Ezel / Ethics Opinions / NYSBA
NYSBA 2019-05-07

If a lawyer runs both a law firm and an IP consulting company, which ethics rules apply, and can the lawyer share ownership or fees with non-lawyers and a foreign lawyer?

Short answer: The opinion concludes that where the consulting services are not distinct from the legal services, the Rules govern the whole operation: the lawyer may share fees with a qualifying foreign lawyer but not with non-lawyers (except a permitted profit-sharing plan), and may not delegate the duty to supervise non-lawyers to outside or client counsel.
Currency note: this opinion is from 2019
Subsequent statutory amendments, court decisions, or later opinions or rule amendments may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Disclaimer: Advisory only. Not binding precedent.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

NYSBA Ethics Opinion 1166: Lawyer-Owned IP Consulting Firm, Fee-Sharing, and Supervision

Short answer: The opinion concludes that a New York lawyer who runs both an intellectual-property law firm and an IP consulting company must determine the applicable ethics rules matter-by-matter under Rule 8.5(b); that where the consulting services are not distinct from the legal services (as here) the full Rules apply to both; that the lawyer may associate and share fees with a qualifying non-U.S. lawyer but may not share ownership or fees with non-lawyers except through a permitted profit-sharing plan; and that the duty to supervise non-lawyers under Rule 5.3 cannot be delegated to a third-party firm or a client's in-house counsel.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's view of New York's Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.

Plain-English summary

The inquirer is a New York lawyer also admitted in other U.S. jurisdictions and before the USPTO, who owns both an IP law firm and a corporation providing IP business and consulting services, with linked websites and separate email addresses but a shared home address where most work is done. The lawyer routes work the lawyer deems "clearly not the practice of law" (such as brokering patents) through the consulting firm with a disclaimer, and legal or ambiguous work through the law firm. The lawyer plans to bring on four people who want partner, shareholder, or profit-sharing roles: a similarly situated U.S. lawyer, a U.S. patent agent (not a lawyer), a person admitted to practice in a European civil-law country but not in any U.S. jurisdiction, and a technologist. The committee declines the unauthorized-practice questions (outside its jurisdiction) and answers the choice-of-law, Rule 5.7, fee-sharing, and supervision questions.

On choice of law, Rule 8.5(a) subjects the New York-admitted lawyer to New York's disciplinary authority wherever the conduct occurs, but Rule 8.5(b) determines which rules apply; the analysis is fact-specific and the lawyer should assess the applicable rules for each discrete activity, with USPTO rules potentially relevant for USPTO matters. On Rule 5.7, the committee finds the consulting services are not distinct from the legal services, because they overwhelmingly involve protecting IP and making legal determinations that clients would see as a continuum of legal services; that the USPTO allows non-lawyers to perform some of them is irrelevant. Because the services are not distinct, the Rules apply to the consulting firm and no disclaimer cures that.

On fee-sharing and ownership, the committee reaffirms that a New York lawyer may share legal fees with a non-U.S. lawyer if the arrangement complies with New York substantive law and the foreign jurisdiction's codes, and the lawyer independently confirms the foreign lawyer's education is equivalent and the arrangement will not compromise independent judgment or confidentiality (citing prior opinions on Japanese, Italian, Swedish, and U.K. lawyers). But the patent agent and technologist do not qualify as lawyers, and because the consulting work is not distinct, the full Rules apply: Rule 5.4(b) bars a lawyer-non-lawyer partnership where any activity is the practice of law, and Rule 5.4(a) bars sharing legal fees with non-lawyers except under the Rule 5.4(a)(3) profit-sharing exception, which must be based on overall firm or department profitability, not a single case or on referrals. On supervision, Rule 5.3 imposes a non-delegable duty on the firm and supervising lawyer to adequately supervise non-lawyers (a rule of reason), and that duty cannot be satisfied by relying on a third-party law firm or a client's in-house counsel.

