Proof of Actual Fraud on the Patent Office

US v. Reid, 09-cr-00320-CMH (E.D. Va. 2009)

Michael Reid has pled guilty to conspiracy to commit wire fraud with a maximum penalty of 20 years imprisonment after being caught stealing almost $500,000 from the US Patent & Trademark Office (USPTO). Reid has agreed to cooperate in the investigation of his former USPTO employee accomplice – known in the pleadings as Ms. K.L.P. and identified as a financial analyst in charge of the customer deposit funds. K.L.P. has apparently not yet been charged.

According to the stipulated facts, the pair raided dormant PTO deposit accounts of customers who had not responded to PTO inquiries.

K.L.P. engaged in 32 fraudulent transfers, 27 in which the defendant received funds. The total amount of the 32 transactions was $534,338.55. The total amount for the 27 transactions involving the defendant was $451,252.17.

The fraudulent transfers apparently occurred from 1998 through September 2005 when K.L.P. left the PTO. Reed is the minister of music at a Maryland church. The court has not yet scheduled sentencing.

Notes:

   

28 thoughts on “Proof of Actual Fraud on the Patent Office

  1. I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

    Susan

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    Reply
  2. GOod God Amighty. I really know this guy, for yeeaaarrrs. I’m not local no more. it’s wild to hear folks rally dogg someone

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  3. What was the Richard Pryor file about stealing .5 cents that were unclaimed in each paycheck . . . I guess they couldn’t distinguish Hollywood from real life . . . then again many people in Washington DC have that problem :)

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  4. The MySpace photo bothers me.

    What was the necessity to dig up the guy’s photo? I am a great fan of the blog, but I am a little worried digging up and publishing his photo was a little extraordinary and not readily justified.

    Maybe I am wrong?

    Can you please explain?

    Sincerely,

    Srihari

    Reply
  5. Slonecker — Well, money that the PTO is holding on behalf of a 3rd party is still treated as “public money” which means that payments have to be approved by a certifying officer. It would appear that the mysterious Ms. KLP has certifying officer authority over this fund. There should have been appropriate checks and balances in place to prevent this kind of easy to detect fraud. In addition, if PTO could no longer locate the entity for which it was holding money, after a year, PTO should transfer those funds to the Treasury where they are held indefinitely for the rightful owner. Se 31 USC 1322.

    Besides embezzlement, these guys appear to have filed Falso Claims (treble damages recovery possible!!), violated the Computer Fraud and Abuse Act (changing records), committed money laundering and a ton of other things. They should go away for a long time.

    I imagine there is already a PTO IG investigation going on, would expect a GAO investigation to follow and would predict that there will be changes to how PTO manages these funds.

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  6. Shun Dice Corn,
    Are you aware that your, (the “Patent Hawk’s) IC case citation of Star Scientific, Inc. v. RJ Reynolds was reversed by the CAFC? The CAFC concluded that Judge Marvin Garbis’s finding of intent were clearly erroneous and therefore “constituted an abuse of discretion and must be reversed.”

    “On June 26, 2007, the district court issued a decision on RJR’s inequitable
    conduct defense. The court held both of Star’s asserted patents unenforceable due to
    inequitable conduct and entered final judgment in favor of RJR. See Inequitable
    Conduct Order, slip op. at 46. Star timely appealed. We have jurisdiction under 28
    U.S.C. § 1295(a)(1).

    A. Inequitable Conduct
    We review the district court’s inequitable conduct determination under a two-tier
    standard; we review the underlying factual determinations for clear error, but we review
    the ultimate decision as to inequitable conduct for an abuse of discretion. Cargill, Inc. v.
    Canbra Foods, Ltd., 476 F.3d 1359, 1364-65 (Fed. Cir. 2007). If the district court’s
    determination of inequitable conduct is based on a clearly erroneous finding of
    materiality and/or intent, it constitutes an abuse of discretion and must be reversed.
    Impax Labs., Inc. v. Aventis Pharms. Inc., 468 F.3d 1366, 1375 (Fed. Cir. 2006). With
    respect to the ‘649 patent, we hold that the district court clearly erred in finding that RJR
    had proven that Williams and Star had an intent to deceive the PTO. With respect to
    the ‘401 patent, we hold that the district court clearly erred in finding that the information
    contained in the Burton letter and Curran data was material. ”

    link to cafc.uscourts.gov

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  7. Simply out of curiosity, how should such account money have been treated under applicable law/rules (other than mere appropriation for private use by a PTO employee and a person of faith (who obviously could use CRE[Continuing Religious Education] pertaining to the Ten Commandments)?

