An Interesting Opinion on the Right to Jury Trial that Can Relate to 101 and 285

By David Hricik

In the three prior posts (hey, it’s a trend!) on Section 285, I pointed out the need for lawyers to advise principals of patentees that they may, personally, be on the hook for liability for fee shifting.  For example, if the patentee is an asset-less shell corporation, the accused infringer may seek (perhaps should seek, promptly) to join principals of the patentee in the event that the case is found exceptional.  Likewise, given the long-standing line of cases (going back to Ultramercial, decided when I was clerking for Chief Judge Rader (here)), the CAFC has indicated 101 can implicate factual issues and, so, likely the right to trial by jury.

It’s not a patent case, but nonetheless Marchan v. John Miller Farms, Inc. (3:16-0-357-WGY D. N.D. Dec. 11, 2018), here, has a discussion pertinent to both issues. The court addressed whether a jury must decide piercing the corporate veil under federal law, and held that there is a federal right to trial by jury on this issue.  Honestly, that surprised me, but I hadn’t looked at the issue in 20 years.

The court did mention patent cases, and did mention a lot of things that should resonate with patent litigators about various issues in patent cases, including Section 101 and willfulness.  The court wrote, after deciding the issue before it, in part as follows:

The analysis ought not end here. Some scholars have recently advocated making judges, not juries, decide whether to pierce the corporate veil: 

[J]udges . . . are best suited to decide in each case whether the corporate veil should be pierced, for four reasons: (1) veil piercing is an inherently equitable remedy that judges are better equipped to decide; (2) veil-piercing inquiries require a weighing of legal fictions and concepts that lay jurors simply are not trained to perform; (3) decisions by judges are likely to produce more consistent results in similar cases; and finally (4) judges can likely make veil-piercing decisions more efficiently than juries can. 

Brian D. Koosed, Anthony P. Badaracco, and Erica R. Iverson, Disregarding the Corporate Form: Why Judges, Not Juries, Should Decide the Quiddits and Quillets of Veil Piercing, 13 N.Y.U. J.L. & Bus. 95, 136 (2016); see also Mark A. Olthoff, Beyond the Form–Should the Corporate Veil Be Pierced?, 64 UMKC L. Rev. 311, 336 (1995) (“Because consideration of these factors involves a weighing test, a jury may be ill-suited to decide the question. Therefore, the trial judge should make the final determination of the piercing issue.”).

These contentions crop up from time to time in different contexts. See, e.g., Brandon M. Reed, Who Determines What Is Egregious? Judge or Jury?, 34 Ga. St. U.L. Rev. 389, 426 (2018) (arguing that judicial determinations of willful or egregious patent infringement “will reduce prejudice at trial, increase judicial efficiency, and foster predictable outcomes in litigation.”); but see David Nimmer, Juries and the Development of Fair Use Standards, 31 Harv. J. L. & Tech. 563, 589-93 (2018) (“Learning to Love the Seventh Amendment”). It is appropriate to point out that most of these unsupported conclusions are nothing but elitism, pure and simple. They are an unabashed retreat from the magnificent vision of the Founders. “The Seventh Amendment promised to ‘preserve[]’ the right of ‘trial by jury’ in virtually all civil suits ‘at common law’ and limit the power of federal judges to overturn any fact properly found by a civil jury.” Akhil Reed Amar, America’s Unwritten Constitution 435 (Basic Books 2012).

Let’s deal with the quoted contentions in reverse order:

Efficiency. Yes, there is something to this argument in the present case. The issue of veil piercing has been fully briefed and argued. There is nothing to suggest that further discovery will add to the store of information available to decide this issue. Unfortunately, the existence of a judicial vacancy makes it unlikely that this case will come before a local jury in North Dakota before well into 2019 and this is far too slow. This does not reflect on jurors, however. Rather, it is a result of the lack of judicial resources to preside over the requisite jury trial. More particularly, it reflects that I am unable, in view of my own caseload and the cases in other districts I visit, to go to Fargo, North Dakota to try this case. Efficiency is one component of justice, but it is not the sole goal of the justice system. Were that not the case, why have trials at all?

Consistency. Hardly. The great strength of our common law system is reasoned inconsistency, i.e., each court reaching out for the best possible justice in the case before it, where reasoned but varying decisions draw from the body of other such decisions with the idea that the law will grow and adapt based on such reasoning. Ours is not a civil code system where I can simply look up the rule and apply it to each case.

The working judge is not and never has been a philosopher. He has no coherent system, no problem solver for all seasons, to which he can straightaway refer the normative issues. Indeed, if he could envision such a system for himself, he would doubt that, as a judge, he was entitled to resort to it; he would think he must be less self-regarding.

Hon. Benjamin Kaplan, Justice, Massachusetts Supreme Judicial Court, Encounters with O.W. Holmes, Jr., 96 Harv. L. Rev. 1828, 1849 (1983).

Judges are better equipped — jurors are not trained to weigh legal concepts.

This is simply not true. I have been a trial judge for over forty years. In the fact-finding line, anything a judge can do a jury can do better. The best sociological evidence confirms this truth. See James Surowiecki, The Wisdom of Crowds (2004).

