Octane as Creating Conflicts Between Lawyers and Clients and Undermining the Duty of Zeal

Curious what you all think.

Under Rule 11, of course, a lawyer is entitled to argue anything that is non-frivolous. Under the ethics rules, lawyers are to represent their clients competently and within the law, subject to many limitations but, at the outside, also this same barrier:  a lawyer can’t make frivolous claims or arguments.

Prior to Octane, a lawyer could push to the limits of Rule 11 and the ethical rules without risking (in the abstract, of course) fee shifting under Section 285.  This is because Section 285 had been interpreted (wrongly, I think) to require proof by clear and convincing evidence of both subjective and objective frivolousness.

Now, fees can be shifted if the case is merely out of the ordinary — even if it complies with Rule 11.  This could have a remarkable chilling effect on litigation:  we want lawyers to challenge bad patents, for example.

In thinking about this, it seems to me that lawyers should be regularly counseling their clients about important developments in litigation that, while not risking Rule 11 sanctions (or under 1927, inherent power, etc.) nonetheless risk fee shifting.  “I can do this, and I may have a duty to do this, but it creates risk for you.”


Interesting, Problematic Prosecution Bar Case

I can’t find this case, Velocity Patent LLC v. Audi of Am., Inc (N.D. Ill. Jan. 21, 2015) online (other than Pacer), but this is the essential analysis:

Audi argues that there is a significant risk of disclosure because Thomas C. Mavrakakis is Velocity’s sole member and the named partner at the law firm representing Velocity in the investigation, Mavrakakis Law Group LLP. Audi further argues that Velocity’s attorneys are involved in Velocity’s patent licensing and business decisionmaking.

Audi has not met its burden to show good cause for its proposed modification of the Protective Order. Mavrakakis is the sole manager of Velocity, but he is not one of the prosecuting attorneys in the case. James Shimota, one of the actual prosecuting attorneys, was involved in a related entity in the past but is not alleged to be a current member or manager of Velocity. Audi has not shown that Mavrakakis is involved in patent prosecution or that Shimota is involved in competitive decisionmaking.

Audi points to a prior decision of this court that found litigation attorneys to be competitive decisionmakers when they were “deeply involved in a [patentee’s] business decisionmaking in the area of intellectual property” and “involved in representing the client in multiple, related infringement cases.” Interactive Coupon Mktg. Grp., Inc. v. H.O.T.! Coupons, LLC., Case No. 98–CV–7408, 1999 WL 618969, at *3–4 (N.D.111.Aug. 9, 1999). However, in that case, the law firm was likely to represent the patent holder “in the prosecution of numerous related patents … in the context of a fluid, developing technology.” Id. at *3. Here there is only one patent at issue; and this area is not a fluid, developing technology. And as previously stated, Audi has not shown that the litigation attorneys are involved in business decisionmaking.

Why do I think it’s troubling? First, it puts the burden on the party seeking the bar to show what the other lawyers are doing.  How’s that practicable?  Second, in these one-owner entities, unless the sole “business” of the entity is suing his particular defendant, how can there not be involvement in competitive decision-making?

Using 35 USC 285 to Impose Fees on Patentee’s Counsel

When Dreams Come True? Using Section 285 to Impose Fees against a Losing Patentee’s Lawyers

By David Hricik

[This article first appeared in Landslide Magazine.]


A patentee can use the extraordinary costs of defense to extract settlements that far exceed the value of the technology to the defendant. Further, if the patentee’s business is asserting patents, it likely will have, compared to a manufacturer-defendant, fewer documents, fewer employees, and less to lose in a patent case.[1] These asymmetrical costs can lead to frivolous claims being made solely to extract unreasonable settlements.

Defense counsel has some tools, imperfect as they are, to shift those costs, including Federal Rule of Civil Procedure 11, 28 U.S.C. § 1927, and a court’s inherent power.[2] But only one tool generally allows for all fees to be shifted from a prevailing defendant to a losing patentee: 35 U.S.C. § 285. Section 285 authorizes fee shifting only in an “exceptional case.” Earlier this year, the Supreme Court in Octane Fitness, LLC v. Icon Health & Fitness, Inc., made it easier to recover fees, holding that an “exceptional case” was simply that: unusual, in that it “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”[3] Presumably, Octane will result in awards of fees in a greater number of cases, because the Court rejected interpreting the statute to allow fee shifting only upon clear and convincing evidence of both objective and subjective bad faith.[4]

Yet, particularly where the patentee is an asset-less “troll,” shifting fees is a hollow victory. An uncollectible judgment is literally not worth the paper it is printed on. But often trolls are represented by plaintiffs’ counsel, who may have deep, if not the only, pockets. No court has rigorously analyzed whether fees under § 285 may be imposed on the loser’s attorneys (either singly or jointly with the patentee), though motions to shift fees onto lawyers post-Octane are already being filed.[5]

This article shows that whether § 285 authorizes a prevailing accused infringer to have fees awarded against the patentee’s lawyer, either alone or jointly with the client, is an open question with strong arguments that it does. The article concludes by explaining why, even if lawyers are not directly liable to the opposing party, ultimately much of the increase in § 285 fee awards will be borne by lawyers, not their clients.


History, Text, and Purpose of Section 285

Fee shifting became available in patent cases for the first time in 1946 under 35 U.S.C. § 70, which permitted a court “in its discretion” to award fees “to the prevailing party.”[6] Congress made § 70 applicable to both accused infringers and patentees. Fee shifting in favor of a patentee was deemed necessary not only to ensure that a patentee who was forced to file a suit to protect its patent would not merely receive a reasonable royalty—what it would have received had the accused infringer taken a license in the first place—but also to prevent “a gross injustice.”[7]

Of course, the primary “gross injustice” a prevailing accused infringer faces in this statute’s context is paying its defense costs. Thus, with respect to the issue here, the statute’s purpose is to compensate a prevailing accused infringer to achieve justice. Consistent with this, courts soon emphasized that the statute focused on equity, fairness, and justice, stating for example that a fee award should be “bottomed upon a finding of unfairness or bad faith in the conduct of the losing party, or some other equitable consideration of similar force, which makes it grossly unjust that the winner . . . be left to bear the burden of his own counsel fees.”[8]

Congress recodified § 70 into what is now § 285. Rather than effecting substantive change, Congress added the phrase “exceptional case” to § 285 to codify the approach of those cases that had applied § 70 between 1946 and 1952.[9] Thus, § 285 focuses on achieving fairness, justice, and equity. With respect to accused infringers, § 285 is intended to avoid the injustice of a prevailing accused infringer having to bear the cost of defense in an exceptional case.

