Can a patent firm charge a royalty-based finder's fee for matching its inventor clients with its product-promoter clients?

Plain-English summary

A firm concentrating in patent law represented both inventor clients and manufacturer/distributor/promoter clients. It had been informally matching inventors with promoters at no charge, found the task burdensome, and proposed to charge a "finder's fee" calculated like a royalty (a percentage of the patented products made, used, or sold), possibly through a separate corporation owned by the firm's lawyers. The Committee treated the matchmaking as a non-legal business but concluded that, because it would be offered to current and former clients and would pair one client with another, the Rules of Professional Conduct applied.

The Committee identified three problem areas. On confidentiality, matchmaking would require disclosing protected client information to prospective participants, so under Rule 1.6(a) the firm had to obtain each affected client's prior consent after disclosure; because the fee would be contingent on the venture's success, Rule 1.5(c) required the agreement to be in writing. On conflicts, choosing which clients received opportunities, negotiating and drafting the resulting deal between two clients, and the firm's own financial stake all implicated Rule 1.7; the Committee observed that in many circumstances a "disinterested lawyer" could not reasonably believe the multiple representation was appropriate, so consent would sometimes be unavailable. On business transactions, Rule 1.8(a) and Illinois common law subjected lawyer-client dealings to strict scrutiny: when a lawyer benefits, a presumption of undue influence arises (In re Anderson; In re Pagano) that the lawyer must rebut by showing full disclosure, adequate consideration, and independent advice, and the fee had to be reasonable under Rule 1.5(a).

The Committee added that routing the service through a separate corporation owned by firm lawyers would not change the result. Citing ABA Model Rule 5.7 as guidance (though Illinois had not adopted it), it concluded the inventors and promoters could not be turned into non-clients by using a separate entity, and the Rules continued to govern.

Currency note

This opinion was issued in 1999, before Illinois adopted its current Rules of Professional Conduct, effective January 1, 2010. The Illinois Rules cited here use the pre-2010 numbering. The ISBA notes the opinion was affirmed by its Board of Governors in January 2010 as generally consistent with the 2010 Rules, though the specific standards referenced may differ. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Common questions

Q: Do the ethics rules apply to a lawyer's side business of matching one client with another?

A: Yes. The Committee concluded that although running a non-legal business from a law office is not prohibited, offering a matchmaking service to current and former clients and pairing them with each other brought the arrangement within the Rules of Professional Conduct.

Q: Did the firm need written consent, or was an oral disclosure enough?

A: The opinion concluded the firm had to obtain informed consent to the disclosure of confidential information, and because the royalty-type fee was contingent on the venture's success, Rule 1.5(c) required a written agreement.

Q: Could the firm avoid these duties by using a separate corporation?

A: No. The Committee concluded that conducting the referral business through a separate entity owned by firm lawyers would not make the inventors and promoters non-clients, and the Rules would still govern, citing ABA Model Rule 5.7 as guidance.

Background and rules framework

The opinion applied Illinois Rule 1.6 (confidences and secrets) and Rule 1.5 (fees, including the writing requirement for contingent fees under 1.5(c) and the reasonableness requirement of 1.5(a)), corresponding to ABA Model Rules 1.6 and 1.5. It analyzed conflicts under Rule 1.7 (Model Rule 1.7) and business transactions with clients under Rule 1.8(a) (Model Rule 1.8), against the backdrop of Illinois common-law strict scrutiny of lawyer-client transactions and the presumption of undue influence. It referenced ABA Model Rule 5.7 on law-related services for guidance only, noting Illinois had not adopted it.

Citations and references

Rules of Professional Conduct:

• Illinois Rules 1.4, 1.5, 1.6, 1.7, 1.8 (Model Rules 1.4, 1.5, 1.6, 1.7, 1.8)
• ABA Model Rule 5.7 (law-related services), cited as guidance; not adopted in Illinois

Cases:

• In re Anderson, 52 Ill.2d 202, 287 N.E.2d 682 (1972), presumption of undue influence in lawyer-client transactions
• In re Pagano, 154 Ill.2d 174, 607 N.E.2d 1242 (1992), factors for rebutting the presumption

Other opinions cited:

• ISBA Opinion Nos. 90-03, 90-16, 90-31, 90-32, 94-21, 96-05, 97-04, 97-07

See also

• ISBA Ethics Op. 23-03: Fee for Referral to an Investment Advisor
• ISBA Ethics Op. 01-05: Mediation Firm Paying Nonlawyers for Referrals
• ABA Ethics Op. 474: Referral Fees and Conflicts

Source

• Landing page: https://www.isba.org/ethics/opinions/9803