15 April 2012

Senior Patent Attorney Found Guilty of ‘Unsatisfactory Conduct’

Right and wrongThe Disciplinary Tribunal has found a former partner of a firm of patent and trade mark attorneys in Adelaide guilty of unsatisfactory professional conduct, for failing to resolve a conflict of interest between two clients, in breach of clause 3.2.8 of the Code of Conduct for Patent and Trade Marks Attorneys [PDF 190kB].  A second attorney – who was only recently qualified, and who had been working under the supervision of the senior attorney – was also charged by the Professional Standards Board, however that charge has been dismissed.

(For readers wanting more information about the disciplinary procedures in Australia, see our recent article So You Wish to Register a Complaint?)

Naming names?

We have avoided naming any of the parties involved in this case.  This is not to conceal the identities of the attorneys against whom the complaint was made, or their firm.  They are named in the Tribunal’s decision, which is available for all to read from the link below.

The Tribunal determined that no further orders of disciplinary action should be made.  In doing so, it took account of the fact that the powers to discipline a practitioner are intended to protect the community, rather than as a punishment.  There are, of course, inevitably punitive consequences to any adverse finding, for example damage to reputation, regardless of the extent of disciplinary action.

It is not our place to question the Tribunal on this finding, and there does not appear to be any reason to do so.  Naming the parties in a blog which tends to rank highly in web searches directed to Australian patent law and practice might result in unintended adverse – and therefore punitive – consequences for those parties.  We have therefore elected not to name names here, and trust that readers will understand and respect this decision.
Some of the key lessons from the Tribunal’s decision are:
  1. while it is common (probably unavoidable) that attorneys and firms in a market of Australia’s relatively small size may act for multiple clients which may be commercial competitors, there is no general agreement in the profession as to precisely how and when a situation of conflict arises with regard to such clients;
  2. the duty to avoid conflicts is fiduciary in nature, i.e. it arises from the duty of the attorney to give undivided loyalty to the client, and always to advise and act in the client’s best interests;
  3. a conflict therefore inevitably arises when two clients have conflicting interests, for example if advice given to one client may impact adversely on another, or if an attorney is aware of confidential information relating to one client which would influence the advice given to the other client;
  4. the duty to avoid conflicts is not limited to individual attorneys, but extends to a firm, even if there is no explicit information-exchange between different attorneys acting for the clients in question; and
  5. on a practical level, if a client decides that an attorney has a conflict, and asks for their files to be transferred to another firm, it is very likely that a great deal of trouble, expense and distress may be avoided by simply complying with the request, rather than arguing the point!
Despite the finding of guilt, no disciplinary action has been ordered against the senior attorney.  The Tribunal considered that the attorney’s conduct, ‘while serious, is at the lower end of the scale of seriousness for such misconduct’ and ‘is the only proven allegation of misconduct that has been made against [the attorney in a] very long career as a registered patent attorney.’ 

The Tribunal also concluded that the senior attorney (and presumably the junior attorney also) would now have a fuller understanding of the duty, and that of the firm, ‘to avoid situations of conflict, or possible conflict of interest and the duty to resolve any such situation.’

The Tribunal’s decision – which is available on the web site of the Professional Standards Board [PDF, 2.4MB] – should be compulsory reading for all Australian registered and trainee patent and trade marks attorneys.  It will also be useful to providers of legal and other professional services, in order to clarify the issues around conflicts of interest.

FIRST SIDE OF THE STORY – CLIENT A

One way to understand what happened in this case is to put yourself in the shoes of the party identified by the Tribunal as Client A.

In 2004, you engage a firm of patent attorneys (let us call them Firm C) to assist you in protecting a new invention you have devised.  You work in particular with two of their attorneys – a senior partner S and a soon-to-be-qualified assistant / junior attorney J.  They prepare and file a complete standard Australian patent application in 2004, and in 2005 you also proceed with applications in the United States and Canada.

Things go well commercially with your product, and by early 2007 you have a US patent granted, and your Australian application is accepted.

At around this time you discover that Company B is selling a product which competes directly with your invention.  A representative of Company B informs you that its product is covered by a patent application filed through Firm C. i.e. that ‘Company B’ is, in fact Client B!  You are not at all happy about this.