No one doubts that an award of fees in favor of a prevailing accused infringer can be entered against the patentee. But can an award be entered against the patentee’s lawyers, either alone or jointly with the patentee? In related cases and without rigorously analyzing the statute, the Federal Circuit gave mixed signals. In a nonprecedential opinion, the court reversed a district court’s award of fees under § 285 against the patentee’s counsel, but in a later precedential opinion, over a dissent, it apparently affirmed an award jointly and severally against the patentee and its counsel.[10]


Arguments that Section 285 Permits Shifting Fees onto Loser’s Counsel

The text is the starting point: nothing in § 285 indicates who must pay. Instead, the statute only states that fees may be awarded to a prevailing party. Congress could have but did not specify that the losing party must pay the prevailing party its fees, only that a party must prevail to receive a fee award. When Congress has wanted to limit statutes in that way, it has done so. Foremost, the Copyright Act allows the court to award “the recovery of full costs by or against any party.”[11] Congress’s decision not to limit § 285 in this same way confirms § 285’s plain meaning: it only specifies who can win, not who must pay.

Further, rules with similar structures have been interpreted in this way. For example, Federal Rule of Appellate Procedure 38 allows an award of fees for frivolous appeals “to the appellee.” That rule has been interpreted to permit an award against counsel, the appellee, or both.[12] Section 285 is likewise open-ended with respect to who must pay.

Moving beyond the text, the purpose of § 285 and congressional intent each suggests that an award against attorneys might be proper: an uncollectible award of fees does nothing to avoid the injustice of a wrongfully accused infringer paying the cost of defense in an exceptional case. The intent of Congress and the purpose of § 285 would be frustrated by a construction that does not permit awards against attorneys, at least where they are the only real recourse for compensation.

Further, construing § 285 to not permit fee awards against counsel results in some absurdities. Foremost, that interpretation would impose costs on the patentee for decisions that it may be incapable of making and, in fact, did not make. For example, many patentees cannot assess what a claim means; yet, courts have found cases “exceptional” for unreasonable infringement claims.[13] In that circumstance, imposing costs on patentees, not lawyers, punishes the wrong party and does not deter the offensive conduct. It may in fact result in punishing the innocent patentee, and yet awarding nothing in substance to the victim, the accused infringer.

Illustrating that point further, Rule 11 does not permit sanctions to be awarded against a client where the basis for the sanction is a frivolous legal argument.[14] Where the basis of a fee is a frivolous legal argument, interpreting § 285 to not permit awards against lawyers would result in clients being on the hook for fees, which is clearly against public policy. Further, unless a lawyer can be liable under § 285, the lawyer’s interest is to characterize any legal arguments as being solely the basis for an award under that statute, rather than Rule 11. In this regard, some courts have refused to permit a client to indemnify an attorney for sanctions imposed against the lawyer, recognizing that the deterrent effect of sanctions would be diminished.[15]

Finally as a matter of policy, sanctions are generally not insurable, but damages for malpractice are.[16] Thus, by imposing fees only on the patentee, courts may indirectly allow lawyers to insure themselves for damages that otherwise would not be insurable.


Arguments against Interpreting Section 285 to Permit Shifting Fees onto Counsel

Some statutes do permit awards expressly against attorneys. Foremost, 28 U.S.C. § 1927 permits sanctions against “[a]ny attorney or other person admitted” to practice. The existence of these statutes suggests that when Congress wants to permit an award of fees against a lawyer, it knows how to do so, and it did not do so in § 285. Where a fee shifting statute does not mention attorneys, some courts infer that awards against counsel are improper.[17]

In addition, at least after Octane, imposing liability directly onto attorneys may chill advocacy. Specifically, an attorney may not make an argument permitted by Rule 11 in light of the potential for liability under the much lower, and amorphous, standard in Octane.

Finally, although the purpose of § 285 was to avoid an injustice to prevailing accused infringers, Congress no doubt understood that normal limitations of liability that benefit corporations would apply. What matters is what Congress intended in 1952, and nothing suggests that it was concerned about asset-less trolls enforcing patents but leaving accused infringers actually uncompensated for their loss.



It is an open question whether § 285 allows fee awards against losing counsel. Given the statute’s open-ended language and broad equitable purpose of avoiding the injustice of an accused infringer paying its own fees, the text would seem to permit such awards when justice so requires. Those circumstances may include where counsel has assisted the patentee to structure its operations to avoid having assets to pay any award of fees, or where the lawyer’s conduct causes the exceptional nature of the case. In making any award, however, courts should carefully consider any chilling effect that an award may have on advocacy.

Lawyers should carefully consider several things in the post-Octane world:

The patentee’s counsel faces different issues than the accused infringer’s. First, to some extent it may be unethical to seek indemnity or reimbursement of such claims.[18] Second, suppose the lawyer of a patentee who loses faces the motion of the prevailing accused infringer asserting that the lawyer is liable to the accused infringer for its fees. That lawyer must face the fact that the patentee’s interest is that the lawyer bears those costs, while the lawyer’s interest is the opposite. As a result, it may be necessary for the lawyer, at a minimum, to obtain the client’s informed consent to continue the representation.

Counsel for an accused infringer must determine whether to attempt to shift fees onto the patentee’s counsel, rather than the patentee. Even if the patentee has assets, an order holding the patentee and its counsel jointly liable may best serve the accused infringer.