The fact–finding most analogous to that involved in the veil-piercing inquiry is the fact-finding undergirding a determination of successor liability — surely a jury issue. See, e.g., Jury Verdict, Thomas & Betts Corp. v. New Albertson’s, Inc., No. 10-11947-WGY (D. Mass. Dec. 12, 2015), ECF No. 801. Likewise, in the case at bar, the jury will need to decide whether the product was of merchantable quality, whether it was unreasonably dangerous, and perhaps the comparative negligence of the parties on certain counts. It may also have to assess both compensatory and punitive damages.

Four months ago, I watched a jury learn about the mechanics of 3-D printing and analyze a certain interface layer at the microscopic level to determine obviousness and infringement. Tr. Jury Trial, Desktop Metal, Inc. v. Markforged, Inc., No. 1:18-cv-10524-WGY (D. Mass. Sept. 24-27, 2018), ECF Nos. 559-64. More recently, I watched a jury determine probable cause to remove an obstreperous passenger from a campus shuttle bus. Electronic Clerk’s Notes, Strahan v. Parlon, No. 1:17-11678-WGY (D. Mass. Sept. 17-20, 2018), ECF Nos. 156-61. I asked another jury this question: “Did the anticompetitive effect of [a] settlement [between two pharmaceutical companies] outweigh any procompetitive justifications?” Jury Charge at 37:9-18, In re Nexium (Esomeprazole) Antitrust Litig., No. 12-md-02409-WGY (D. Mass. Dec. 3, 2014), ECF No. 1441, aff’d, 842 F.3d 34 (1st Cir. 2016).

Jurors have long been deciding all these issues and many more complex. It takes a special type of arrogance simply to conclude that American jurors cannot handle the veil-piercing issues presented here.

Quite simply, jurors are the life’s blood of our third branch of government.

It is not too much to say that a courthouse without jurors is a building without a purpose. See Judith Resnik & Dennis E. Curtis, Representing Justice: Invention, Controversy, and Rights in City-states and Democratic Courtrooms 293 (Yale University Press 2011); Lewis F. Powell, Jr., Foreword to John O. and Margaret T. Peters, Virginia’s Historic Courthouses xi (University Press of Virginia 1995) (“Public buildings often . . . reflect the beliefs, priorities, and aspirations of a people. . . . For much of our history, the courthouse has served not just as a local center of the law and government but as meeting ground, cultural hub, and social gathering place.”). It is a quiet government museum to what was once the most extensive and robust expression of direct democracy the world has ever seen.

Come in. Look around. It’s quiet. The real work goes on in judicial chambers, hidden from public view. See Brock Hornby, The Business of the U.S. District Courts, 10 Green Bag 2d 453 (2007). You can hear your footsteps along the broad corridor past the vacant courtrooms. Go into a courtroom. There will be an American flag, limp upon its staff. Along one wall is the jury box. There decent, common-sense Americans with an overarching sense of duty have sat for years. Again and again, the courtroom has heard the clerk intone the familiar cry, “Ladies and gentlemen, please stand and harken to your verdict as the Court records it.” No more.

In this courtroom, the chairs in the jury box are empty, mute testimony to the consistent derision of self-interested corporations,[4] shallow stereotyping by lawyers and scholars who do not know their way around a courtroom, and the virtual abandonment of the civil jury by those judicial officers most charged with keeping our jury system vital and flourishing. 

Americans themselves may yet rescue their right to a jury. Workers at Uber, Lyft, Microsoft, Google, and Facebook have caused those corporations to abjure forced arbitration of claims of sexual harassment and assault. See Daisuke Wakabayashi & Jessica Silver-Greenberg, Facebook to Drop Forced Arbitration in Sexual Harassment Cases, N.Y. Times, November 9, 2018, at B1; Kate Conger & Daisuke Wakabayashi, Google Bows to Demands to Overhaul Abuse Policy, N.Y. Times, November 9, 2018, at B1; Daisuke Wakabayashi, Yielding to Critics, Uber Eliminates Forced Arbitration in Sexual Misconduct Cases, N.Y. Times, May 16, 2018, at B3.[5] Large law firms are increasingly yielding to pressure to drop mandatory arbitration agreements for employment-related claims, such as those alleging sexual harassment and discrimination. See Chris Villani, After Kirkland, Sidney Arbitration Flip, Group Eyes DLA Piper, Law360, Nov. 28, 2018 (describing how pressure from Harvard Law School students led Kirkland & Ellis and Sidley Austin LLP to end. See Chris Villani, After Kirkland, Sidney Arbitration Flip, Group Eyes DLA Piper, Law360, Nov. 28, 2018 (describing how pressure from Harvard Law School students led Kirkland & Ellis and Sidley Austin LLP to end forced arbitration for employees, while DLA Piper, Drinker Biddle & Reath LLP, Knobbe Martens, Paul Hastings LLP, Stoel Rives LLP, and Varnum LLP retain such clauses in their employment contracts). But see Michael Selby-Green, Morgan Stanley is fighting to stop a race-discrimination suit from going to trial by using a controversial tactic that keeps employee complaints secret, Bus. Insider, October 6, 2018; Anthony J. Oncidi, Consider the True Implications of Waiving Arbitration, Daily Journal, Nov. 14, 2018 (implicitly characterizing forced arbitration as a weapon and suggesting that dropping it is “a dangerous form of unilateral disarmament”).

Do you care about any of this?

You should.

Your rights depend on it.

