 278 F.2d 804 (2nd Cir. 1960) (“when an employee has acquired patents on inventions developed by his former employer, “the courts will hold the wrongdoer to be a constructive trustee of the property misappropriated and will order a conveyance by the wrongdoer to the former employer”); Becher v. Contoure Labs., Inc., 279 U.S. 388 (1929) (same); Saco-Lowell Shops v. Reynolds, 141 F.2d 587, 598, 61 U.S.P.Q. (BNA) 3, 13 (4th Cir.1944) (requiring assignment of patent based on ideas received by licensee from licensor in confidence during development of invention for market)). 81No. CV 780743 (Cal. App. Dep’t Super. Ct. 1999). 82Lisa A. Dolak, Ethical Intellectual Property Opinions (And It’s All Legal!), 843 PLI/Pat. 217, 469–70 (2005).

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prosecuting the other client’s application. The failure to disclose the information will be argued to render the patent unenforceable, and the fact that the information was confidential to a second client will be argued to be irrelevant to the duty of disclosure. If a client’s patent is held unenforceable, the client owning the now-worthless patent may bring a malpractice or breach of fiduciary duty claim against the practitioner. Unlike the contours of subject matter conflicts, the scope of the informational conflict is clear: material information must be disclosed. However, the uncertainty is over which duty prevails: the duty of confidentiality or the duty of disclosure? If an attorney withholds material information because it is confidential, the patent may be unenforceable; if he discloses the information despite its confidential nature, he may breach a duty to the other client. This issue is fleshed out further below, but bright-line answers remain elusive. What should the lawyer do? The USPTO and the Federal Circuit disagree on the answer to that question—to the extent that the Federal Circuit has an answer. Fortunately, although the following sections discuss the Federal Circuit’s answer, Therasense reduced the scope of materiality, and so reduced the circumstances in which this problem will arise. Therasense is discussed in Chapter 9.

[a] The Federal Circuit’s Three Answers Much has been written about the Federal Circuit’s decisions in Molins PLC v. Textron, Inc.83 and Akron Polymer Container Corp. v. Exxel Container, Inc.,84 where the Federal Circuit addressed whether lawyers or law firms must disclose to the USPTO the application of one client during prosecution of a different client’s application where the failure to do so would violate the duty of candor.85 At the time of those holdings, to have disclosed the application of one client during the

8348 F.3d 1172 (Fed. Cir. 1995). 84148 F.3d 1380 (Fed. Cir. 1998). 85See, e.g., Robert B. Levy, Ethical Considerations in Patent Prosecution, 707 PLI/Pat. 57, 67–68 (2002); Samuel C. Miller III, Practical Measures for Reducing the Risk of Conflicts of Interest in the Practice of Intellectual Property Law, ABA PROF. LAW. SYMP., at 79, 93 (2001); William N. Hulsey III et al., Recent Developments in Patent Law, 4 TEX. INTELL. PROP. L.J. 99, 101–102 (1999) (“If a rule emerges from [Molins], it is that an attorney has no duty to disclose cumulative references. However, this case does not resolve whether an attorney has a duty to disclose a non-cumulative application of an unrelated client.”); Alan H. MacPherson et al., Ethics in Patent Practice (A Brief Visit to Several Areas of Concern), 574 PLI/Pat. 657, 662–64 (1999); Robert C. Karhl & Anthony T. Jacono, “Rush to Riches”: The Rules of Ethics and Greed Control in the Dot.Com World, 2 MINN. INTELL. PROP. REV. 51, 70–71 (2001) (concluding that the conflict created under circumstances similar to Molins is “insoluble”); Todd M. Becker, Attorney-Client Privilege versus the PTO’s Duty of Candor: Resolving the Clash in Simultaneous Patent Representations, 71 WASH. L. REV. 1035, 1056–57, 1062 (1996) (advocating for the duty of confidentiality to “trump” the duty of candor, lest trade secret protection be lost due to a mandatory duty of disclosure); Patricia N. Brantley, Ethical Issues in Patent Prosecution and Litigation, CA15 ALI-ABA 227, 244–45 (Nov. 9, 1995). According to Brantley:

We know that at least some of the Federal Circuit judges are sensitive to and sympathetic with the tensions which exist between[]the duty to disclose and the duty to keep privileged communications confidential. Clearly, however, we do not

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prosecution of another client’s application would clearly have required the attorney or firm to disclose confidential information, as this case involved patents filed before the switch to publication 18 months after priority date. Although confronting that issue in both cases, the court gave no clear answer as to whether a lawyer must, cannot, or should disclose the confidential information of one client when it is material to another client’s application. The only issue these opinions truly decided was that a lawyer need not disclose information if it is not material.86 Akron Polymer sheds only a dim light.87 In Molins PLC v. Textron, Inc., an attorney represented two clients, both of whom had

know how such tensions will be resolved by a given Federal Circuit panel.

Id. 86See id.; see also Lipman v. Dickinson, 174 F.3d 1363, 1371 (Fed. Cir. 1999) (holding that there was no conflict between this duty of confidentiality and the requirement of candor in dealing with the PTO because no client confidences were involved). 87In Akron Polymer, the Federal Circuit held that the district court erred in failing to give sufficient weight to the fact that, while prosecuting two related applications, it disclosed that fact to one of the two examiners. It thus reversed the district court’s finding of inequitable conduct, reasoning as follows:

But for the fact that Container actually disclosed the fact of copendency of the two applications to the PTO, while still failing to disclose the Venus application to the Katz application’s examiner, it could be argued that the other facts in this case are sufficient to support a threshold finding of deceitful intent by clear and convincing evidence. Our confidence in such a conclusion is undermined, however, when we afford weight to the inference running contrary to deceitful intent that must be drawn from Container’s disclosure of the Katz application to the Venus application’s examiner.

The clear error in this case is the absence of the requisite weight that must be given to Container’s disclosure of the Katz application, and of the fact of the copendency of the two applications, to the PTO through the Venus application’s examiner. This fact points away from an intent to deceive. When examining intent to deceive, a court must weigh all the evidence, including evidence of good faith. Thus, when we measure the facts of record, we conclude that a threshold level of deceitful intent has not been shown.

Without a factual basis to establish a threshold level of deceitful intent, the inequitable conduct analysis is at an end, and we must conclude that the district court abused its discretion by entry of its judgment of unenforceability.

Akron Polymers, 148 F.3d at 1384 (citation omitted). The court did not discuss the confidential nature of the pending applications, and so it provides very little insight into how the Federal Circuit will weigh these issues.

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applications pending before the PTO at the same time.88 The district court had held that the first client’s patent was unenforceable because the attorney had failed to disclose a pending application of the attorney’s second client, which was material to patentability of the first client’s application.89 As a result of the attorney’s failure to disclose the confidential information of one client during prosecution of the second client’s application, the district court held the second client’s patent was unenforceable due to the lawyer’s inequitable conduct.90 The narrow issue of whether an applicant is required to disclose the co-pending application of a different client was the focus of the court’s decision. However, the only reason a lawyer might have a duty to disclose a co-pending application of another client, which otherwise by law is confidential, is if one client’s application is material to patentability of another client’s application. Thus, the specific facts of Molins apply to the generic question of whether a lawyer who knows confidential information of one client must disclose it when it is material to another client’s application.91 In fact, that is largely how the issue was viewed on appeal. On appeal, a three-judge panel of the Federal Circuit split both on the result and the rationale. Judge Nies in her dissent stated that she would have affirmed the district court’s determination that the patent was unenforceable because the attorney’s “representation of clients with conflicting interests provides no justification for deceiving the PTO. Ethics required him to withdraw.”92 Thus, according to Judge Nies, an attorney who knows confidential information of one client that is material to the patentability of another client’s application is required to withdraw;93 if he does not, and if he fails to disclose that information, the first client’s patent will

