Guest Post by Jordan Duenckel. Jordan is a third-year law student at the University of Missouri and a registered patent agent. He has an extensive background in chemistry, food science, and economics.
Law is a noble profession destined to be marred by the activities of attorneys behaving badly. On November 27th, Chief Judge Colm Connolly of Delaware released a blistering opinion reprimanding counsel for inexcusable and willful lapses in professional responsibility, misrepresentations to the USPTO, and potential unauthorized practice of law all associated with the patent assertion entity IP Edge LLC (IP Edge) and its affiliate Mavexar LLC (Mavexar). Disciplinary, administrative, and potential criminal referrals result for the counsels of record for plaintiffs for this conduct. For other practitioners, this is a cautionary tale about third-party litigation and candor to the Court.
Even when clients are viewed as mere “inventory”, they are still owed the renowned “punctilio of an honor the most sensitive.” Huber v. Taylor, 469 F.3d 67, 81 (3d Cir. 2006) (quoting Meinhard v. Salmon, 249 N.Y. 458, 464 (N.Y. 1928) (Cardozo, J.))
Judge Connolly’s 102-page opinion is thorough and supplies extensive examples of attorney (and non-attorney) coercive misbehavior through a pattern of activity spanning three plaintiffs that display shocking disregard for professional responsibility stemming from third party litigation funding. An in-depth look at Mellaconic IP is representative of Nimitz and Lamplight’s comparable situation. Mellaconic IP is a sole member LLC organized under the laws of Texas. That sole member is Hau Bui, a food truck and restaurant operator by day. At the hearing, Mr. Bui told how Linh Deitz, the office manager for Mavexar, formed Mellaconic in August 2020 with the limited assets of seven patents. Mr. Bui’s testimony about his ownership of the patents begins to supply insight:
Q: Okay. How much did you pay for the patents? A: I didn’t pay for the patents. Q: So how do you come to own patents if you don’t pay for them? A: I was- came up–someone pushed me with the opportunity, selling the patents. Q: Who was that? Mellaconic? A:Mellaconic-no, Mavexar. Sorry.
When asked about the actual business of Mellaconic, Bui stated:
Q: Did you have to take on any responsibilities to assume ownership of the patents? A: As far as, just like, viewing the litigations and everything that come through. Q: Oh, so you do review the litigations? A: Yeah. Q: Tell me about what you do in that regard? A: So Mavexar will send me the litigations of what’s going on or the, you know, attorney engagements. And then I, essentially, if l sign-I approve of them or disapprove of them. Q: How do you know whether to approve or disapprove of an attorney? A: I mean, I chose Mavexar and they’re-they’re-what is it? -they’re good. Like, you know, they haven’t done me wrong. Q: Well, so do you get a share, then, of lawsuits or settlements that are brought using these six patents? Is that how you make money, passive income, as you call it? A: Yeah.
Mellaconic “acquired” the patent via a patent assignment from another company, Empire, and subsequently filed an assignment at the PTO and entered a “Consulting Services” agreement with Mavexar on August 11, 2020. At the time Mellaconic filed with the PTO an assignment that stated that Mellaconic’s “right, title, and interest” in the seven assets listed in the assignment “includ[ed] all income, royalties, damages and payments now or hereafter due or payable with respect thereto,”* Mavexar was contractually entitled to 95% of the profits generated from licensing or litigating those assets. Mellaconic subsequently filed 44 different patent infringement cases nationwide asserting a single patent, 9,986,435 (the #435 patent). Maxevar located and contacted attorney Jimmy Chong to be counsel for Mellaconic in these lawsuits and filed the suits as well as voluntary dismissals with cocounsel’s firm Sand and Sebolt.
A slight issue arose when it became clear that Bui was unaware that Chong’s firm was Mellaconic’s counsel, even failing to identify Mr. Chong in person from 20 feet away, with the first direct contact via email on November 30th, weeks after the hearing. Bui replied, “Yes, you can continue to communicate to Mavexar team directly.” At the hearing, it became clear that Mr. Bui did not review any complaints before being filed or even that he was apprised of settlement offers in the litigation. Up to thirteen complaints had been filed and voluntarily dismissed before Mr. Bui even communicated with his counsel of record. Chong and Sebolt’s attorneys would often communicate with Maxevar to confirm settlement offers without asking for Bui’s consent.
Omnipresent in any attorney-client representation are the requirements of the rules of professional responsibility that are codified by the Model Rules. Rule 1.2 (allocation of authority), Rule 1.4 (Communications), Rule 1.7(Loyalty), and Rule 1.8f (Third Party Funding) were all implicated in Connolly’s opinion. Rules 1.2 and 1.4 are important but self-evident in this context. The more pernicious, and less visible, problem is the implications of third-party funding creating a conflict of interests that results in a de facto denial of independent representation. The potential for a conflict of interest is clear when profits (or a substantial portion of them) are assigned to one party and the risk is assigned to another. Third-party litigation in general carries increased risks of conflicts of interest and non-practicing patent assertion entities (PAEs) enhance the risks even more.
