Ropes & Gray Llp v. Jalbert

• Decision Date: 28 July 2009
• Docket Number: SJC-10333
• Citation: 454 Mass. 407,910 N.E.2d 330
• Parties: ROPES & GRAY LLP v. Craig R. JALBERT.<SMALL><SUP>1</SUP></SMALL>
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

910 N.E.2d 330

454 Mass. 407

ROPES & GRAY LLP v. Craig R. JALBERT.¹

SJC-10333

Supreme Judicial Court of Massachusetts, Suffolk.

Argued May 5, 2009.

Decided July 28, 2009.

D. Ross Martin, Boston (C. Thomas Brown with him) for the plaintiff.

Andrew Z. Schwartz, Boston (Joshua S. Pemstein with him) for the defendant.

Erik Paul Belt, Robert M. Abrahamsen, Michael A. Albert, & Eric G.J. Kaviar, Boston, for Boston Patent Law Association, amicus curiae, submitted a brief.

Present: MARSHALL, C.J., IRELAND, SPINA, COWIN, CORDY, BOTSFORD, & GANTS, JJ.

SPINA, J.

We consider in the present case, as a matter of first impression, the scope of the Massachusetts attorney's lien statute (lien statute), G.L. c. 221, § 50, vis-à-vis patent prosecution work. The United States Court of Appeals for the First Circuit has certified the following questions to this court, pursuant to S.J.C. Rule 1:03, as appearing in 382 Mass. 700 (1981)²:

"1. Does [G.L. c. 221, § 50,] grant a lien on patents and patent applications to a Massachusetts attorney for patent prosecution work performed on behalf of a client?

"2. If [G.L. c. 221, § 50,] does grant a lien and the issued patents or patent applications are sold, does the attorney's lien attach to the proceeds of the sale?"

In re Engage, Inc., 544 F.3d 50, 58 (1st Cir.2008). We answer both of the certified questions in the affirmative.³

1. Background. We briefly summarize the facts as set forth in the opinion accompanying the certification order, supplemented by details provided in the underlying bankruptcy proceedings. See In re Engage, Inc., 544 F.3d at 51-52; In re Engage, Inc., 315 B.R. 208, 210-211 (Bankr.D.Mass.2004), aff'd, 330 B.R. 5, 7-8 (D.Mass.2005).

On June 19, 2003, Engage, Inc., an advertising software company, and certain of its affiliates (collectively, the debtors) filed petitions in the United States Bankruptcy Court for the District of Massachusetts for relief under Chapter 11 of the Bankruptcy Code. See 11 U.S.C. §§ 101 et seq. (2000). Ropes & Gray LLP (Ropes & Gray), which had provided legal services to the debtors from approximately June, 2002, through May, 2003, in connection with the prosecution of various patents, was scheduled as a creditor in the debtors' bankruptcy. In a filing with the Bankruptcy Court, Ropes & Gray asserted that it was owed $108,737.11 for unpaid patent prosecution work performed before June 19, 2003, secured by an attorney's lien under G.L. c. 221, § 50, on "(i) certain patents and patent prosecution actions of the Debtor and (ii) cash proceeds of a prepetition sale of other patents." In addition, Ropes & Gray asserted an unsecured creditor's claim for approximately $49,517.37, primarily for corporate licensing work performed in 2003.

The debtors, who had sold their patents and patent applications in transactions before and after June 19, 2003,⁴ agreed to maintain a cash reserve of $108,737.11 from the sale proceeds, thereby providing Ropes & Gray with adequate protection in the event that pending litigation over the existence and validity of the asserted attorney's lien was resolved in its favor, while also reserving the debtors' rights to object to Ropes & Gray's claims. On May 20, 2004, the Bankruptcy Court entered an order confirming the debtors' second amended plan of liquidation under Chapter 11. Shortly thereafter, the debtors' liquidating supervisor, Craig Jalbert, filed an objection to Ropes & Gray's secured claim, contending, among other things, that G.L. c. 221, § 50, did not apply to patents and patent applications, and, therefore, Ropes & Gray was an unsecured creditor. The Bankruptcy Court agreed, sustaining the liquidating supervisor's objection and concluding that the lien statute did not apply to patent prosecution work. See In re Engage, Inc., 315 B.R. at 210, 213-217.

Ropes & Gray appealed from the Bankruptcy Court's order to the United States District Court for the District of Massachusetts. It also filed a motion requesting that the District Court certify various questions on the lien statute to this court. On September 1, 2005, the District Court affirmed the Bankruptcy Court, concluding that an attorney's lien under G.L. c. 221, § 50, did not attach in favor of Ropes & Gray to the patents, the patent applications, or the proceeds from their resulting sales, based on Ropes & Gray's representation of the debtors in patent prosecution proceedings before the United States Patent and Trademark Office (USPTO). See In re Engage, Inc., 330 B.R. at 5, 7, 14-21. The District Court also rejected Ropes & Gray's request that it certify questions to this court, stating that the issue of the lien statute's applicability to patent prosecution work could be resolved by analyzing existing case law. See id. at 6 & n.1. The matter was returned to the Bankruptcy Court because its order was not yet "final" within the meaning of 28 U.S.C.A. § 158(d) (West 2006 & Supp.2008).

