Ethics – Patently-O America's leading patent law blog Sun, 18 Feb 2018 16:18:08 +0000 en-US hourly 1 FAA Preempts Challenges to Unethical Arbitration Clauses Wed, 07 Feb 2018 17:29:21 +0000 This is a non-precedential Third Circuit decision, Smith v. Lindemann (3rd Cir. No. 16-3357 (Sept. 21, 2017), and it’s dicta, but it is worth noting because I have blogged about arbitration and awards that violate public policy, as set forth in lawyer ethical rules, before.

In this case, the client sought an order from the district court that her legal malpractice claim was not subject to arbitration because New Jersey prohibited agreements requiring arbitration of malpractice claims and, even if it were sometimes permitted, the client had to give informed consent.

The court quickly rejected the first argument because there was no case law that supported it.  But then in dicta, the court stated that even if state law did prohibit agreements requiring arbitration of malpractice claims, or even if the clause did not meet the requirements of applicable ethical rules, that law and those rules were preempted by the FAA.

In pertinent part, the court stated:

The Supreme Court has held that the FAA requires courts to put arbitration agreements “on equal footing with all other contracts” and that they may not interpret state law differently in the context of arbitration. See DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463, 470 (2015) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006)). So, to the extent Smith seeks a more searching review of the advice attorneys provide new clients when an agreement to arbitrate is at issue, her argument is foreclosed by the FAA. See id. We need not decide that question, however, because she fails to explain why a written or oral warning that explicitly uses the word “malpractice” is necessary as a matter of New Jersey law.

The case raises some serious federalism issues, and probably actually is inconsistent with the Supreme Court’s holdings, which permit challenges to arbitration clauses based upon statutes and, in some circuits, other public policies.  Given the limited review of arbitral awards, and — at least in this panel’s view — the limited ability of courts to rely upon ethical rules to refuse motions to compel arbitration, clients should be careful about agreeing to arbitration awards and lawyers should probably consider beefing up disclosures about them.

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Apple: Patent Owner’s Former CEO’s Ex Parte Letters to PTAB & Commerce Secretary Ross are Sanctionable Wed, 17 Jan 2018 13:38:56 +0000 Apple has filed a motion with the PTAB, here, asserting that letters from the former CEO of a patent owner to an original panel, a substitute panel, and Commerce Secretary Wilbur Ross constituted improper ex parte communications that warrant reversing the PTAB’s findings in favor of the patentee and, instead, either entering judgment in Apple’s favor or at least granting a new trial.

Boiled down, Apple argues that after the decision to institute was granted, the former CEO (and still “advisor” to the patentee) sent letters to the panel that had granted institution, and those letters were not made of record.  That panel was replaced, without explanation to Apple (or anyone from what I can tell), and a substitute panel then took over the matter.

The former CEO then sent more letters — to both the PTAB chief judge and to the substitute panel which, again, were not made of record. (It’s not clear to me that Apple or the patentee knew of the letters at this time.). Other letters to the chief judge, the substitute panel, and even the Secretary of Commerce followed and the letters were not made of record and Apple was not notified (and, again, neither was the patentee, from what I can tell).

Then on September 18, the patentee posted the letters — calling them “independent” — on its web page. Then there were more letters.

The substitute panel in late November in its final written decision and found Apple had not established the claims were unpatentable.

A month later, Apple filed this motion, stating the facts and asserting that its due process rights had been violated, and more.  Interestingly, Apple relies among other things, on the APA, arguing “the ex parte communications violate the APA, which prohibits an ‘interested person outside the agency’ from making, or knowingly causing to be made, an ex parte communication relevant to the merits of the proceeding with a member of the adjudicatory body.” (citing 5 U.S.C. § 557(d)(1)(A)).

Apple’s motion makes a few inferential leaps that, I think, undermine its credibility. For example, Apple spins the fact that the CEO said he had talked to the patentee’s lawyers into an assertion that the patentee’s lawyers knew of and helped the CEO write the letters — violating the cardinal rule that if you’re going to accuse someone of an ethical violation, don’t stretch.  (It may be the lawyers did assist: my point is, that’s not what the letters say.)