Finally, fee awards are going to be borne largely by lawyers, not clients. A client ordered to pay the other side’s fees will often contend that the lawyer’s incompetence caused the client to bring, or defend, an exceptional case. A lawyer should consider insurance, indemnification, revisions to engagement letters to permit withdrawal, and other ways to protect the lawyer and to make the risks clear to the client.

All lawyers should analyze § 285 carefully. It may be a dream come true, or a dark nightmare.


BIO: David Hricik is a professor at Mercer University School of Law and of counsel at Taylor English Duma LLP in Atlanta, Georgia. He clerked for Chief Judge Rader in 2012, has written on statutory interpretation, and is nationally recognized as an expert in legal ethics in patent practice. The title is from “When Dreams Come True,” by John Wesley Harding on the CD Garden of Eden (2003).


[1]. See David Hricik, Legal Ethics and Non-Practicing Entities: Being on the Receiving End Matters Too, 27 Santa Clara Computer & High Tech. L.J. 793 (2010); Randall R. Rader, Colleen V. Chien & David Hricik, Make Patent Trolls Pay in Court, N.Y. Times, June 4, 2013, http://www.nytimes.com/2013/06/05/opinion/make-patent-trolls-pay-in-court.html?_r=1&.

[2]. See David Hricik, Patent Ethics: Litigation § 5.01 (LexisNexis 2014).

[3]. 134 S. Ct. 1749, 1756 (2014).

[4]. Id. at 1756–57.

[5]. See, e.g., Opinion and Order, Rates Tech. Inc. v. Broadvox Holding Co., LLC, No. 13 Civ. 0152 (S.D.N.Y. Oct. 7, 2014) (concluding without rigorous analysis that § 285 did not authorize awards against lawyers).

[6]. See Octane, 134 S. Ct. at 1753.

[7]. See S. Rep. No. 79-1503 (1946).

[8]. Park-in-Theatres, Inc. v. Perkins, 190 F.2d 137, 142 (9th Cir. 1951) (emphasis added). Courts considered all facts, including whether the patentee could have simplified the case, made unreasonable infringement claims, or delayed in suing or in dropping customer-defendants. E.g., Merrill v. Builders Ornamental Iron Co., 197 F.2d 16 (10th Cir. 1952); Aeration Processes, Inc. v. Walter Kidde & Co., 170 F.2d 437 (2d Cir. 1948); Brennan v. Hawley Prods. Co., 98 F. Supp. 369 (N.D. Ill. 1951).

[9]. See Mach. Corp. of Am. v. Gullfiber AB, 774 F.2d 467 (Fed. Cir. 1985) (explaining addition of the “exceptional case” language).

[10]. Compare Phonometrics, Inc. v. ITT Sheraton Corp., 64 F. App’x 219 (Fed. Cir. 2003) (reversing § 285 award against lawyer), with Phonometrics, Inc. v. Westin Hotel Co., 350 F.3d 1242, 1253 (Fed. Cir. 2003) (affirming an apparent award of joint and several liability against client and lawyer over the dissent of Judge Newman, who argued that awards against counsel under § 285 were permissible only for egregious conduct). See also Stillman v. Edmund Scientific Co., 522 F.2d 798, 800 (4th Cir. 1975) (opining that “it is not the purpose of [§ 285] to discipline uncooperative or overzealous counsel”).

[11]. 17 U.S.C. § 505 (emphasis added).

[12]. “[M]any cases under rule 38 assess sanctions against offending counsel, alone or jointly with the client . . . .” Coghlan v. Starkey, 852 F.2d 806, 818 (5th Cir. 1988) (citing cases).

[13]. See Hricik, Patent Ethics, supra note 2, § 5.03[5][b] (collecting cases).

[14]. Fed. R. Civ. P. 11(c)(5)(A).

[15]. See Young Apartments, Inc. v. Town of Jupiter, Fla., 503 F. App’x 711 (11th Cir. 2013) (collecting cases and discussing policy issues); N.Y. Cnty. Lawyers’ Ass’n Comm. on Prof’l Ethics, Op. 683 (Nov. 15, 1990) (analyzing propriety of clients reimbursing lawyers for sanctions).

[16]. If a lawyer brings a patent case and fees are shifted under § 285 and imposed on the patentee, the patentee can contend that that lawyer acted incompetently by pursuing the case at all, or continuing after some point. Courts have already entertained these suits. For example, in E-Pass Technologies v. Moses & Singer, LLP, fees had been imposed on a losing patentee who then brought a legal malpractice claim against its lawyers. No. C-09-5967, 2011 WL 5357912 (N.D. Cal. Nov. 4, 2011); see also Deutch & Shur, P.C. v. Roth, 663 A.2d 1373, 1375 (N.J. Super. Ct. 1995) (stating that “the client may seek indemnification against the attorney for sanctions”); In re S. Bay Med. Assocs., 184 B.R. 963 (C.D. Cal. 1995) (analyzing indemnity of sanctions orders). Of course, and particularly under the broader Octane standard, simply because fees are imposed under § 285 does not automatically evidence incompetence.

[17]. E.g., Neft v. Vidmark, Inc., 923 F.2d 746, 747 (9th Cir. 1991).

[18]. For a discussion of indemnification in the context of sanctions, see N.Y. Cnty. Lawyers’ Ass’n Comm. on Prof’l Ethics, Op. 683 (Nov. 15, 1990).

Subject Matter Jurisdiction in Legal Malpractice Claims: The Door Gets Slammed Shut Again

Dennis wrote up NeuroRepair v. Nath Law Grouphere.  The case to me puts another nail (probably not the last) in the coffin of the “substantial federal question” basis for asserting subject matter jurisdiction in cases based upon malpractice during patent prosecution or litigation.  Boiled down, because state law creates a malpractice claim, the fact that patent law will be an issue is not enough to convert a state law claim into one arising under federal law.