The structure that Mavexar created assures that the only risk Mavexar assumes when an attorney files at Mavexar’s direction an infringement case in Mellaconic’s name is the potential that Mellaconic will not follow its contractual obligation to reimburse Mavexar for the fees and costs Mavexar advances to that attorney that exceed any gross recovery. In other words, Mavexar has virtually nothing to lose and everything to gain (i.e., 95% of everything) from asserting the patent in infringement suits. Mellaconic, by contrast, receives a tiny fraction of the litigation gains but it, and potentially Mr. Bui, personally have lots to lose if the litigation results in an adverse decision, sanctions, or fees and costs that exceed the gross recovery. PAEs, like Mavexar, represent rent-seeking behavior (extraction of wealth without any reciprocal contribution of productivity), and the related Tullock Paradox, at work: increased marginal utility at a fraction of the marginal cost.
Considering these vastly different profit and risk profiles, Mavexar’s and Mellaconic’s interests were significantly different when it came to deciding to file or to settle the lawsuits Mr. Chong and co-counsel brought in Mellaconic’s name. Repeatedly, Chong and others insisted that they do not represent Mavexar as counsel but rather that Mavexar acts as a consultant to Mellaconic. However, Mavexar is the guiding force behind the entirety of the assertion of patent infringement claims despite explicitly requesting to keep their name out of any of the litigation that was filed despite being the real party in interest. Mavexar was actively involved in the creation of shell companies, finding “targets” to assert patents against, hiring attorneys to represent Mellaconic, and actively managing settlement discussions.**
Much ink can and has been spilled discussing the economic and societal merits of third-party litigation funding. Regardless of the future direction, a bedrock legal principle must remain: truly independent representation of all parties is core to informed decisions and fair dealing. Mr. Bui, and many others like him nationwide, are deprived of that fundamental principle when conflicts of interest are disguised and perpetrated by PAEs at the expense of clients. This is beyond an academic review of best practices: real clients suffered real economic and emotional distress as a result of these attorney’s disregard. The de facto client was Mavexar and the actual client, Mellaconic, was simply “inventory,” left without some of the most basic tenants of legal representation.
*This assignment either does not disclose or actively hides the real party in interest because it falsely states who is entitled to the income from the patents. This false statement forms the basis for the criminal referral under 18 U.S.C. 1001. There is also some uncertainty around whether federal law was broken concerning failing to disclose a French sovereign investment fund that was the original assignor of at least one of the patents.
**While Mavexar vigorously denies being a law firm, the work they were doing in the litigation is legal in nature and forms the basis of the unauthorized practice of law referral.
Re: “Law is a noble profession destined to be marred by the activities of attorneys behaving badly.”
Fortunately, at least before the great increase in the number of patent suits filed by PAEs and litigation financiers, that is not as common in patent law as in some other fields. Since the subject seems to be of interest to the author, he should find very interesting various civil and criminal litigations, confessions and disbarment efforts variously involving attorneys such as Sidney Powell, Rudi Giuliani, John Eastman, Lin Wood, Jenna Ellis, Kenneth Chesebro, Mark Meadows, and Jeffery Clark?
P.S. Although comparable concerns are sometimes expressed about IPR petitioners being “straw men” for some real party in interest trying to escape estoppels or other consequences, there have been relatively few caught at it.
The inability to appeal to the Fed. Cir. without standing is also a deterrent.
“ there have been relatively few caught at it.”
Do not confuse prosecuted and caught at it.
The caught at it is plain as day, as it is self-evident in the business model of the likes of Unified Patents and the like.
“ at least before the great increase in the number of patent suits filed by PAEs”
Oh, how soon you forget that the AIA purposefully inflated in the count of such suits, eh Paul?
Just more pr0paganda.
What happens when your right to sue is taken over by an identity thief? And what about being threatened by a Judge to not continue your fight for due process. And 11 years later another Judge tells me to get lost saying I already sued? What Statute is that?
What happens when your right to sue is taken over by an identity thief? A devil gets its horns.
And what about being threatened by a Judge to not continue your fight for due process. And 11 years later another Judge tells me to get lost saying I already sued? A coupon for a free large drink when you purchase a large popcorn.
What Statute is that? 1 B.D sec. 1(i)
The PAE business model is a hotbed of corruption and that’s been true forever.
