Intellectual property practitioners face some unique conflict of interest challenges.
In Australia, whilst the professions are divided between lawyers and attorneys, the obligations are not very different.
Most lawyers in Australia are subject to the new Legal Profession Uniform Law which commenced 1 July 2015, and its accompanying Uniform Rules ("Lawyers Rules"). The conflict rule is extracted in Annexure A hereto.
Patent and Trade Marks Attorneys in Australia are subject to the Code of Conduct 2013 ("Attorney Rules") made by the Professional Standards Board under the Patents Act and the Trade Marks Act. The conflicts rules thereunder are extracted in Annexure B hereto.
The particular problems unique to IP practitioners I would like to concentrate on are conflicts concerning
- the subject matter,
- the clients' interests and
- the practitioner.
Subject matter conflict
The new leading case on this is Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd (2014) 318 ALR 507; (2014) 108 IPR 26;  FCA 1065 (6 October 2014) Beach J, Federal Court. The Court declined to stop solicitors from acting to revoke a trade mark they had obtained for a prior client. (If they had been attorneys caught by the Code, they would have needed the former client’s permission).
The basis for the decision was that the applicant could not identify any confidential information being used against the former client. See Lawyers Rules 10.2. The court's power to act was based on the inherent jurisdiction of the court for due administration of justice, control over officers of the court and the common law obligation of loyalty.
Beach J discussed the meaning of Attorney Rules 15 – see . He criticised it as unclear, it seeming to deal only with conflict between duty & interest, not duty & duty.
Thus, whilst the duty of loyalty was probably breached, this was not a basis to disqualify the solicitor from acting.
Beach J has specifically held - at quite some length - that Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 was wrong when it found (via Brooking JA) that a ground for restraining a practitioner was breach of his duty of loyalty to a former client. His Honour took the view that no such principle exists. , , .
This case represents quite a relaxed approach to conflicts. It is in line with cases such as Prince Jefri Bolkiah v KPMG (1999) 1 All ER 517 (HL) and World Medical Manufacturing v Phillips Ormonde & Fitzpatrick  VSC 196 (Gillard J). More traditional approaches have been more strict, not requiring identification of actual confidential information, but merely the chance of misuse, or the appearance of impropriety (i.e. the loyalty principle). See e.g. Spincode; Village Roadshow v Blake Dawson  VSC 505 (Byrne J); Connell v Pistorino  VSC 289 (Byrne J); Break Fast Investments v Rigby Cooke Lawyers & Ors  VSC 305 (26 June 2015) per Bell J who did not refer to Dealer at all; and Nettle J in Sent and Primelife Corporation Ltd v John Fairfax Publication Pty Ltd and Hills  VSC 429 (7 October 2002) where Jeff Sher QC was restrained on the basis of a brief 14 years previously he could not even remember! Whilst the liberal view might be the current law, Nettle J is now on the High Court and thus could signal a shift.
Where the conflict is direct and specific, there is rarely doubt about whether the practitioner should decline to act. Even here, mistakes can occur due to imperfect conflict searches and delay in resigning may cause grief. See e.g. World Medical v Phillips Ormonde & Fitzpatrick (supra). The more subtle difficulty comes where the conflict is said to arise from the mere subject matter.
In the pharmaceutical space, practitioners often arrange themselves into either the generic or innovator camps. But nothing prevents practitioners acting for both. The problem arises when client A's drug is so close to that of interest to client B that those clients might reasonably fear prosecution of one drug will affect the prospects of the other. Equally, attacking one drug might affect another client's drug. And so on.
Client interest conflict
Acting for a competitor of a client
There is a graded continuum on the conflicts scale. A mere commercial conflict (no actual or foreseeable clash, but both are aggressive competitors of each other and would resent the same person acting for the other) is not a disqualifying factor. Acting for both competitor clients in respect of third party rights might be permissible with consent, but not if the negotiation can only result in one winner. Litigation between them is at the extreme end of clear conflicts. Chinese walls will not overcome such direct clashes. This is notwithstanding the express provision for them (as "an effective information barrier") in the Lawyers Rules. Indeed, if one has acted for both parties at the time litigation between them issues, it is most likely the firm cannot act for either due to the likely impossibility of non-use of confidential information having been disclosed to the practitioners. Lawyers Rules 11.4.
Much depends on the nature of the dispute. Will the case require you to paint your other client as an evil villain (e.g. obtaining, or revocation based on dishonest claiming)?