You are even less happy when you speak to the junior attorney (J) at Firm C, hoping that you will be able to take action to prevent the ongoing sale of Client B’s product, and are informed that, in the attorney’s opinion, the competing product is different and does not infringe the claims of your patent application.

The attorney then advises you in writing that another attorney at Firm C has prepared and filed a provisional application for Client B, but cannot give you any more details because the provisional application is not published. 

On a more positive note, attorney J informs you that there is still time to file a divisional application based on your accepted Australian patent application with broader claims that may (if valid) capture the product sold by Client B.  However, your attorney advises that while the firm can assist with the preparation, filing and prosecution of this application, if claims were granted which would be infringed by Client B then the firm would be unable to act in relation to the infringement issues, due to the conflict.

SECOND SIDE OF THE STORY – CLIENT B

Now put yourself in the shoes of Client B.  You will not find yourself to be any happier!

You devise your first invention, and started working with Firm C in 2001.  You end up abandoning your first Australian patent application after receiving an adverse examination report.  But by this time you have made some changes, and in 2006 a new provisional application is filed.  You have had some interest in the United States, and you are hopeful that your improved invention will prove to be patentable.

Subsequently, you discover that Firm C is also acting for your competitor Client A, which claims to have a patent which you may be infringing.

You speak with your attorney at Firm C, who informs you that a potential conflict situation has arisen as a result of another attorney at the firm acting for Client A.  Your attorney informs you that the firm is working with Client A to resolve the issue, but that if this cannot be achieved then the firm would be unable to act in relation to the conflicting matters.

Nonetheless, your attorney assures you that regardless of the outcome, the firm will attend to filing of a complete standard patent application in relation to your improved invention before the provisional expires, to ensure that your rights are not endangered.

THIRD SIDE OF THE STORY – FIRM C

Now consider the position of Firm C, placing yourself still in the shoes of either Client A or Client B.

In light of the above events, Firm C – and more particularly the senior attorney (S) who had been acting for Client A since 2001 – maintains that there was no conflict.

In particular, the position of Firm C is that no conflict exists until such time as an actual legal dispute arises between Client A and Client B.  And since the firm’s opinion, up to this stage, is that neither client’s product infringes any patent claims of the other client, the conclusion reached by the senior members of the firm is that there is no conflict.

Indeed, so confident are they of this position that they are undeterred even upon receiving a letter from a firm of solicitors representing Client A.  The letter contends and requests that:
  1. it is apparent that Firm C has been acting for a number of years for both Client A and its primary competitor Client B;
  2. as a result, Firm C now finds itself in an ‘insoluble conflict of interest position’ and can no longer continue to act for either client;
  3. the firm must now therefore transfer all of Client A’s files to a nominated alternative firm of patent attorneys; and
  4. the firm must further provide a written undertaking that it will not disclose any of Client A’s confidential information to Client B, including the reason that Firm C can no longer act for Client B.
Firm C, in a letter from the senior attorney (S, who is also the firm’s managing partner at this time), rejects every one of these points, on the basis that there is no infringement (in the firm’s view) of Client A’s patent claims by Client B.

Subsequent to these events, Client A lodges a formal complaint with the Professional Standards Board against the attorneys S and J, which leads to both being charged with unsatisfactory professional conduct.

WHAT DO YOU THINK?

The above scenario raises two questions.  The first is whether Firm C had a conflict of interest at any time.  The second is – if so – at what stage did that conflict arise?

Assuming there was a conflict, there appear to be a number of possibilities as to when this arose:
  1. when Firm C’s attorneys S and J first took on Client A in 2004;
  2. when attorneys S and J filed a patent application for Client A in 2004;
  3. when Firm C filed a new provisional application for Client B in 2006;
  4. when Client A first informed attorney J about the encounter with Client B in 2007;
  5. when attorney J provided Client A with the initial advice that Client B’s product did not infringe Client A’s patent claims;
  6. when attorney J advised Client A of the existence of Client B’s provisional application;
  7. when attorney J advised Client A of the possibility of filing a divisional application in an effort to capture Client B’s product;
  8. when Firm C proceeded with filing a complete standard patent application for Client B, despite the ongoing concerns of Client A; or
  9. when attorney S rejected the accusations of conflict raised in the letter from Client A’s solicitors.