8848 F.3d 1172, 1176 (Fed. Cir. 1995). 89See id. at 1181–82. 90See id. 91The MPEP provision at issue in Molins did not require disclosure of a co-pending application of a different client. 92Molins, 48 F.3d at 1190. 93Several commentators have erroneously concluded that the practitioners have a choice whether to disclose or not. E.g., Todd M. Becker, Attorney-Client Privilege versus the PTO’s Duty of Candor: Resolving the Clash in Simultaneous Patent Representations, 71 WASH. L. REV. 1035, 1066 (1996) (concluding that attorney who learns of a trade secret from one client that is material to another client’s application must disclose it if the duty of candor trumps the duty of confidentiality); Simone A. Rose & Debra R. Jessup, Whose Rules Rule? Resolving Ethical Conflicts During the Simultaneous Representation of Clients in Patent Prosecution, 12 FED. CIR. B.J. 571, 584–609 (2003). This is not only legally incorrect, but the concern is perhaps blown out of proportion. It is legally incorrect because the lawyer, rather than having a duty to disclose the information to the PTO, instead has a duty to withdraw. The net effect of various PTO Code provisions is that a practitioner who knows that his continued involvement in prosecution without disclosing information will result in a violation of Rule 1.56 must withdraw, but need not—and indeed cannot—disclose the information to the PTO. For example, 37 C.F.R. § 10.57(c)(2) allowed, but did not require, a lawyer to reveal confidences when required by law. In some circumstances, failing to disclose information to the PTO can constitute a crime. 18 U.S.C. § 1001 provides that any person who;

in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals

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be unenforceable. Judge Nies concluded that the information was material, and thus, the district court correctly held that the patent at issue was unenforceable.94 However, Judge Newman, concurring in part, and Judge Lourie formed the majority on this issue. Together they reasoned:

The position in which [the attorney] placed himself was one fraught with possible conflict of interest because [the attorney’s] dual representation of two clients seeking patents in closely-

or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined.

Charles L. Gholz, Criminal and Disciplinary Liability for Fraud, 3 AIPLA Q.J. 177, 177–78 (1975). Section 10.85(a)(3) of the PTO Code prohibits a lawyer from failing to disclose information he is required by law to disclose, and § 10.23(c)(1) prohibits him from committing or causing to be committed inequitable conduct. Finally, § 10.40(b)(2) requires withdrawal if the “continued employment will result in violation of a Disciplinary Rule.” Accordingly, Judge Nies was correct: the choice is to withdraw and not disclose or continue representation and disclose. Her point, correctly, was that if the lawyer continues the representation, he has no choice but to disclose. See also RESTATEMENT (SECOND) OF AGENCY § 381 cmt. e (1957) (“If the attorney cannot perform [the attorney’s] duty to the second client without disclosing such information or using it to the disadvantage of the first client, [the attorney] should decline to act.”). Thus, the assumption that other commentators have made—that putting the duty of candor ahead of the duty of confidentiality will lead to mandatory disclosure of one client’s trade secrets while prosecuting another client’s application—is simply wrong. The consequences of putting candor first is that an attorney faced with conflicting duties—confidentiality to one client and candor to the USPTO on behalf of another—may have to withdraw and be replaced by a lawyer who does not face that conflict. A lawyer who discloses one client’s trade secret to the USPTO to prosecute another client’s application has, contrary to their position, not complied with the rules, but instead has likely breached a fiduciary duty and committed malpractice, since the only option that satisfied both the duty of confidentiality and candor was to withdraw. The concern that a trade secret of one client could become material to the patentability of another client’s application also appears somewhat blown out of proportion. The concern that a trade secret could be material to patentability of another client’s application is not beyond the pale, but the circumstances in which one client’s trade secret would be material to another client’s application will be few, since trade secrets are not “prior art” in most cases. One could imagine, however, a practitioner knowing that others in the field knew that two chemicals were synergistic, even though the prior art did not disclose that synergism, and that synergism was relevant to the claim of patentability. Thus, there is some risk that the trade secret of one client could become material to another client’s application. The fact that this issue has not yet arisen in litigation suggests that it is not as great of a concern as others have made it out to be. 94See Molins, 48 F.3d at 1190.