Apple also admitted that it had known that, in May, that the former CEO had sent a copy of one of his letters to the court handling the pending litigation involving the patent, because the clerk of that district court had entered the letter on the docket.  But, oddly, Apple said it had done nothing because it did not know the letter would influence the PTAB (again, inferring that the letter did influence the PTAB).  Further, apparently Apple knew of (what it now says is) an improper ex parte contact but did nothing — even though after it learned of that letter the panel was changed — and it only did something after it lost the IPR.

It will be interesting to learn why the PTAB judges did not inform everyone of the letters (assuming they even received them, and that disclosure did not occur), but it looks like Apple knew in May of (what it now says is) a clear ethics violation, but did nothing, and at least as of September, the patentee knew of (what are allegedly) the improper ex parte communications, and did nothing.

So, let’s see how this gets sorted out.

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Claims that Defendant Infringed Patent Issued Years after Suit Filed Found Subject To Claim Preclusion Tue, 16 Jan 2018 15:45:34 +0000 Normally, claim preclusion only bars later assertion of a claim only if (a) the plaintiff could have brought that claim when it filed an earlier suit and (b) the later-asserted claim is the “same” as a claim in the first case (courts take different approaches to how closely related the later claim must be to the first, but the federal rule is to look at whether the later-asserted claim arises out of the same operative facts as the earlier claim).  So, normally, if a patent issues to the plaintiff after the first suit is filed, claim preclusion wouldn’t apply because of the first step:  you can’t sue for infringement until the patent issues (with the narrow exception of seeking “provisional damages” for infringement under Section 154).

But, in a recent case, a district court held that the plaintiff had a “duty to seek to amend” its complaint to add a later-issued patent, and to the extent the defendant can show that its infringement arose out of the same set of facts as the earlier case, claim preclusion will (and does) apply. The case, XY, LLC v. Trans Ova Genetics, LC (D. Colo. 2018), is here.  One of the two patents issued after the complaint had been filed, and a second actually issued after judgment in the first case had been entered!  (The district court also took what may prove to be a very unworkable approach to determining the second step.)

So, be careful out there: this creates a real mess because now you’re going to have to assert every possible patent for infringement, and if a new one issues, you better move to amend and hope the judge grants the motion, or doesn’t, because then you’ll be starting all over again with discovery, claim differentiation issues, and so on…  If you’re a defendant, maybe you should consider seeking a declaration as to patents the plaintiff owns, but hasn’t asserted, and just make a mess that way.

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Federal Circuit Reminds Us: “Will Assign” isn’t an Assignment Fri, 12 Jan 2018 11:51:50 +0000 I love this case because it has lessons for ethics, drafting, and civil procedure.

The holding is pretty simple:  an inventor who signs an employment agreement that provides (a) she “will assign” rights to inventions doesn’t then assign them; (b) that she “holds in trust” those rights doesn’t mean she assigns them; and (c) that she “quit claims” those rights doesn’t mean she assigns them.  Two judges so held (O’Malley and Reyna), and Judge Newman dissented relying on the “intent” of the contract.  The case is Advanced Video Tech. LLC v. HTC Corp. (Fed. Cir. Jan. 11, 2018), here.

So, lesson for ethics and drafting:  verbs matter and due diligence matters! (Related note: watch out for spouses of inventors — there’s an argument in community property states that spouses own inventions that I’ve blogged about somewhere and which almost worked in one CAFC case, where the accused infringer was able to get a license from an ex-spouse!)

The civil procedure issue concerns Judge O’Malley’s concurring opinion. She argues that a co-owner who refuses to join is an indispensable party under Rule 19, and that a prior panel decision holding otherwise was wrongly decided, but binding.  I very much enjoyed working with Judge O’Malley (I clerked for then-CJ Rader a couple years ago), and she’s a civ pro wiz, but I have some doubts on that interpretation of Rule 19.  The examples of when someone is an indispensable party are few, and forcing someone to be a plaintiff in a patent suit when they don’t want to be subjects them to all sorts of potential liability (285, for example) that they may not want to incur.