WHAT THE TRIBUNAL DECIDED

The Tribunal pointed out (at [106]) that the duty of an attorney to avoid and resolve a conflict, or a possible conflict, is grounded in fiduciary law, which requires the fiduciary (in this case the attorney) to give his or her undivided loyalty to the client.  The Code of Conduct also expressly states that an attorney must act in the best interests of the client.

An attorney is therefore required to avoid situations in which the duty to act in the best interests (including loyalty and confidentiality) of one client will conflict with that same duty to another client.  These interests include commercial interests as well as legal interests.  This duty has been held to require the attorney to be alert, at all times, to the possibility of a conflict arising.  The duty extends beyond the individual attorney(s), to the whole firm.  Thus, without the fully-informed consent of both clients, the fact that different attorneys act for each of the conflicting clients is irrelevant, even though they may never share any information about relevant matters.  (Tribunal decision, [109]-[112].)

The Professional Standards Board contended that a potential conflict arose when Firm C took on client A, and that this became an actual conflict when Client A’s patent application was filed, with the potential to encompass Client B’s products.  However, this conflict – if it existed – was resolved when Client A was forced to narrow its claims in view of objections raised by the US patent examiner, and so the Tribunal made no finding on this point.

In the opinion of the Tribunal (at [114]), a conflict unquestionably arose when attorney J advised Client A, on 24 August 2007, of the possibility of filing a divisional application which may encompass Client B’s product.  This advice was plainly detrimental to Client B’s interests.  This conflict remained when attorney S – as managing partner – responded to Client A’s solicitors on 11 September 2007, expressly denying the conflict and refusing to take action to resolve it (at [116]).

For this failure to act so as to resolve the conflict, the Tribunal (at [120]) found attorney S guilty of unsatisfactory professional conduct.

The Tribunal was more lenient with attorney J, considering (at [131]-[133]) that a number of factors weighted against a guilty finding:
  1. attorney J was not yet qualified when commencing work with Client A, was unaware of Client B, and was not at that time under a duty to avoid a conflict;
  2. the attorney supervising J at the time was, however, in a position to be aware of the potential conflict;
  3. after attorney J became qualified and registered as a patent attorney, there was never any reason to believe or to become aware that the work undertaken for Client A may be contrary to the interests of another client;
  4. attorney J took steps to identify the nature of the potential conflict as soon as it became apparent; and
  5. while attorney J acted against the interests of Client B in providing advice to Client A regarding a possible divisional filing, the purpose of this letter (as distinct from its dubious content) was to attempt to resolve the conflict.
The road to Hell is – as they say – paved with good intentions.  Nonetheless, the Tribunal found (at [135]) that the Professional Standards Board had failed to prove any alleged failures of professional standards specifically against attorney J, who was therefore not guilty of unsatisfactory professional conduct.

COMMENTS

Some readers will no doubt be surprised that any responsible professional would allow the situation described above to arise in the first place.  Of course, such a judgement is easy to make when the facts are set out neatly and in isolation, with the full benefit of hindsight.

Fortunately, many Australian patent attorneys would not get themselves into this position.  Ideally, an attorney or firm does not take on a client if the potential for conflict is unacceptable.  The possibility of acting for two direct competitors in a limited market is something that should be identified early, and avoided.

No initial conflict checking procedure is perfect, because it inevitably depends to some extent upon subjective evaluations, and imperfect information and recollection.  It cannot be done entirely on the basis of electronic records, because the possible range of legal and commercial issues which could arise are complex and cannot be fully and consistently recorded.

In this case, there was clearly a second chance to identify and resolve the potential conflict before it eventuated, when Clients A and B became aware of one another, and informed Firm C in 2006.

Even so, there is a lack of agreement amongst patent and trade marks attorneys in Australia as to exactly how conflicts should be identified and resolved.  The Professional Standards Board provided evidence of one senior member of the profession who testified to his opinion that Firm C was clearly in a conflict situation at least from the time that Client A discovered, and complained about, the firm’s acting for Client B in August 2007.  However, two other senior members of the profession provided completely contrary evidence on behalf of attorney S.

The Tribunal agreed with the Board’s expert (at [105]).  This is therefore something which must now be taken into account by those members of the profession who would have sided with attorney S.