Please understand that:
a) a patent is a negative right (and not an affirmative right to MAKE something);
b) the basket of sticks of the property right that is a patent has always been meant to be fully alienable; and
c) your cognitive dissonance – that the item of personal property being turned to “make money” drives your angst of everything-patent-related to be “grift” and “corruption.”
It just is not so.
Get help.
Your comment is exactly the sort of off-the-wall non-sequitur that one would expect from a person trying to avoid addressing an unfortunate fact.
Once again: the PAE business model is a hotbed of corruption. It’s always been true, everyone knows it’s true, and normal people long ago grew tired of mindless sycophants like you trying to pretend otherwise. Just wallow in the filth and keep your trap shut. You’ll come off better.
Once again, your statement is false.
Or don’t you remember (given that it has been more than a decade) that when the propaganda of “0h Noes Tr011s” first came out, the 271 Blog actually verified that the patents bought by assertion entities were better vetted than most all other patents in transactions?
Inconvenient facts – like the facts of my observations about YOUR bias — are simply NOT “non-sequiturs.” There is NO “trying to avoid” anything from me. Are there bad actors? Certainly – as there are in MOST ALL areas of life. You can look in the mirror and find one of the worst. Start there for your crus@de against c0rruption.
Please understand:
a) A patent is not a negative right to exclude. A patent is a positive right to sue, which may (or may not) result in some form of exclusion.
b) Regardless of what you think was always intended, actual patent rights are defined by statute and needn’t include full alienability.
c) Self-awareness is not your strong suit.
a) A patent is not a negative right to exclude.
So much for Article I, Section 8, Clause 8 of the United States Constitution. Regardless, the “negative right” was discussed in contrast to a positive right to make something. While an injunction may not necessarily be granted with regard to a patent, all patents have that possibility.
b) Regardless of what you think was always intended, actual patent rights are defined by statute and needn’t include full alienability.
The statute does define those rights. See 35 USC 261.
As an aside, the fact pattern described in this case is very unusual. As such, I’m not taking a lot from this.
Article I, Section 8, Clause 8 authorizes Congress to create an exclusionary right, but it did not create patents. The actual patent right was created by 35 USC 281, which is the right to sue.
What happens when your right to sue is taken over by an identity thief? And what about being threatened by a Judge to not continue your fight for due process. And 11 years later another Judge tells me to get lost saying I already sued? What Statute us that?
“Article I, Section 8, Clause 8 authorizes Congress to create an exclusionary right, but it did not create patents. The actual patent right was created by 35 USC 281, which is [only] the right to sue” [infringers of the patent claims].
Nicely neatly put!
And we can all agree that a patent right is not a positive right to make, use, sell or import what is patented [as I once had to explain to to an economist writing for the FTC years ago].
Well, as NS II has recently revealed that he is only a litigator (and likely has zero understanding of innovation and laws INTENDED to protect such), he might be excused for his blatant error – but Paul, you ONCE had a registration number, and you should know better than to jump on his false position.
Even as the saying goes, “a right without a remedy is no right at all,” one — especially an attorney — should NOT confuse the path of remedy with the (extent of) the right itself.
To propose that 35 USC 281 defines the right is simple (and gr0ss) error.
You may enjoy plodding out such noxious propaganda, but you should be well aware that such blatant errors only harm your credibility (as it were).
Your arrogant ignorance is always astounding. To confidently know so little is truly a remarkable feat, but your condition sadly prevents you from recognizing it.
That Malcolm tactic of
A
O
O
T
W
M
D
does not work for him. Why would you think it will work for you?
Clearly, you were wrong on a legal point. That you want to proclaim my “1gn0rnace” – and do so with your own (supremely unjustified) tone of arr0gance is downright comical.
The section of law for remedy simply does not define the extent of the right.
This is basic stuff.
Come back when you have a c1ue.
This is basic stuff, which is what makes your condition so very sad.
Put
the
shovel
down.
You are clearly wrong as what the patent right means.
We all agree NS is a Malcolm bootloader, a Sequaclous lout.
*Bootlicker
+1
He does not always choose to jump into comment threads, but when he does, he always chooses the wr0ng side.
(picture the Dos Equis meme)
If companies would deal honestly with independent inventors there would be no need for PAEs.
One of the reasons companies refuse to deal honestly with independent inventors is the AIA (and IPRs).
Repeal the AIA and/or shut down the Patent Office and go to a patent registration system handled by the Copyright Office.
As to your fist comment, NOIP, indeed, PAEs are the direct result of the war-chest mentality of the early Efficient Infringers (and it is well-documented that even the term ‘Patent Tr011s’ was expressly created as a pr0paganda mouthing of the Efficient Infringers for the benefit of the Efficient Infringers.
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