Moreover, even if an en banc court agrees with her, I’m not sure it will eliminate every problem of the recalcitrant co-owner. For example, in this case, suppose the court en banc decides Judge O’Malley is right and Rule 19 requires joinder, and that the co-owner can be joined (i.e., there is personal jurisdiction over her and, arguably, venue is proper (Rule 19 is very weird)). As a result, the co-owner is joined involuntarily but then pleads:  “the defendant doesn’t infringe.”  Now there is no case or controversy between that co-owner and the defendant, and so no subject matter jurisdiction.  “Claim” dismissed?

I wonder if there’s a Rule 14 way to bring in a co-owner if there is a counterclaim for, say, inequitable conduct by that co-owner/inventor?  I teach and have written a book on civil procedure and that might work, but I’m not sure Rule 19 will.  I bet we will see an effort to use it.

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My Recent Article on the Need for Speed in Patenting Thu, 11 Jan 2018 15:27:49 +0000 I don’t like writing long law review articles any more, but I was persuaded to by the kids at Vanderbilt, and then they made me make it even longer by forcing me to explain things that we all know: patents ain’t what they used to be.

And, in doing it, I learned a lot.  The article — here — with the brilliant title of Will Patenting Make As Much Sense in the New Regime of Weakened Patent Rights and Shorter Product Life Cycles, and featuring some 294 footnotes — describes those changes (by the Supreme Court, Congress, and even the states), the changes in technological speed (and 3D printing) and what that means for the utility of getting a patent, and then talks about ways to speed prosecution and/or obtain damages before issuance. The abstract eloquently states:

After its founding in 1982, the US Court of Appeals for the Federal Circuit strengthened patent protection. During that time, businesses—which acquire 90 percent of all patents—increasingly applied for and enforced patents. Clearly, the benefit of having a patent outweighed the cost of doing so.

This Article shows that a central benefit of applying for a patent is that it permits its owner to exclude others from making the patented invention. A patent owner can use the coercive power of a patent to exclude others from making the invention, or to permit others to make the patented invention, but only if they pay money to do so. Two forces have reduced the power of that benefit.

First, patent rights have been weakened through changes in the law. The US Supreme Court has, almost without exception, reversed decisions of the Federal Circuit and adopted an approach that is less favorable to patent owners. Compared to today, in the year 2000, more inventions were eligible for patenting, more inventions were not obvious, more claims were definite, “equivalents” more likely infringed, infringement included more overseas conduct, patent rights were less easily exhausted, patentees could subject defendants to suits in districts more favorable to them, a losing patentee would almost never pay attorneys’ fees, and an injunction was the general rule that benefited a successful patent infringement plaintiff. More recently, Congress created administrative proceedings in the US Patent and Trademark Office that made it easier to challenge existing patents. In litigation, because of the statutory presumption of validity, patent claims are construed narrowly and, when possible, to avoid invalidity, and invalidity must be shown by clear and convincing evidence. In these new proceedings, the presumption does not apply, patent claims are construed more broadly, and only preponderant evidence is required to challenge a claim. Further, if a patent owner sues in court, courts will often stay the litigation in favor of allowing the Patent Office proceeding to finish. This effectively eliminates the presumption of validity. Other changes including heightened pleading requirements and state statutes also reduce the coercive benefit that patents confer.

After examining the available data as to whether these legal changes have already significantly altered the incentive to patent, the Article turns to the second force that reduces the benefit of the coercive power of patents: the fact that a greater number of products have shorter life cycles. Because patents take twenty-four months to issue, and the coercive power of a patent can only be utilized once it issues, the pace of change means that fewer patents will exist in time for their coercive power to be meaningfully applied. Further, that rapid pace of innovation has already created 3D printing, a technology that permits rapid and dispersed copying of new products, which further reduces the coercive benefit of patent rights.

