Who is the Client?: Advising Inventors, their Spouses, and their Start-Up Companies

James Joyce v. Armstrong Teasdale (8th  Cir. 2011)

Joyce invented a heuristic computer firewall system and exclusively licensed the patent rights (“royalty free”) to his newly formed company, TechGuard.  TechGuard was primarily owned by Joyce and his wife Suzanne Magee. Actually, Magee held more shares than anyone else — an arrangement designed to allow the company to qualify for grants and contracts designated for women and minority owned businesses. 

Teasdale represented both Joyce and the new company and drafted the license agreement. According to Joyce's malpractice complaint, Teasdale advised Joyce to sign the agreement and also that it was “not necessary for him to have separate legal counsel” and that Joyce's rights were fully protected because he and his wife were the majority shareholders in the new company.

Joyce & Magee then divorced. In the divorce decree, Magee was awarded 50% of ownership rights of the patent and has seemingly taken full control of TechGuard.  Magee is the CEO of TechGuard (now a multi-million dollar company) and Joyce is not even listed in the company history.

Malpractice Allegations: Now, Joyce has sued Teasdale for malpractice — alleging that the firm breached a fiduciary duty by acting in conflict with Joyce's interests in representing TechGuard.

Statute of Limitations: The present appeal focuses on the five-year Missouri statute of limitations.  The district court had dismissed the case on the pleadings after finding that the alleged malpractice and potential damages would have been ascertainable in 2001 when the agreements were signed and that the complaint was not filed until 2008. On appeal, the 8th Circuit reversed — holding that in Missouri, the statute of limitations does not begin to run until a "reasonably prudent person is on notice of a potentially actionable injury,” quoting Powel v. Chaminade Coll. Preparatory, Inc., 197 S.W.3d 576, 582 (Mo. 2006), and that “Missouri does not impose upon a layperson the duty to double-check the attorney's work or to understand that an attorney's conduct caused harm unless a source external to the attorney-client relationship reasonably puts the layperson on notice the attorney has caused harm.” 

In the complaint, Joyce alleged that the firm had advised him against obtaining separate counsel. Based at least partially on that allegation, the appellate court held that the signed agreements by themselves do not serve as “notice of a potentially actionable injury under the circumstances pleaded in Joyce's complaint.” 

On remand, the firm may still win the statute of limitations argument, but it must first provide evidence that “a reasonably prudent person in Joyce's position would not only know the effect of the agreements, but would also know the effect of the agreements would give rise to a potentially actionable injury.”)

32 thoughts on “Who is the Client?: Advising Inventors, their Spouses, and their Start-Up Companies

  1. 32

    Intriguing invention. Thanks for explaining the Heuristic Computer Firewall System and how it’s an important part of protecting intellectual property from hackers.

  2. 30

    Like I told someone before, If they asked me to build a space ship.. It would be MY Spaceship. Unless of course I signed an Agreement saying my Pea Brain was there’s.
    And furthermore when another adds Drawings and one is yours, and then the other is one they came up with, and you said no to any thing and everything they had to offer legally I might add.. Then what would be the importance of one that’s yours and one that you said no to. And to tell you the truth I have no idea if they were entered. And if they were they were not what I allowed hold on let me correct that Mine was not allowed by them. and the other I said no too lolol..LOLOL, But then again, it seems that everything they did to me was for themselves. And from the beginning had absolutely nothing to do with me.. just my PEA BRAIN! A Brain I might add they continually claim is worthless. If it is so worthless, then answer this. How can one person be attacked from every angle for 15+ years by thousands of people trying to crush them, and with the grace of God, and surely some Angels. If it wasn’t for a few key elements such as Wikapedia, a particular Postmaster,an ethical BAR person, a maxed out Credit Card and a few other very lucky Gems like a Fax machine that had lines of damage very unlike another that had no characteristics of the first Fax machine. And a Telephone Company that I suggest needs a voice Trademark.. ONE RINGEE DINGEE.

  3. 29

    Color me Curious, I’ll bet that there is at least one Fed. Cir. or 9th Circus case on point, given that the issue is bound to have come up before. I cited anecdotal evidence of actual practice, not law. The practice suggests that an invention is not subject to state community property laws, but that a filed patent application might be.

    Just for your information, no one in their right mind would pay good money for a transfer of real property in California without a spouse’s signature. I presume the same is true of an inventor’s patent or patent application.

