Ethics – Patently-O https://patentlyo.com America's leading patent law blog Tue, 22 May 2018 16:12:21 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.5 McDonnell Boehnen Hulbert & Berghoff LLP https://patentlyo.com/media/2014/01/mbhb-3b.gif https://www.mbhb.com/ 480 150 Intellectual Property Law Magistrate Disclosure of Daughter’s Summer Associate Employment https://patentlyo.com/hricik/2018/05/magistrate-disclosure-employment.html https://patentlyo.com/hricik/2018/05/magistrate-disclosure-employment.html#comments Fri, 18 May 2018 17:18:09 +0000 https://patentlyo.com/?p=23423 I thought this was interesting.  Magistrate’s daughter will be a summer associate at the patentee’s firm, and so she disclosed it to the parties and invited their views on whether they thought the case should be reassigned. It is Pacific Coast Building Products, Inc. v. Certainteed Gypsum, available here.

When I was clerking for the CAFC a few years ago, as clerks we avoided cases where we had any entanglement as an internal procedure, but I thought this was interesting because obviously the patentee’s firm knew it was going to hire the daughter, and the magistrate thought it wasn’t a conflict, but wanted the facts out there.

This is one of those instances, though, where if I were the patentee I’d be afraid the magistrate would try to be “too fair” to avoid even the appearance of favoritism, but it depends on the facts and relationships.  Interesting rare disclosure issue, though.

Continue reading Magistrate Disclosure of Daughter’s Summer Associate Employment at Patently-O.

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I thought this was interesting.  Magistrate’s daughter will be a summer associate at the patentee’s firm, and so she disclosed it to the parties and invited their views on whether they thought the case should be reassigned. It is Pacific Coast Building Products, Inc. v. Certainteed Gypsum, available here.

When I was clerking for the CAFC a few years ago, as clerks we avoided cases where we had any entanglement as an internal procedure, but I thought this was interesting because obviously the patentee’s firm knew it was going to hire the daughter, and the magistrate thought it wasn’t a conflict, but wanted the facts out there.

This is one of those instances, though, where if I were the patentee I’d be afraid the magistrate would try to be “too fair” to avoid even the appearance of favoritism, but it depends on the facts and relationships.  Interesting rare disclosure issue, though.

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The Abolition of Form 18, Discovery Limits, and Lawyering https://patentlyo.com/hricik/2018/05/abolition-discovery-lawyering.html https://patentlyo.com/hricik/2018/05/abolition-discovery-lawyering.html#comments Mon, 14 May 2018 13:01:10 +0000 https://patentlyo.com/?p=23311 “Back when I was young,” all we had to do to file an infringement suit was use Form 18 and basically allege “Plaintiff owns a patent and you sell stuff that infringes it.”  (For one story about the process of repealing it (and almost all of the forms that used to be sufficient as a matter of law to state a claim), read here.)  Abolishing the form meant that the Iqbal/Twombly requirements of pleading factual material, not naked allegations or legal conclusions, which if true plausibly showed infringement.

That eliminated the ability to sue for infringing some patents — say a method claim practiced inside a factory.

At the same time Form 18 went away, the scope of discovery was narrowed.  While everyone focuses on the proportionality requirement, Rule 26 was also narrowed to eliminate the ability of a court, even for good cause, to permit discovery into the subject matter of a suit — only discovery into claims or defenses was permitted, and it had to be proportional and so on.

So, that again eliminated the ability to sue for some infringement, and it made it very important that pre-suit investigation identify every infringing product/use possible, or at least do so early and consistent with patent local rules.  

Continue reading The Abolition of Form 18, Discovery Limits, and Lawyering at Patently-O.

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“Back when I was young,” all we had to do to file an infringement suit was use Form 18 and basically allege “Plaintiff owns a patent and you sell stuff that infringes it.”  (For one story about the process of repealing it (and almost all of the forms that used to be sufficient as a matter of law to state a claim), read here.)  Abolishing the form meant that the Iqbal/Twombly requirements of pleading factual material, not naked allegations or legal conclusions, which if true plausibly showed infringement.

That eliminated the ability to sue for infringing some patents — say a method claim practiced inside a factory.

