11th Annual Patent Law Institute - Practising Law...

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11th Annual Patent Law Institute

INTELLECTUAL PROPERTYCourse Handbook Series

Number G-1316

Co-ChairsScott M. Alter

Douglas R. NemecJohn M. White


42

Ethics and Malpractice in Patent Prosecution and Litigation

Prof. David Hricik

Mercer University School of Law

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Reprinted with permission.

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Patent Ethics: Litigation

2016–2017 Edition

David Hricik

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David Hricik, Patent Ethics: Litigation (2016–2017 Edition) § 2.01 (Matthew Bender)This publication is designed to provide authoritative information in regard to the subject matter covered.It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or otherprofessional services. If legal advice or other expert assistance is required, the services of a competentprofessional should be sought.

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(2016–Pub.4630)

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Ethics and Malpractice in Patent Prosecution and Litigation

By David Hricik Professor, Mercer University School of Law

Of Counsel, Taylor English Duma, LLP

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TABLE OF CONTENTS § 1.01 Choice of Law ................................................................................................................ 3

a. Choice of Law for Discipline and Legal Ethics .................................................................. 3 b. Choice of Law for Privilege ................................................................................................ 5

§ 1.02 Scope of Authorized Practice of Patent Agents. ............................................................ 6 § 1.03 The Basics of the Privilege ............................................................................................. 9 §1.04 Patent Agents: ..................................................................................................................... 10

a. The USPTO Position and Case Law Before the 2-1 Panel Decision in Queen’s University on the Existence of a Patent Agent-Client Privilege ............................................. 10 b. The Split Panel in Queen’s University. ............................................................................. 10 c. Texas Rejects Queen’s University. ................................................................................... 14 d. Other Case Law After Queen’s University. ...................................................................... 15

§ 1.05 In-House Privilege ............................................................................................................. 15 § 1.06 When Must a Patent Attorney Supervise a Patent Agent or In-House Counsel? ........ 16

a. If Patent Agent is Acting Within the Scope of Authority to Practice Patent Law, Supervision is Needed Only to Support a Privilege Only if Queen’s University Does not Control; if a Patent Agent is Acting Outside Scope of Authority to Practice Patent Law, a Patent Attorney Must Supervise Both to Avoid the Unauthorized Practice of Law, and Perhaps to Fulfill the Obligation to Supervise Non-Practitioners, and to Provide a Basis for Attorney-Client Privilege to Subsist. ........................................................................................................ 18 c. What Does “Supervision” Mean in the Privilege Context? .............................................. 21 d. What About Communications from Patent Agent to Lawyer, But not Client, or After Issuance and Not Related to Maintenance Fees or Post-Grant Proceedings? ........................ 22

§ 1.07 Conclusion. ................................................................................................................... 22 § 2.0 Inter Partes Review, Including Concurrent Litigation ........................................................ 23 § 2.01 Choice of Law and General Ethical Issues ........................................................................ 24 § 2.02 Concurrent IPR Proceedings on the Same or Related Patent in Litigation ......................... 24

[1] Coordinating Among Counsel in Litigation and IPR ......................................................... 24 [2] Complying with the IPR Duty of Candor ........................................................................... 25 [3] Ensuring Prosecution Bars and Protective Orders are Honored by the Lawyer’s Side and the Opponent as well as its Lawyers, Experts, and Others ........................................................ 25

§ 2.03 Ethical Issues Specific to IPR ............................................................................................ 26 [1] The Rule 11-type Certification Requirement ...................................................................... 26 [2] The Unique IPR Duty of Candor .................................................................................. 28 [3] The Duty to Disclose Inconsistent Information .................................................................. 32

§ 3.0 Exceptional Case Fee Shifting Under 35 U.S.C. § 285 and the Ethical Issues Inherent in the Current Approach. ................................................................................ 34 § 3.01 Background to the Current Approach. .......................................................................... 34 § 3.02 The Current Approach and the Tension that Raises Ethical Concerns. ............................. 35 § 3.03 Determining Whether a Losing Patentee Brought an Exceptional Case ........................... 37 § 3.04 Determining Whether a Losing Infringer Defended an Exceptional Case ........................ 38 § 4.0 Liability Even Without Full-Blown Prosecution Laches or Inequitable Conduct ................ 40 § 4.01 Languid Prosecution. .................................................................................................... 40 § 4.02 Disclosure of Information: Inequitable Conduct is Not the Primary Concern. ............ 42 § 5.0 An Update on Conflicts of Interest in Prosecution ............................................................. 42

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§ 1.0 Privilege Issues for Patent Agents, In-House Counsel, and Those Who Love Them.