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related technologies created a risk of sacrificing the interest of one client for that of the other and of failing to discharge his duty of candor to the PTO with respect to each client. Whether or not there was a conflict of interest, however, is not before us, and we express no opinion thereon. Nor do we express any opinion regarding the apparent conflict between an attorney’s obligations to the PTO and the attorney’s obligations to clients.95

The majority reversed the district court, holding that the information was not material.96 Judge Lourie concluded that the information was not material because the undisclosed information was cumulative to information that had already been brought to the examiner’s attention.97 While concurring in the result, Judge Newman stated that the court should not have reached the issue of whether the information was cumulative with the patent that had been brought to the examiner’s attention because there was no duty to disclose it in the first instance.98 Judge Newman reasoned:

The majority appears to assume that [the attorney] was required to disclose [the withheld information] to the PTO, but for the fact that this subject matter was cumulative … . I do not see that [the attorney] had such an obligation. Indeed, his obligation to preserve the confidentiality of his client was absolute. [The attorney] had neither the authority nor obligation to breach the confidentiality of that client’s [information], on behalf of a different client. An attorney’s ethical obligations to each client are not erased when a possible conflict occurs in the PTO. That privilege is the client’s not the lawyers. The PTO rules can not be interpreted to require otherwise. Thus, although I share the conclusion that there was no breach of [the attorney’s] duty to the PTO, I reach that conclusion not because of the substantive differences between the [first client’s] and [second client’s] subject matter, but because [the attorney] and [the second client] could not have been charged with improper behavior and the consequences thereof, simply because [the attorney] respected [the first client’s] confidences.99

Summing up, Judge Newman emphasized that disclosure of the other client’s confidences by the attorney would have been “contrary to the PTO Code of Professional Responsibility.”100

95Id. at 1185. 96Id. 97Id. 98Id. at 1192. 99Id. at 1192–93. Judge Lourie, the majority opinion author, also rejected, on a factual basis, the argument that the patent was unenforceable, because the attorney had allegedly taken inconsistent positions before the Patent Office. Id. at 1185–86. The court held that there was no evidence that the attorney had represented to the Patent Office for one client that a certain reference anticipated the invention, and for the other client that it did not. Id. at 1186. 100Id. at 1193.

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Commentators have likewise split. In the most recent article addressing this issue, scholars concluded that “Judge Newman’s concurrence is the better view” and that “preserving confidentiality must remain paramount in the practice of all areas of law, including patent prosecution.”101 These scholars concluded that putting the duty of confidentiality ahead of the duty of candor ensures more efficient prosecution at the USPTO and also increases the likelihood that patents will be valid and enforceable.102 To put these differing views in the context of this chapter, under Judge Newman’s approach, a practitioner need not disclose confidential information that he acquired by reason of representing a different client to the USPTO in order to satisfy prosecuting another client’s application. Thus, the possession of confidential information is not a limitation on the duty of advocacy before the USPTO. A practitioner can, under this view, freely advocate for an invalid claim where the information demonstrating invalidity is confidential to another client’s application. In contrast, Judge Nies essentially concluded that the duty of candor always trumps the duty of confidentiality, and so a lawyer may never prosecute an application by withholding material information. Under Judge Nies’ approach, a practitioner can never advocate for a claim that he knows to be unpatentable, even if the information is confidential to another client. Given the arguments stated above, Judge Nies potentially correctly read the rules. The rules clearly require disclosure of information by practitioners without regard to whether it is confidential or not. In hindsight, there are several points. Currently, most applications publish about 19 months after the first filing, thus to an extent diminishing the concerns underlying Molins, which occurred during a time that applications were not published until patent grant.. Further, upon conversation with OED, the only case that ever raised the issue is Molins. There has been no case since that has raised a similar fact pattern. So perhaps the teeth gnashing over this particular fact scenario illustrates a rare scenario and not a scenario that regularly confronts practitioners during the course of their careers.