At the same time Form 18 went away, the scope of discovery was narrowed.  While everyone focuses on the proportionality requirement, Rule 26 was also narrowed to eliminate the ability of a court, even for good cause, to permit discovery into the subject matter of a suit — only discovery into claims or defenses was permitted, and it had to be proportional and so on.

So, that again eliminated the ability to sue for some infringement, and it made it very important that pre-suit investigation identify every infringing product/use possible, or at least do so early and consistent with patent local rules.  This is because courts do not permit patentees to obtain discovery into products beyond those identified in a complaint, or early in infringement contentions, without showing reasons why the product was not identified through other means (e.g., Internet searches on the manufacturer’s web page).

A recent case shows this process.  In Aavid Thermalloy LLC v. Cooler Master Co., (Case No. 17-cv-05363-JSW (LB) (May 10, 2018), the court denied the patentee’s request for discovery beyond products accused in its PICs, stating that the exception to the general rule that such discovery was not allowed was only available if the patentee did not “know of” the allegedly infringing product when it served its infringement contentions “and could not have discovered the product absent discovery.”

So, be careful in your pre-suit investigation, and be thorough. On a larger scale issue, this is but one more way that the value of patents have been reduced.

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Administrative Suspension https://patentlyo.com/hricik/2018/04/administrative-suspension.html https://patentlyo.com/hricik/2018/04/administrative-suspension.html#comments Tue, 24 Apr 2018 12:33:09 +0000 https://patentlyo.com/?p=23093 You have to pay bar dues for your state, meet CLE requirements, and so on, or you can be administratively suspended by your state.  If you are, you can’t practice trademark law before the USPTO.  There was another recent OED decision recognizing that basic point, here.

The USPTO once considered making practitioners take CLE, but that failed. But, you can be administratively suspended by the USPTO for various reasons, including failing to keep your contact, and other, information current under 37 CFR 11.11. The USPTO periodically sends surveys to practitioners and those who don’t respond get their names published, and if they fail to correct the problem, they get administratively suspended from patent practice, as shown here.

Either circumstance can create lots of problems for practitioners.  You may need to alert the USPTO of state administrative suspension, or you may need to alert your state of USPTO administrative suspension, and so administrative suspension can snowball into a reporting problem.  Further, complicated questions are created for your clients, such as (a) trust fund issues; (b) privilege issues; (c) perhaps unauthorized practice of law problems (e.g., a corporation has to be represented by a lawyer); and (d) substantive issues, such as whether something filed with the USPTO by an administratively suspended practitioner can be held ineffective or otherwise cause invalidity or unenforceability problems.  

Continue reading Administrative Suspension at Patently-O.

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You have to pay bar dues for your state, meet CLE requirements, and so on, or you can be administratively suspended by your state.  If you are, you can’t practice trademark law before the USPTO.  There was another recent OED decision recognizing that basic point, here.

The USPTO once considered making practitioners take CLE, but that failed. But, you can be administratively suspended by the USPTO for various reasons, including failing to keep your contact, and other, information current under 37 CFR 11.11. The USPTO periodically sends surveys to practitioners and those who don’t respond get their names published, and if they fail to correct the problem, they get administratively suspended from patent practice, as shown here.

Either circumstance can create lots of problems for practitioners.  You may need to alert the USPTO of state administrative suspension, or you may need to alert your state of USPTO administrative suspension, and so administrative suspension can snowball into a reporting problem.  Further, complicated questions are created for your clients, such as (a) trust fund issues; (b) privilege issues; (c) perhaps unauthorized practice of law problems (e.g., a corporation has to be represented by a lawyer); and (d) substantive issues, such as whether something filed with the USPTO by an administratively suspended practitioner can be held ineffective or otherwise cause invalidity or unenforceability problems.  And, of course, communicating administrative suspension to a client once it is known is another one.

So, pay those bar dues, go to your CLE, and keep your contact info updated.

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An Interesting Pending Appeal Involving Violation of an NDA to Prosecute an Application https://patentlyo.com/hricik/2018/03/interesting-violation-application.html https://patentlyo.com/hricik/2018/03/interesting-violation-application.html#comments Wed, 28 Mar 2018 11:40:13 +0000 https://patentlyo.com/?p=22828 Last month, the Federal Circuit held oral argument in an appeal, styled Gilead Sciences, Inc. v. Merck & Co., Inc. (Appeal Nos. 16-2302 & -2615) from a judge’s decision which held a patent unenforceable — for unclean hands — after a jury returned a verdict of $200 million.  A more detailed write up is here which includes a link to the oral argument.