This is good, and bad. The good is that I’ve seen several of these cases bouncing around for years between state and federal systems. Having jurisdictional certainty is a good thing.  If someone files in state court, the case likely should remain there; if in federal court, it likely should be dismissed (absent independent subject matter jurisdictional grounds, obviously).

The bad news is that state judges, with no experience with patent law, are going to be deciding patent law issues.  This creates a little bit of the wild west, potentially.  I suspect overall that defense counsel would rather be in federal court, but that probably varies.


Good Faith but Mistaken Belief in Invalidity Combined with Good Faith but Mistaken Belief in Infringement…

At the biosimilars conference last week, everyone was puzzled about whether you could be liable for inducement if you had a good faith belief that a patent was invalid but the patent was valid.  That seems to be the law, right now at least, pending Commil.  (Dennis’s write up is here, along with a link to the CAFC decision.)  I think Commil’s wrong for a lot of reasons, but…

Let’s have some fun on Saturday morning and combine it with Frolow (Dennis’s post here.)  Suppose I mark a product as patented, but I’m wrong: although I in good faith marked it, it doesn’t meet the limitations of a claim.  (Obviously, this could occur for various reasons, including manufacturing tolerances.)

So, now let’s say someone is sued for inducing manufacture of the product.  If they’re wrong about infringement, under Frolow, the fact of marking, alone, is enough evidence to get to the jury on literal infringement.  Under Commil, it seems that a mistaken belief in invalidity is also enough to get to the jury, on non-infringement.

So, you could end up with someone (a) in fact not infringing (b) a valid patent, but liable for infringing it because she mistakenly thought she was infringing it.  You could also end up with someone (a) infringing by inducement (b) a valid patent, but not being liable for inducing infringement because she mistakenly thought the patent was invalid.


Tidbits from SPEs at the Life Sciences Conference

If you learn that your case is being examined and you have related ones in front of that examiner/art group, call him.  They have incentives to get them done that way if they can.  There’s also something called “first office action estimator” on the PTO site that you can use to guestimate.

If you’re pondering doing an RCE versus a CON, call the examiner because they may be able to give you timelines on each, suggesting which will get you a patent more quickly.

I’ll add to this as it goes on.  Again, live-posting so excuse any typos.

They’re doing a lot of live and on-line examiner training to deal with AIA/FITF cases, since those will be popping up for examination “soon” (in patent-prosecution terms).  They all say don’t check the “statement under 37 cfr 1.555 or 1.78″ box on the application data sheet for a CON or DIV if a claim has an effective filing date after the AIA, because they’ll treat it as AIA forever until you fix it.  “You are committing malpractice.”  I’m not sure I understand their point – hard to read the slide and I don’t know this form.  The more I think about what they said, the less sense it makes: if it does have a post-AIA claim then you have to check that box.  See 2 paragraphs below.

The training materials are on the PTO web page.

There’s a lot of discussion about whether to file a preliminary amendment the day after a CON to avoid having an entire case become AIA if you added new matter after the ultimate parent and post-AIA to support a new claim.  The SPEs seemed confused about this issue, so that may explain why my notes are not clear. This relates to that box – be careful about that box is the only clear lesson!

I now own a cool laminated card that shows what counts/doesn’t under the AIA.  If you email me I’ll try to send a photo copy.  Nice and in color!  Shows the grace periods, etc for the 102 provisions.  If many of you email I’ll put it up here.

Surprisingly, a few people actually are examining AIA/FITF cases (besides the Track 1 stuff).

In traversing rejections, they highly recommend to refer to the MPEP/guidance document (e.g., from the 101 guidelines).  “Don’t rub their nose in it” but if, e.g., unexpected results exist point to the MPEP section that says “unexpected results means non-obviousness.”  “Don’t paraphrase the MPEP” but instead quote it.  The examiner will have more comfort — know you’re not shading/spinning.

Regarding new matter, don’t rely on the examples in the MPEP blindly but if you find one point the examiner to it so you can better cabin and identify the issues.  If you are adding new language to claims, even though not required, point to where in the spec the support is, so they don’t waste time. This is also a good check for you to make sure you have support.  But, don’t be too specific where you point to (for litigation/enforcement).  Use general language or “for example, support can be found at…”  This is especially useful to point out support if there’s one spot in a huge spec for the support.  Some practitioners are using page/line to point out support to avoid the new matter rejection.

Regarding interviews, they’re helpful but be sure to ask that the SPE or primary be present.  Often examiner and lawyer will be talking past each other and so having third party hear the problem.  Interviews can be helpful even if don’t result in allowance it will cut down on the number of issues.  Ask if the rejection can be overcome by X, Y, or Z.  When you call to set up an interview, say “I want to compact prosecution.”  Don’t show up in a suit and let them know ahead of time you’re not dressing up to make it more informal/negotiation.  (That’s a smart one!).  If you want to have discussion-purposes-only claims, that will not work:  regs/procedures say everything written has to be part of the file.  (Apparently some folks are doing this.  Anything written/emailed should end up in the interview summary.)  SPE said “ask for copies back.”  Not sure I’d be comfortable with that since a reg says anything in writing must be part of the file.  Thoughts?

In person interviews deemed to be marginally more helpful than phone interviews.  (Interesting.)

Timing of interview:  after first OA, before response. Not after response.  Don’t put at end “if this doesn’t work call me.”  The time to interview is before you write response, due to examiner incentives.  But, some examiners want the response before responding to the OA.

They’re about to get to eligibility!  The flow-chart (infamous) about if the claim “directed to” a law of nature, a natural phenomenon, or an abstract idea you have a 101 problem unless the claim adds “significantly more”.


I’ve got to head off.

At a Conference on Life Sciences

I’m speaking shortly on ethics (inequitable conduct, mostly), but have been listening intently to the various speakers.  Some big picture issues:

They all think that the 101 jurisprudence is unworkable and puts at risk entire industries. First, (by definition) pretty much everything involves natural phenomenon or a natural product.  Second, it’s idiotic:  if you discover (which, despite the Constitution and the definitions in the statute is not an “invention” according to the Supreme Court) a natural product, if it’s easy to make use of you can’t get a patent; if it’s really hard to use, then you can. (That is, if you can use (viewed post hoc, of course) conventional methods on the newly discovered natural product, you can’t get a patent, but if it takes a lot of new stuff beyond that, you can.)