Who is the client - the inventor or the assignee?
Employee inventors often invent subject to an obligation of assignment to their employer. In these circumstances, a lawyer acting for the employer will rarely be regarded as acting for the employee. Sun Studs v. Applied Theory Associates, 772 F.2d 1557 (US Fed. Cir. 1985).
However, even if the practitioner documents the relationship properly, conduct might spoil the care taken in writing. If the practitioner responds to queries by the inventor in a way that gives rise to a reasonable belief by the inventor that the practitioner acts for him, the practitioner will be so held, and might thereby be placed in conflict. Sun Studs (supra); Univ. of W. Va. Bd. of Trustees v Van Voorhies, 33 F.Supp.2d 519 (N.D. W. Va. 1998), aff’d 278 F.3d 1288 (Fed.Cir. 2002); Shannon v Gordon, 670 N.Y.S.2d 887 (App. Div. 1998), appeal denied, 92 N.Y.2d 819 (1999); Henry Filters v Peabody Barnes, 611 N.E.2d 873 (Ohio Ct. App. 1992).
In Max-Planck-Sgesellschaft zur Foerderung der Wissenschaften e.V. v Wolf, Greenfield & Sacks, P.C., 736 F.Supp.2d 353 (D. Mass. 2010) the patent attorney Wolf sent an email to the inventor in which he said “note that we represent Whitehead Institute in the above-identified matter. It is our understanding that you, like the other co-owners, are represented in this matter by independent counsel.”
The Court nevertheless found a patent attorney-client relationship existed because the inventor had sought and obtained legal advice from Wolf (about prosecution and submission questions).
Thus it is not good enough to put the matter in writing, but the practitioner must also act consistently with the stated position.
Conflict with practitioner's interests
This arises when the practitioner takes an interest in the e.g. invention by investment or contingent share. What happens if the client and practitioner have a different attitude to risk management, or a different attitude to cost recovery when licensing, or a different imperative when selling?
Australian Attorney Rule 15(7) and Lawyers Rule 12 both strongly suggest this is to be avoided.
However, in the US, contingent interests in the subject matter (e.g. patent application) can be taken as a way of paying the professional fees - PTO Rules allows representation “contingent on the outcome . . . except in a matter in which a contingent fee is prohibited by law.” 37 C.F.R. § 11.105(c). A lawyer may take an “interest in the patent or patent application” for “a patent case or a proceeding before the Office.” 37 C.F.R. § 11.108(i).
Some practitioners in Australia see no problem in investing in the client's venture as a sign of confidence in and solidarity with, the client. But the potential for conflict is obvious. The client might want to sacrifice the patent (the one invested in by the practitioner) in order to clear the way for another bigger and better patent application in which the practitioner has no interest. Could the practitioner be criticised if instructed to advise on the desirability of that process taking place?
Another potential for conflict is in negotiating a settlement involving a patent in which the practitioner has an interest, but which settlement includes many other matters in which the practitioner has no financial interest. Could the practitioner's advice in settlement negotiations be compromised by the appearance of self-interest driving the preservation of his financial interest?
A further form of conflict with the interests of the practitioner might be said to arise from the practitioner's professional duties. For example, where a firm prosecutes patents in the same space for two different competitor clients, a problem is likely to present itself. The tension arises from the duty of confidentiality to the client (Attorney Rules 19) and the duty of full disclosure to the patent office (Attorney Rules 17). In the US this was illustrated in the case of Mollins PLC v Textron Inc 48 F 3d 1172 (Fed Cir 1995). The appeal court split on the ethical issue. The divide there was as to whether the confidentiality obligation prevailed over the obligation of disclosure to the USPTO. The problem can be whether information learned from one client about e.g. prior art, should be used for or against another client when dealing with the patent office. My inclination in such cases is to fully inform the clients of the problem and err on the side of disclosure to the patent office.
Some suggestions might be of use.
Acting against a former client or his IP right (e.g. seeking to revoke a patent or trade mark you have registered, enforced) is fraught, and, despite recent liberal decisions, very likely to involve an unacceptable risk of misuse of confidential information.
Conflicts between clients – initially unified, but later either split or estranged, requires constant vigilance. This can happen subtly, e.g. by only one client continuing to provide instructions, or a different client starts paying the bills, or one asks for a change of inventorship, etc. These types of events should sound alarm bells. One should be alert to such changes and ask for updated status instructions.
