What’s Adverse? Conflicting Clients Considered

The Model Rules of Professional Conduct prevent lawyers from representing conflicting clients.  A conflict of interest may arise when the representation of one client will be directly adverse to another client.  Just how far the requirement of “directly adverse” may extend was recently addressed by the Massachusetts Supreme Court in an interesting case involving IP litigation. While one inventor retained Firm to represent him on screwless eyeglass hinges another inventor had already retained Firm to secure a related patent in the screwless eyeglass market.  Read on to see who got screwed.

Once one inventor discovered that Firm was also working with a competitor, he filed suit against the Firm alleging legal malpractice and breach of fiduciary duty.  The Firm moved to dismiss the complaint for failure to state a claim.

The plaintiff alleged that the Firm violated Rule 1.7 of the Massachusetts Rules of Professional Conduct which prevents a firm from representing a client if the representation is “directly adverse to another client.”  Here, the clients were not directly adverse in the traditional sense such that they appeared on opposite sides of litigation, but rather the plaintiff argued that the Firm’s other client was directly adverse to him because they were competing in the “same patent space.”  The State Supreme Court disagreed.  It found that the inventors were not actually competing for the same patent but rather different patents for similar devices.  This was evidenced by the fact that the Firm was able to successfully obtain patents for both clients.

The court noted that in the area of patent law the simultaneous representing of clients for competing patents is considered a subject matter conflict which does not necessarily equal a violation of the Rules of Professional Conduct.  However, it noted that while an actionable conflict of interest did not arise in the instant case it could potentially arise under different factual circumstances. For example, if both patent applications had been “identical or obvious variants of each other” then the legal rights of the parties would have been in actual conflict.  In such a case, the Rules of Professional Conduct would have obliged the IP Firm to disclose the conflict or obtain consent from both parties.

The Rules of Professional Conduct clearly prohibit a firm from representing a client, not only in the scenario outlined above, but also when any of the attorneys within the firm would be prohibited from representing that client under the Rules. While the court did not determine that an actual conflict of interest existed in this case, it noted that nothing in the opinion “should be construed to absolve law firms from the obligation to implement robust processes that will detect potential conflicts.” This case serves as a good reminder of the importance of adequate conflict checks for any potential conflict that could arise.  As the court stated, law firms “run significant risks, financial and reputational, if they do not avail themselves of a robust conflict system adequate to the nature of their practice.”

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