Footnotes:

4. While corporations primarily use forced arbitration to bar access to our justice system altogether, see Cynthia Estlund, The Black Hole of Mandatory Arbitration, 96 N.C. L. Rev. 679, 709 (2018); see also Jessica Silver-Greenberg & Michael Corkery,In Arbitration, a ‘Privatization of the Justice System,’ N.Y. Times, Nov. 1, 2015, data support their self-interested decision even in those few cases that are actually heard. As one would expect, in state courts, corporations win somewhat less than half the time. Alexander J. S. Colvin, An Empirical Study of Employment Arbitration: Case Outcomes and Processes, 8 J. Empirical Legal Stud. 1, 5 (Table 1) (2011). In the more rules-bound federal courts, they win 63% of the time. Id. In arbitration, where the corporation is a repeat player, i.e., is active in the market hiring arbitrators, it wins a whopping 83% of the time. Id. at 13 (Table 3).

5.  In Arbitration, a ‘Privatization of the Justice System,’ N.Y. Times, Nov. 1, 2015, data support their self-interested decision even in those few cases that are actually heard. As one would expect, in state courts, corporations win somewhat less than half the time. Alexander J. S. Colvin, An Empirical Study of Employment Arbitration: Case Outcomes and Processes, 8 J. Empirical Legal Stud. 1, 5 (Table 1) (2011). In the more rules-bound federal courts, they win 63% of the time. Id. In arbitration, where the corporation is a repeat player, i.e., is active in the market hiring arbitrators, it wins a whopping 83% of the time. Id. at 13 (Table 3).

Remarkably, despite these workers’ disparate and unfocused protests, they are the direct descendants of the views of our Revolutionary-era patriots. As Professor Jamal Green points out so persuasively: 

[T]he mode of representation that would best resist the Executive was less the legislature than the jury, which the Founding generation saw as an essential vehicle for articulating the rights of the community. “In these two powers consist wholly, the liberty and security of the people,” John Adams wrote of voting for the legislature and of trial by jury. “They have no other fortification against wanton, cruel power: no other indemnification against being ridden like horses, fleeced like sheep, worked like cattle, and fed and cloathed like swine and hounds: No other defence against fines, imprisonments, whipping posts, gibbets, bastenadoes and racks.” 

Adams was writing in 1766, against the Stamp Act, but the view of juries as bound up crucially with rights recognition and enforcement motivated the Bill of Rights. In criticizing the 1787 Constitution, the influential antifederalist Federal Farmer called the jury trial and legislative representation “the wisest and most fit means of protecting [the people] in the community.” Jurors were drawn from that very community and had vast powers of investigation, via the grand jury, and adjudication, via the petit jury. As Professor Akhil Reed Amar emphasizes, jury service was commonly viewed as analogous to service in the legislature itself. 

2. Rights as Federalism. — Viewing the Bill of Rights through an eighteenth-century lens illuminates its focus on institutional form. A remarkable number of its amendments seek to preserve the role of the jury and other local representative institutions in federal administration. 

Jamal Greene, Rights as Trumps?, 132 Harv. L. Rev. 28, 112-13 (2018) (footnotes omitted). 

More on Fee Awards and Competent Billing and Motion Practice

By David Hricik

In my last post, I mentioned being thoughtful about billing records and some other issues about Section 285.  As if on cue, a court issued an opinion which denied an award of some fees because the time had been block billed.  As a result, the court could not determine if the time had been incurred as part of the defense of an exceptional suit or were incurred in a covered business method proceeding which the court had concluded was not within the scope of compensable fees. The case is SAP America, Inc. v. InvestPIC, LLC (3:16-CV-02689-K (N.D. Tex. Dec. 4, 2018) (Kinkeade, J.).

The case reinforces the need for good billing practices.  I always tell my students to think of billing records as persuasive writing.  Why? I explain that, foremost, the client should be motivated to want to pay for the time.  “Research re patent” is not as motivating as “research regarding effective filing date of patent,” for example.  And, pertinent here in any fee dispute — between lawyer and client, or, as in Section 285 cases, between the lawyer and the opposing party — having work records that are well-written and concise can make a huge difference.

Of course, there are reasons at time not to be very explicit: once, for example, I was involved in a case where the opposing lawyers were required to submit their fee statements monthly in a related bankruptcy case. We monitored that, and as a result we were able to see what issues opposing counsel were examining in almost real-time. But, the rise of Section 285 fee shifting is good reason to make clear and precise time entries a habit.

285, Claim Construction and Lessons from Fee Awards

By David Hricik

First off, happy holidays to everyone. I’ve had some health issues and have been very intermittent in posting.  Other than getting old (a good thing), I am happy to report that I am fine.

Second, a lot has been going on in 285. Long ago, I posted here about how prevailing parties were beginning to try to either (a) join lawyers for the losing party to the case to impose fees against them or (b) simply (somehow) have the lawyers held liable without joining them.  In addition, more recently, here, I discussed how (c) prevailing parties are seeking to join the principals of asset-less (or near asset-less) patentees and obtain fees from them. In both posts, I discussed the conflicts that can arise between lawyers and clients, and some of the harmful effects of imposing liability on lawyers under 285, given Octane:  the zeal of a lawyer, if liable for non-frivolous but “not ordinary” cases, will be chilled.  “I can do this under Rule 11, but I might be liable for fees if we lose,” is the conundrum the combination of Octane and using 285 to impose liability on lawyers presents, to  put it simply.