Boiled down, in a bench trial after the verdict, the judge heard evidence that Gilead had agreed to share information with Merck regarding an antiviral agent against Hep C — provided Merck personnel working on Merck’s competing work be walled off rom the information. Gilead shared information on a call… and a Merck attorney who was on the call who was prosecuting a Merck competing application then amended claims to cover the Gilead product.

As a twist, the application that was amended supported the Gilead product, and the jury had found no derivation.  The reason was that the amended Merck application had support for a large genus of compounds, but the amendment narrowed to a subgenus which included Gilead’s leading agent.  In other words, Merck had invented the Gilead product, and so there was no but-for materiality (in any meaningful sense that I can see, at least).

Continue reading An Interesting Pending Appeal Involving Violation of an NDA to Prosecute an Application at Patently-O.

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Last month, the Federal Circuit held oral argument in an appeal, styled Gilead Sciences, Inc. v. Merck & Co., Inc. (Appeal Nos. 16-2302 & -2615) from a judge’s decision which held a patent unenforceable — for unclean hands — after a jury returned a verdict of $200 million.  A more detailed write up is here which includes a link to the oral argument.

Boiled down, in a bench trial after the verdict, the judge heard evidence that Gilead had agreed to share information with Merck regarding an antiviral agent against Hep C — provided Merck personnel working on Merck’s competing work be walled off rom the information. Gilead shared information on a call… and a Merck attorney who was on the call who was prosecuting a Merck competing application then amended claims to cover the Gilead product.

As a twist, the application that was amended supported the Gilead product, and the jury had found no derivation.  The reason was that the amended Merck application had support for a large genus of compounds, but the amendment narrowed to a subgenus which included Gilead’s leading agent.  In other words, Merck had invented the Gilead product, and so there was no but-for materiality (in any meaningful sense that I can see, at least).

In addition to this evidence, the district judge heard evidence of various litigation misconduct, testimony that seemed to change at trial, and other “smell test” issues.  Based on what it saw, the district judge  held the Merck patent unenforceable under the doctrine of unclean hands, setting aside the $200m verdict for Merck.  The judge wrote in part:

“In this case, numerous unconscionable acts lead the Court to conclude that the doctrine of unclean hands bars Merck’s recovery against Gilead for infringement of the ’499 and ’712 Patents. Merck’s misconduct includes lying to Pharmasset, misusing Pharmasset’s confidential information, breaching confidentiality and firewall agreements, and lying under oath at deposition and trial. Any one of these acts— lying, unethical business conduct, or litigation misconduct— would be sufficient to invoke the doctrine of unclean hands; but together, these acts unmistakably constitute egregious misconduct that equals or exceeds the misconduct previously found by other courts to constitute unclean hands. Merck’s acts are even more egregious because the main perpetuator of its misconduct was its attorney.”

Gilead Sciences v. Merck & Co., Case No. 5:13-cv-04057 (N.D. Cal. June 2016).

On appeal, the CAFC panel asked questions which seemed to suggest they were wondering whether there was, in fact, derivation — despite the jury’s finding.  From afar, that would seem to be a stretch, but the details may be there.  Stay tuned on both aspects of this case.

The lesson, of course, is that it is imperative that people abide by NDAs (and protective orders with prosecution bars, and the like).  I’ve been involved in cases involving alleged misuse of confidential information during prosecution, and the risks that arise when competitors exchange information — ranging from trade secret misuse, to sanctions, to things like Merck — abound.  Lawyers need to police both their side — to abide by any agreement, by watching for misuse by experts, inventors, business people, and lawyers — as well as ensuring that their own personnel abide by the agreement.  With parallel proceedings, continuing prosecution, and the circumstances where parties are focused on similar solutions to a problem, the need to do so is particularly critical.

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Another augmented patent application drafting service https://patentlyo.com/hricik/2018/03/augmented-application-drafting.html https://patentlyo.com/hricik/2018/03/augmented-application-drafting.html#comments Tue, 27 Mar 2018 18:27:44 +0000 https://patentlyo.com/?p=22817 This one is here.  I’ll save you time and tell you that once you enter the claim (push return after each element), hit the print icon (upper left) to get your document.