They’re worried about the Akamai mess and divided infringement and its impact on method claims in this field.

People should obtain opinions of counsel due to the “you believe it’s invalid” aspect of inducement.

More on that point:  suppose I know I induce infringement of a patent. But, I reasonably believe it’s invalid. But it turns out the CAFC, PTO, etc. say it’s valid.  Does it matter for pre- CAFC conduct versus post-CAFC?  What if I have art that the CAFC/PTO didn’t consider?  Commil is wrong, imho.

This was live-blogged so excuse my grammar/typos.

Using 285 Against Lawyers of the Loser

I have an article about to come out (I bet it’s in your mailbox) about whether or not Section 285 permits courts to award fees directly against lawyers.

Turns out it’s an open question with good arguments on both sides.

Sony just argued that an award against Dorsey & Whitney and its client, a losing patentee, should be affirmed. The oral argument in Sony v. Biax is here.  A story (I hope not behind a paywall) is here.

Stay tuned. I’ll let y’all know when my article is available, and I’ll post it here once it is in fact in print (I’m obligated to let the ABA go first).

Federal Circuit Grants Motion to Disqualify Jones Day on Appeal

The general rule is that a lawyer can’t be adverse to a current client; but, mere economic adversity is not enough.  What if I’m seeking to enjoin party A, who sells products to one of my clients, and so any injunction may cause economic harm to my client?

This is a potentially very dangerous opinion for patent firms.  Jones, Day was representing Apple when it entered an appearance in a case where the defendant had been preliminarily enjoined from making certain batteries.  Apple used those batteries.

Apple moved to intervene in the Federal Circuit to disqualify Jones, Day from representing the battery maker on appeal.  The motions panel (Dyk-auth; Newman Hughes) granted the motion to disqualify, though in a non-prec opinion.

Jones, Day stated it would not be adverse to Apple in any direct negotiations for licensing, etc.  Nonetheless the panel disqualified the firm.  The key passage:

[T]he burden placed on the attorney- client relationship here extends well beyond the sort of unrelated representation of competing enterprises allowed under Rule 1.7(a). Apple faces not only the possibility of finding a new battery supplier, but also additional targeting by Celgard in an attempt to use the injunction issue as leverage in negotiating a business relationship. Thus, in every relevant sense, Jones Day’s representation of Celgard is adverse to Apple’s interests. This conclusion is not altered by the fact that Apple is not named as a defendant in this action. The rules and cases such as Freedom Wireless interpreting them make clear it is the total context, and not whether a party is named in a lawsuit, that controls whether the adversity is sufficient to warrant disqualification. 2006 WL at *2; see also Arrowpac Inc. v. Sea Star Line, LLC, Nos. 3:12-cv- 1180-J-32JBT et al., 2013 WL 5460027 at *10 (M.D. Fla. Apr. 30, 2013) (interpreting same rule as encompassing “any representation directly adverse to the interests of a current client.”). Celgard contends that despite the conflict we should not grant disqualification because of the prejudice involved in impinging on Celgard’s right to choose their counsel and secure new counsel. Celgard further suggests that if Rule 1.7(a) were to cover conflicting representations merely because the client is up or down the supply chain then “lawyers and clients would have no reliable way of determining whether conflicts of interest exist in deciding whether to commence engagements.” Opposition at 13, Celgard, LLC v. LG Chem, Ltd., Appeal Nos. 2014- 1675 et al. (Oct. 14, 2014).

That, however, is not our holding. Nor is it the facts of this case. As evidenced by Jones Day’s attempts to limit the nature of the representation, Jones Day and Celgard clearly knew the potential for conflict here yet elected to continue with the representation. See id. at 4 (“Jones Day explained that it could represent Celgard against LG Chem, but not against customers of LG Chem who were also Jones Day clients—such as Apple.”). Thus, the legal costs and delay in proceedings that may result from a disqualification are attributable in no small way to Celgard and Jones Day themselves.

The case is not on-line but I’ve posted it, I hope, here.

So… watch out for injunctive relief that might affect current clients!  Good luck running conflicts checks on this one (though seemingly Jones Day knew of the ‘conflict’ before it appeared, in this case).  By the way, there is another case, in the ITC, involving Google where the ITC came to a somewhat different conclusion, though under more attenuated facts.

Massachusetts Seeks Amicus Briefs on Conflicts in Prosecution

This should be of interest to many of you.  I’ve written extensively on conflicts in prosecution, including the latest version of our book on the subject of ethics in prosecution, which, conveniently, you can buy here.  There is not a lot of direct precedent on this complex issue, though several notable recent verdicts, including the $40m one against Baker Botts, but barred by limitations, now on appeal as discussed here.)

Supreme Judicial Court for the Commonwealth of Massachusetts

RE:  No. SJC-11800

CHRIS E. MALING & another


Please take note that the following entry was made on the docket of the above-referenced case:

December 26, 2014 – ANNOUNCEMENT: The Justices are soliciting amicus briefs. Whether, under Mass. R. Prof. C. 1.7, an actionable conflict of interest arose when, according to the allegations in the complaint, attorneys in different offices of the same law firm simultaneously represented the plaintiffs and a competitor in prosecuting patents on similar inventions, without informing the plaintiffs or obtaining their consent to the simultaneous representation.

Francis V. Kenneally, Clerk

Dated: December 26, 2014

Lawyer Threatens to Post Negative Internet Reviews to Get Money from Former Firm: OED Steps in

Lawyers often get in fights over fees when departures occur.  This common scenario caused the departing lawyer to threaten to post negative comments about his former firm on the Internet if they didn’t pay up.  That led to disciplinary proceedings being brought by the state bar, and in response he voluntarily resigned in lieu of discipline. The OED then held that this constituted disbarment and, thus, was grounds for imposing reciprocal discipline disbarring him from representing others before the Office.