A recent case on 285 illustrates another issue, which relates to the obligation of lawyers to create a record that will support an award of fees if they prevail and to seek fees in a way that results in a reasonable award. In one recent case, DataTern v. Microstrategy (Mass. Dec. 2018), the accused infringer prevailed. The court held the case was exception for two reasons: some sort of “Judge shopping” had occurred which caused the accused infringer to consolidate cases, and after claim construction, it became unreasonable to pursue the case.

The accused infringer, rather than seeking fees caused by judge shopping, sought all of its fees incurred early in the case, before consolidation, rather than those that were the extra fees caused by the judge shopping: $590,000. It got nothing, but from the court’s order had it segregated out the fees reasonably, it might have received around $59,000.

It is hard to tell whether the billing records were insufficiently clear to allow for this, or that the strategy was to seeking it all without recognizing the need to show causation of additional fees. Either way, there are good lessons to learn both during litigation (write good work records as they may be used for, or against, you) and in seeking fees, be reasonable.

With respect to the fees after Markman, the accused infringer sought all of the fees from the date of the Markman ruling onward: “every single item” as the court noted.  The court again applied a reasonableness standard and looked to causation. It first reasoned that it was absurd to suppose the lawyer instantly could have determined the court’s order rendered further prosecution unreasonable, consulted with its client, and dismiss the case.  The court reasoned that about six weeks was enough time for the patentee’s lawyers to have done that work, so immediately lopped off fees for that time period.  Then, because work records showed duplicative work, the court lopped off an additional 10% as a rough cut.  The first step took the amount sought from $430,000 to $340,000, and then down to $310,000.

The case provides useful guidance in fee petitions moving forward, providing a  reasonable cushion for client consultation after a particularly important adverse ruling, such as a Markman ruling.

Finally, the accused infringer sought $157,000 for seeking fees (i.e., for preparing and filing the 285 motion. The accused infringer had made five arguments to support an award, and the court found 2 meritorious (above), and so lopped of 3/5 of the amount sought, taking it to $94,000. Then, exasperated, the court stated it could not understand how it took nearly 300 hours to prepare the motion when the accused infringer had not, as noted above, gone through the billing to show which were actually caused by the misconduct.  It awarded $6800.

What are the lessons?  It seems that the accused infringer’s attorneys had spent $157,000 to prepare something that could have been done for $7,000, and that it was inadequate to do the job, according to the court at least.  Thus, prevailing in an exceptional case is not a free ticket to reimbursement of fees.

 

ABA Issues Opinion on Lawyers’ Obligations after Electronic Data Breach

by David Hricik

ABA Formal Ethics Opinion 483 (Oct. 17, 2018) is here.  Like many ABA opinions, it provides a useful roadmap to the issues and how to respond to them (and, in this opinion, some good proactive advice).  The opinion addressed the narrow issue of a data breach which results in disclosure of, or destruction of, client confidences as opposed to “ransomware” attacks and the like, where access is denied but the data is not compromised, or access to data is otherwise inhibited or delayed.

The first take away is an obligation to “employ reasonable efforts to monitor” for unauthorized access to client confidences, whether at the office, through vendors, or otherwise.

The second is that the lawyer must act reasonably promptly to stop any breach and mitigate, or rectify, the consequences.  In this regard, the opinion suggests creating an “incident response plan with specific plans and procedures” to do so.

Third, the opinion states that the lawyer must determine what, with reasonable care, was compromised, deleted, or misappropriated.  And, again, it suggested these be part of the “incident response plan.”

Fourth, it stated that the lawyer who knows, or reasonably should know, a data breach has occurred “must evaluate the notice obligations.”  The contours of this turn on whether the data belonged to a current, or former, client.   With current clients, the ABA stated that there was an obligation to inform the current client if its data was breached. With former clients, the opinion stated it was “unwilling to require notice to a former client as a matter of legal ethics in the absence of a black letter provision requiring such notice.”  Then, however, it suggested that lawyers in their engagement letters reach agreement on how to deal with electronic files on termination of a representation, and to recognize that laws — not legal ethics — might require notification.

Finally, if notification is required, the ABA stated the client must be given sufficient information “to make an informed decision as to what to do next, if anything,” including the lawyer’s response to the breach.  And, again, the opinion reminds lawyers that a number of laws may require additional disclosure.

Although it does not address it, of course patent lawyers need to be aware of where — in the US or not — data is maintained for export restriction issues and to take reasonable care to protect confidential client information.  It’s a good opinion that provides a framework for lawyers to use.

Portus’s suit against Kenyon & Kenyon Dodges Dismissal on Pleadings

Portus filed suit against the now defunct (I think) firm of Kenyon & Kenyon. The complaint has morphed but now alleges, basically, that the firm failed to timely seek PTA and at the time it did so, had a conflict of interest by representing another company in the same “domain.”  The amended complaint is here.  The denial of the motion for judgment on the pleadings is here, from June.

It is not clear to me what, if anything, the impact of the alleged conflict is.  The case looks, in some respects, similar to Vaxxion v. Foley & Lardner (which does not appear to be on line besides pay sites), where, basically, the plaintiff took the position that a firm could only have one client in any particular “space,” but never pointed to anything concrete besides that fact.