  4. 28

    We both should be precise here, less we find ourselves in the weeds.

    Executing the oath (115, 117) has less to do with transfer than with the aforementioned 116, 118. Of course, it (almost) goes without saying that the oath must be administered correctly – but that is not an issue here.

    Further, your last question ends with “…or patent applications to spouses by operation of law?” and should read “…or patent applications to spouses by operation of State law?“, which will highlight the difference in my question as to which body of law should govern – State or Federal.

    Lastly, I want to point out that in your very post, the conflict is evident: You say that the law has long recognized the inventor’s right (read that as voluntary) to assign his invention to a third party even before his patent application is filed – but this sharply contrasts with your next paragraph about an involuntary assignment to spouse by operation of State law (which, keep in mind – is not an assignment that is actually made of record with the USPTO).

    I too am not so sure – but I think on the plain facts here, I am more inclined to hew my view than to yours.

  5. 27

    Maybe. The patent application must filed in the name of the right inventors, who must excute the oath requred by Section 115 or 117. However, the law has long recognized the inventor’s right to assign his invention to a third party even before his patent application is filed.

    Does the requirement that patent right vest originally in inventor foreclose involuntary assignments of inventions or patent applications to spouses by operation of law?

    I am not so sure.

  6. 25

    I was attempting to get to this point upthread.

    One item of difference, though – “invention” is not necessarily a Federal item, whereas “patent application” most assuredly is.

    While there may be a difference, I would posit that “patent application” being dependent on invention in the first place should be afforded more – not less – Federal protection from the various State schemes of community property allocations, since only Federal Law dictates who the true owner of a (originally filed) patent is (based of course on the claims). Having the wrong inventors can void your patent (outside of the corrective measures to list the true inventor(s)) – and while a spouse may provide support, in most cases they will not be co-inventors and thus not deserving of a 50% share – by law.

    Also, 35 USC Sections 116 and 118 seem to be more pertinent – although “who otherwise shows sufficient proprietary interest in the matter justifying such action” is a bit vague to me.

  7. 24

    I think the issue of who owns an invention should be discussed here as well.

    If the inventor assigns the invention before filing to someone else, who owns the patent application if the wife in a community property state claims 50% ownership of the patent application?

    I would argue that under US law, only the inventor owns the invention and community property laws are preempted.

    Also, see 35 USC Sections 115 and 117.

    I practice in California, a community property state. I have never seen an inventor assignment that included the signature of a spouse. I have seen such, though, in assignments of patent applications.

    There is a difference.

  8. 23

    Sure we are allowed to discuss background issues.

    But that is not exactly what you did, now is it?

    When I asked you about the relevant issue, instead of answering as you did (and thus showing that you missed the point), all you had to do was say that you were addressing a side point, not germane to the main issue here.

    But instead, you found that you had to satisfy your urge to redefine just what the “relevant’ issue was and go off on your frolic.

    If you are going to apologize, at least be accurate about what you are apologizing for.

  9. 22

    Actually, A Stute, I was responding to a point that Terry raised, before you jumped in, about whether there was an argument that a duty was breached in 2001, and whether the attorney could be “faulted” (Terry’s words) for his actions then. I’m quite aware that the outcome of this case turned on statute of limitation issues. If it’s true that we’re not allowed to discuss the background issues here, then my sincerest apologies.

  10. 21

    Actually Lionel, while you and I may both agree that Joyce should have the right to sue, you and I can also agree that that right was actually the point being debated (so, no, there is no “we all” here) – and it is precisely this lack of “we all” that is on point.

    So while Cy Nical keeps on pointing out that the law firm should have been aware of the red flag – the point that the law firm was/should have been aware is immaterial to the actual (missed) point.

  11. 20

    I believe Cy gets what you mean and he is pointing out the alw firm should have been aware. Joyce’s notice only matters insofar as his right to sue, whcih I believe we all agree he should have.

  12. 19

    You continue to miss the point:

    holding that in Missouri, the statute of limitations does not begin to run until a “reasonably prudent person is on notice of a potentially actionable injury

    Whether or not the attorney notices the red flag is not crucial to the timing as addressed in the particular law at hand.

  13. 18

    …but are you missing the point here that what is apparent to an attorney is not the relevant issue either?