In practice

Under this opinion, a New York lawyer operating a side consulting business that overlaps with the lawyer's legal services should treat the consulting work as governed by the Rules whenever it is not genuinely distinct from the legal services, regardless of disclaimers or separate entities. The opinion holds the lawyer may share fees with a qualifying foreign lawyer who meets the equivalence and independence conditions, but may not give ownership or legal-fee shares to non-lawyer staff beyond a Rule 5.4(a)(3) profit-sharing plan tied to overall firm or department profitability (not single matters or referrals). It also holds the lawyer must personally ensure adequate supervision of non-lawyers under Rule 5.3 and cannot outsource that duty to outside or client counsel; for multi-jurisdiction work, the applicable rules are assessed per activity under Rule 8.5(b).

Common questions

Q: Does putting non-legal work in a separate consulting company keep it outside the ethics rules?

A: Per the opinion, not where the services are not distinct from the legal services. The committee found the IP consulting work was not distinct, so the Rules apply to it and a disclaimer that it is not legal services is ineffective (Rule 5.7(a)(1)).

Q: Can the lawyer share fees with a foreign lawyer not admitted in the U.S.?

A: Per the opinion, yes, if the arrangement complies with New York law and the foreign jurisdiction's codes and the lawyer independently confirms the foreign lawyer's education is equivalent and that independent judgment and confidentiality will not be compromised.

Q: Can the patent agent or technologist be partners or share in fees?

A: Per the opinion, no. Because the consulting work is not distinct, Rule 5.4(b) bars a lawyer-non-lawyer partnership that practices law and Rule 5.4(a) bars sharing legal fees with non-lawyers, except a Rule 5.4(a)(3) profit-sharing plan based on overall firm or department profits, not single cases or referrals.

Q: Can the lawyer rely on an outside firm or the client's in-house counsel to supervise the non-lawyers?

A: Per the opinion, no. The Rule 5.3 duty to adequately supervise non-lawyers is fundamental and non-delegable; the inquirer must ensure the supervision and cannot rely on a third-party law firm or a client's in-house counsel to do it.

Q: Which jurisdiction's rules apply to a lawyer practicing in several states and countries?

A: Per the opinion, it is fact-specific under Rule 8.5(b); the lawyer should assess the applicable rules for each discrete activity, considering where the lawyer principally practices and where conduct has its predominant effect, with USPTO rules potentially governing USPTO matters.

Background and rules framework

The opinion applies New York Rule 8.5(a) and (b) (disciplinary authority and choice of law), Rule 5.7(a) (responsibilities for non-legal services and the distinctness test), Rule 5.4(a) and (b) (no fee-sharing or partnership with non-lawyers, with the 5.4(a)(3) profit-sharing exception), and Rule 5.3(a) and (b) (supervision of non-lawyers), with Rule 5.5 framing the declined unauthorized-practice questions. These correspond to ABA Model Rules 8.5, 5.7, 5.4, 5.3, and 5.5.

Citations and references

Rules of Professional Conduct:

  • New York Rules of Professional Conduct 8.5(a); 8.5(b); 5.7(a) (and Comment); 5.4(a); 5.4(a)(3) (and Comment [1B]); 5.4(b); 5.3(a) (and Comment [2]); 5.3(b); 5.5 (and Comments [1], [2])
  • ABA Model Rules 8.5, 5.7, 5.4, 5.3, 5.5 (analogues)

Regulations:

  • 37 C.F.R. sections 11.101 et seq. (USPTO Rules of Professional Conduct, effective May 3, 2013)

Cases:

  • Matter of Galasso, 19 N.Y.3d 688 (2012): delegation of tasks to firm employees requires appropriate lawyer oversight

Other opinions cited:

  • N.Y. State 1162 (2019); 1157 (2018); 1155 (2018); 1135 (2017); 1027 (2014); 938 (2012): distinctness of non-legal services and choice of law
  • N.Y. State 1072 (2015); 806 (2007); 658 (1993); 646 (1993); 542 (1982): sharing fees with qualifying non-U.S. lawyers
  • N.Y. State 887 (2011); 779 (2004); 662 (1994); 774 (2004); 693 (1997); 762 (2003); 807: profit-sharing, practice-of-law, and supervision

See also

Source