A 2012 Connecticut Informal Ethics Opinion that is a Doozy!

Here’s the fact pattern:

Company A and Company B each have its own lawyers. They form an agreement whereby Company A is in charge of prosecution, subject to input from Company B.  In a perfect world, the agreement says that Company A gets to pick the lawyers and they only represent Company A (or it says the lawyers represent both Company A and Company B, but it’s clear.  Clarity is good).

Assume it says Company A’s lawyers only represent it, but to further a common interest privilege communications between Company A’s lawyers and Company B to prosecute the applications are privileged. Great. Should be fine — if the agreement makes it clear that Company A’s lawyers do not represent Company B, then if a dispute arises Company A can rely on its lawyers against Company B.

But, when it’s not clear: I’ve written about this issue a few times, and there are six or so cases where lawyers have been sued, disqualified, or a privilege has been lost.  (Search for DePuy on patentlyo and you’ll find the last of these).

So, that brings me to Connecticut Informal Ethics Opinion 2012-02, here.  It says that even if the agreement says “Company A’s lawyers don’t represent Company B, or its employees” in-house lawyer for Company A has an attorney client relationship with Company B and its employee-inventors.  Company A’s lawyer can never be adverse to Company B in the same/related matter.

I see no reason why the logic of the opinion wouldn’t apply to outside counsel in the same position.

So, if you’re in Connecticut, be careful. It’s only an informal opinion but it’s wrong, in my humble opinion.

Texas Ethics Committee: Unethical to Consult with Potential Expert When Purpose is not to Hire but to Disqualify

The committee was asked if a lawyer could disclose confidential information to a person where there was no substantial purpose other than to preclude the other side from hiring the expert, and held “no.”  Tex. St. B. Prof. Eth. Comm. Op. 676 (Aug. 2018) (here).

I’ve had lawyers do this to me, or at least that’s how it seemed, and it’s an irritating but understandable tactic when there’s only a few people in a field who know what they’re doing.

But don’t do it!

 

Should Your Engagement Letters Require Indemnification for 285-Fee Shifting?

As I’ve written, district courts are beginning to hold that if a case is exceptional under 285, fees can be imposed on, not just the losing patentee or infringer, but its lawyers (and principals).  I’ve written before that I have grave doubts this is permitted by the statutory text, and some courts so hold, but others are interpreting 285 to allow for it. (If an opposing party seeks to shift fees onto you under 285 consider the conflicts that it creates, as discussed in my prior posts.)

The Utah Bar Association issued an opinion, Utah Ethics Advisory Opinion Committee No. 18-04 (Sept. 11, 2018) (here), that you should consider. It addresses an issue that only a few opinions have, which is whether a lawyer can include in an engagement letter a provision that requires the prospective client to indemnify the lawyer for claims that arise from the client’s behavior or negligence — not the lawyer’s behavior or negligence (without jumping through the hoops of Rule 1.8(h).  (It also states that a lawyer may require a prospective client, in the engagement letter, to state that if the client sues the lawyer for legal malpractice and loses, the client must then reimburse the lawyer for the deductible in the malpractice insurance, if the client is advised to obtain independent counsel.)

The opinion provides an interesting possible way to, perhaps, deal with the chilling effect that Octane Fitness creates on lawyer advocacy while reasonably allocating liability.  These clauses will be scrutinized closely, and I’m not certain they would be accepted in every jurisdiction.

(August 15 post, below, has links to earlier article.)

McKool Smith Prosecution Bar Saga Continues… a year later…

Almost exactly one year ago (here), I explained that McKool Smith had been accused of violating a prosecution bar based upon a disagreement, or misunderstanding, about when the bar-dated ended.  While we do not yet have, “the rest of the story,” (you old folks will get the Paul Harvey reference), in an order dated September 18, 2018, Judge Corley in Eolast Tech., Inc. v. Amazon.com, Inc. (here) shows the matter is still on-going. In it, apparently after McKool and its client produced documents in redacted form, the judge ordered them produced without the redactions.

Undisclosed Conflict of Interest Causes Unenforceable Arbitration Clause, Disgorgement of Some Fees

by David Hricik

Sheppard, Mullin, Richter & Hampton, LLP v. J-M Mfg. Co. __ P.3d __ (Cal. Aug. 30, 2018) has been on a lot of people’s radar for while.  Boiled down, the firm represented a J-M Mfg., in a qui tam action against a number of public entities while representing one of the public entities in an unrelated and small matter.  The firm billed 10,000 hours in the qui tam action and 12 to the public entity, South Tahoe.

South Tahoe moved to disqualify the firm, and that motion was granted over the firm’s argument that South Tahoe had agreed to a broad waiver of conflicts long before the matter for J-M had even existed.

Later, J-M refused to pay the final $1 million of the $3 million the firm had billed it.  The firm sought arbitration in accordance with its fee agreement  with J-M, which also contained a broad waiver clause. In response, opposed arbitration and J-M sought disgorgement of the $2 million it had paid, since the firm had earned it while having a conflict of interest.

J-M was forced to arbitrate and the arbitrators found in the firm’s favor, though stating the firm should have disclosed the conflict.  When the firm moved to confirm the award, J-M opposed it. J-M prevailed in the California high court.

