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 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.

Cracks in the 101 architecture?

I read the Ultramercial opinion and the hand-waving.  Here’s what’s going on:  the court realizes that if you read the statute literally, 101 is not a defense.  On the other hand, if you reason that, somehow, it is a defense, then it is subject to the presumption of validity.  To avoid that, the court is reasoning that this judicial exception to 101 is “different” than everything else — including utility, which is in 101.

Read.  The. Statute.  Judicial activism at its worst by the Supreme Court is causing good judges everywhere to ignore the Constitution.

And let me be clear:  there are doctrines — constitutional avoidance being one of them — which a court might be able to use to come up with some sort of rational reading of 101 to be limited by the Constitution, but that tortuous path is very, very different than this nonsense.

Rant over.

Federal Circuit Vacates and Remands Death-penalty Sanctions under Rule 37

In Loops, LLC v. Phoenix Trading, Inc. (Fed. Cir. Nov. 13, 2014), in a non-precedential opinion authored by Judge Dyk (with Judges Taranto and Chen), the court affirmed in part the striking of an answer due to several issues.  First, the patentee had testified falsely at her deposition about a key document.  Second, it held that a key document should have been produced in discovery, but had been withheld. However, the district court improperly based its sanction on other conduct, requiring remand.

There’s not a lot new here, but because rule 37 orders are not appealable before final judgment, it is unusual to see them even discussed by the court, and so I note the case for you here.

(And, yes, the Reines matter will be up soon. It’s been a busy week.)

Part 1 of a Full Analysis of the Reines Decision: The Procedural Rules (edited)

(I clerked for Chief Judge Rader ending 18 months ago.  Full disclosure done.)

The Federal Circuit’s Rules.

Under the Federal Circuit’s rules on attorney discipline (here), unless a disciplinary matter arises in connection with a pending case (e.g., I make a frivolous legal argument in an appeal, in which case the panel hearing the case deals with it), a standing panel handles disciplinary matters. Specifically Rule 4 provides:

(c)  Standing Panel on Attorney Discipline.

(1)  The Standing Panel shall conduct proceedings in any matter in which disbarment, suspension, or a monetary sanction over $1000 may be considered, or in any matter referred by a merits or motions panel.

(2)  The Standing Panel shall consist of three judges, at least two of whom shall be active judges, appointed by the Chief Judge. The Chief Judge may serve as a member of the Standing Panel. The initial appointments shall be for one, two, and three year terms, so that the members’ terms are staggered. Thereafter, a member shall be appointed for a three-year term. A member who has served on the Standing Panel for three years shall not be eligible for appointment to another term until three years after termination of his or her last appointment

(3)  The chairperson of the Standing Panel shall be the senior active judge.

The panel has authority to issue a show-cause order.  Rule 5(b).

The panel must issue a decision.  Rule 5(f) (“At the conclusion of a proceeding, a panel shall issue a final order in the matter. The order may direct the attorney or the Clerk to send a copy of the order to all other courts and agencies before which an attorney is admitted….”).

That decision is then afforded at least two subsequent reviews:  after the panel decision, then rules regarding en banc hearings kick in:

An attorney may file a petition for rehearing by the panel or a combined petition for rehearing by the panel and suggestion for rehearing by the active judges of the court, or a majority of the active judges may order that a disciplinary matter be heard or reheard by them. Such a hearing or rehearing is not favored and ordinarily will not be ordered except when necessary to secure or maintain uniformity of the court’s decisions or when the proceeding involves a question of exceptional importance. Any such petition shall be filed within 30 days of the date of the panel’s final order. The procedures governing a petition for rehearing or a combined petition/ suggestion will otherwise be in accordance with the provisions of Federal Rules of Appellate Procedure 35 and 40 and Federal Circuit Rules 35 and 40.

What Happened Here?

No panel ever issued a show cause order; it was issued listing every active judge (except obviously CJ Rader).  (The show cause order is attached to the end of the en banc opinion, here.)  Thus, from the start the court was not following its own procedure.

Then, rather than issuing a panel decision, which would be subject to a motion for panel rehearing and rehearing en banc, without notice to Reines (that I could see) the court short-circuited the procedural safeguards in its own rules and issued an en banc decision.  The rules on attorney discipline do not permit, so far as I can see, this process.  Only after the panel decision do the ordinary rules that allow for sua sponte en banc proceedings kick in.