The decision is not legally ground-breaking, but it does show how things snowball.  The opinion of the OED in In re Haley (OED 12/30/14) is here.

The Huge Assumption in 101 Jurisprudence

(Back to business soon. I’ve been grading and managed to do what many of you have done, I’m sure, and catch this nasty bug going around.)

I’ve posted elsewhere at length and exhaustively about why the statutory text after 1952 makes it clear that failure to “comply” with the permissive language in 101 is a not defense to infringement.  I’ve shown that the statutory text doesn’t make 101 a “condition of patentability” and it otherwise is not listed within section 282. I’m not going to repeat those earlier posts here.  As courts say, familiarity with my prior decisions is assumed.

In that context, I note the recent case, where the court wrote:

The Supreme Court, however, has long interpreted § 101 and its statutory predecessors to contain an implicit exception: “laws of nature, natural phenomena, and abstract ideas” are not patentable. Alice Corp. Pty Ltd. v. CLS Bank Int’l, 573 U.S. __, 134 S. Ct. 2347, 2354 (2014).

Content Extraction and Transmission LLC v. Wells Fargo Bank, NA (Fed. Cir. Dec. 23, 2914) (Chen-auth; Dyk; Taranto).

The problem, in my view, is that the Court has never analyzed whether its pre-1952 case law survived the changes to the Patent Act in 1952.  Perhaps “invalidity” based on section 101 was a “defense” before 1952. It no longer is, though the court marches onward.  Worse, now this “defense” can be raised under 12(b)(6), without evidence, and with no burdens.  Whatever limitations on courts’ power to invalidate patents Congress thought it had created in 1952, this “thing that makes patents go away but is not invalidity or enforceability but is just sort of floating out there” marches onward thanks complete lack of analysis and respect for separation of powers, the rules of civil procedure, and the presumption of administrative competence.



Patentee Seeks Cert Due to Mediator’s Failure to Disclose Conflicts that CAFC Held Breached Mediator’s Duties and Undermined Trust in Mediation

The cert petition in Ceats, Inc. v. Continental Airlines, Inc. is here, I hope not behind a paywall.  The question presented:

Petitioner CEATS, Inc. (“Petitioner” or “CEATS”) engaged in court-ordered mediation with a mediator who had an undisclosed close, enduring, and personal relationship with a partner for the law firm that was lead defense counsel in the underlying CEATS patent infringement litigation. The undisclosed relationship involved continuous emails, phone calls, visits, gifts, and lavish dinners. The Federal Circuit found that: (i) the mediator breached his duty of disclosure by failing to inform Petitioner of the relationship; and (ii) the breach was likely to undermine the public’s confidence and trust in mediation.

Notwithstanding those express findings and express recognition of the potential adverse impact the decision would have on the public’s view of the federal mediation process generally, the Federal Circuit declined to grant Petitioner any form of relief under Fed. R. Civ. P. 60(b). To reach its conclusion, the Federal Circuit utilized the special harmless error standard for judges set forth in the United States Supreme Court case Liljeberg v. Health Services Acquisition Corp., 486 U.S. 847 (1988).

The issue presented is whether in the face of a specific finding that the court-appointed mediator breached his duty to disclose the conflict, did the Federal Circuit err in utilizing the special harmless error standard from Liljeberg for a mediator in declining to grant Petitioner any relief for the undisclosed conflict of interest.

Stated another way, the question for Supreme Court review is whether the failure of a court-appointed mediator to disclose a long standing conflict of interest with one of the parties to the mediation can ever be “harmless.” The answer to that question strikes at the very foundation of the integrity of the Federal judicial process as well as the public’s perception of the fundamental fairness of those proceedings.

Federal Circuit Reverses District Court, Holds PTO Properly Refused to Withdraw a Terminal Disclaimer the Client did not Authorize

Japanese Foundation for Cancer Research v. Lee (Prost-auth; Dyk; Taranto), mentions and partly arose out of the tsunami that devastated Japan a few years ago.  The Japanese Foundation owned a patent. A Foundation employee asked a paralegal at a Japanese firm whether a patent could be abandoned or disclaimed before non-payment of maintenance fees.  The paralegal then sent a fax to the Foundation’s attorney of record for the patent, Foley & Lardner, stating that the clients “would like to abandon” the patent before “before the case lapses by nonpayment of the next maintenance fees” which were due in a year and a half.  The paralegal asked for any necessary forms.

Two days later the tsunami and earthquake hit.  This caused the paralegal to lose track of the matter.

Meanwhile, six months after getting the fax, the attorney of record filed a statutory disclaimer.  Two months later, he petitioned to withdraw it.  The PTO rejected the petition because the attorney filed the disclaimer with a valid POA.  The PTO rejected subsequent efforts to get the disclaimer withdrawn.

Then the Foundation filed suit in district court, which directed the PTO to withdraw the disclaimer unless the PTO found that the “Foundation actually authorized its filing.”  The PTO appealed, and Chief Judge Prost wrote the panel opinion reversing the district court.

The opinion is significant for a couple reasons.  One is that the panel held that 35 USC 255, governing certificates of correction, would not allow withdrawing a mistakenly filed statutory disclaimer.  In doing so, it distinguished an earlier malpractice case where a disclaimer had been filed but in the wrong application, and correction was permitted, but the disclaimer was still effective as to the intended patent.  The court said this was different, since here there was no “clerical or typographical error” in terms of 255:  it reasoned that such an error “appears on the face of the document, as opposed to the filing of the document itself.”  That sounds right.