As a final note, attorney J was perhaps fortunate to have received relatively lenient treatment.  Clearly the example set by at least one very senior member of Firm C would have made it difficult for J to appreciate the correct course of action in the circumstances.  Nonetheless, any qualified and registered attorney is entitled to act independently on behalf of clients, and inexperience is not, in itself, a defence to charges of unsatisfactory conduct.

6 comments:

lorac said...

been there as a client and a NZ firm.  made a complaint and received back the reply that NZ is such a small law market that it is common practice for a law firm to be advising 2 clients with competing inventions.  What a cop-out.  I'm a patent lawyer in the U.S. and I would be out on my ass so fast for such a blatant conflict of interest.  Sorry to say, but Oz and NZ really need to improve ethics guidelines. 

Patentology (Mark Summerfield) said...

Firstly, my apologies for being slow to approve your comment for posting.  Most comments are not moderated, but you used a word that caused yours to be held for approval!  (Next time try 'donkey' instead :)

I think this Tribunal decision shows that it is not acceptable for an Australian registered patent attorney (and many NZ attorneys are registered here also) to act for two clients with competing inventions.  The guidelines are in place, and most attorneys are fairly vigilent.

What is harder to avoid in a smaller market is acting for two clients with cometing businesses.  Trade mark clients in clothing or food industries are a classic example.  Of course, most reputable businesses seek to differentiate their brands from their competitors, so conflicts rarely arise in such cases, unless by bad luck.  The key then is to identify and resolve the conflict promptly, probably by sending both clients elsewhere, at least in relation to the contentious matter.

On the patent side, I have never found conflicts to be an issue with local (i.e. Australian or NZ) clients instructing us directly.  It should not be too difficult to avoid getting into a situation where you have two such clients competing directly with similar technologies.  Having said that, it can happen that a client moves into a new line of business and creates a potential conflict.

The bigger problem is with some of the larger international clients.  For example, suppose I was instructed by an attorney firm in the US to assist with a single Australian filing relating to, say, whitegoods.  Further suppose that the applicant ('MegaCo') also has a range of interests in consumer electronics, and has filed other applications through different Australian firms, relating to audio-visual appliances (e.g. TVs, DVD players etc.)

In this case, it would seem unreasonable that I should be barred from acting for an Australian company developing new audio-visual technologies just because I have handled a single MegaCo filing for a refrigerator.  Yet the potential undoubtedly exists for one of my clients to end up infringing the rights of the other client.

In an extreme case, it would not be difficult for a large multinational company to conflict-out every larger firm in Australian and NZ, just by spreading their patent filings around, rather than sending them all to just one or two firms.  Indeed, I suspect there are one or two cases in which this may be happening!

Sarah said...

Clause 4.2.8 by the PSB? There is no such clause...

Patentology (Mark Summerfield) said...

Sorry, typo -- should be 3.2.8. I have corrected. Thanks for pointing it out!

Mark Summerfield said...

Interesting article. It leads me to ponder what the case is where your own patent attorney's firm infringes your patent? Has this ever been considered? Particularly if you have a broad patent that covers something that becomes commonly used across business and happens to be used in your patent attorney's firm as well. What happens in this case? If you hadn't yet licensed to anyone I assume they'd need to be your first licensee! After all, they need to act in the best interests of the client don't they? And what would it say if they tried to argue that oh, no, we don't think that our particular system would be infringing?

Mark Summerfield said...

Well, if it were me I would consider that I have a conflict. My own interests are irreconcilable with those of the client, and the only way they could obtain considered advice on my alleged infringement of their patent would be to go to another attorney. In short, we would have to part ways.


Of course, if they were a long-standing client with whom I had a good relationship, I expect we would just sit down and work it out. If both of us were happy with the resolution, there is no reason they could not remain a client.


It is important to bear in mind that no attorney is obliged to work for any client they do not wish to, just as all clients have the right to take their business elsewhere. There is no good reason not to sack a client who is too difficult or too risky to work with. I have sacked clients because they were too demanding (i.e. took up a lot of time) and too cost averse (i.e. were unwilling to pay for all the time they took up, and thus took away from other clients). I would have no hesitation at all in cutting loose a client who accused me of infringement!

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