On August 15, 2007, Ropes & Gray and the liquidating supervisor filed a joint motion with the Bankruptcy Court, agreeing to liquidate Ropes & Gray's claim. They also agreed that the liquidating supervisor would set aside $27,500, which Ropes & Gray would receive if ultimately it were found to have a secured claim. In its final order issued on September 10, 2007, the Bankruptcy Court approved this compromise and disallowed Ropes & Gray's secured claim. Ropes & Gray appealed, and on December 28, 2007, the District Court affirmed this final order on the grounds set forth in its September 1, 2005, decision.

Ropes & Gray appealed to the United States Court of Appeals for the First Circuit and again requested that questions regarding the lien statute be certified to this court. Finding no controlling precedent on whether G.L. c. 221, § 50, applies to patent prosecution work, and, if so, whether the attorney's lien attaches to proceeds from the sale of issued patents or patent applications, and concluding that this State law issue could be determinative of Ropes & Gray's cause of action, the Court of Appeals certified the two questions now before us. See In re Engage, Inc., 544 F.3d at 52-58.

2. Nature of patent prosecution work. Before considering the specifics of the lien statute, we highlight a few pertinent details about the nature of patents and patent prosecution work. A patent confers on its owner the right to exclude others from making, using, offering for sale, or selling the patented invention. See 35 U.S.C. § 154(a)(1) (2006). See also 35 U.S.C. § 271 (2006) (action for infringement of patent). Fundamentally, a patent is a property right. See 35 U.S.C. § 261 (2006) ("patents shall have the attributes of personal property"); Connell v. Sears, Roebuck & Co., 722 F.2d 1542, 1548 (Fed. Cir.1983) ("the right to exclude recognized in a patent is but the essence of the concept of property"); Carl Schenck, A.G. v. Nortron Corp., 713 F.2d 782, 784 (Fed.Cir. 1983) (patent is exemplification of property right). This property interest, even at the patent application stage, is freely assignable. See 35 U.S.C. § 261 ("Applications for patent patents, or any interest therein, shall be assignable in law by an instrument in writing").

Unlike a typical lawsuit, proceedings before the USPTO are not considered adversary in nature.⁵ See Beckman Instruments, Inc. v. Chemtronics, Inc., 439 F.2d 1369, 1378-1379 (5th Cir.), cert. denied, 400 U.S. 956, 91 S.Ct. 353, 354, 27 L.Ed.2d 264 (1970) ("our patent system could not function successfully if applicants were allowed to approach the Patent Office as an arm's length adversary"). See also Pacific Gas & Elec. Co. v. United States, 69 Fed.Cl. 784, 794-795 (2006), and cases cited (application for initial issuance of patent is primarily ex parte administrative proceeding, not one of adversary nature). Patent applicants and attorneys have an obligation to make full and candid disclosure of all relevant information. See Kingsland v. Dorsey, 338 U.S. 318, 319, 70 S.Ct. 123, 94 L.Ed. 123 (1949); Charles Pfizer & Co. v. Federal Trade Comm'n, 401 F.2d 574, 579 (6th Cir.1968), cert. denied, 394 U.S. 920, 89 S.Ct. 1195, 22 L.Ed.2d 453 (1969). See also 37 C.F.R. § 1.56(a) (2008) ("Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the [USPTO], which includes a duty to disclose to the [USPTO] all information known to that individual to be material to patentability.")

3. Scope of G.L. c. 221, § 50. We turn now to the certified questions before us. In Massachusetts, an attorney has a statutory right to assert a lien to secure compensation for the attorney's provision of legal services. General Laws c. 221, § 50, as appearing in St.1945, c. 397, § 1, provides, in relevant part:

"From the authorized commencement of an action, counterclaim or other proceeding in any court, or appearance in any proceeding before any state or federal department, board or commission, the attorney who appears for a client in such proceeding shall have a lien for his reasonable fees and expenses upon his client's cause of action, counterclaim or claim, upon the judgment, decree or other order in his client's favor or made in such proceeding, and upon the proceeds derived therefrom."

Prior to its revision in 1945, the lien statute read:

"An attorney who is lawfully possessed of an execution, or who has prosecuted a suit to final judgment in favor of his client, shall have a lien thereon for the amount of his fees and disbursements in the cause, but this section shall not prevent the payment of the execution or judgment to the judgment creditor by a person who has no notice of the lien."

G.L. (Ter. Ed.) c. 221, § 50.

We are guided in our analysis of the current version of G.L. c. 221, § 50, by the familiar maxim that a statute must be interpreted "according to the intent of the Legislature ascertained from all its words construed by the ordinary and approved usage of the...