Feature

What You Risk

A Review of Subject Matter Conflicts of Interest in Intellectual Property Prosecution

Dr. Sandra P. Thompson

©2017. Published in Landslide, Vol. 9, No. 4, March/April 2017, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

Client-driven litigation and malpractice complaints against intellectual property (IP) practitioners are not decreasing anytime soon. One area that is ripe for concern is the review and addressing of conflicts of interest. Attorneys who have been practicing for more than a day are familiar with the process of conflicts of interest searches. When a new client comes into the office or firm, the attorney or conflicts team searches a client database for the name of the person or entity. If a potential conflict surfaces, the conflict must be cleared or waived, or the client sent elsewhere.

The issue that IP professionals should consider is not only ensuring that the prospective IP clients don’t present conflicts with one another, but also ensuring that their IP work doesn’t present conflicts. A subject matter conflict search is equally as important as an entity/individual conflict search. This type of additional search is not related to the inventors, assignee, or research team, but is directly related to the patent application disclosure or trademark. Ignoring these searches can create mountains of problems down the road ranging from allegations of malpractice to inequitable conduct to patent invalidity. This article will discuss this type of conflict and how IP professionals may reduce the likelihood of this type of conflict surfacing.

Subject Matter Conflicts: General

The United States Patent and Trademark Office (USPTO) states in Rule 11.108: “(b) A practitioner shall not use information relating to representation of a client to the disadvantage of the client unless the client gives informed consent, except as permitted or required by the USPTO Rules of Professional Conduct”; and “(k) While practitioners are associated in a firm, a prohibition in paragraphs (a) through (i) of this section that applies to any one of them shall apply to all of them.”1

USPTO Rule 11.118 states with respect to prospective clients:

(a) A person who discusses with a practitioner the possibility of forming a client-practitioner relationship with respect to a matter is a prospective client.

(b) Even when no client-practitioner relationship ensues, a practitioner who has had discussions with the prospective client shall not use or reveal information learned in the consultation, except as § 11.109 would permit with respect to information of a former client.

(c) A practitioner subject to paragraph (b) of this section shall not represent a client with interests materially adverse to those of a prospective client in the same or a substantially related matter if the practitioner received information from the prospective client that could be significantly harmful to that person in the matter, except as provided in paragraph (d) of this section. If a practitioner is disqualified from representation under this paragraph, no practitioner in a firm with which that practitioner is associated may knowingly undertake or continue representation in such a matter, except as provided in paragraph (d) of this section.

(d) When the practitioner has received disqualifying information as defined in paragraph (c) of this section, representation is permissible if:

(1) Both the affected client and the prospective client have given informed consent, confirmed in writing; or

(2) The practitioner who received the information took reasonable measures to avoid exposure to more disqualifying information than was reasonably necessary to determine whether to represent the prospective client; and

(i) The disqualified practitioner is timely screened from any participation in the matter and is apportioned no part of the fee therefrom; and

(ii) Written notice is promptly given to the prospective client.2

This rule is important, because it clearly refers to “interests materially adverse.” It is hard to argue that if you are prosecuting one client’s trademark or patent application by undermining another client’s trademark or patent application that you are not doing something materially adverse to that latter client’s interest.

Subject Matter Conflicts: Trademarks

In general, there are two types of subject matter conflicts that IP professionals should be aware of in their day-to-day practice: trademark subject matter conflicts and patent subject matter conflicts. These conflicts arise not based on the individual or company, but instead arise based on the specific type of intellectual property they are trying to protect.

In trademark prosecution, subject matter conflicts arise based on the trademark and the goods and/or services. Before an attorney files a new trademark application for a client, the firm’s database of trademarks that are handled by the firm should be reviewed. Ideally, there are two conflict checks that should be run: (1) a search for the mark or similar marks, and (2) a search for any marks in the system that have the same goods and/or services associated with them. If there are similar marks, the attorney must review and clear the conflict.

A likelihood of confusion rejection from the USPTO may be the first point that an attorney or firm realizes that there is a conflict with another client’s mark(s). For those who practice in this field, it is obvious why this is a problem. You must argue that the mark is not confusing to consumers when compared to the cited mark or marks. To do this, it is likely that you will need to make arguments that undermine the cited mark or marks, which are materially adverse to the client who owns that cited mark’s interest.

