Ropes & Gray LLP v. Jalbert
93 U.S.P.Q. 2d (BNA) 1146, 454 Mass. 407, 910 N.E.2d 330 (2009)
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Rule of Law:
The Massachusetts attorney's lien statute, G. L. c. 221, § 50, grants an attorney a lien on patents and patent applications for patent prosecution work performed on behalf of a client, and this lien attaches to the proceeds from the sale of such patents and patent applications.
Facts:
- Engage, Inc., an advertising software company, and its affiliates (debtors) hired Ropes & Gray LLP to provide legal services for the prosecution of various patents from approximately June 2002 through May 2003.
- Engage, Inc. accrued $108,737.11 in unpaid fees to Ropes & Gray for this patent prosecution work.
- Engage, Inc. also owed Ropes & Gray approximately $49,517.37, primarily for corporate licensing work.
- In February 2003, Engage, Inc. sold some of its patents and patent applications, which yielded $100,000 in cash proceeds.
- Soon after June 19, 2003, substantially all of Engage, Inc.'s remaining assets, including additional patents and patent applications prosecuted by Ropes & Gray, were sold to JDA Software Group, Inc.
- Engage, Inc. agreed to maintain a cash reserve of $108,737.11 from the patent sale proceeds to provide Ropes & Gray with adequate protection, pending resolution of the asserted attorney's lien.
Procedural Posture:
- Engage, Inc. and its affiliates filed petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Massachusetts.
- Ropes & Gray LLP filed a proof of claim with the Bankruptcy Court, asserting a secured claim of $108,737.11 based on an attorney's lien under G. L. c. 221, § 50, on certain patents, patent applications, and cash proceeds from their sale.
- Craig Jalbert, the debtors' liquidating supervisor, filed an objection to Ropes & Gray's secured claim, contending that G. L. c. 221, § 50, did not apply to patents and patent applications.
- The Bankruptcy Court sustained the liquidating supervisor's objection, concluding that the lien statute did not apply to patent prosecution work, and therefore Ropes & Gray was an unsecured creditor.
- Ropes & Gray appealed the Bankruptcy Court's order to the United States District Court for the District of Massachusetts.
- The District Court affirmed the Bankruptcy Court's ruling, concluding that an attorney's lien under G. L. c. 221, § 50, did not attach in favor of Ropes & Gray to the patents, patent applications, or the proceeds from their sales.
- Ropes & Gray and the liquidating supervisor filed a joint motion with the Bankruptcy Court agreeing to liquidate Ropes & Gray's claim, with $27,500 to be set aside for Ropes & Gray if it were ultimately found to have a secured claim.
- The Bankruptcy Court approved this compromise and disallowed Ropes & Gray's secured claim in its final order.
- Ropes & Gray appealed this final order to the District Court, which affirmed the order based on its September 1, 2005, decision.
- Ropes & Gray appealed the District Court's decision to the United States Court of Appeals for the First Circuit.
- The First Circuit, finding no controlling precedent on the state law issue, certified two questions regarding the scope and applicability of G. L. c. 221, § 50, to the Massachusetts Supreme Judicial Court.
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Issue:
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?
Opinions:
Majority - Spina, J.
Yes, G. L. c. 221, § 50, grants a lien on patents and patent applications to a Massachusetts attorney for patent prosecution work, and yes, this lien attaches to the proceeds of their sale. The court reasoned that the 1945 amendment to the lien statute significantly expanded its scope beyond traditional litigation to include an attorney's "appearance in any proceeding before any state or federal department, board or commission." The United States Patent and Trademark Office (USPTO) is a federal department, and an attorney's filing of a patent application constitutes such an appearance. A patent application is considered the client’s “claim,” which is one of three distinct bases for an attorney’s lien under the statute (the others being a cause of action/counterclaim or a judgment/decree/order). Interpreting the statute to require a “judgment” would render the “claim” language superfluous, violating a core principle of statutory construction. Furthermore, patents are property rights, and the attorney’s lien statute is designed to protect an attorney’s right to compensation and facilitate access to legal services. Allowing a client to sell a valuable property right obtained by an attorney's work without the lien attaching to the proceeds would wholly frustrate the statute's purpose. The phrase "upon the proceeds derived therefrom" explicitly relates back to all prior clauses, not just judgments, ensuring the lien follows the value of the attorney's work when the underlying property right is sold, similar to how other commercial liens attach to proceeds.
Analysis:
This case clarifies and significantly broadens the understanding of the Massachusetts attorney's lien statute, extending its applicability beyond traditional court litigation to administrative proceedings, specifically patent prosecution before the USPTO. It establishes that the lien can attach to the intellectual property itself (patent applications and issued patents) and, critically, to the proceeds from the sale of such property. This decision provides greater financial protection for attorneys practicing in specialized areas like intellectual property, ensuring their compensation for valuable services that result in intangible property rights, and may influence how attorney liens are considered in other administrative contexts or for other forms of intellectual property.