The Court concluded that it could set aside an arbitral award based upon an illegal contract, and that the ethical rules provided a basis for so finding.  It rejected the idea that a broad blanket waiver permitted the firm to represent J-M while representing South Tahoe without informing both clients of the conflict.  Thus, the arbitral award was vacated.

The court held, however, that the firm would be entitled to pursue relief under a quantum meruit theory and not have to disgorge all of the $2 million it had received, nor lose any claim to the $1 million it was still owed.  In the regard, the court wrote:

When a law firm seeks compensation in quantum meruit for legal services performed under the cloud of an unwaived (or improperly waived) conflict, the firm may, in some circumstances, be able to show that the conduct was not willful, and its departure from ethical rules was not so severe or harmful as to render its legal services of little or no value to the client. Where some value remains, the attorney or law firm may attempt to show what that value is in light of the harm done to the client and to the relationship of trust between attorney and client. Apprised of these facts, the trial court must then exercise its discretion to fashion a remedy that awards the attorney as much, or as little, as equity warrants, while preserving incentives to scrupulously adhere to the Rules of Professional Conduct.

The difficult issues this creates for patent lawyers, and others, should be clear.  Spotting conflicts of interest is difficult enough, but this case substantially increases the price of not doing.

The opinion just issued, and I’m doing a webinar for the AIPLA on conflicts in patent practice on 9/11, and so will think on this more, and discuss it then.

Joinder of Inventor/Principal of Patentee to Assertion of Fees for Exceptional Case Liability

A while back, I suggested here that defendants start thinking, early on, about joining sole-shareholders (and the like) of asset-less patentees if 285 liability was an issue.  In a recent case, the district court allowed joinder of such a person, finding he was a necessary party under Rule 19. (I seriously doubt that is correct (what is the claim against the person being joined?), but Genentech managed to convince a judge to join such a person in Phigenix, Inc. v. Genentech, Inc., (N.D. Cal. Aug. 13, 2018) (here).  (I’ve also written about counsel’s liability under 285, and the conflicts it can create, here.)

It discusses another case where this motion was held to be untimely, and there are serious questions about subject matter jurisdiction the court side-steps.  Lawyers faced with 285 motions have a lot to think about: plan ahead.

Ex Parte Contact that Plaintiff Failed to do Adequate Pre-Suit Investigation Part of Failed Fee Shifting Motion

When I do CLE talks, I often tell people that if you’re going to raise ethical-related issues, be very honest and clear when you do.  In a recent case where Google sought to shift fees onto a patentee who lost his patent in an IPR, Google relied on the fact that a former employee of the patentee told Google’s counsel that the pre-suit investigation had been inadequate.  The judge wrote in part:

Defendants offer two reasons why the case should be considered exceptional, but neither is persuasive. First, they say that Fujinomaki himself didn’t do enough research before he filed his lawsuit pro se.  That is not at all supported by the record or by the law. Defendants concededly do not challenge the adequacy of Bumgardner’s testing and research once the case was brought to his attention. Dkt. No. 276 at 1. And defendants have virtually no evidence to back up their claim that Fujinomaki unreasonably filed suit. They rely only on the rather bizarre fact that Fujinomaki’s pre-suit patent consultant, Amani Bey, apparently contacted defendants after the lawsuit was filed to inform them about “Plaintiff’s failure to comply with Rule 11.”  How Bey did this without breaching a duty or at the very least a contractual obligation to Fujinomaki is not clear, but in any event, this purported incident is just a sideshow. Defendants present the incident mainly with hearsay evidence, and offer no documents to support Bey’s accusation. Other evidence strongly suggests that Bey was hardly an unbiased or trustworthy source. He reached out to defendants only after Fujinomaki sued him in Japan for failure to provide promised services. In addition, Bey’s allegations are contradicted by the declaration of Tatsuya Ichinomiya….

The opinion is Fujinomaki v. Google, LLC (Case No. 3:16-cv-03137-JD, N.D.Cal. July 31, 2018) (denying fee shifting).

 

On-going Suit About Conflicts During Prosecution

The case itself only affirmed the denial of a motion by lawyers sued for a conflict of interest to compel arbitration, but Adherent Labs., Inc. v. DiPietro, 2018 WL 3520843 (Ct. App. Minn. July 23, 2018) (here) has interesting underlying allegations.

Bunnelle was a part-owner of Adherent.  DiPietro, a patent lawyer, began to represent Adherent in 2009. In 2010, Bunnelle left Adherent after a dispute, and began working for IFS.  DiPietro continued to represent Adherent.

Bunnelle sued Adherent in 2012, but as a result of suing assigned certain IP rights to Adherent (apparently, this was part of a settlement).  DiPietro helped Adherent’s litigation counsel draft the assignment, though apparently DiPietro did not defend Adherent in that suit. However, he did continue to represent Adherent in other matters, it seems.

In 2014, Adherent learned that in March 2013 DiPietro had filed an application for IFS, naming Bunnelle as sole inventor (presumably because the application published).  Allegedly, the application was based upon subject matter that Bunnelle had assigned to Adherent in 2012.