So what?  Well, this is a disciplinary proceeding. They ruin careers.  One argument, no appeal?  No court in the land permits that that I’m aware of, and certainly no state.

Beyond that, what could he have done?  He had in his brief said that he didn’t think an evidentiary hearing was necessary, but offered to appear.  Had the court indicated that it was eliminating all rehearing rights, perhaps he would have expressly requested for a hearing.

But putting that to the side, the Court from the beginning did not follow its own rules in a quasi-criminal proceeding.

Would the outcome have been the same?  Who knows.  Does it raise questions about due process?  I think so.

The substance is also interesting.  More to come.

FTC Extracts Settlement from Notorious “Troll;” Seeks Public Comments

According to the FTC’s complaint, MPHJ Technology Investments LLC acquired patents relating to network computer scanning technology.  Nothing wrong with that.  But then it sent letters to thousands of small businesses asserting that they were likely infringing its patents and so needed a license.  Perhaps nothing wrong with that (if true).  But, MPHJ also allegedly falsely represented that other companies had already paid thousands of dollars for licenses.

The FTC also alleged that MPHJ’s law firm, Farney Daniels, P.C., authorized letters on its letterhead be sent to about 4,800 small businesses. Those letters threatened a patent suit if the recipient did not respond to the letter within a two-week letter, and included a purported complaint for patent infringement. However, the FTC alleged that there was no intention—and no preparations—to file those suits, and none were filed.

The FTC filed a complaint to stop this, available here.  The agreement containing a consent order (which it seems is subject to public comment) is available here.  It would impose $16,000 in fines for every inappropriate letter.  In addition, it prohibits these communications (sorry for the auto numbering errors).

    1. that a particular Patent has been licensed to a substantial number of licensees,
    2. that a particular Patent has been licensed at particular prices or within particular price ranges, or
    3. otherwise concerning the results of licensing, sales, settlement, or litigation of a particular Patent,

    unless the representation is non-misleading and, at the time such representation is made, Respondents possess and rely upon competent and reliable evidence sufficient to substantiate that the representation is true;

    B.  Make any representation in a Patent Assertion Communication, expressly or by implication, about the licenses for a Patent or the responses of recipients of Patent Assertion Communications unless the representation is non-misleading, and, at the time the representation is made, Respondents possess and rely upon competent and reliable evidence that substantiates that the representation is true;

    C.  Make any representation in a Patent Assertion Communication, expressly or by implication, that Respondents or an Affiliate have taken any action with respect to the filing of a Lawsuit, including initiating a Lawsuit, unless the representation is true and non-misleading; or

    D. Make any representation in a Patent Assertion Communication, expressly or by implication, that Respondents or an Affiliate will take any action with respect to the filing of a Lawsuit, including

    1. that they will initiate a Lawsuit;
    2. that they will initiate a Lawsuit if the recipient of a Patent Assertion Communication does not agree to a license, pay compensation, or otherwise respond to the Patent Assertion Communication as requested;
    3. that they will initiate a Lawsuit imminently or within a specified time; or
    4. that they will initiate a Lawsuit imminently or within a specified period of time if the recipient of a Patent Assertion Communication does not agree to a license, pay compensation, or otherwise respond to the Patent Assertion Communication as requested;

    unless at the time such representation is made, Respondents have decided to take such action and possess and rely upon competent and reliable evidence sufficient to substantiate that they are prepared to and able to take the action necessary to make the representation true. Evidence that an action was not taken because of a change in circumstances or information obtained subsequent to making a representation covered by this Subpart I.D, including a change in the decision by a client on whose behalf a representation was made on whether to initiate a lawsuit, shall be considered in determining whether a representation was substantiated at the time it was made.

    Provided that, for purposes of Subpart I.D of this order, a statement made in a Patent Assertion Communication that Respondents

    (1) believe the recipient of the letter is or may be infringing a patent; (2) believe the recipient does or may need a license to a Patent; or

    (3) reserve their rights under the Patent with respect to the recipient’s conduct

    shall not be considered, in and of itself, to be a representation that Respondents will initiate a Lawsuit.

