Sanctions against the Attorney

Lippert Components Mfg., Inc. v. Ryan Matthew Fountain v. MORryde Int’l. (Fed. Cir. 2020)

In this case, Lippert sued MORryde for patent infringement and the defendant hired Ryan Fountain as litigation counsel.  As part of its defense, the MORryde argued that the PTO had failed to properly conduct its examination and that, therefore, the presumption of validity should not apply.  The pleading alleges:

35 U.S.C. §282 is inherently and necessarily dependent upon the USPTO complying with 35 U.S.C. §131. If, instead, the USPTO issued a patent without the required examination for compliance with the patent laws, then enforcement 35 U.S.C. §282’s presumption of validity would be a violation of the accused infringer’s rights under the United States Constitution. For example, as a matter of procedural due process, a defendant in patent litigation is entitled to an impartial tribunal. However, if the burden of proof has shifted and been elevated merely because the plaintiff paid a filing fee to the USPTO, then the litigation is not impartial. Similarly, a competitor is entitled to equal protection under the laws, and its property rights and rights to compete in the market shall not be abridged with respect to another party who merely paid a fee to the USPTO.

The district court quickly dismissed that defense finding it “squarely foreclosed by recent Supreme Court precedent. See Microsoft Corp. v. i4i Ltd. P’ship, 131 S. Ct. 2238, 2241 (2011). MORryde then amended its complaint to add a counterclaim to the same effect.  Having none of that, the district court granted sanctions against attorney Fountain (but not MORryde) with an accounting of $16,000.  Fountain immediately appealed the sanction to the Federal Circuit, but that appeal was dismissed for lack of final judgment in the case.  By that time, Fountain had withdrawn from representing MORryde (on request of the client). Meanwhile as the case moved forward Fountain filed additional papers in the court including documents allegedly protected by attorney-client privilege in order to protect himself from potential further sanctions (even though his former client was not seeking sanctions). That filing was stricken from the record by the district court judge.

Fountain filed this appeal once the parties finally settled the case in 2019. On appeal, the Federal Circuit affirmed in a 2-paragraph per curiam decision — finding no abuse of discretion in the sanction award. In addition, the appellate panel held that Fountain did not have any right to appeal the district court’s striking of his filing from the record — since that striking did not constitute a sanction. [Fed. Cir. Decision].  The appeal was interesting because it was Fountain against both parties in the lawsuit–the plaintiff who sued his former client and his former client.

Undeterred by the Federal Circuit rejection, Fountain then petitioned for rehearing, which has now been denied. In the petition he raised two points of contention:

  1. Mr. Fountain was sanctioned by the District Court because the argument he presented was considered to be “squarely foreclosed by recent Supreme Court precedent,” However, after Mr. Fountain’s defense of that argument to the District Court, two other district courts based their decisions on that same argument. Thus, a lack of uniformity in the patent law has been created. This Court has a special obligation to clarify its decision in this case so as to remove that lack of uniformity.
  2. “Per Curiam” decisions are typically reserved for uncontroversial cases. The present case is highly controversial, both in substantive issues of law, and in its procedural application. Additional clarification in the opinion is needed.

On the first point, Fountain points to two cases that each “support limitation of the presumption of validity and the clear and convincing standard of proof to disputed factual issues, and not issues of how the law is applied to the facts.”

  1. Technology Development and Licensing, LLC v. Comcast Corp., 258 F. Supp. 3d 884, 887-888 (N.D. Ill. 2017)
  2. Communique Laboratory, Inc. v. Citrix Systems, Inc., 151 F. Supp. 3d 778, 787 (N.D. Ohio 2015).

The problem with Fountain’s argument here is that these cases go to the issue of when questions of law require clear and convincing evidence.  The sanctioned pleadings did not attempt to make any kind of law/fact distinction but instead argued the constitutional question.

[Update – Mr. Fountain has provided some additional commentary in the comments section.]

24 thoughts on “Sanctions against the Attorney

  1. 4

    This is an obviously losing argument—that the presumption of validity should not attach because the PTO had not done a competent job. I cannot imagine how the attorney here did not expect sanctions for wasting the court’s time with a frivolous argument.

    1. 4.1

      As far as I can tell, the sanction was essentially for disobeying orders and rules. The district court granted a motion to strike an affirmative defense, and the order and/or a rule required leave before amending. Instead of seeking leave, lawyer filed an amended pleading that reasserted the same defense as a counterclaim (with modifications).