Cases often morph over time and may only later involve new opponents which should raise the need for updated conflict checks.
Allowing personal problems to interfere with work performance is ill-advised. One should take a holiday.
Poor conflict checks are not good enough. One should use plenty of words for the check including potential opponents and subject matter.
'Digging in' when a conflict is exposed is only for the stout hearted. One should not be greedy.
Although relationships are the foundation of landing client work, those relationships are best kept professional and not overly familiar. It is harder to give tough advice to a friend than to a client. That is why we are told from the crib not to act for family or friends. The almost imperceptible progression from client into a friend can be difficult to recognise.
Whilst there is a chance I might be criticised for providing a counsel of perfection, I would rather be criticised for that than be criticised for encouraging practitioners to explore the outer limits of their ethical obligations.
Legal Profession Uniform Law Australian Solicitors' Conduct Rules 2015
Legal Profession Uniform Law
(commencing 1 July 2015)
10. CONFLICTS CONCERNING FORMER CLIENTS
10.1 A solicitor and law practice must avoid conflicts between the duties owed to current and former clients, except as permitted by Rule 10.2.
10.2 A solicitor or law practice who or which is in possession of information which is confidential to a former client where that information might reasonably be concluded to be material to the matter of another client and detrimental to the interests of the former client if disclosed, must not act for the current client in that matter UNLESS:
10.2.1 the former client has given informed written consent to the solicitor or law practice so acting; or
10.2.2 an effective information barrier has been established.
11. CONFLICT OF DUTIES CONCERNING CURRENT CLIENTS
11.1 A solicitor and a law practice must avoid conflicts between the duties owed to two or more current clients, except where permitted by this Rule.
11.2 If a solicitor or a law practice seeks to act for two or more clients in the same or related matters where the clients’ interests are adverse and there is a conflict or potential conflict of the duties to act in the best interests of each client, the solicitor or law practice must not act, except where permitted by Rule 11.3.
11.3 Where a solicitor or law practice seeks to act in the circumstances specified in Rule 11.2, the solicitor or law practice may, subject always to each solicitor discharging their duty to act in the best interests of their client, only act if each client:
11.3.1 is aware that the solicitor or law practice is also acting for another client;
11.3.2 has given informed consent to the solicitor or law practice so acting.
11.4 In addition to the requirements of Rule 11.3, where a solicitor or law practice is in possession of information which is confidential to a client (the first client) which might reasonably be concluded to be material to another client’s current matter and detrimental to the interests of the first client if disclosed, there is a conflict of duties and the solicitor and the solicitor’s law practice must not act for the other client, except as follows:
11.4.1 a solicitor may act where there is a conflict of duties arising from the possession of confidential information, where each client has given informed consent to the solicitor acting for another client; and
11.4.2 a law practice (and the solicitors concerned) may act where there is a conflict of duties arising from the possession of confidential information where an effective information barrier has been established.
11.5 If a solicitor or a law practice acts for more than one client in a matter and, during the course of the conduct of that matter, an actual conflict arises between the duties owed to two or more of those clients, the solicitor or law practice may only continue to act for one of the clients (or a group of clients between whom there is no conflict) provided the duty of confidentiality to other client(s) is not put at risk and the parties have given informed consent.
12. CONFLICT CONCERNING A SOLICITOR’S OWN INTERESTS
12.1 A solicitor must not act for a client where there is a conflict between the duty to serve the best interests of a client and the interests of the solicitor or an associate of the solicitor, except as permitted by this Rule.
12.2 A solicitor must not exercise any undue influence intended to dispose the client to benefit the solicitor in excess of the solicitor’s fair remuneration for legal services provided to the client.
12.3 A solicitor must not borrow any money, nor assist an associate to borrow money, from:
12.3.1 a client of the solicitor or of the solicitor’s law practice; or
12.3.2 a former client of the solicitor or of the solicitor’s law practice who has indicated a continuing reliance upon the advice of the solicitor or of the solicitor’s law practice in relation to the investment of money,
UNLESS the client is:
- an Authorised Deposit-taking Institution;
- a trustee company;
- the responsible entity of a managed investment scheme registered under Chapter 5C of the Corporations Act 2001 (Cth) or a custodian for such a scheme;
- an associate of the solicitor and the solicitor is able to discharge the onus of proving that a full written disclosure was made to the client and that the client’s interests are protected in the circumstances, whether by legal representation or otherwise; or
- the employer of the solicitor.