[b] The USPTO’s Preliminary Answer The USPTO has at least informally taken the position that the lawyer’s only option is to “noisily withdraw” from the representations—advising the USPTO that it is withdrawing and advising the Office not to rely upon the filings made by the firm.103 The USPTO’s approach attempts to strike a balance between the needs of the USPTO to issue valid patents and the needs of clients for confidentiality. Whether that is the appropriate balance is an interesting issue. Arguably, the USPTO’s approach harms an “innocent” client who would obtain a patent but for the conflict created by the attorney. That point, however, underscores the need for clients to monitor against informational conflicts because it arguably

101Rose & Jessup, supra note 91, at 589–90; accord Todd M. Becker, Attorney-Client Privilege versus the PTO’s Duty of Candor: Resolving the Clash in Simultaneous Patent Representations, 71 WASH. L. REV. 1035 (1996). 102Rose & Jessup, supra note 91, at 590. 103Harry Moatz, Some Observations about Two Topics: The Duty of Disclosure and a Practitioner’s Asserted Inventorship (PTO Day Wash., D.C. Dec. 5, 2005).

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could cause loss of rights to a client. (Though the causation element would be interesting to litigate!)

§ 10.07 Is There “Adversity” in Common Prosecution Activities? [1] Introduction

It may be that a directly adverse representation (or a material limitation on a representation) could arise during prosecution in various ways. It is impossible to catalog all of the possibilities or to predict precisely how a court would respond to the various fact patterns, but some activities that ought to at least give practitioners pause include these:

• Arguing in response to an office action for one client that a patent obtained by the firm for another client is narrower than the examiner portrays it to be, or that it lacks enablement; • During prosecution, having the examiner cite “killer” prior art and discovering that it is owned by another client and will be infringed if the prosecution client practices its invention; • During prosecution for one client, the examiner cites a reference that is material to another client’s application, meaning that you must submit it in an IDS in that case, resulting in the other client receiving narrower claims; • Preparing a patentability opinion on a biobetter antibody or compound when

your firm prosecuted the referenced product biologic; • Antedating a patent obtained by the firm for another client;104 or • Arguing that a patent obtained by the firm for another client lacks enablement or written description to support an interpretation asserted by the office.

Clearly, practitioners who face these circumstances ought to at least consider the possibility that they might be deemed to constitute an adverse representation, or that the practitioner will be accused of “pulling punches” for one client due to obligations owed to the other. These issues are particularly troublesome, because the “conflict” may be due to a clear examiner error—the examiner incorrectly has interpreted the prior art patent to disclose ABC when it only mentions A and B, for example.

[2] What to Do? We know that when a few firms receive an office action, they determine who owns the primary references (i.e., patents and patent publications) applied by the examiner, conduct a conflicts check to determine whether the current owner is a current firm client, and then assess whether the firm can respond to the office action without being adverse to the current client and without materially limiting its representation of the applicant. In our view, the standard of care does not require such measures, but obviously taking these steps avoids conflicts of interest, avoids business or client relations problems, but increases patent prosecution costs significantly.

104At least one court has concluded it is not adverse to antedate by Rule 131 affidavit a patent owned by another firm client. Vaxiion Therapeutics, Inc. v. Foley & Lardner LLP, 593 F. Supp. 2d 1153, 1174 (S.D. Cal. 2008) (applying California law and the PTO Code). In the interest of full disclosure, Professor Hricik served as an expert for Foley & Lardner in this matter.

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One option that some firms have considered is disclosure to clients about the philosophy of the firm in these uncertain areas. Advising patent prosecution clients that the firm does not determine who owns patents applied by an examiner to reject a claim in an office action may eliminate unwarranted expectations. Similarly, advising a client that the firm does not view typical office action responses to be ethically “adverse” may also create better-understood boundaries and lead to better client relations. Of course, there could be circumstances where adversity does arise, and so this sort of disclosure may not constitute informed consent. Further, some conflicts are nonconsentable. As a result, thoughtful prosecution may be required until the law in this area is settled and clear.