When an office action is issued from the USPTO, you or a member of your team should check to see if the examining attorney has cited any other trademark applications or registrations, and if so, if any of those citations are marks being handled by you or your firm. If they are, you may need to get informed written consent from each client to continue forward, or you may need to send that work to another firm.

Subject Matter Conflicts: Patents

Patent applications contain the disclosure of an invention and the related embodiments and examples of that invention. The key to each patent application is the claims. When a patent application is filed with the USPTO or a foreign patent office, an examiner reviews it, searches the subject matter, and may issue an office action outlining any procedural issues and presenting rejections based on nonstatutory subject matter (such as software), lack of novelty, or nonobviousness. Lack of novelty and nonobviouness rejections are usually based on one or more other patent applications, issued patents, journal articles, or other public disclosures. The attorney representing the inventor or assignee must then successfully argue around those references, amend the claims, or both, to advance the application to allowance.

As an example, you represent a large company (Large Client) and handle all their patent applications related to shelf-stable cream cheese. A current or prospective client sends a patent disclosure to the firm that includes a novel shelf-stable fresh soup. While one may be related to dairy products and the other to something that may not contain dairy, is the process or ingredients that make them both shelf-stable the same or similar? Do you review the disclosure to determine whether it overlaps with Large Client’s patent applications? If another attorney at the firm gets the new disclosure, do you have a review process in place to make sure that the new disclosure is checked against current patent applications being handled by the firm? If you file the application on the shelf-stable fresh soup, do you run the risk of having patent applications or patents from the Large Client cited against your new client’s application?

If you represent two clients in the same technology area, can you successfully segregate the information you learn working with one client from your work for the second client? The answer isn’t simple. A chemist doesn’t know where he or she first learned how to maximize the yield of a compound during synthesis—it just becomes part of the bulk of his or her knowledge. The same can be said for patent practitioners. If you spend a great deal of time preparing food additive patent applications for Large Client, do you turn that knowledge off when you draft a food additive patent application for a new client? Do you pull your punches and not include language used to describe those materials in general when drafting the second application? Do you include references to Large Client’s patents and patent applications in the background of the new application? If you do that, how do you walk the tightrope of distinguishing the subject matter of the new application over Large Client’s patents without disparaging Large Client’s patents? If the new client is a solo inventor, do you work harder to get Large Client’s patent applications allowed? It may be safe to assume that although you believe you can effectively represent both entities, you shouldn’t.

A better question to ask in this type of situation is whether a firm representing competitors in patent or other types of matters can diligently prosecute patents for each. The firm may jump through every hoop and keep everything above board when handling both clients, including locating work for one client in one firm office and work for a second client in another firm office, but there will always be “the appearance of impropriety” when looking back on the matters. If you didn’t submit a reference through an information disclosure statement for one client, did you honestly believe that the reference wasn’t relevant or did you fail to submit it based on an attempt to protect the patent of the other client? If your client asks you to seek reexamination of a competitor’s patent, are you able to do so or do you have to explain to your client that you or your firm is handling the other patent? Regardless of your belief at the time that everything was handled correctly, a former client can certainly make a case for inequitable conduct or malpractice, based on the mere appearance of impropriety.

Case Law

There are several key cases to show how this type of conflict is problematic and what it can do to a client relationship and to the client’s perception of whether the attorney is representing that client zealously. A good straightforward example of some of the inherent problems with subject matter conflicts is Vaxiion Therapeutics, Inc. v. Foley & Lardner LLP in the Southern District of California.3

Foley & Lardner (Foley) is a large law firm with offices in multiple cities. Its San Diego office represented Vaxiion Therapeutics (Vaxiion) with respect to its patent work. The Foley D.C. office represented a Vaxiion competitor—EnGeneIC—with respect to its patent work. Per the court filings, Vaxiion claimed that it was not notified that Foley represented this competitor; under a traditional conflict of interest check, this conflict may not have even been flagged by the firm.

In 2001 and 2002, Foley’s San Diego patent team filed two provisional patent applications for Vaxiion in the United States directed to minicell technology. While the firm successfully filed a United States utility patent application claiming priority back to the two provisional patent applications by the one-year deadline of the first provisional filing, it did not file the Patent Cooperation Treaty (PCT) application until the next business day, which was four days late. As a result, the PCT application and any resulting foreign patent applications were only able to claim priority to the 2002 provisional filing and not the 2001 provisional filing.