Second, the district court had held that the PTO had inherent authority to withdraw a mistakenly filed terminal disclaimer.  The district court had relied upon this power to order the PTO to withdraw it.  The panel reversed, relying on the deference afforded to the PTO’s determination that the patentee was “bound by the actions or inactions of his voluntarily-chosen representative.”  Once the PTO found the attorney of record signed the disclaimer, the inquiry ended as far as the PTO went.  The panel then reasoned:

The Foundation suggests that it should not be bound to the consequences of its attorney of record’s actions, as it resulted in the loss of a valuable property right. It analogizes, as the district court did, to the principle that an attorney cannot settle a case or waive certain rights without the client’s authorization in the context of ordi- nary representation.   The PTO has, however, clearly articulated in its regulations that, other than the patentee, only the attorney of record with power of attorney is authorized to file a terminal disclaimer on the patentee’s behalf. See 37 C.F.R. § 1.32. And here, the patentee provided specific authority to its attorney to file a disclaimer by filing a power of attorney to prosecute the underlying application and to transact all business in the PTO connected therewith. J.A. 199. Even if we disagreed with the PTO’s position as a matter of policy, we must not substitute our own judgment for that of the agency because “[unless] these vital differentiations between the functions of judicial and administrative tribunals are observed, courts will stray outside their province and read the laws of Congress through the distorting lenses of inapplicable legal doctrine.” FCC v. Pottsville Broad. Co., 309 U.S. 134, 144 (1940). We must defer to the agency’s interpretation of its own procedures and regulations, and this case does not indicate the kind of “extremely rare circumstances” that could “justify a court in overturning agency action because of a failure to employ procedures beyond those required by the statute.” Vt. Yankee Nuclear Power Corp. v. Natural Res. Def. Council, Inc., 435 U.S. 519, 524, (1978). Here, the PTO determined that miscommunications between the Foundation and its attorney of record did not excuse the actions of the attorney, and we will not substitute our judgment for that of the agency.

Therefore, we find that the PTO did not act arbitrarily, act capriciously, or abuse its discretion in declining to use any inherent authority that it might have in with-drawing the terminal disclaimer on the ’187 patent that the Foundation’s attorney of record duly filed in accordance with the PTO’s regulations.

(Some citations omitted.)

Be careful out there.

Sidley: Docket Text “Affirmatively Misled” us so None of the 18 Lawyers who Received It Needed to Read the Actual Orders

All of this is based upon the oral argument from Tuesday.

Represented by Sidley, AT&T loses $40m verdict at trial.  The parties file post trial motions.  Sometime later, 18 lawyers at Sidley and its local counsel received notice that the district court had entered several orders.  Many were sealing and other administrative orders.  One was the denial of AT&T’s motion for judgment as a matter of law notwithstanding the jury’s $40m verdict against it.

No one read the orders — though apparently some folks billed as much as .25 an hour to reading the email — until about two months later, which was long past the deadline for appealing.  The district court denied relief to AT&T, basically saying that the text of a docket entry isn’t what matters; it’s the order, and lawyers have a duty to read every order. (That’s the gist.)

The appeal in Two-Way Media LLC v. AT&T was heard yesterday at the CAFC.  The oral argument is here.  It’s a fascinating listen:  two former trial judges (O’Malley and Wallach) were not sympathetic, at all, to Sidley’s position; Judge Dyk seemed to be bending over backwards to try to get one of those two to join him in granting some form of relief.

Stay tuned….  I’m guessing there will be either a rule 36 affirmance or a 2-1 decision with Dyk dissenting.

Law Firm: Because Third Party Patent Annuity Company Actually Missed the Deadline, We Can’t be Liable for Covering it up.

According to the complaint described in Harrier Technologies, Inc. v. CPA Global Limited et al (No. 3:12-cv-00167-WWE (D. Conn. Dec. 2014), the patentee, Harrier, asserted that CPA Global had let Harrier’s Saudi Arabian patent lapse, and that Kenyon knew of the lapse and deliberately covered it up.  Kenyon asserted an indemnification claim against CPA Global. CPA Global moved to dismiss that claim for failure to state a claim.

Not surprisingly, the district court granted the motion:

Kenyon alleges that to the extent that any entity other than Harrier was responsible for the lapse of the Saudi patent application, CPA’s own negligence, rather than any other negligence, was the direct and immediate cause of that lapse. Here, however, Kenyon is not facing claims of negligence. Kenyon’s alleged wrongful concealment after the fact rather than any initial responsibility for the lapse is at issue through Harrier’s counts of breach of fiduciary duty (Count II) and fraud (Count III). Although Count II of Harrier’s complaint does allege that Kenyon breached its fiduciary duty to Harrier by, inter alia, failing to timely pay the annuity, such failure, as a matter of law, does not fall within the realm of fiduciary duty in Connecticut.  Simply put, the argument that CPA’s negligence in failing to renew the patent application was primarily responsible for Kenyon’s alleged dishonesty and deception toward Harrier cannot stand. CPA cannot have been in exclusive control of Kenyon’s alleged concealment and dishonesty to its client.  Moreover, if Kenyon is to be held liable to Harrier for concealing knowledge about the lapse of the Saudi patent application, and as Kenyon contends, CPA’s negligence caused the lapse, it would necessitate a finding that Kenyon knew of CPA’s negligence in causing the Saudi patent application to lapse. Therefore, Kenyon cannot satisfy the fourth element of a common law indemnification claim — that a party seeking indemnification did not know of the third-party’s negligence. Accordingly, Kenyon has failed to state a plausible claim for indemnification against CPA

(Citations omitted.)   (You can’t make this stuff up.)   The case is behind a paywall and not available outside of Pacer, unfortunately, but that is pretty much the substance.

Brilliant New Book on Ethics in Prosecution 2015 Edition Out Now!

By David Hricik

Proud to announce that the 3rd edition of Patent Ethics: Prosecution that I co-authored with Mercedes Meyer is now available here!  This edition adds a massive amount of new material to deal with the new PTO ethics rules and the fast-moving, roller coaster world of ethical issues in patent practice!

From the description:

Patent Ethics: Prosecution (2015 Edition), by David Hricik and Mercedes Meyer, is an essential guide to the ethical issues arising in the course of the patent prosecution process. By providing relevant rules and case law, it allows practitioners to identify ethical problems before they arise and to address them most effectively when they do. Patent Ethics: Prosecution is one of two volumes on patent ethics — the second focuses on litigation — and is the first of its kind to combine the United State Patent and Trademark Office (PTO) rules with commentary by the authors, which distills the authors’ own experience and expertise in patent prosecution into effective practice strategies.