Of course, this is a good development, though probably not of enormously broad impact.

The FTC’s press release is here.

Wild Inaccuracies in CAFC’s Opinion on Reines

This is the only post before I do a full analysis of the Reines opinion, but word needs to get out: it’s wrong.  I’m shocked — baffled is a better word actually — at what the Court did.

I’ll begin with this passage from the Court’s “en banc” opinion (more on that later) since it’s the easiest thing to deconstruct for you so far.  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.

The court did not quote email exhibit 38. In fact, the Court both misrepresents what the email says, and its “interpretation” makes absolutely no sense.  Here is the material text of Exhibit 38:

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.

Where to begin.  Putting to the side the fact that it obviously doesn’t say what the court said — he did not say his stature helped flip a jury verdict — it also cannot be reasonably read that way:  he refers to an oral argument that had just occurred two days prior, and says he helped flip the verdict.  Wow!  How did he know 2 days after argument that the case had been reversed?

It hadn’t been two days. He had “flipped” the verdict in a JMOL before the district court.  The Federal Circuit’s characterization of the evidence — and this seems to be the key piece — is flatly wrong.  This is outrageous.

And there is more.

Court Publicly Reprimands Ed Reines, Recipient of Email from then-Chief Judge Rader (to be updated)

By David Hricik

(Note:  yesterday when writing this, it struck me as odd that this was en banc (I don’t think that’s procedurally proper and it surely deprives Reines of any “appeal,”)  and some of the facts, upon critical thought, don’t make a lot of sense. I’m going to read the source documents.  Click on “ethics” above to keep reading.)

In early June, 2014, the Federal Circuit in an unusual per curiam order ordered Ed Reines to show cause as to why he should not be sanctioned for forwarding an email sent to him by then-Chief Judge Rader.  The Federal Circuit today issued an en banc per curiam decision publicly reprimanding Mr. Reines for his actions.  The opinion, In Re Edward R. Reines, is here.

The email from Chief Judge Rader that began the events reads:


On Wednesday, as you know, the judges meet for a strictly social lunch. We usually discuss poli- tics and pay raises. Today, in the midst of the general banter, one of my female colleagues inter- rupted and addressed herself to me. She said that she was vastly impressed with the advocacy of “my friend, Ed.” She said that you had handled two very complex cases, back to back. In one case, you were opposed by Seth Waxman. She said Seth had a whole battery of assistants passing him notes and keeping him on track. You were alone and IMPRESSIVE in every way. In both cases, you knew the record cold and handled every question with confidence and grace. She said that she was really impressed with your performance. Two of my other colleagues immediately echoed her en- thusiasm over your performance.

I, of course, pointed out that I had taught you everything you know in our recent class at Berkeley together . . . NOT! I added the little enhancement that you can do the same thing with almost any topic of policy: mastering the facts and law without the slightest hesitation or pause!

In sum, I was really proud to be your friend today! You bring great credit on yourself and all associated with you!

And actually I not only do not mind, but encourage you to let others see this message.

Your friend for life, rrr

Consistent with his encouragement to let others see the email, Reines forwarded it to clients and potential clients.

The decision analyzed whether Reines’ conduct violated Model Rule of Professional Conduct 8.4(e). That rule states that “[i]t is professional misconduct for a lawyer to . . . state or imply an ability to influence improperly a government agency or official to achieve results by means that violate the Rules of Professional Conduct or other law.” The court noted that the ABA has stated that “a lawyer who suggests that he or another lawyer is able to influence a judge or other public official because of a personal relationship violates Rule 8.4(e).” Id. (quoting Lawyers’ Manual on Prof’l Conduct (ABA/BNA), at 101:703 (Mar. 30, 2011)).

The court held that Reines had violated the rule.  Specifically, it reasoned:

First, the email both explicitly describes and implies a special relationship between respondent and then-Chief Judge Rader. The text of the email describes a close friendship between the two. The email included the language, “[i]n sum, I was really proud to be your friend today,” and closed with “[y]our friend for life.” The very fact that the email was a private communication rather than a public document implies a special relationship, and then-Chief Judge Rader’s sharing of internal court discussions (which would be ordinarily treated as confidential) about the lawyer’s performance in a pending case implies an unusually close relationship between respondent and the then-Chief Judge. Respondent’s comments transmitting the email also convey a special relationship with then-Chief Judge Rader and the Federal Circuit. Respondent described the email as “unusual” or “quite unusual” in some of his accompanying comments, Reines Ex. 4; Ex. 8; Ex. 44; Ex. 45, and referenced his “stature” within the court and his role as chair of the Federal Circuit’s Advisory Council, Reines Ex. 38.