Between the 2001 and 2002 Vaxiion provisional patent application filings, the D.C. Foley office filed a provisional patent application for EnGeneIC on minicell technology. That office also filed a PCT application for EnGeneIC by the one-year deadline, successfully claiming priority back to the EnGeneIC provisional patent application. So, while Vaxiion had United States patent application coverage dating back to 2001, EnGeneIC had the possibility of foreign patent protection dating back to 2002—predating the second Vaxiion provisional application.

To compound the problem, Foley’s D.C. patent team received a rejection from the USPTO regarding the EnGeneIC patent application citing the U.S. Vaxiion application. The attorneys tried to antedate or “swear behind” the Vaxiion application based on trying to show that they had reduced it to practice before Vaxiion did. When that effort failed, they then contacted Vaxiion about cross-licensing the minicell technology, which is when Vaxiion learned of the dual representation.

The malpractice lawsuit claiming breach of fiduciary duty and dual representation of adverse interests (among other things) arose from that failure to file the PCT application for Vaxiion on time. While the case ultimately settled, some interesting information came from the court. First, the court said that it was unnecessary to show that attorneys in San Diego communicated Vaxiion client confidences to their colleagues in the D.C. office who were representing EnGeneIC. In addition, the court pointed out that ethical rules in different jurisdictions (California, D.C., and the USPTO) may have different implications.

Ultimately, two acts in advance of the EnGeneIC representation could have negated or dramatically minimized the subject matter conflict issues in this case. First, Vaxiion should have provided (or Foley should have requested) a list of competitors to Foley and requested that the firm not represent any company or individual on that list. That list should have been put into Foley’s conflict system as “adverse parties” or “related parties,” so that a conflict search would flag those companies. Vaxiion should have also updated that list with outside counsel as needed. Second, Foley should have conducted a subject matter conflict search in advance of EnGeneIC’s engagement within the patent group to ensure that there was no subject matter conflict of interest.

Practical Solutions

Subject Matter Conflict Searches

There are a couple of ways to set up subject matter searches, depending on the size of the firm and the conflict database. At small and midsize firms, this type of search may be a simple e-mail to the patent group stating: “We are considering representing a company that develops and manufactures minicell technology, and specifically bacterial minicell technology where the minicells are used to target tumors with specific treatments. Please reply back immediately if you represent any clients who use this technology.”

It would be easy to say that a keyword database should be added to a firm’s conflict searching system, so that when patent matters are brought in, keywords are searched along with individual and company/entity names. And while this is a great first step, it should not be the final step in a complete conflicts system. As most patent practitioners know, keywords are only good if everyone is using the same word to describe something. One patent attorney might describe something as a “wheel” and another might describe the same thing as a “rotatable assembly.” In addition, given that the final filed patent application can sometimes look a lot different from the initial disclosure, keywords entered initially may be ineffective after the patent application is filed. Another more effective option, given the technology available now for quickly searching document content, may be to base the keyword search on documents saved in the system and not on keywords that may have been added to a conflict form when a matter or client was first opened.

Another good system to overlay with or use prior to a keyword search is to use business codes or technology codes. In this system, a pharmaceutical company may have 14000 as a business code. If an attorney is interested in finding out which pharmaceutical companies are represented by the firm, then running a report of all the companies having a business code of 14000 will find that information. The attorney can then determine if there are any competitors to the prospective client already working with the firm. Business code identifiers are especially useful if the companies are then subdivided. So, all the pharmaceutical clients are listed under 14000, but those developing drugs for cardiovascular systems would be labeled with subcode 14100, while those developing drugs for nutrition would be labeled with subcode 14200. If a company develops drugs in several classes, it may have several associated subcodes.

Competitor List

Another solution that should be considered by firms is to ask clients for a list of their top five, 10, or 20 competitors. One way to do this is to prompt clients to consider current competitors a part of your invention disclosure form, which would allow your client to list the potential competitors for that technology, as opposed to another invention disclosure from another division of the company—if they have more than one type of technology base. This practice is also good to consider, because competitors come in and out of the market all the time. Treat each invention disclosure as a new matter that requires as much scrutiny as any other matter, such as a new litigation matter. This allows you to have a clear understanding of potential issues.