§ 1.01 Choice of Law a. Choice of Law for Discipline and Legal Ethics This paper discusses ethical issues and also privilege issues. Different choice of law analyses may be required for those issues, and in a particular case the analysis may be different than presented here, which is, however, typical. The primary ethical issue discussed in this paper is the duty of a lawyer to not engage in the unauthorized practice of law, to ensure others are not doing so, and to supervise non-lawyers working on behalf of the lawyer when they are doing so, or to be supervised when the lawyer is doing so. Those related issues typically would arise in a disciplinary proceeding, an issue where the unauthorized practice of law is alleged, in a fight over privilege, or in a malpractice suit. A disciplinary proceeding could be brought by a state bar or the Office of Enrollment and Discipline (“OED”) at the United States Patent & Trademark Office (“USPTO”). As the following shows, no matter which forum a disciplinary proceeding is brought in, the OED or a state bar should apply the same set of rules if the conduct consists of practicing before the USPTO. As for the OED, its disciplinary authority is stated in this rule:

All practitioners engaged in practice before the Office… are subject to the disciplinary jurisdiction of the Office….. A person not registered or recognized to practice before the Office is also subject to the disciplinary authority of the Office if the person provides or offers to provide any legal services before the Office.

“Proceeding before the Office” is itself defined: “Proceeding before the Office means an application for patent, an application for reissue, a reexamination, a protest, a public use matter, an inter partes patent matter, correction of a patent, correction of inventorship, an application to register a trademark, an inter partes trademark matter, an appeal, a petition, and any other matter that is pending before the Office.” So, plainly a patent practitioner who is involved in a proceeding before the Office can be disciplined by the OED. Another subsection of that same USPTO regulation in title 37 of the CFR identifies what is a ground for OED discipline:

(i) Conviction of a serious crime; (ii) Discipline on ethical grounds imposed in another jurisdiction or disciplinary disqualification from participating in or appearing before any Federal program or agency; (iii) Failure to comply with any order of a Court disciplining a practitioner, or any

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final decision of the USPTO Director in a disciplinary matter; (iv) Violation of any USPTO Rule of Professional Conduct; or (v) Violation of the oath or declaration taken by the practitioner. See § 11.8.

(37 C.F.R 11.19 emph. added.) So, unless some other agency or court has already disciplined a practitioner, or one of the other enumerated acts has occurred, the OED must find that a practitioner violated a USPTO Rule. What if a state bar sought to discipline a lawyer for conduct occurring before the USPTO? While the state bar will have power to discipline a lawyer for conduct no matter where it occurs, most states have choice of law rules expressly for discipline. While they vary, the most common ones follow ABA Model Rule of Professional Conduct 8.5. That rule gives a licensing state authority to discipline a lawyer no matter where his conduct occurs, but makes it clear that the bar may or may not apply its rules to that conduct, depending on where the conduct occurred or other circumstances. Model Rule 8.5(b), as adopted by many states, provides:

In any exercise of the disciplinary authority of this jurisdiction, the rules of professional conduct to be applied shall be as follows:

(1) for conduct in connection with a matter pending before a tribunal, the rules of the jurisdiction in which the tribunal sits, unless the rules of the tribunal provide otherwise; and (2) for any other conduct, the rules of the jurisdiction in which the lawyer’s conduct occurred, or, if the predominant effect of the conduct is in a different jurisdiction, the rules of that jurisdiction shall be applied to the conduct. A lawyer shall not be subject to discipline if the lawyer’s conduct conforms to the rules of a jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer’s conduct will occur.