Second, recipients of the email also viewed it as suggesting the existence of a special relationship between respondent and then-Chief Judge Rader and perhaps other judges of the court. Several responses referred to the high opinion then-Chief Judge Rader and judges in general had for Mr. Reines. 5 Other responses specifically referenced the friendship between respondent and then- Chief Judge Rader.

Third, the transmission of the email did more than suggest that respondent should be retained because of his superior advocacy skills. It 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. Another lawyer in respondent’s firm in forwarding the email stated that respondent “knows the judges extremely well.” Reines Ex. 49. Albeit respondent noted that he did not approve of the communication, he took no steps to advise the recipient of his disapproval. Decl. of Edward R. Reines ¶ 21.

Fourth, in sending the email to clients and prospec- tive clients, respondent sought to directly influence their decisions about retaining counsel. He typically stated, “[a]s you continue to consider us for your Federal Circuit needs, I thought the below email from Chief Judge Rader might be helpful.” Reines Ex. 11.7 Prospective clients likewise stated that they would consider it in making retention decisions.8

Finally, the email itself and respondent’s comments accompanying the sending of the email suggested that Federal Circuit judges would look favorably on the retention of respondent. Then-Chief Judge Rader invited respondent to distribute the email to others. Respondent suggested that clients should “listen[] to . . . the Federal Circuit judges[.]” Reines Ex. 30.

Id.  Based upon this analysis, the court stated that it would “blink reality” to pretend that forwarding the email did not imply a special relationship with the judge.  Id.

The court then determined that the penalty would be a public reprimand.  Not only had Reines acknowledged he had erred by forwarding the email, the court found mitigation in the fact that he had been encouraged to do so, and, further, because it was not an express but was an implicit statement that he could influence the court.

After rejecting a First Amendment challenge, the court ended with two somewhat curious observations. First it stated there was a separate issue that it was referring to the California bar concerning an exchange of gifts:

On Mr. Reines’s side, he provided a ticket for one concert, at another concert arranged for upgrading to a standing area near the stage, and arranged for backstage access for then-Chief Judge Rader at both. Then-Chief Judge Rader paid for accommodations. This occurred while Mr. Reines had cases pending before this court.

The court did not decide the issue but referred it “and the underlying relevant documents to the California bar authorities for their consideration.”  Id.

Second, the court stated that it was maintaining certain documents relating to the investigation under seal.  It stated that it was doing so “since this does not concern a matter as to which we have imposed discipline.”  Instead, it was leaving “it to the California bar authorities whether and when such materials should be disclosed.”  Id.

My Comments.

I clerked for Chief Judge Rader ending about 18 months ago. I never perceived him to be influenced by anything other than the merits of a case — period.  I also know he has a tendency to be effusive (that is putting it mildly) in emails.  As a result, the context of Chief’s emails to anyone who knows him discounts some of this.

But, in my view the court’s ruling was correct.  (Well, no it wasn’t.  See the ethics page by clicking above.)

The Ethical Issues Caused by Devaluation of Patents by Alice and CLS

First, to confirm Dennis’s anecdotal belief on the main page that firms are moving toward trade secrets, I heard that repeatedly at the IMPI conference, which had chief IP counsel from lots of big players.  Any benefit that the quid-pro-quo of our system is eroded by Myriad and CLS.  I have no clue whether that affects stock liquidity, but it sounds intuitively correct.

But, I’m writing because what I heard, and what others are saying on line, are making me concerned that the enormous impact on patent value represented by Myriad and CLS, and the years of absolute confusion that we’re facing, may trigger disclosure obligations by lawyers in some circumstances. While most firms, I am told, do not capitalize patents, some do. Sarbanes Oxley could be implicated by that.  In M&A transactions, valuation statements need to be thought through.  Google, for example, after it recently acquired a slew of patents said it had acquired certain value of patents.  That value is down.

