An appellate court has upped the ante for clients pursuing malpractice suits against their patent attorney, rejecting a plaintiff's claim that its former counsel's undisclosed conflict of interest caused $41 million in damages. Axcess International, Inc. v. Baker Botts, L.L.P. The ruling establishes that substantial proof of causation of damages will be required and that mere speculation about what might have happened under different circumstances will not suffice.
“Competent, Non-Speculative” Evidence Required to Prove Causation
Plaintiff sued its former counsel for breach of fiduciary duty and negligence. Plaintiff contended the firm failed to disclose a conflict of interest arising out of the firm's dual representation of the plaintiff and a competitor in prosecuting patents for substantially similar radio-frequency identification (RFID) technology. A jury found the firm was negligent and had cost the plaintiff $41 million but also determined the plaintiff had sued outside the statute of limitations. The trial court granted the firm's motion for a directed verdict in its favor but did not specify the grounds for its order.
The appellate court affirmed the judgment, holding that plaintiff had failed to submit competent evidence on the element of causation. Plaintiff's experts testified that had the firm timely disclosed its conflict, plaintiff would have (1) successfully pursued an interference proceeding with the U.S. Patent and Trademark Office (USPTO) to determine the priority of the patents at issue, (2) amended its patent applications to expand its patent protections, and (3) reached a better business agreement with its competitor, for which terms were not specified. However, there was no evidence in the record that the USPTO had resolved a factually similar interference proceeding. Moreover, the evidence reflected that plaintiff failed to take any of those actions during the time it was represented by conflict-free counsel. Accordingly, the appellate court rejected that testimony as speculative, because the conclusions were based on unsupported conclusions as to what third parties would have done in response to a hypothetical situation.
“Proximate cause has always been hard for malpractice plaintiffs to prove,” says Merri A. Baldwin, San Francisco, CA, cochair of the Attorneys’ Liability Subcommittee of the ABA Section of Litigation’s Professional Services Liability Litigation Committee. “Unless the plaintiff can actually prove that things would have been different had they known about the conflict, the plaintiff has not suffered any damages. This is a really rigorous standard,” she observes.
Practitioners Must Remain Vigilant in Their Conflicts Checks
Section of Litigation leaders agree that the case serves as an important reminder that attorneys must always carefully check for conflicts between potential clients. “Patent attorneys have to pay really close attention to conflicts and conduct checks that involve a thorough investigation of the client’s competitors,” advises Baldwin. “If a conflict does emerge, is not dealt with, and causes damages to the client, the attorney could be liable for malpractice plus ethical violations,” she explains.
The adequacy of a conflicts checks now has more consequence since the “first to file” rule replaced the “first to invent” rule in 2013, according to Robert M. Asher, Boston, MA, cochair of the Patent Litigation Subcommittee of the Section’s Intellectual Property Litigation Committee. Under the “first to invent” rule, the inventor received the patent if he first conceived of the invention and diligently reduced the invention to practice by either filing a patent application or showing that the invention worked for its intended purpose. The “first to file” rule grants the patent to the inventor who first files a patent application, regardless of the date of invention.
“Under the new first to file law, conflict of interest becomes a greater concern because the ability to prove causation might be easier,” opines Asher. “If you represent two companies in the same technology space, they are faced with trying to become the first inventor to file the application. So if there are any delays in filing a patent application for one client or the other, you will be blamed for that delay. You don’t want to be accused of slowing down one client’s patent application relative to another when the technologies overlap,” he adds.
To avoid this problem, “patent attorneys have to have a conflict procedure in place that checks for conflicts not only on the basis of party names and opponents, but in terms of technology,” recommends Asher. “For example, a firm could do a subject matter search through the cases it has already taken on,” he says.
“A critical component for a patent attorney’s conflicts check is understanding, for new and existing clients, who the competitors are so that lawyers can try to anticipate potential conflicts before they emerge,” Baldwin explains. “Just the fact that they represent competitors doesn’t necessarily make a conflict, but further inquiry must be made. And they need to be made when new developments in the case occur,” she concludes.
Section leaders further emphasize that regardless of whether a conflict exists, lawyers should be aware of perceptions. “You may have the law on your side and feel you can represent two clients with overlapping technology, but be aware that, even if there is not a malpractice case, a conflict of interest may cause you to look bad in front of a jury,” cautions Asher.
Catherine M. Chiccine is an associate editor for Litigation News.
Keywords: legal ethics, malpractice, patent law, patent malpractice, conflict of interest
- Axcess Int’l v. Baker Botts, LLP, No. 05-14-011510CV (Tex. App. 2016).
- Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, et al., 473 Mass. 336 (Mass. 2015).
- Andrew J. Kennedy, “Court Approves Firm’s Representation of Competing Patent Clients,”Litigation News (April 11, 2016).
- John K. Villa, “Representing Business Competitors: A Conflict or Not?” ACCA Docket 20, no. 2 (2002): 90–93.
- Model Rules of Prof’l Conduct R. 1.7 cmt. (2016).
- Marian C. Rice, “Maintaining a Conflict-Checking System,” Law Practice Magazine, Vol. 39, No. 6 (Nov.–Dec. 2013).
Copyright © 2017, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).