AI is here and the question of whether you can, or should, use these types of things is something to ponder.

Continue reading Another augmented patent application drafting service at Patently-O.

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This one is here.  I’ll save you time and tell you that once you enter the claim (push return after each element), hit the print icon (upper left) to get your document.

AI is here and the question of whether you can, or should, use these types of things is something to ponder.

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King Spalding DQ’d from arbitrating against Former Client https://patentlyo.com/hricik/2018/03/spalding-arbitrating-against.html Mon, 26 Mar 2018 13:17:04 +0000 https://patentlyo.com/?p=22814 A February 22, 2018 order in Merial Inc. et al. v. Abic Biological Labs. Ltd (Sup. Ct. N.Y.), here, enjoined King & Spalding from representing Abic Biological Labs (“Abic”) and Phibro Animal Health Corporation (“Phibro”) in an ICC arbitration where Abic and Phibro were adverse to Merial Societe Par Actions Simplifiee (“Merial SAS”), which was a former K&S client.

The evidence appears to have shown that K&S had represented Merial SAS, and related entities, from 1998 to at least 2011 concerning transactions and litigation in the animal health and vaccine space.   K&S had also for many years represented Phibro and related entities in the animal health and vaccine space.

Merial SAS was acquired by Boehringer Ingelheim GmBH (“Boehringer”) in 2017, and K&S had represented an affiliate of Boehringer until December 2017. In the summer of 2017, Merial and Boehringer became cross-wise, and until then, none of the Merial parties knew that K&S had been representing Phibro.

In the summer of 2017, K&S wrote a letter to the person that it had often interacted with, the head of prosecution and litigation at Merial SAS (Dr. Jarecki-Black), explaining that K&S was representing Abic and Phibro in a licensing dispute they had with Merial SAS (and other entities).  

Continue reading King Spalding DQ’d from arbitrating against Former Client at Patently-O.

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A February 22, 2018 order in Merial Inc. et al. v. Abic Biological Labs. Ltd (Sup. Ct. N.Y.), here, enjoined King & Spalding from representing Abic Biological Labs (“Abic”) and Phibro Animal Health Corporation (“Phibro”) in an ICC arbitration where Abic and Phibro were adverse to Merial Societe Par Actions Simplifiee (“Merial SAS”), which was a former K&S client.

The evidence appears to have shown that K&S had represented Merial SAS, and related entities, from 1998 to at least 2011 concerning transactions and litigation in the animal health and vaccine space.   K&S had also for many years represented Phibro and related entities in the animal health and vaccine space.

Merial SAS was acquired by Boehringer Ingelheim GmBH (“Boehringer”) in 2017, and K&S had represented an affiliate of Boehringer until December 2017. In the summer of 2017, Merial and Boehringer became cross-wise, and until then, none of the Merial parties knew that K&S had been representing Phibro.

In the summer of 2017, K&S wrote a letter to the person that it had often interacted with, the head of prosecution and litigation at Merial SAS (Dr. Jarecki-Black), explaining that K&S was representing Abic and Phibro in a licensing dispute they had with Merial SAS (and other entities).  Dr. Jarecki-Black responded by asserting that K&S’ representation presented a conflict of interest and demanding that K&S withdraw.  A few weeks later, the firm refused, explaining in a letter that it had represented different corporate entities in the matters Dr. Jarecki-Black pointed to, the matters were in all events unrelated to the ICC licensing dispute, and no K&S lawyer who was working against Merial SAS in the ICC matter had represented it previously.  In response, Merial SAS reiterated its positions, and its letter also made a new (and very odd) argument: because the license in dispute included a New York choice of law clause, a California lawyer from K&S who was representing Phibro was engaged in the unauthorized practice of law.  In its final letter, K&S reiterated that there was no substantial relationship between its work for and the work against Merial SAS, and made short shrift of the odd argument about the unauthorized practice of law.

It seems the parties could not agree on who was right, and instead Merial SAS filed suit in New York seeking an injunction to prevent K&S from being adverse to it (and Boehringer, and affiliated entities) in the ICC.