Significantly, (a) some states have rules that say that a lawyer must appear in the tribunal for subpart (a) to apply, and (b) complex problems arise if the matter is not pending, such as activities occurring before a patent application is filed. To conclude, at least once a matter is pending before the USPTO and in most states, a practitioner can rely solely upon the USPTO Rules to determine what is “ethical” or not, in terms of discipline. Finally, if state law somehow does apply to conduct about a matter pending before the USPTO, then it may be that a preemption analysis is required, because the USPTO Rules only narrowly preempt state law to the contrary. With respect to malpractice, many states hold that breach of an applicable rule is admissible, but to varying extents. Usually, states provide that breach of an applicable rule can be evidence of breach of the standard of care. See generally Stephen E. Kalish, How to Encourage Lawyers to Be Ethical: Do Not Use the Ethics Codes as a Basis for Regular Law Decisions, 13 GEO. J. LEGAL ETHICS 649 (2000). A court in a malpractice

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case that allows admission of such evidence should, for obvious reasons, follow the analysis above. b. Choice of Law for Privilege Patent cases must be appealed to the Federal Circuit, but Federal Circuit law does not apply to all issues in patent cases. Instead, regional circuit law applies to “procedural” issues, but Federal Circuit law applies to “patent” issues. See Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356, 1360, 50 U.S.P.Q.2d 1672 (Fed. Cir. 1999), overruled on other grounds, Zoltek Corp. v. United States, 672 F.3d 1309, 102 U.S.P.Q.2d 1001 (Fed. Cir. 2012) (en banc). More specifically, the Federal Circuit applies regional circuit law to procedural matters “that are not unique to patent issues,” but it applies its own law to procedural matters that “are related to patent issues.” Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d 1564, 1574–75, 223 U.S.P.Q. 465 (Fed. Cir. 1984). The division between issues “unique to patent law” and those that are not can be critical. In its latest pronouncements, the Federal Circuit stated that a procedural issue is subject to Federal Circuit law if it (1) “pertain[s] to” the substance of a patent right, (2) “bear[s] an essential relationship to matters committed to [the Federal Circuit’s] exclusive control by statute,” or (3) “clearly implicate[s] the jurisprudential responsibilities of [the Federal Circuit] in a field within its exclusive jurisdiction.” Bose Corp. v. JBL, Inc., 274 F.3d 1354, 1360, 61 U.S.P.Q.2d 1216 (Fed. Cir. 2001). The Federal Circuit has so far held that most ethical issues are not unique to patent law and has applied the law of the regional circuit where the district court sits. Celgard, LLC v. LG Chem, LTD., No. 2014-1675, 2014 WL 7691765, 594 Fed. Appx. 669 (Fed. Cir. Dec. 10, 2014); Sun Studs, Inc. v. Applied Theory Assocs., Inc., 772 F.2d 1557, 1566, 227 U.S.P.Q. 81 (Fed. Cir. 1985). However, the panel in In re Queen’s Univ., __ F.3d __, 2016 WL 860311 (Fed. Cir. March 7, 2016) (two-one panel decision) held that privilege over patent agent-client communications are governed by Federal Circuit law. The reason it held that Federal Circuit law applies to whether there is, and if so, the communications are covered by patent agent-client privilege is because patent law determined whether the documents would be “relevant” to an issue in a patent case. Specifically, it stated:

Applying these standards, we have held that we apply our own law when deciding whether particular documents are discoverable in a patent case because they relate to issues of validity and infringement. We have also held that we apply our own law when making a determination of the applicability of the attorney-client privilege to a party’s invention record because it clearly implicates, at the very least, the substantive patent issue of inequitable conduct. Similarly, this case involves the applicability of privilege for a patentee’s communications with a non-attorney patent agent regarding prosecution of the patents-in-suit. Those types of communications are potentially relevant to numerous substantive issues

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of patent law, including claim construction, validity, and inequitable conduct. Accordingly, we apply our own law.

Queen’s University, (citations, quotations, and various alterations omitted). This does not make a lot of sense. Determining whether an issue is unique to patent law does not turn on whether it is relevant to an issue that arises in litigation, since whether something is privileged turns on the events when the communication occurred, not whether it is relevant to some dispute later. For example, what if the issue in the Queen’s University case had been whether the patent agent’s client had breached a contract with a third party, and the communication at issue was relevant to formation of a contract. Patent law has nothing to do with breach of contract claims. More reasonably, the focus should be on whether the issue of privilege over patent agent-client client communications is unique to patent law. By definition, it is. But whether, or not, the communication is relevant to an issue in the later case is irrelevant to whether a privilege exists. Federal Circuit law should apply whether or not the communication is relevant to the later dispute. This same muddled choice of law analysis led a Texas appellate court to hold that privilege over communications between a patent agent and his client was controlled by state law, not Federal Circuit law, because there was no patent infringement claim in the case where privilege was implicated. That decision is discussed further below, and also makes no sense.

