Thinking of investing in a business that competes with a former client?

Then you should read Texas Ethics Opinion No. 626 (April 2013).  The opnion is quite broad:  L represents Corporation A and acquires non-public proprietary information about its competitive position in the field.  L's representation ends when Corporation A is sold, but the corporation continues on in its business.  L now proposes to make a significant investment, passive, in competing Corporation B.  L "is not involved in the organization or formulation of the initial business plan of Corporation B and he does not provide legal services or otherwise participate in the management or operation of Corporation B's business."

The opinion relies on the principle that L may not use confidential information to the disadvantage of Corporation A.  The opinion noted that L would be using his knowledge of Corporation A in investing, his decision to invest "could reveal to interested person information concerning the lawyer's assessment of Corporation A that is based on confidential information," and so he could not do so, absent (a) informed consent after full disclosure (ha!), (b) if it was an insignficant investment (which depended on the facts, but which was characterized as "a sufficiently small portion of the total amount invested in Corporation B and there were other investors ready to make an investment in the same amount if the lawyer did not"), (c) he had not gained any pertinent confidences, or, (d) though he had, the information had "ceased to be relevant" to Corporation A's business.

The significance of this opinion to patent lawyers should be clear. I also note that many states, including Texas, allow adverse use of information against former clients once it has become generally known.  Because the opinion focuses on unique aspects of the Texas Rules, the central point of the opinion might not hold true in every jurisdiction.

Some recent cases on Prosecution Bars

A couple recent cases have addressed several key issues with prosecution bars.  As you know, it has become common for protective orders in litigation to include provisions that prohibit a person from receiving certain highly proprietary information if that person engages in "competitive decision-making," which can include patent prosecution.  

In Unwired Planet LLC v. Apple Inc., 2013 WL 1501489 (D. Nev. Apr. 11, 2013), Apple persuaded the district court to expand the bar to prevent outside counsel who had access to certain Apple confidential information from giving advice on "patent acquisitions."  The district court found that there was a risk that Unwired would determine which patents to buy to target Apple products.

The other issue that is percolating has two aspects to it:  do existing prosecution bars cover IPR and, if not, should they?  The first issue turns on the language of the existing protective order.  The second on whether IPR permits the same sort of risk of patent prosecution.  These issues were litigated in Politec Inc. v. Scentair Tech., Inc., 2013 WL 2138193 (E.D. Wis. May 17, 2013), which reached an odd balance.  It held that IPR was within the scope of the bar, but allowed outside counsel to participate but prohibiting them from amending, substituting, or adding claims during IPR.

If you have an existing protective order, these cases counsel to examine whether it is broad enough, either for IPR or for other activities.

Hello, everyone!

I just finished my clerkship with Chief Judge Rader, and have arrived back at Mercer Law School.  What an amazing and transformative year.  It was an honor to serve the court.

In my absence, the PTO adopted new ethical rules.  The rules are here, on a page that includes some helpful tables comparing the PTO rules to the Model Rules, and other information.

Unlike the effort in 2003, this time the PTO in large part adopted a slightly-out-of-date version of the ABA Model Rules, with a couple exceptions (including, for some odd reason, the choice of law provision).  There are now fewer differences between the ethical rules that apply to discipline in OED proceedings and those that would apply in state disciplinary proceedings, but key differences exist.  One is that the PTO did not adopt any private-practice screening provisions, but several states permit screening to be used, even over the objection of a client, to avoid a conflict caused by a lawyer migrating from one firm to another.  I'm still working through them, and will post more as I go.

David

 

The Best Mode Requirement and the Conflict of Interest it Creates

I've been talking about the conflict the AIA has created between lawyer and client with respect to Best Mode for about a year now.  Let me walk through it briefly, but e-mail me if you want my article on this.

  1. The AIA Still Requires Disclosure of Best Mode.

I realize some folks are still debating whether the best mode requirement is still there: it is.  The AIA left the requirement in place.  Best mode is a required part of the specification.  Indeed, Congress when enacting the AIA clarified that if even one inventor had a best mode it had to be disclosed; it didn't eliminate the requirement.  Further, Congress in enacting the AIA stated that the best mode remained a required part of the quid pro quo.  Finally, when asked, the USPTO has said that statutory changes (discussed next) concerning invalidity don't affect the USPTO, since it doesn't determine validity, it determines patentability.

    2.    Omitting the Best Mode has No Consequence on Validity or Unenforceability.

    Congress made it clear that the omission of best mode does not affect validity or enforceability of a patent, and made it clear that a claim cannot be canceled for failure to include the best mode. 

    3.    So, Congress may have Created a Conflict of Interest

    A patent must contain the best mode to be issued.  A patent lawyer cannot fail to disclose the best mode.  Yet, failing to disclose it will have no invalidity or unenforceability consequence. (I've wondered about misuse, about state law claims, and, of course, perjury.)

    Hence the conflict: suppose the client does not want to disclose the best mode.  The lawyer must explain, of course, that failing to do so will not result in invalidity or unenforceability.  But the lawyer must insist that best mode be disclosed.

    Here's my effort at a fun illustration of a lawyer-client having a discussion on this (one day, I'll learn how to use these fancy embedding tools):

http://farmprod.content.xtranormal.com/2011-11-04/publish/2474a52a-0726-11e1-a7a4-12313b12d0a2.mp4

    Thoughts?

 

And on the General Ethics Front…

Some recent news from the broader ethics world:

  • An article on salary trends by Northwestern Adjunct Professor and former Kirkland & Ellis partner Steven J. Harper, from Belly of the Beast, his blog.  One breathtaking point:  " The median starting salary for law firms of all sizes dropped from $130,000 in 2009 to $85,000 in 2011." If you haven't been following it, there are suits against law schools for over-stating salaries employment statistics generally.  ( I am not a numbers guy, but eventually realized that, given the bi-modal distribution of salaries, why we reported medians.  No one actually made the median of (say) $85,000; many made $150,000, and a huge number more made $50,000.)
  • A special report article on the equity gap between men and women in biglaw.

 

Federal Circuit Advisory Council

Chief Judge Randall Rader has announced some changes to the Advisory Council for the Court of Appeals for the Federal Circuit. Ed Reines is taking-over as Chair. [Link] New members of the Council include Tina Chappell (Intel), Chip Lutton (Apple), Dean Whealan (GWU), and Professor Katherine White (Wayne State). Chappell, Lutton, Whealan, and White all clerked for Judge Rader.

Other members of the Council include:

  • Meredith Martin Addy (Brinks Hofer);
  • Jeanne Davidson (DOJ);
  • Professor Lisa Dolak (Syracuse);
  • Robert Huffman (Akin Gump);
  • Michael Jakes (Finnegan);
  • Joe Re (Knobbe);
  • Michael Schaengold (Patton Boggs);
  • Ronald Smith (Finnegan); and
  • Richard Stanley (Howrey).

One role of the Advisor Council is to ensure that the Court is aware of concerns from the bar and litigants. Direct contact information for the council members is available online. [Link]

Council members generally serve three-year terms.

Update: To be clear, I don't see any problem with Judge Rader appointing his former clerks. These are people that the Judge trusts because he has worked closely with them. Trust is important — especially when dealing with potentially sensitive inner-workings of the court system. At the same time, I know from experience that each of these new Council Members are incredibly strong, intelligent, and independent thinkers.