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NEW YORK COUNTY LAWYERS’ ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
In answering questions this Committee acts by virtue of the following provision of the By-laws of the Association, Article 57, Section 3:
“This Committee shall have power, when consulted, to advise inquirers respecting questions of proper professional conduct, reporting its action to the Board of Directors from time to time.”
It is understood that this Committee acts on specific questions submitted ex parte and in its answers bases its opinion on such facts only as are set forth in the question,
QUESTION NO. 654 (77-4)
May a lawyer enter into an agreement with an inventor to render legal services in the preparation and prosecution of patent applications and provide that his fee and reimbursement of expenses advanced by him will be contingent upon the client’s receiving monies through commercial exploitation of his invention?
ANSWER TO QUESTION NO. 654
It is true that it is not proper for a lawyer to enter into an agreement with a client which provides that reimbursement of costs and disbursements incurred in litigation will be contingent on winning the case.
In N. Y. State 464 (1977) the rules relating to such agreements were reviewed and explained, and it was held that while a lawyer may accept a civil case on a contingent fee basis, and may advance expenses of litigation, he may not agree that reimbursement of the litigation expenses shall be conditioned upon a successful outcome of the case. See also DR 5-103(A) and (B); EC 5-7 and 8; Former Can, 10, 28 and 42.
The Rules trace their origin to the traditional policies against champerty, maintenance and barratry, and to the concern that a lawyer’s acquisition of a property interest in the cause of his client may have an adverse effect upon his free judgment on his client’s behalf, N. Y. State 37(a) (1968); EC 5-7.
However, the provisions of DR 5-103(B) and EC 5-8 are restricted to litigation and “the expenses of litigation,” The Code is less restrictive with respect to non-litigated matters. Although a lawyer’s ownership of property or acquisition of a property right in which a client has an interest is generally disapproved, such disapproval is not absolute, as in litigated matters, but is limited to cases where the ownership may interfere with the lawyer’s professional judgment in the representation of his client, EC 5-3. If the mutual property interest were such that it would be unlikely to affect the lawyers zeal on behalf of his client adversely, it would be permissible for the lawyer to have such interest.
In the case of an application for a patent, which is ex parte before the U. S. Patent & Trademark Office, the interests of the lawyer and client ordinarily would be identical and the danger that the lawyer’s judgment on behalf of his client might be adversely affected by his stake in the application is not present. Accordingly, in such case it would not be improper for him to enter into an agreement with the client which provides that out-of-pocket expenses advanced by the lawyer in connection with the application would be repaid only if the application is granted, and then only if monies are received by the client through commercial exploitation of the patent. Rather than being contrary to public policy, as in the case of the stirring up of unwarranted litigation, it would be in the public interest to encourage new inventions.
February 16, 1978