§ 1.02 Scope of Authorized Practice of Patent Agents. Congress authorized the USPTO to “establish regulations, not inconsistent with law, which—may govern the recognition and conduct of agents, attorneys, or other persons representing applicants or other parties before the Office.” 35 U.S.C. § 2(b)(2)(D). Acting under this authority, USPTO regulations provide that “[a]ny citizen of the United States who is not an attorney, and who fulfills the requirements of this part may be registered as a patent agent to practice before the Office.” 37 C.F.R. § 11.6(b). The Supreme Court has made clear that, so long as a patent agent limits his practice to that authorized by the USPTO, a state cannot interfere with the agent’s rights to so practice. Sperry v. State of Florida, 373 U.S. 379 (1963). As becomes clear below, to determine the privilege issues that arise when a firm uses patent agents, or a client is communicating solely with a patent agent, a critical question is: what has Congress (and, through that power, the USPTO), authorized patent agents to do? The available case law is discussed next. As shown later, where a patent agent limits his activity to those matters which he is authorized to do, a lawyer need not supervise the agent’s work, and the agent’s communications to a client may be privileged; if the patent agent acts outside the scope authorized, however, then an attorney must supervise both to avoid assisting the agent in the unauthorized practice of law, and to give some basis to claim privilege.

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Patent agents and patent lawyers are authorized can prepare and prosecute applications even though they are not lawyers and even though the “preparation and prosecution of patent applications for others constitutes the practice of law.” Patent practice is the practice of law, which of course normally requires licensure by the state in which the agent or attorney resides or has an office. The problem is that Congress gave patent agents and patent lawyers only a limited grant of authority to practice law. The USPTO currently codifies both the authority for, and limitations on, a patent agent’s power in 37 C.F.R. § 11.5. That same authority would apply to a lawyer registered before the Office, but not in the state where the practitioner offices. In full, it provides:

(a) A register of attorneys and agents is kept in the Office on which are entered the names of all individuals recognized as entitled to represent applicants having prospective or immediate business before the Office in the preparation and prosecution of patent applications. Registration in the Office under the provisions of this part shall entitle the individuals so registered to practice before the Office only in patent matters. (b) Practice before the Office. Practice before the Office includes, but is not limited to, law-related service that comprehends any matter connected with the presentation to the Office or any of its officers or employees relating to a client’s rights, privileges, duties, or responsibilities under the laws or regulations administered by the Office for the grant of a patent or registration of a trademark, or for enrollment or disciplinary matters. Such presentations include preparing necessary documents in contemplation of filing the documents with the Office, corresponding and communicating with the Office, and representing a client through documents or at interviews, hearings, and meetings, as well as communicating with and advising a client concerning matters pending or contemplated to be presented before the Office. Nothing in this section proscribes a practitioner from employing or retaining non-practitioner assistants under the supervision of the practitioner to assist the practitioner in matters pending or contemplated to be presented before the Office.

(1) Practice before the Office in patent matters. Practice before the Office in patent matters includes, but is not limited to, preparing and prosecuting any patent application, consulting with or giving advice to a client in contemplation of filing a patent application or other document with the Office, drafting the specification or claims of a patent application; drafting an amendment or reply to a communication from the Office that may require written argument to establish the patentability of a claimed invention; drafting a reply to a communication from the Office regarding a patent application; and drafting a communication for a public use, interference, reexamination proceeding, petition, appeal to or any other proceeding before the Patent Trial and Appeal Board, or other proceeding. Registration to practice before the Office in patent cases sanctions the performance of those services which are reasonably necessary and incident to the preparation and prosecution of patent applications or other

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proceeding before the Office involving a patent application or patent in which the practitioner is authorized to participate. The services include:

(i) Considering the advisability of relying upon alternative forms of protection which may be available under state law, and (ii) Drafting an assignment or causing an assignment to be executed for the patent owner in contemplation of filing or prosecution of a patent application for the patent owner, where the practitioner represents the patent owner after a patent issues in a proceeding before the Office, and when drafting the assignment the practitioner does no more than replicate the terms of a previously existing oral or written obligation of assignment from one person or party to another person or party.