Limiting Initial Disclosure

It is also important as IP practitioners to become conditioned to asking the client or a potential client to disclose as much and as little as possible to allow the conflict search to be effective. If counsel is given too much information and a subject matter conflict of interest is discovered, that counsel may have information that will influence his or her work on other cases. In some instances, counsel may unknowingly use information provided in a prospective client meeting in the prosecution of another client’s case. If attorneys get too much information from prospective client meetings or new invention disclosures, the attorney-client relationship may become compromised, such that work with that client is no longer feasible. If you are meeting a potential new client, it is even more important to limit the amount of information provided to the firm, while asking for enough to allow you to effectively search for subject matter conflicts.

One method of limiting initial disclosure is to talk with the prospective client generally about his or her business first or do some research into the company before a first meeting. Also before the first meeting, let the prospective client know that you need to do a subject matter conflict of interest search, explain briefly why, and then ask the prospective client to provide a very high-level general overview of the subject matter of the potential patent application without disclosing anything specific about what makes it inventive.

With respect to potential trademark clients or clients who ask you to file new trademark applications, if you see a problem with the subject matter conflict search, you should inform the new client or owner of the new mark that you are unable to assist with that matter because of a conflict of interest.

Client Training

One area where you or your firm can provide value-added services to clients and possibly strengthen the attorney-client relationship is to organize basic trainings for your clients, including management, sales, and technology/product development. The training should focus on the basics of subject matter conflicts, why it is important to monitor them, and then move into a brainstorming session regarding the client’s competitor list. You should provide an initial list, if you have one, and give the group 10–20 minutes to provide additional competitors and potential competitors. This is the perfect time to do it, because you have laid out why identification of competitors is important. Finally, provide the client with a takeaway form that it can give to its group members, so that if any competitors were missed, you can capture that information.

Another training tool is to walk your clients through setting up Google alerts (or a similar search spider) on that list you just developed. A list of companies and individuals allows you and your client to set up IP and technology watches that alert you when these competitors file trademarks and patent applications and put out press releases.

The next step is to work with your clients on developing a system for organizing triggering events, such as trade shows, scientific meetings, and other public presentations. This list can also include employees who have left the company. This system may be as simple as a spreadsheet or may be as complicated as a docket system, where each event can have a set of reminders and notes added. This system has a lot of advantages, but with respect to subject matter conflicts, it lets you or your client review with the presenters in advance or right after the event to review whether they saw anything or spoke with anyone who could be a potential competitor or interested party. With respect to employees who have left the company, you or your client should track them to ensure they aren’t setting up competing businesses or possibly utilizing trade secrets or proprietary information in their new venture. The regular review of this information will start to develop a culture of IP consideration on the client side.

Finally, encourage your clients to set up internal IP committees. These committees should meet regularly (monthly, quarterly), review and discuss all intellectual property and issues that have developed since the last meeting, and comprise someone from management (budget), research and development (R&D), sales/marketing, and legal. Effective IP committees discuss and document how new inventions are tied to prior research and patent families, how innovations can be logically grouped together in patent applications, new or expanded competitors, and what additional information is needed from R&D teams to get a complete patent or trademark application on file.

These client trainings not only are beneficial to making the attorney-client work more productive, but also reduce the likelihood of subject matter conflicts, because competitors are routinely added and updated in the attorney’s or firm’s database. In addition, these trainings increase the value of the attorney or firm to the client, because the client feels as though its intellectual property is important to the attorney or firm.

Conclusion

IP attorneys should be aware of subject matter conflicts and how they can arise during transactional matters. While it may not be easy to remove these conflicts, many of them can be removed with training and diligence. When you consider that you wouldn’t advocate for both sides during a litigation, it becomes easier to see the problem that subject matter conflicts between two clients can present.

Endnotes

1. 37 C.F.R. § 11.108.

2. Id. § 11.118.

3. No. 3-07-CV-280 (S.D. Cal. Dec. 4, 2008).

Dr. Sandra P. Thompson

Dr. Sandra P. Thompson is of counsel with Slater Hersey & Lieberman. She has spent the last 18 years counseling domestic and international clients—from Fortune 50 companies to startups to universities—on patent, trademark, copyright, licensing, and new media transactional and litigation matters.