      But yes, the argument’s obviously wrong… unless of course it’s true that literally no examination at all occurred for this particular patent, and the patentee literally “merely paid a fee to the USPTO” and nothing more. But that seems unlikely and if it’s not what happened then this does look a lot more like the argument i4i rejected

      1. 4.1.1

        A few items to note:
        1. As was pointed out to the district court after the pleadings were filed, the Patent Examiner allowed the case, and the issue fee was then paid, and THEN (after prosecution on the merits was closed) the Patent Examiner conducted the examination of the prior art, according to the file history record. Thus, there was, effectively, “nothing more” between filing and allowance. It is not a question then of the USPTO doing a “competent job,” instead is a question of the USPTO doing any job, at least before the issue fee was paid.
        2. The Magistrate Judge gave permission for amending the pleading without leave of the Court, as long as the amendment was made by a certain date (which it was). The Trial Judge never expressly revoked that order. Thus, it was argued that no order was violated or rule was broken.
        3. Although the client stated in the record that it was not seeking sanctions against Mr. Fountain, it asked the Court to shift the sanctions imposed upon it to Mr. Fountain, which the Magistrate Judge refused to do. Accordingly, the article’s statement that “his former client was not seeking sanctions” should be viewed in context.
        4. The Constitutional argument was an alternative remedy sought in the pleadings, along with an argument that the presumption of validity was overcome, in a traditional sense, by the facts in this case.
        5. Failing to conduct an patentability investigation is not an exercise of discretion (or question of fact). Instead, it is an error of law, as a question of law.
        6. The issue here was pleadings, not a motion for judgment. The standard should be whether a party is allowed to present its argument/defense in that regard, not whether they win. Thus, how much more detail should be in the pleadings? Obviously, more in the Northern District of Indiana, since I lost. However, with respect to sanctions, the issue should have been was the pleading “objectively unreasonable.”

        Obviously, this was a fairly complex set of facts. If you have any interest in understanding what happened, I urge you to take the time to at least read the appeal briefs of the fourth appeal. Further, the documents stricken by the district court are, for the most part, in the publically available appendix of the second appeal.

        1. 4.1.1.2

          Thanks from me as well. Before posting, I’d listened to the oral argument recording and read the district court’s s1927 sanctions order.

          1. 4.1.1.2.1

            By the way, for the oral argument, we were operating in the COVID-19 restrictions, all remote telephonic participation without any way to see the Judges expressions, etc. As it turned out, my connection to the hearing was lost during part of the Appellees’ argument, although I was able to dial back in in time for my Reply. I doubt that mattered much in the outcome, but I mention it as a warning to anyone else doing telephonic oral argument at the CAFC. The system is not perfect, so try to have a back-up in place if you can.

        2. 4.1.1.3

          “As was pointed out to the district court after the pleadings were filed, the Patent Examiner allowed the case, and the issue fee was then paid, and THEN (after prosecution on the merits was closed) the Patent Examiner conducted the examination of the prior art, according to the file history record”

          That (obviously) sounds really unusual! Which case are you referring to? The two patents in suit (7,918,478 and 7,296,821) appear to have pretty normal file histories. USPN 7,296,821 was a first action allowance, which is rare but not that unusual, and there are two search histories for the examiner in the file history prior to the notice of allowance. Am I looking at the wrong cases or missing something?

        3. 4.1.1.4

          Thanks Ryan. Your comments confirm how I felt after reading Dennis’ article and the comments posted up until yours:

          The courts got it wrong and the sanction was unjust.

          You were entitled to make the arguments you did, to file the various docs which you filed, and to conduct the case as you did.

        4. 4.1.1.5

          Ryan, I do not understand. You say:

          > the Patent Examiner allowed the case, and the issue fee was then
          > paid, and THEN (after prosecution on the merits was closed) the
          > Patent Examiner conducted the examination of the prior art,
          > according to the file history record. Thus, there was, effectively,
          > “nothing more” between filing and allowance. It is not a question
          > then of the USPTO doing a “competent job,” instead is a question of
          > the USPTO doing any job, at least before the issue fee was paid

          These statements seem directly refuted by the prosecution history.

          The file history for the first patent in that case (7,918,478) reveals an application filing in August 2006, and four Office Actions in 12/2008, 08/2009, 02/2010, and 06/2010, each containing prior art rejections under 102 and/or 103. The claims were allowed in 11/2010 (five months after the fourth Office Action), and the issue fee was paid four months after that in 2011.

          So contrary to your assertions, the allowance and issue fee occurred after a fairly robust four-year prosecution with four separate Office Actions including prior art rejections.

          The prosecution of the second patent (7,296,821) was considerably simpler but also doesn’t fit your description. It was a first office action allowance about two years after the application filing, but the Examiner filed a search strategy before allowance and there’s no evidence that she didn’t conduct a pre-allowance prior art analysis (which she said she did in the notice of allowability).

          There is no evidence in the file history record, for either patent, that the Examiner conducted any examination of the prior art the issue fee payment occurred. Am I missing something here?

          1. 4.1.1.5.1

            Lode_Runner,

            I had the same question. The only thing I could come up with is that the examiner did sign and date information disclosure statements filed by the applicant as considered on a date (10/05/2007) after the issue fee was paid.