The 2015 Edition is particularly relevant considering the significant ramifications with the United States Patent & Trademark Office (USPTO) repealing its existing rules, the USPTO Code of Professional Responsibility, and replacing them with the new USPTO Rules of Professional Conduct. Furthermore, the 2015 Edition also comprehensively discusses ethical issues of major concern for patent law practitioners such as:
•   The increase in malpractice claims based upon patent prosecution as well as recent significant verdicts of $30 million and $70 million.

•   The USPTO’s Office of Enrollment and Discipline’s vigorous enforcement efforts, continued persistence in asserting a broad view of its jurisdiction, and resulting increase in the volume of case law and other authorities.

•   The troublesome issue of best mode and the America Invents Act.

•   The various ethical issues surrounding patent agents.

The 2015 Edition features new analysis of current client conflicts in patent practice, including when prosecution and opinion work become “adverse” to a client, the conflicts of interest created by the AIA’s approach to the best mode, and duty of candor post-Therasense. It also includes an updated PTO Code completely annotated with OED decisions on each provision.

Makes a perfect Christmas present, too!  Buy one for every lawyer in your firm!  Heck, buy two so they have one at home!

The Reines Matter: My Long-Promised Post.

I’ve decided to set the stage and let you all just read the actual documents.  In response to the show cause order, Reines filed a massive response, including declarations from six experts, all of whom said there was no cause to reprimand Reines.  They’re worth a read, since these folks (mostly) deal with discipline.  Yes, some experts will say anything, but in my (biased?) opinion these folks nail it.  (I’ve laid out below the procedural problems with this approach.)

Once you’ve read through the brief and the exhibits (link at the end), think before you comment:

First, don’t conflate Chief Judge Rader’s admitted mistake — he’s already apologized to bench and bar for the email he sent to Reines — with Reines’ actions in forwarding the email to his family and some former, current, and apparently a few potential future clients.  (All of whom were sophisticated in-house counsel, apart from his family. I hope it is not sanctionable to send a nice note to your family.)

Second, in your comments, take into account that the court was required to find facts — something it’s not designed to do — by clear and convincing evidence.  (That’s what its disciplinary rules require).  Related to that, recognize that, ostensibly at least, the en banc court’s fact-findings, made without any opportunity to appeal, “should” result in Reines being subject to discipline by the California bar.  By that I mean:  normally, if a court imposes discipline there’s a high probability a state will follow suit (discipline; not sanctions, etc.).  In that regard, also realize that Reines’ counsel offered to provide live testimony but the Court said that because he didn’t formally require a hearing, it was not providing one… even though much of its decision turns on what it concluded Reines’ intent was.

Third, read the show-cause order itself. I won’t go into details, but it makes some allegations that required about five words in the responsive brief to show were baseless.

Fourth, and most importantly, recognize that, the key factual finding by the court (at least to me) is that Reines “stated” that his stature with the CAFC helped flip a judgment, and that is flatly wrong.  Here is what the court wrote:

It [the email in Ex. 38] suggested that his special relationship with the court should be taken into account. Respondent touted his role as chair of this court’s Advisory Council, and stated that his “stature” within the court had helped “flip” a $52 million judgment in favor of his client and that he “would love to help [the recipient of his message] do the same.” Reines Ex. 38.

Thus, the court “found” that Reines had forwarded the email and stated that his stature at the CAFC had helped him flip a verdict.

This is factually wrong.  It just is.  Not my opinion; simply facts.  But that finding is about the only thing I think the court can hang its hat on in finding an ethics violation.  In that regard, note that when I had first written in the earlier post that the court got this right, I’d focused on this $52m “finding,” too. T

But there is no evidence to support the finding, let alone clear and convincing evidence.

The court did not quote email exhibit 38. Here is the material text of Exhibit 38, sent to an in-house lawyer (apparently a friend or former client?) who was dealing with post-trial issues in district court in California, and offering to help in the district court post-trial efforts to flip that verdict:

Paul, I saw the unfortunate verdict in ND Cal in the Power Integrations case. I call to offer assistance in two ways. I can help in the district court. No one knows this court better or has a better relationship with the bench. I have chaired the ND Cal Patent Rules committee for many years and am viewed as an authority on all-things-patent by this bench. You will have maximum credibility. Second, I am a leading Federal Circuit advocate. Just yesterday Chief Judge Rader sent me an email reporting how impressed the Federal Circuit judges were in appeals I argued Tuesday. In one of those cases I helped flip a $52 million verdict. I would love to help you do the same. Yesterday’s email [from Chief Judge Rader] is below. Please keep it to Fairchild. I have served the Federal Circuit as Chair of its Advisory Council for many years. That obviously speaks to my stature at that court.

The fact is that Reines had “flipped” a verdict in a district court.  The word “stature” appears, but (a) he did not “state” that his stature resulted in the flip and (b) , if you argue a case at the CAFC and the result is reversal — flipping a verdict — you will not know that you “flipped” the case within two days.  You might get a rule 36 affirmance, but you won’t flip a case. So, it’s not even a fair stretch.it makes no sense — and it also relies on his statement that he flipped a decision in the district court to support the en banc “fact finding” that he said his stature helped him flip a verdict at the CAFC.  Put the other way, the fact that he said he had flipped a decision in a district court was portrayed by the Court as a statement that his stature with the CAFC helped him flip a case at the CAFC.  This is factually unsupported by the record, even by wild unreasonable inferences against him.

I’m not going to comment further, so you’re on your own in the comments.  But, here is Reines’ response.  (It’s so massive it won’t fit on patentlyo…).  To be complete, he filed a short supplemental letter, too, but it’s not very important to the outcome.

And, yes, I am a friend of Judge Rader.  Always will be, I hope.