    I’m pretty sure that Mr. Teasdale’s alleged failure to recognize what should be apparent to a competent attorney is relevant to a malpractice claim.

  14. 17

    In thinking about this 50% “split”…

    The patent itself is made up of claims, and even though considered a “community item” owned by both parties, is not true (initial) ownership ressting in the claim-by-claim inventorship? Is there a chain of title issue where, as here, a State proclaims property ownership on a matter of Federal Law? Can a State so proclaim and override the Federal status absent a signed, written agreement?

  15. 16

    Actually, it is as the firm should have recognized this and advised their clients appropriately. There should be a letter on file signed by Joyce and a separate representative of the company acknowedging that both are aware of the conflict of interest and are comfortable proceeding with the same counsel.

    Wouldn’t Joyce either own shares in the company still or have been bought out during the divorce? I suppose to would still suck to not to have control of my patent.

    Also, isn’t a 50% split of assets, a 50% split of assets on the whole? I suppose if the court found evaluation of the patent difficult, it could conclude joint ownership was the fairest solution.

  16. 15

    How do you figure that one?

    If a substantial new question of patentability, especially one based on unconsidered prior art, is raised, how could that possibly negatively affect Armstrong Teasdale?

  17. 14

    That’s an immediate conflict that should raise a red flag

    Sure an immediate conflict – to an attorney – but are you missing the point here that what is apparent to an attorney is not the relevant issue either?

  18. 12

    The argument that — the firm breached a 2001 patent licensing fiduciary post marriage duty by acting in conflict with Joyce’s yet to be realized 2008 personal family law equitable distribution interests — seem hard to take.

    I think you’re missing the point. In 2001 the marriage was not the relevant issue – the issue was that the attorney was representing both the inventor, as the owner and licensor, AND the exclusive licensee, which was a completely distinct entity. That’s an immediate conflict that should raise a red flag, whether there’s a marriage involved or not.

  19. 11

    The argument that — the firm breached a 2001 patent licensing fiduciary post marriage duty by acting in conflict with Joyce’s yet to be realized 2008 personal family law equitable distribution interests — seem hard to take.

    If the client was soon to be divorced James Joyce, then maybe there would have been a problem. But if the client was inventor Joyce and his newly formed company – the one where Joyce himself set up to be advantaged through majority ownership by his minority wife, you can hardly fault the patent licensing attorney for pursuing the 2001 advantageous allocation of patent rights, even though those patent rights turn disadvantageous seven years later due to a significant change in circumstances (the divorce).

    I doubt there is a writing where the licensing attorney wrote “Don’t seek another attorney opinion!”

  20. 10

    Hmmm, this suggestion made me smile…

    So how about an anonymous contribution to “PUBPAT Represents the Public’s Interests Against Undeserved Patents and Unsound Patent Policy” with a strong suggestion of a specific undeserved patent and unsound patent policy? Perhaps bundled with a stack of 20 prior art references not previously considered and a ‘draft’ re-exam document ready to be signed and submitted.

  21. 9

    I guess if we are going to call this “intellectual property” – then it is property. It is property when businesses jigger their tax returns (aka — oops paid too much when we bought out X, overestimated the value of their ‘intangible assets’)

    But — OUCH!

    Of course – try to collect your half of an idea or appl not generating money. Does that mean they get 50% of the costs going forward too?

  22. 8

    I believe that Armstrong Teasdale also prosecuted the patent. So I think that would be digging an even bigger hole.

  23. 6

    Reminds me of a book called “A Portrait of the Artist as a Young Man.”

  24. 5

    The issue of “Who is the client?” also comes up in non-marital partnerships. It’s always a good idea to make sure it’s crystal clear to all parties who is representing whom (or what).

  25. 4

    This is more of an amusing ironic thought than a serious question: what if the defendant could get someone to file a reexamination to demonstrate that the patent is worthless, so that there is no basis for malpractice damages from the patent’s licensing agreement?

  26. 3

    Okay, here’s one to shake everyone up: in some states, intangible ideas are community property. In many states, patent applications are community property. Anyone see some issues?

  27. 2

    Virginia has the most onerous lawyer malpractice rules of any place.

    Essentially, the malpractice SoL begins to accrue the moment the attorney is conceived, apparently on the theory that the injury should have been foreseeable from that point in time. So, with the 5 year SoL, from the time the attorneys start kindergarten, they are bullet-proof.

    File early; file often.

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