            However, as you noted, the file history includes two prior art searches conducted prior to the notice of allowance, which make clear that “the Patent Examiner conducted [an] examination of the prior art” before allowing the case. Considering the IDSes after payment of the issue fee is certainly not ideal, but it doesn’t mean that the Office did not do any prior art examination (and may well just be last minute housekeeping). The examiner made clear that the references were considered, and the application could have been pulled back from issuance if he felt it was necessary.

            1. 4.1.1.5.1.1

              If so, the IDSs should not have been signed.

              For what it is worth, this is an item we routinely review before any payment of issue fees.

              One “quick” way to verify whether or not the signed IDSs are legitimate is to see if the ‘dragnet searches’ that were conducted capture the items on the IDSs.

              If not, then there is a legitimate issue here.

              Maybe.

              Let’s not forget that items on an IDS are not necessarily indicative of material actually pertinent (and may pertain to material that only MAY be pertinent). See 37 CFR 1.97(h).

            2. 4.1.1.5.1.2

              Also the Examiner’s Search Strategy (SRNT) on 8/24/2007 that the examiner entered the patent numbers from the IDS in EAST on 8/22/2007, 9:21am, entry S7.

              Based on that Examiner’s employee number, it’s likely he was a new examiner and just forgot to sign and include the IDS in the office action.

          2. 4.1.1.5.2

            LR,

            These are the types of direct (and factual) observations that really highlight the limitations of this type of forum.

            We are guaranteed silence in return to the counterpoints precisely because the counterpoints are dispositive.

            I often run into this very same situation — and on issues that continue to reverberate in the patent sphere (rather than ‘one-offs’ like this particular issue).

            The take-away? Don’t let the lack of ‘the other side’ fulfilling the direct point at hand in the dialogue stop you from continuing to apply critical thinking.

        5. 4.1.1.6

          How is there a Constitutional argument here, even as an alternative? A statute, 35 USC 131, not the Constitution, requires examination of patent applications, and that statute does not specify how examination is to be conducted, or even if a prior art search is required – that is left to regulations.

    2. 4.2

      Perhaps a sanction was not anticipated because “wasting the court’s time with a frivolous argument” is common enough in U.S. litigation. Even from some major law firms that are still on a straight total billing time client payment system.

  2. 3

    Off Topic:

    6, are you aware of the Office considering the suppressive effects of the new PAP? You mentioned in another thread about how the new pap is a bit more open to SPE games at least under the quality element. I am curious if the office has considered how making “Outstanding” for Docket Management and Quality harder to obtain
    may result in fewer examiners bothering to achieve “Outstanding” in production. If 20% of examiners went from “O” to barely “FS”, total production would drop 3%.

    1. 3.1

      Funny, I hadn’t thought of this until earlier this week when a long-time examiner friend of mine told me that she will do exactly this – go from 110+ to barely 95. So, yeah, there’s at least one more anecdote for you, for what that’s worth.

      1. 3.1.1

        I’m not sure this makes much sense. Bonuses are tied to production and docket management. Doing 95% instead of 110% production because of the new PAP is an unnecessary self-inflicted wound.

        To the other point, the new Quality element might be used by some SPEs to knock an examiner down, but I think the new Professionalism and Stakeholder Interaction element is going to be the sword SPEs use most to lower an examiner’s rating. A lot of the elements are common sense things examiners struggle with, like out of office settings and returning messages, but the biggie is examiners are now going to be rated for consistently submitting work commensurate with claimed hours. (I think this is a good thing, btw.) The new PAP now allows end loading to lower an examiner’s rating.

        Overall, I think if you currently do your job as an examiner professionally and adequately, you’ll be fine under the new PAP. Some examiners, however, are likely going to start getting the ratings they deserve.

        1. 3.1.1.1

          Is there a place at which the details of the new PAP can be read in their entirety?

          1. 3.1.1.1.1

            I suppose that sharing the actual substance may make it more difficult for your typical examiner posting here to whi ne….

  3. 2

    I am surprised to see a Ryan M Fountain on the roles of USPTO practitioners with registration number 30751.

    1. 2.1

      Googles as a “Lawyer in Mishawaka, Indiana.” apparently as an IPL sole practitioner. So a $16,000. sanction here may be significant.
      As noted on previous blogs, sanctions just against the attorneys, not against the clients or jointly, are not that common in patent cases, and also this is apparently for only One Part of a suit defense?

  4. 1

    Is this an attempted muddling of the issues of the burden of proof for invalidity being on the party asserting it [irrespective of, albeit supported by, the statutory presumption of validity] with the judicially created “clear and convincing evidence” requirement for invalidity evidence in patent litigation?

    1. 1.1

      Note that the “clear and convincing evidence” requirement arose from a witness credibility issue in the old Sup. Ct. “Barbed Wire” cases, not as a presumption or burden of proof issue.

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