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  8. Jules, he’ll likely be out in three. There is some consolation: he looks like he’d be on the receiving end of it while in the slammer. And Milton will not save him.

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  9. The substantive elements of inequitable conduct are: (1) an individual associated with the filing and prosecution of a patent application made an affirmative misrepresentation of a material fact, failed to disclose material information, or submitted false material information; and (2) the individual did so with a specific intent to deceive the PTO. See Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008); Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178, 1181 (Fed. Cir. 1995); 37 C.F.R. § 1.56 (2008).

    Michael Reid’s actions seem to have inequitable conduct written all over them. He and others who ultimately are found guilty of inequitable conduct should receive similar punishment. It is about time that those who commit the comparable crimes of money thief and “failing to disclose all the relevant prior art known to it” get their equal comeuppance.

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  10. I hope he enjoyed that precious jewelry while he could, because he certainly won’t be able to in jail. If I recall correctly, there is a circle in Dante’s hell waiting for this guy. Actually, he pled guilty, so he might make it to purgatory. Maximum of 20 years apparently.

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  11. RLSA,

    Historically, companies and law firms keep accounts registered with the USPTO so that they can draw any missing fees from them. Statements showing the withdrawals where made are sent to the patentee, agent, or law firm as listed. This is to avoid problems with filings and to reduce the risk of late filing fees.

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  12. Why are you guys even talking about inequitable conduct? This guy committed a felony, to wit, conspiracy to commit wire fraud. IC is not a felony or even a misdemeanor. It is simply a civil wrong which sometimes renders the patent involved unenforceable.

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  13. “dormant PTO deposit accounts of customers who had not responded to PTO inquiries”

    What exactly are these accounts? Do some agents overpay on behalf of their clients for some reason? Are these improperly filed maintenance fees?

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  14. Is anti-religious rhetoric really appropriate on this blog?

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  15. “which is worse? the money this guy apparently stole from the USPTO, the money the USPTO steals from applicants for RCEs and shoddy examination, or the money churches steal via the collection plate?”

    Easy…the church.

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  16. which is worse? the money this guy apparently stole from the USPTO, the money the USPTO steals from applicants for RCEs and shoddy examination, or the money churches steal via the collection plate?

    tough call

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  17. This reminds me of the property tax revenue robberies here in my hometown of DC. They got away with it for years and spent over $50M.

    Highly likely there were more than only these two people involved in the PTO thefts.

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  18. “Well, it looks like he may have cut a deal by turning in his accomplice. It will be interesting to see if any other criminal activity was going on. ”

    Wouldn’t it be hilarious if the PO actually would have had plenty of money, but so much was stolen that we’re now in financial troubles? LOLOLOLOLOL I would just about die laughing.

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  19. “K.L.P. engaged in 32 fraudulent transfers, 27 in which the defendant received funds. The total amount of the 32 transactions was $534,338.55.”

    That’s about $15K per transaction.

    Bold.

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  20. Well, it looks like he may have cut a deal by turning in his accomplice. It will be interesting to see if any other criminal activity was going on.

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  21. Instead of “inequitable conduct” on the PTO, how about “mischievous behavior”?

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  22. The nature of and frequency of the crime. This crime is against the PO, and while we call IC against the PO, what it really leads to is fraud against one of the patentee’s fellow americans whom he decides to sue with an illicit patent. The PO, while important, just doesn’t strike a sympathetic cord with me, the guy who is getting sued on the other hand does. What it boils down to is “harm”. You might look into it sometime if you’re a lawyer.

    Plus, guys like this get caught and you don’t hear about it for another 50 years or whatever. IC happens and all too often is never found out, and even if it is, can’t be proved sufficiently.

    That said, I would like to have that 500k back. After all, we need 5 more spes.

    I also think that guys like this who can’t pay the money back should be forced to, in leiu of jailtime, until it is paid back, then serve some jail time. But I doubt that the laws are setup to make that happen.

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  23. 6,
    How do you have more sympathy for this guy? Lawyers engaging in IC were too overzealous in representing their client. This guy is a MINISTER at a church stealing money from deposit accounts.

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  24. Strangely, I have more sympathy for this man than I do any lawyer engaging in IC before the office and yet this man faces the tougher rap.

    Reply

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