Here is what one author has said:

 It would be an unwise publicly-traded tech company in the US that is not currently doing a full audit of its patent portfolio to assess where it stands in this post-Alice world.

The full article is here.  Another article from ipwatchdog is here.  (Both link to a study that I personally find very unreliable and so I’m not linking to it.)

I’m not sure that’s good advice.  I am sure that, without legislative investigation, consideration of actual policies and data, the Supreme Court has radically changed our patent system.

What a mess. Read the statute, Supreme Court. Read the statute.

Lessons I’m Learning at the IPMI Conference: Change Blowing in the Wind?

I’m attending, I think for the fourth year in a row, the International Performance Management Institute IP meeting.  It’s always at a nice place, and this year is no exception:  The Island Hotel in Newport Beach, California.  It’s also always attended by people who are high up (usually chief IP counsel) in high end organizations, like Dupont, AOL, Energizer, GlaxoSmithKline, IBM, and you name it.

Then there’s me.

First, the guy from the PTO says the new 101 guidelines are, they hope, out in a couple of weeks.  They won’t be “interim” guidelines any more, but they will be subject to improvement.

From industry, I’ve heard some things very different this year, consistently, and perhaps of interest to you.

First, several speakers said, given the mess that 101 is, that they are moving back toward trade secret protection.  That was true among several people who spoke, as well as just in my conversations, and it went across technologies — from bio onward.

Second, the role of IP in business is changing.  I am not sure I can fully explain what’s going on, but the use of patents as business, not litigation, tools appears to be a central and growing theme.  Each speaker again from whatever industry talked about this development.  The monetization — through licensing or otherwise — trend is hitting big time.

Third, trolls are the primary litigants, still.  My idea that 285 can be used to impose fees on the troll’s lawyers, as opposed to the asset-less troll, will be floated in full tomorrow, so I’ll let you know how that goes. Of course, when I talked to these big shots privately, they were “ooooooo.”

Finally, and it always hits me here, the disconnect between trial lawyers and clients, and between academia and both of them, is wide and deep.

PTAB: If a prosecution bar doesn’t say it applies to PTAB proceedings, then it doesn’t.

I’ve posted several times about how it’s best not to leave the scope of prosecution bars (what subject matter; how long; and what activities) to courts to decide because they may not agree with your (silent) views.  Make it explicit.  The PTAB recently held, in a somewhat fact-based case, that a prosecution bar that precluded activities in “prosecution activities” did not stop a lawyer from being involved in an IPR proceeding.  (hat tip to patentdocs.)  The case, Google Inc. v. Jongerius Panoramic Tech. LLC (Cas IPR2013-00191) (Paper No. 50) is here.

Proposed Amendment to Fed. Cir. R. 50 to Affect Future Clerks

The Federal Circuit has a rule that currently provides:

No employee of the court may engage in the practice of law. No former employee of the court may participate or assist, by representation, consultation, or otherwise, in any case that was pending in the court during the period of employment. For purposes of this rule, a person serving at the court as an intern, whether in a judge’s chambers or otherwise, is considered an employee of the court, whether such service is for pay, for law school credit, or voluntary.

The Court proposes to add this language:

Cases involving related subject matter: In addition to not participating in any case that was pending in the court during the period of employment, a former employee should also avoid participation in a case that includes any patent that was at issue in a case that was pending during the period of employment if the former employee participated personally and substantially in the pending case. See Canon 3(d) of the Code of Conduct for Judicial Employees (prohibiting disclosure of “any confidential information received in the course of official duties” and noting that a “former judicial employee should observe the same restrictions on disclosure of confidential information that apply to a current judicial employee, except as modified by the appointing authority.”).

(A link to the proposed change is here.)  At the outset, if this means what it says, then, for example, if a clerk at the Court today works personally on a case involving the ‘123 patent, against which a party asserts 30 prior art references in one manner or another, that clerk is precluded from being involved in 31 cases.  That’s nuts.

Assuming (hopefully) that what they mean is personally and substantially involved in a case where the validity, infringement, or enforceability of a patent was in issue, that’s perhaps okay, I guess, given IPR, but I’m not sure I fully appreciate the ramifications.  Thoughts?  (Also, does “should avoid participation in” mean it’s not mandatory?)

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