Adherent sued Bunnelle and IFS, alleging Bunnelle had breached the assignment and IFS had tortiously interfered with it.  Adherent also sued DiPietro and his firm for breach of fiduciary duty, alleging that they had prosecuted applications for IFS based on Adherent’s intellectual property.  That’s the underlying part of the story that is interesting.  In that regard, the opinion explains that the district court had, earlier, denied the lawyer-defendants’ motion for summary judgment:

The district court determined that appellants knew that Adherent and Bunnelle had an adversarial relationship, and that appellants never sought Adherent’s written consent to represent IFS or Bunnelle. The district court also determined that appellants began representing IFS prior to DiPietro assisting in the drafting of the assignment, and that appellants had available to them, in the course of their representation, Adherent’s confidential information. The district court concluded that facts in the record showed that appellants improperly disclosed Adherent’s confidential information.

The district court determined that summary judgment was not appropriate on Adherent’s breach-of-fiduciary-duty claim because the record contained facts indicating that appellants breached their duty of loyalty, duty of confidentiality, and duty to disclose. The district court also determined that summary judgment was not appropriate on Adherent’s tortious-interference-with-contract claim because facts in the record supported Adherent’s claim that appellants used language from Adherent’s patent application in IFS’s application, which procured Bunnelle’s breach of the assignment.

As for the issues decided in this opinion itself, it turns out that Adherent settled its case against Bunnelle and IFS and that settlement agreement contained an arbitration clause. So, the defendant lawyers sought to compel arbitration of Adherent’s claims against them based on the arbitration clause in the settlement agreement between Adherent, on the one hand, and Bunnelle and IFS on the other. In short, that didn’t work. (I actually wrote an article about somewhat related issues in arbitration clauses a long time ago and it’s here.)

It is rare, of course, to see allegations which, if true, present this sort of conflict and serves as a reminder to be careful when representing former employees of clients.

Firm DQ’d Because it “Should Have Known” a TM Client Would Sue Another for Patent Infringement the Day the Patent Issued

This is an interesting case where the court granted a motion to disqualify based on a very odd assumption.  The case is Altova GMBH v. Syncro Soft SRL, No. 17-11642-PBS (D. Mass. July 26, 2018), here.

The facts of this case are a bit unclear, but it seems like Firm A represented Syncro Soft in three trademark-related matters.  The first involved responding to a C&D letter from a third party in 2004. The second involved representing Firm A in responding to a C&D letter alleging trade dress and copyright infringement from the party moving for disqualification in this case, Altova, in April 2009 and ending in June 2009.  Then in 2010 Firm filed a trademark registration for Syncro Soft and provided other assistance through 2014. The total number of hours on these matters:  less than 50.

In October 2011, Firm A had begun to represent Altova in trademark matters and in June 2012 filed suit for Altova against an alleged trademark infringer.  In other words, although Firm A had defended Syncro Soft from claims of trade dress and copyright infringement in 2009, from October 2011 through 2014, at least, Firm A was representing both Altova and Syncro Soft though not in matters where each was adverse to the other.   The opinion is unclear whether Firm A represented Syncro Soft after 2014.

In June, 2017, Altova asked Firm A to assert a patent that Altova had obtained against Syncro Soft.  In July, 2017, Firm A sent a letter to Syncro Soft “terminating” its attorney-client relationship with it (again, it’s not clear the firm was doing anything after 2014).  The firm did not explain why.  It then filed the patent infringement suit for Altova against Syncro Soft.

Syncro Soft moved to disqualify Firm A. The court held that at the time the conflict arose, Syncro Soft was a current client of the firm.  Thus, the rule governing current client conflicts, not former client conflicts, controlled.  Under that rule, it is unethical for a law firm to be adverse to a current client of the firm.  Thus, the firm was disqualified, the court noting that most courts do not permit lawyers to drop a client like a hot potato in order to have the former client conflict rule apply, which permits lawyers to be adverse to a former client, just not in a matter that is substantially related to the work the firm performed for its former client.

So, in many ways, the case is no news.  But — and this is a “wow” statement –the court stated that the firm should have known when Altova obtained its patent that Altova was reasonably likely to sue for patent infringement, and, again, there’s no indication the firm obtained the patent for Altova or knew of its existence until Altova approached Firm A in June, 2017.  The court nonetheless wrote:

A reasonable lawyer should have known that there was a significant risk that Altova’s interests would become adverse to Syncro Soft’s concerning their competing XML products no later than November 2016 when Altova’s patent issued, and then should have obtained written, informed consent from both clients or withdrawn from representing both parties on that matter. The companies were direct competitors who sold similar XML editor software products. Sunstein knew that Altova vigorously protected its intellectual property rights. In fact, Altova had previously sent Syncro Soft a cease and desist letter related to alleged copyright infringement involving this software. For these reasons, this patent dispute is not the type of unforeseeable development contemplated by Comment 5. See Mass. R. Prof. C. 1.7 cmt. 5.

Hopefully, the case won’t be read as standing for the proposition that you need to monitor every patent one client obtains, to make sure you don’t have a conflict!

 

Regeneron

Over on the main page, Dennis has mentioned the Regeneron cert petition. The CAFC found a patent unenforceable because of a sanction for litigation misconduct.

Maybe, but what I find troubling about the case is that the Federal Circuit’s opinion — which is literally in many respects a cut-and-paste job of the district court’s opinion — makes factual statements about specific lawyers and their intent.  But, as part of the sanction for litigation misconduct, the trial court precluded those lawyers from testifying about why they had not disclosed certain information to the USPTO.

