This is a fascinating case on several levels, Axcess International, Inc. v. Baker Botts LLP (Tex. App. Dallas March 2016). Baker Botts was representing one client, Axcess International, Inc. (“Axcess”) in prosecuting patent applications involving certain radio frequency identification technology. After it had filed those applications, it began to represent another client, Savi Technologies, Inc. (“Savi”) in prosecuting applications on similar technology. There is a lot going on in the case, but essentially Axcess sued Baker Botts and alleged two breaches of duty.
First, that, but for a conflict of interest between Savi and Axcess, Baker Botts would have broadened claims the firm had been pursuing for Axcess. The opinion is hard to follow but there seem to be two, related, claims made by Axcess.
First, Axcess argued that had it broadened its claims, the USPTO would have declared an interference with a then-pending Savi application, and Axcess would have prevailed. Put the other way, Baker Botts “pulled its punches” – had a material limitation in terms of 37 C.F.R. 11.107, I presume — on its ability to represent Axcess – because of its representation of Savi. Had it prevailed in the interference, Axcess would have claims to subject matter that turned out to be the lucrative technology. That leads to the second basis, which is that the broadened claims would have issued to Axcess and would have covered the lucrative terrain.
The case went to trial and the jury awarded $42 million dollars to Axcess. However, Baker Botts moved that judgment be entered in its favor, and raised four grounds. The trial court granted the motion without saying why.
The appellate court affirmed on one of the alternate grounds to affirm raised by Baker Botts – that there was no causation: specifically, that expert testimony was required and the testimony presented fell short of reliable expert testimony but was instead speculative.
In holding there was no evidence of causation, the Texas state appellate court placed the standard quite high, in my opinion and based solely on what is repeated in the opinion. The appellate court held that Axcess should have had an expert who was competent to testify that an interference would have been declared, specifically someone who could testify an Interference Practice Specialist would have reacted to the suggestion of an interference.
The second point seems to be that conflict-free counsel would have obtained broader claims that covered Savi’s commercial products. Here, the appellate court said there was no evidence the USPTO would have issued the claims. It is not clear what was done by Axcess: did the expert compare the hypothetical claims to the prior art of record? If so, that would seem to be enough, but the appellate court stated that there had to be evidence of how the USPTO would have responded to hypothetical patent applications and “evidence from similar cases.” In a vacuum and without the full trial record, this seems odd. Again, the opinion is hard to follow.
So, Baker Botts for now has dodged a $42 million verdict that arose out of relating competitors in closely related patent applications. Who knows how much the firm spent in doing so, and whether it will be reviewed by the Texas supreme court (that court has a discretionary review procedure sort of like the U.S. Supreme Court. Those risks need to be assessed in examining so-called “subject matter” conflicts. (Buy my book on prosecution ethics and read more!)
One other thing: along the way, the court stated that Baker Botts had been subpoenaed in a related case where an accused infringer argued that Baker Botts had failed to disclose in applications for Savi information the firm had obtained from Axcess. That case settled and there is no indication Savi sued Baker Botts for that failure; the existence of the subpoena and that case shows the risks of representing competitors and being careful about doing so!
Finally, the case is a warning about being careful: state courts are going to decide patent prosecution malpractice claims. Think about that. I honestly sometimes don’t know if arbitration is any better, however, and I am beginning to think that there really are some issues in even a routine malpractice case where a state’s interpretation of law could radically affect a federal objective and interfere with patent prosecution. Stay tuned for that.