The court enjoined K&S.  What struck me as quite concerning was that there was no overlap between patents or licenses K&S had worked on for Merial SAS and those in the ICC arbitration.  Instead, the court noted that K&S “clearly knows a great deal about how the Merial entities approach issues relating to patents and licenses in the animal health and animal vaccine space.”  The trial court emphasized that Merial SAS had relied on “a highly credentialed ethicist, Roy D. Simon” and noted that, although the decision was for the court to make, “King & Spalding offered no expert testimony to rebut Mr. Simon’s expert opinion.”  The court then noted that “a reasonable lawyer like Mr. Simon came to the conclusion that King & Spalding’s multiple representations of [Merial SAS entities] on issues meaningful to the limited number of players in teh animal health and animal vaccine space would materially advance Abic and Phibro’s interests vis-a-vis Merial,” particular because Dr. Jarecki-Black “will play an integral role in Merial’s defense” in the arbitration.

There are several things of note. First, it is unusual for actual injunctions to be sought (rather than disqualification), and usually injunctions are litigated quite differently from motions to disqualify, but K&S appeared to litigated this as a basic disqualification motion.  Second, from the opinion, at least, the injunction was granted based upon what is called “playbook” information — knowing how a client litigates or otherwise behaves, not actual specific confidential information — which is also atypical in some jurisdictions.  Third, and from afar, this was not correctly decided, which underscores the point that whenever a firm is faced with a disqualification motion, it should consider the need for expert testimony (and Professor Simon is a highly credentialed ethicist; I don’t think he knows much about patents or licensing), and the need to show — although it’s the other side’s burden — there is no real risk of misuse of confidential information.

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PTAB Candor Versus Rule 56 Versus Therasense https://patentlyo.com/hricik/2018/03/candor-versus-therasense.html https://patentlyo.com/hricik/2018/03/candor-versus-therasense.html#comments Sun, 25 Mar 2018 17:26:54 +0000 https://patentlyo.com/?p=22810 Over the last year or so, I’ve given a half dozen talks to practitioners about the differences between the duty of candor in PTAB proceedings compared to general prosecution and Therasense.  Each time I do, I can tell the audience is learning that when you’re in IPR, you ain’t in Kansas any more.

The key issue is who is covered by a duty of disclosure.  Under Rule 56, and Therasense, only the knowledge of persons “substantively involved” in prosecution “counts” and must be disclosed.  (The language of Rule 56 says so, and the Federal Circuit has followed that language in a few cases even though technically it does not control inequitable conduct which is a statutorily-based defense under 282(b)(1) of the Patent Act.)

In contrast, in PTAB proceedings there are two rules that relates to candor, and they are extraordinarily (and, I believe, unintentionally) broad.   (Rule 56 does not apply in prosecution; other rules do.). Oddly, neither rule is the same as Rule 56, and each rule also differs from each other — and for no apparent reason.

The general rule of candor in 37 C.F.R. 42.11(a) provides:  “Parties” — stop there and think about what that means — “and individuals involved in the proceeding” — again, stop and recognize that substantive involvement in the proceeding is not required — “have a duty of candor to the Office during the course of a proceeding.”  Yes, the rule says a “party” owes a duty of candor, so ostensibly the knowledge of every person who works for a party “counts.”  How many people work for Google?

Continue reading PTAB Candor Versus Rule 56 Versus Therasense at Patently-O.

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Over the last year or so, I’ve given a half dozen talks to practitioners about the differences between the duty of candor in PTAB proceedings compared to general prosecution and Therasense.  Each time I do, I can tell the audience is learning that when you’re in IPR, you ain’t in Kansas any more.

The key issue is who is covered by a duty of disclosure.  Under Rule 56, and Therasense, only the knowledge of persons “substantively involved” in prosecution “counts” and must be disclosed.  (The language of Rule 56 says so, and the Federal Circuit has followed that language in a few cases even though technically it does not control inequitable conduct which is a statutorily-based defense under 282(b)(1) of the Patent Act.)

In contrast, in PTAB proceedings there are two rules that relates to candor, and they are extraordinarily (and, I believe, unintentionally) broad.   (Rule 56 does not apply in prosecution; other rules do.). Oddly, neither rule is the same as Rule 56, and each rule also differs from each other — and for no apparent reason.