This Article concludes by providing practical advice to patent practitioners as to how to manage the impact of these two forces. These include using established procedures to speed up prosecution, using claim drafting techniques that may help address 3D printing, and considering alternatives such as trade secret protection in lieu of patenting.


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Thinking Ahead: Join Owners of Patent Owner for 285 Liability? Mon, 18 Dec 2017 14:56:05 +0000 You get sued and you’re thinking you’ll ultimately win big.  Exceptional case.  Fees shifted.  And you do, and you get an award of $3 million in your favor.  But, the patentee is basically a shell and so after a year of trying, you decide to go after its owners, allegedly its alter ego.

Federal courts have power to assist in executing judgments, but state law must authorize the procedures used, and not all states allow for joinder of non-parties after final judgment.  In Vehicle Interface Tech., LLC v. Jaguar Land Rover North Am., LLC (D. Del. Dec. 14, 2017), the court held that the defendant failed to show that Delaware law permitted joinder under those circumstances, and so the $3 million judgment seems, it seems, worthless.  The case is here.

So, although it seems weird, perhaps you need to join owners of patent owners….

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New ABA Opinion of Particular Interest Fri, 15 Dec 2017 17:10:08 +0000 A lawyer may be adverse to a former client, but not in the same matter in which she represented the client, or in one which is “substantially related” to the representation of the former client.  Generally, this requires determining whether it is reasonably likely that in the representation, the lawyer likely learned confidential information that likely can be used against the former client now.

One part of that analysis can require determining what information “counts.”  This varies by jurisdiction: some, for example, do not include information known to the new client, or “playbook” information (e.g., how a client approaches IPRs), and so on.  And, some do not count information if it has become “generally known.”

In the context of prosecution, for example, does the fact that an application has published mean it is “generally known” and so no longer counts?

The ABA just released an opinion on this point, ABA Formal Eth. Op. 479 (Dec. 15, 2017), here.   The abstract explains:

The “generally known” exception to the duty of former – client confidentiality is limited. It applies (1) only to the use, and not the disclosure or revelation, of former – client information; and (2) only if the information has become (a) widely recognized by members of the public in the relevant geographic area; or (b) widely recognized in the former client’s industry, profession, or trade. Information is not “generally known” simply because it has been discussed in open court, or is available in court records, in libraries, or in other public repositories of information.


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Need 3 hours of Ethics CLE? (Self-promotion warning). Fri, 08 Dec 2017 14:22:04 +0000 I do a lot of speaking on ethics, mostly on ethical issues in patent prosecution and litigation.  I’ve worked with for decades now (they were I think the first on-line provider), and I put together what I think is a cool presentation on the impact of technology on practice.  You can take it here.  (California, Texas, and perhaps other states are pre-aproved but read the fine print.)

Their ad is below…  (My article about how innovation affects patenting is coming out soon, they say, all 294 footnotes of it.)

** available on demand any time of day and in time increments convenient to you ** is pleased to present a special online legal ethics program in which Professor David Hricikaddresses the myriad of practical ways that technology creates ethical issues for practicing lawyers. Professor Hricik discusses both the potential major trends — artificial intelligence changing daily legal practice, and technological developments like driverless cars potentially reducing car accidents which could affect entire practice areas — as well as the more immediate concerns. The latter includes the risks of communicating with clients while they are at work, inadvertent transmission of email, metadata (“hidden” confidential information in things like Word documents), cloud storage, and dealing with negative on-line reviews. This presentation mixes humor, fear, and practical tips to give 3 solid hours of Legal Ethics that matter and are immediately relevant to your law practice. The course features streaming video and audio (as well as downloadable MP3 audio) presentations.