12.4 A solicitor will not have breached this Rule merely by:
12.4.1 drawing a Will appointing the solicitor or an associate of the solicitor as executor, provided the solicitor informs the client in writing before the client signs the Will:
- of any entitlement of the solicitor, or the solicitor’s law practice or associate, to claim executor’s commission;
- of the inclusion in the Will of any provision entitling the solicitor, or the solicitor’s law practice or associate, to charge legal costs in relation to the administration of the estate; and
- if the solicitor or the solicitor’s law practice or associate has an entitlement to claim commission, that the client could appoint as executor a person who might make no claim for executor’s commission.
12.4.2 drawing a Will or other instrument under which the solicitor (or the solicitor’s law practice or associate) will or may receive a substantial benefit other than any proper entitlement to executor’s commission and proper fees, provided the person instructing the solicitor is either:
- a member of the solicitor’s immediate family; or
- a solicitor, or a member of the immediate family of a solicitor, who is a partner, employer, or employee, of the solicitor.
12.4.3 receiving a financial benefit from a third party in relation to any dealing where the solicitor represents a client, or from another service provider to whom a client has been referred by the solicitor, provided the solicitor advises the client:
- that a commission or benefit is or may be payable to the solicitor in respect of the dealing or referral and the nature of that commission or benefit;
- that the client may refuse any referral, and the client has given informed consent to the commission or benefit received or which may be received.
12.4.4 acting for a client in any dealing in which a financial benefit may be payable to a third party for referring the client, provided the solicitor has first disclosed the payment or financial benefit to the client.ANNEXURE B
Code of Conduct for Patent and Trade Marks Attorneys 2013
under the Patents Act 1990 and the Trade Marks Act 1995.
15. Conflict of interest
Dealing with separate parties to the same matter, etc.
- If a registered attorney does work for a client in a matter, the registered attorney may do work for, or provide other assistance to, another person who has a different or contrary interest in the matter only if:
- the registered attorney’s knowledge of the client or the matter would not prejudice the registered attorney’s client or provide an unfair advantage to the other person in that matter; and
- the registered attorney’s client and the other person agree to allow the registered attorney to do the work or provide the assistance; and
- it would not be contrary to a law to do the work or provide the assistance.
Note: The effect of subsection (1) is that a registered attorney is generally not permitted to work for, or provide other assistance to, persons who have different or contrary interests in a matter unless the special circumstances set out in the subsection exist.
- The registered attorney must not do work for, or provide other assistance to, the other person if subsection (1) does not apply.
- If there is a dispute between 2 or more persons mentioned in subsection (1) in relation to the matter, the registered attorney must take steps, as soon as practicable, to resolve the conflict.
Avoidance of conflict
- A registered attorney who is an individual must avoid the creation of a conflict of interest between:
- the interests of the registered attorney; and
- the interests of any current or former client.
- For subsection (4), the interests of the registered attorney are all of the following:
- the interests of the registered attorney;
- the interests of a member of the registered attorney’s family;
- the interests of a dependent of the registered attorney who is not a member of the registered attorney’s family;
- the interests of a friend of the registered attorney;
- the interests of a business partner or business associate (however described) of the registered attorney.
Conflict that avoids prejudice
- a registered attorney is instructed by a client or a prospective client to do work; and
- the registered attorney believes that:
- accepting the instructions may create a conflict of interest when or after the work would be done; and
- a failure to do the work may result in prejudice to the client; and
- it is not reasonably practicable for someone else to do the work;
the registered attorney must accept the instructions, advise the client or prospective client of the potential conflict as soon as practicable, and resolve the conflict.
Personal interest in intellectual property right
- a registered attorney owns an intellectual property right; and
- doing work for a client or a prospective client may create a conflict of interest in relation to the property right;the registered attorney must not do work for the client or prospective client unless the registered attorney discloses the ownership and the client or prospective client agrees to allow the registered attorney to do the work.
Resolution of conflict
- If a registered attorney discovers a conflict of interest, or a potential conflict of interest, between:
- a registered attorney and a client; or
- 2 or more persons who have different or contrary interests in a matter; the registered attorney must take steps, as soon as practicable, to resolve the conflict or potential conflict.
- If the rights of a client or another person may be put at risk by the registered attorney complying with subsection (8), the registered attorney must take steps, as soon as practicable, to maintain those rights before resolving the conflict or potential conflict.