The general rule of candor in 37 C.F.R. 42.11(a) provides:  “Parties” — stop there and think about what that means — “and individuals involved in the proceeding” — again, stop and recognize that substantive involvement in the proceeding is not required — “have a duty of candor to the Office during the course of a proceeding.”  Yes, the rule says a “party” owes a duty of candor, so ostensibly the knowledge of every person who works for a party “counts.”  How many people work for Google?

The other candor rule applicable in PTAB proceedings is triggered when a party files a paper with the Office.  It provides that, unless the information has already been served, a party “must serve relevant information that is inconstant with a position advanced by the party during the proceeding” when filing the paper, and (now for the “who” part) this “requirement extend to inventors, corporate officers, and persons involved in the preparation or filing of the document or things.”

Notice that you cannot read either rule to means something less than what it says without running into basic statutory interpretation problems.  For example, you can’t read it to mean “inventors and corporate officers who are involved in the proceeding” because that renders the words “inventors” and “corporate officers” superfluous.

So, when you’re involved in a PTAB proceeding, be very careful about whose information may “count” for purposes of inequitable conduct during the proceeding.  To be clear:  I think the rule can’t mean what it says, and I’ve advocated that both rules be changed to be identical to Rule 56 (in terms of who is covered, at least), but my belief doesn’t overcome the text of the rules.

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In re Silver – Texas Supreme Court Follows CAFC Lead and Recognizes Limited Patent-Agent Privilege https://patentlyo.com/hricik/2018/02/follows-recognizes-privilege.html https://patentlyo.com/hricik/2018/02/follows-recognizes-privilege.html#comments Mon, 26 Feb 2018 20:57:19 +0000 https://patentlyo.com/?p=22567 I know Dennis posted on the main page, but wanted to post now (after trial is over, thank goodness!) that the Texas Supreme Court finally issued its opinion and held that, so long as the communication relates to practice before the Office, there is a privilege over communications involving patent agents and clients.  The opinion is here.  (I wrote an amicus brief in it.)

I’ve written about Queen’s University, the CAFC case that recognized a privilege over patent agent communications, and the dissent by Judge Reyna who (properly) recognized that if its scope is limited to what agents are authorized to do, patent agents may need lawyers to advise them about the scope of the privilege.

So, the opinion is good news but extreme care still should be exercised over non-supervised patent agent-client communications.

Continue reading In re Silver – Texas Supreme Court Follows CAFC Lead and Recognizes Limited Patent-Agent Privilege at Patently-O.

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I know Dennis posted on the main page, but wanted to post now (after trial is over, thank goodness!) that the Texas Supreme Court finally issued its opinion and held that, so long as the communication relates to practice before the Office, there is a privilege over communications involving patent agents and clients.  The opinion is here.  (I wrote an amicus brief in it.)

I’ve written about Queen’s University, the CAFC case that recognized a privilege over patent agent communications, and the dissent by Judge Reyna who (properly) recognized that if its scope is limited to what agents are authorized to do, patent agents may need lawyers to advise them about the scope of the privilege.

So, the opinion is good news but extreme care still should be exercised over non-supervised patent agent-client communications.

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More analysis of using information of a former client https://patentlyo.com/hricik/2018/02/analysis-information-former.html Tue, 20 Feb 2018 17:36:41 +0000 https://patentlyo.com/?p=22508 As noted below, the ABA recently published an opinion giving guidance to an oft-raised issue in patent practice of what, exactly, is “confidential” information of a former client (e.g., is a published patent application you wrote for a former client nonetheless confidential?).  An interesting follow on to the ABA opinion is available here.

Continue reading More analysis of using information of a former client at Patently-O.

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As noted below, the ABA recently published an opinion giving guidance to an oft-raised issue in patent practice of what, exactly, is “confidential” information of a former client (e.g., is a published patent application you wrote for a former client nonetheless confidential?).  An interesting follow on to the ABA opinion is available here.

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FAA Preempts Challenges to Unethical Arbitration Clauses https://patentlyo.com/hricik/2018/02/challenges-unethical-arbitration.html Wed, 07 Feb 2018 17:29:21 +0000 https://patentlyo.com/?p=22342 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.

Continue reading FAA Preempts Challenges to Unethical Arbitration Clauses at Patently-O.

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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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