Some of the subjects for this course include:

  • Exponential Change and Impact
  • A Future Full of Legal Disruption?
  • What Will Ethically, Successful Lawyering Require?
  • Hackers, Passwords, and Lawful v. Unlawful Interception
  • Invisible Confidential Information: “Metadata” and Related Issues
  • Confidentiality: How Many Vulnerabilities?
  • Due Diligence and Cloud Storage
  • Responding to Unhappy Clients
  • Litigation-Specific Technology Ethics
  • Evidence Everywhere … Wearable Devices
  • Social Media: Practical Tips and Pitfalls
  • The Law You Really Must be Prepared for Will Happen Before It’s Written About

*** Course Link ***

The speaker for this course is Professor David Hricik, of Mercer University School of Law in Macon, Georgia. Professor Hricik was elected to the American Law Institute in 2016. He has authored the only treatise on ethical issues in patent litigation, and co-authored the only treatise on ethical issues in patent prosecution. In addition to serving leadership positions on ethics committees with the AIPLA and ABA and serving as an expert witness, he has written dozens of articles and given well over 100 presentations on issues at the intersection of ethics and patents. His articles and testimony have been adopted by both state and federal courts.
This course is approved for credit by the MCLE Committees of the STATE BAR OF TEXAS and the STATE BAR OF CALIFORNIA (MCLE Provider #8648). These are not self-study credits, but rather ‘participatory’ credits as you would receive for attending a traditional, live CLE seminar.

In addition, regular CLE credits for this seminar may also be available in a number of other states through CLE Reciprocity, such as FLORIDA, or as an “Approved Jurisdiction”, such as TENNESSEE.  Please check with the Tennessee State Bar for accreditation information.

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Technology and Ethics: Lex Machina Wed, 06 Dec 2017 19:48:18 +0000 So, I signed up for training on Lex Machina for its public interest use. I was thrilled  They set up a conference call to train me and a bunch of other people. Free access for research purposes, but you have to go through the training (it looked pretty simple).

Someone signed on, but is (literally now) having a call with, I think a client, broadcasting this conversation on the training session.  Not only that, they had the training call muted, so this person couldn’t hear the poor trainer trying to get his attention to stop broadcasting confidential information.  She cancelled the call as a result, perhaps saving this fool from a disciplinary violation.

Just thought I’d share a reminder that we all should recall from Donald Trump and open mics.


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Interesting Legal Malpractice Claim Based on Failure to Assert Exceptional Case Wed, 06 Dec 2017 13:41:10 +0000 The facts of the case are sparsely set out in the appellate court decision in Smith, Gambrell & Russell, LLP v. Telecomm. Sys., Inc., 63 N.Y.S.2d 384 (N.Y. Sup. Ct. App. Div. Nov. 14, 2017), but are set out in more detail in the trial court’s decision, here.

Apparently, the firm represented the patentee, and won at trial.  It did not argue fees should be shifted under 285 (after Octane), but instead filed a motion for sanctions arguing inherent power. (That, of course, is a much more difficult hurdle than 285.)

The firm sued for fees owed, and the patentee counterclaimed, asserting the firm had missed the deadline for filing the motion, which is the later of 14 days after judgment is entered or post-judgment motions are resolved.  The evidence showed, however, that the motion had been filed within the latter time limit, but it was never ruled on (the underlying patent case settled).  Accordingly, the counterclaim for malpractice was dismissed.

The appellate court affirmed but also addressed an alternative argument made for the first time on appeal, which was that instead of filing for sanctions, the lawyers should have relied on 285 and Octane.  The appellate court stated that choosing inherent power over 285 was a judgment call, and so was not actionable, and also stated that the complaint failed to allege facts that showed the case was exceptional. (You would think those would be in the motion for sanctions that was filed.)

Interesting case for a couple of reasons: (1) if you sue for fees you likely will face a counterclaim for malpractice (it’s not always but it is often); and (2) remember that because of Gunn v. Minton, malpractice cases based upon mishandled patent litigation or prosecution will be decided by state courts. I’ve testified in state courts on patent matters and it is a different world out there.