Think about that.

There is a published opinion stating a lawyer had bad intent, knew certain things, etc., when the trial court denied them the right to testify because lawyers — who did not represent them — did bad things years after they had prosecuted the applications to issuance.

Regeneron is a horrible opinion. I don’t know if the result is correct, or not, but I do know that the opinion makes false statements of fact about real people that will have real consequences for their careers.

And the consequences for prosecution attorneys are enormous:  if you are deposed in a case, you may need your own lawyer. You may need to make clear that you do not agree with any claim interpretation put forward by either party. You may need to condemn the patentee’s trial lawyers if asked about misconduct or make it clear that you have no control over them.

Horrible decision with grave consequences if left unchecked.

Section 101’s Absurdities

Rant warning.

Over on the main page, Dennis has pointed out that a cert petition including citations to my posts here about why Section 101 is not a “defense” to infringement, and to the recent CAFC cases about why 101 includes factual inquiries.  This rant is about those issues.

Let me start there.  That 101 contains factual inquiries is the exact point Judges Rader and O’Malley made years ago, relying on Judge Lourie’s opinion from Alice five times:

[A]s is shown more fully below, the analysis under § 101, while ultimately a legal determination, is rife with underlying factual issues. For example, while members of this court have used varying formulations for the precise test, there is no doubt the § 101 inquiry requires a search for limitations in the claims that narrow or tie the claims to specific applications of an otherwise abstract concept. CLS Bank, __ F.3d at __, 2013 WL 1920941,  at *27-30 (meaningful limitations); Id. at *10 (opinion of Lourie, J.). Further, factual issues may underlie determining whether the patent embraces a scientific principle or abstract idea. Id. (opinion of Lourie, J.) (“The underlying notion is that a scientific principle . . . reveals a relationship that has always existed.”) (quoting Parker v. Flook, 437 U.S. 584, 593 n.15 (1978)). If the question is whether “genuine human contribution” is required, and that requires “more than a trivial appendix to the underlying abstract idea,” and were not at the time of filing “routine, well-understood, or conventional,” factual inquiries likely abound. Id. at *11-12. Almost by definition, analyzing whether something was “conventional” or “routine” involves analyzing facts. Id. at *12. Ultramercial II, 2013 U.S. App LEXIS 12715, at *6-7(emphasis added).

Ultramercial III.

In other words, every judge in Alice agreed that 101 requires factual analysis.

Yet, at the USPTO, people are getting rejections from examiners who just say asserting a claim is “conventional” without any citation to facts (aka evidence).  And despite binding panel precedent that seems in conflict, the CAFC seems now to disagree on whether 101 has factual components, and won’t address en banc that question. Maybe that is because  the questions asked in the 101 “analysis” are precisely the same questions asked in any section 103 rejection and which are plainly factual.  Maybe it is because 101 is 103 (and 112) “light.”

Which leads me to the second point. We’re spending thousands of hours arguing about what is an “invention.”  Regulations are written with flow charts to figure this out.  (And despite this, the Federal Circuit has said Alice did not change 101 law — even though the USPTO has had to write multiple new regulations because of it, and thousands of patents issued properly (presumptively) before it are “invalid” after it.  But, conversely, some courts hold in legal malpractice cases that lawyers did not need to “predict” Alice, and so can’t be liable for failing to raise it, or getting a patent that was worthless after it.)

Folks, those who forget the past are doomed to repeat it.  Patent law and America’s capacity for innovation were saved from this nonsense in 1946.  I have read and written about what Congress did in 1946 to rid of “inventiveness” and “invention” as requirements for patentability, and my blog posts above are about how Congress did exactly this in 1946.  The answers are in the statutory text.  Congress did not want us to argue about “invention” and instead put the conditions for patentability in 102 and 103 (and 112).

Where the judicial activism of the Supreme Court has put our country is is in a dire place.  We are in a time when innovation is king.  China has more patents pending than the U.S.  Around the country, I have heard executives from all types of industry state that our system has made patenting of dubious value.  The data shows that the Supreme Court’s rampant activist approach — undertaken perhaps in a noble effort to get rid of some (too many) stupid patents (and combined with IPRs) — has made our patent system weak, eliminated key incentives to innovate, and, most fundamentally, ignored the changes Congress made back in 1946 to stop this nonsense.

Rant over.

 

Use of Experts at Mediations

I serve as an expert witness in patent suits and in legal malpractice cases/ethical issues relating to them (and general ethical matters).  Twice in the past year or so I’ve been asked to attend mediations as an expert, and sometimes to talk in the opening sessions and at another to simply talk to the mediator in the “closed” sessions.  I had thought it odd, but then read this article (hopefully here and not behind a paywall) which suggests that it’s good practice to have an expert at mediations.

To do so competently, the article explains that ahead of time the lawyers should agree on a process that avoids creating a cross-examination proceeding, but to also allow legitimate inquiry.  The goal, as the article put it:

First, to explore the possible weaknesses in the factual and technical underpinnings of the experts’ positions. And, second, to build a working knowledge of each expert’s strongest points in order to be able to best convey them to the other side.

Given that most cases settle, and given the importance of experts in patent suits generally, I thought this was an interesting observation and perhaps explains why I’ve been to mediations lately.  But I still hate being at them and the entire process!