(2) Practice before the Office in trademark matters. Practice before the Office in trademark matters includes, but is not limited to, consulting with or giving advice to a client in contemplation of filing a trademark application or other document with the Office; preparing and prosecuting an application for trademark registration; preparing an amendment which may require written argument to establish the registrability of the mark; and conducting an opposition, cancellation, or concurrent use proceeding; or conducting an appeal to the Trademark Trial and Appeal Board.

As a result, there are some obvious examples of things that a patent agent or lawyers not licensed in a jurisdiction cannot do: They cannot:

• Draft a will for someone else; • Appear as counsel in court for another person; • Draft contracts for the sale of a business for another person; • File a trademark application for another person.

In the middle are the interesting issues that may not be intuitive. The two examples in the somewhat long and unusual language of the regulation is itself laden with limitations. First, the regulation does not state that registration means the person can advise a client about state law alternatives to patent protection. It also does not permit advising on trademark matters, or copyright law. Instead it states that services reasonably related to patent prosecution include “[c]onsidering the advisability of relying upon alternative forms of protection which may be available under state law.” Thus, a practitioner, without state licensure or other authority, can consider advising a client about state law protections.

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Second, the language about assignments is particularly carefully worded. It states that the following task pertaining to assignments are “reasonably necessary and incident to the preparation and prosecution of patent applications:”

Drafting an assignment or causing an assignment to be executed for the patent owner in contemplation of filing or prosecution of a patent application for the patent owner, where the practitioner represents the patent owner after a patent issues in a proceeding before the Office, and when drafting the assignment the practitioner does no more than replicate the terms of a previously existing oral or written obligation of assignment from one person or party to another person or party.

Although this regulation read literally does not make sense, it would seem clear that a the patent offices does not authorize practitioners to advise who owns an invention if ownership turns on a contractual relationship, draft policies about assignments or advise about the scope of state law. A particularly interesting and also counter-intuitive issue concerns opinions. Whether a practitioner is authorized to give certain advice depends upon the purpose for which the client will use the advice and, in some instances, the forum in which the opinion will be used. For example, what limitations are there on practitioner’s ability to opine on infringement of an issued patent? If the advice is sought by a client seeking to determine whether to file an infringement suit, the answer is clearly no, the practitioner is not authorized to advise on infringement for purposes of filing a suit. Likewise, it would seem clear a practitioner cannot advise a client whether its product infringes a claim of a patent owned by a third-party. But what if the client asks whether a claim in an issued patent it owns covers a competitor’s product, and asks not to file suit, but to know whether to file a CIP to prosecute to hopefully obtain different claims, or to pursue reissue? The skill set involved is identical, but the latter circumstances appear to constitute unauthorized practice. Likewise, an opinion about validity of an issued patent would seem unauthorized if the purpose is to provide guidance to a client as to whether it is free to operate or market a product. Yet, a practitioner can advise a client that an issued patent would not enable the claims of a potential new filing to advise the client whether a client should file an application on a new invention.

§ 1.03 The Basics of the Privilege Analyzing privilege in federal court begins with Rule 501 of the Federal Rules of Evidence, which states:

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The common law—as interpreted by United States courts in the light of reason and experience—governs a claim of privilege unless any of the following provides otherwise:

• the United States Constitution; • a federal statute; or • rules prescribed by the Supreme Court.

But in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.

Fed. R. Evid. 501. §1.04 Patent Agents: a. The USPTO Position and Case Law Before the 2-1 Panel Decision in Queen’s University on the Existence of a Patent Agent-Client Privilege The Queen’s University panel included the following footnote collecting cases on the split:

Compare, e.g., Buyer’s Direct Inc. v. Belk, Inc., No. SACV 12-00370-DOC, 2012 WL 1416639, at *3 (C.D. Cal. Apr. 24, 2012) (recognizing patent-agent privilege); Poly- vision Corp. v. Smart Techs. Inc., No. 1:03-cv-476, 2006 WL 581037, at *2 (W.D. Mich. Mar. 7, 2006) (same); Mold Masters Ltd. v. Husky Injection Molding Sys., Ltd., No. 01 C 1576, 2001 WL 1268587, at *4–*5 (N.D. Ill. Nov. 15, 2001) (same); Dow Chem. Co. v. Atl. Richfield Co., No. 83- cv-3763, 1985 WL 71991, at *5 (E.D. Mich. Apr. 23, 1985) (same); In re Ampicillin Antitrust Litig., 81 F.R.D. 377, 383–84, 391–94 (D.D.C. 1978) (same); Vernitron Med. Prods., Inc. v. Baxter Labs., Inc., No. 616-73, 1975 WL 21161, at *1–*2 (D.N.J. Apr. 29, 1975) (same), with Prow- ess, Inc. v. Raysearch Labs. AB, No. WDQ-11-1357, 2013 WL 247531, at *5 (D. Md. Jan. 18, 2013) (declining to recognize patent-agent privilege); Park v. Cas Enters., Inc., No. 08-cv-0385 2009 WL 3565293, at *3 (S.D. Cal. Oct. 27, 2009) (same); In re Rivastigmine Patent Litig., 237 F.R.D. 69, 102 (S.D.N.Y. 2006) (same); Agfa Corp. v. Creo Prods., No. Civ. A. 00-10836-GAO, 2002 WL 1787534, at *3 (D. Mass. Aug. 1, 2002) (same); and Snei- der v. Kimberly-Clark Corp., 91 F.R.D. 1, 5 (N.D. Ill. 1980) (same).

Id. b. The Split Panel in Queen’s University. The Queen’s University panel explained the starting point for its analysis as follows:

“Rule 501 of the Federal Rules of Evidence authorizes federal courts to define new privileges by interpreting ‘common law principles.’” Jaffee v.

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Redmond, 518 U.S. 1, 8 (1996). Rule 501 “did not freeze the law governing the privileges of witnesses in federal trials at a particular point in our history, but rather directed federal courts to ‘continue the evolutionary development of testimonial privileges.’” Jaffee, 518 U.S. at 8–9 (quoting Trammel v. United States, 445 U.S. 40, 47 (1980)). Samsung does not contend that recognition of a patent-agent privilege is foreclosed by the United States Constitution, any federal statute, or any rule prescribed by the Supreme Court. We thus turn to “reason and experience” in order to determine whether a patent-agent privilege is now appropriate.

Queen’s University, supra. Although noting that the Supreme Court had warned courts not to create new privileges too easily, and in fact numerous attempts to protect communications from other non-lawyers, such as accountants, “jail house lawyers,” and others had failed, the court explained that “we find that the unique roles of patent agents, the congressional recognition of their authority to act, the Supreme Court’s characterization of their activities as the practice of law, and the current realities of patent litigation counsel in favor of recognizing an independent patent-agent privilege.” Id. The panel-majority emphasized that under Sperry patent agents in fact “practice law.” It wrote:

Sperry, thus, confirms that patent agents are not simply engaging in law-like activity, they are engaging in the practice of law itself. To the extent, therefore, that the traditional attorney-client privilege is justified based on the need for candor between a client and his or her legal professional in relation to the prosecution of a patent, that justification would seem to apply with equal force to patent agents.

Id. Because of the implications of this, the fact that the OED regulates patent agents and subjects them to the same ethical standards as patent attorneys, the panel majority held the privilege should be recognized. Judge Reyna emphasized the statements from the Supreme Court warning against creation of new privileges. But he also stated that allowing a privilege would frustrate the duty of candor to the USPTO, seeming to believe that privileged information need not be disclosed to the Office:

Additionally, the unique nature of patent prosecution practice reduces any public interest benefit achieved by a privilege in encouraging full and frank communication between a client and agent. Under Patent Office regulations, patent lawyers, patent agents, inventors, and assignees, among others, have “a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability” of an application. 37 C.F.R. § 1.56. See also, e.g., Kingsland v. Dorsey, 338 U.S. 318, 319 (1949). As a result, the interest of encouraging full and frank communication is less effectively served by creating an agent-client

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privilege. For example, a client who is seeking a patent may be uncertain whether certain activity the client has performed would make the invention she seeks to patent unpatentable. If her attorney or agent has properly informed her of the duty of candor to the Patent Office, however, the client will know that she has a duty to reveal this information to her attorney or agent, and that he must reveal it to the Pa- tent Office if he believes it is material to patentability. And such information revealed to the Patent Office during the prosecution of a patent necessarily becomes public information. As patent agents and clients are subject to a duty of candor before the USPTO, the Majority’s agent-client privilege can be effective only to encourage the disclosure of information that the client does not believe is material to whether the invention is patentable.

Queen’s Universiy, supra, (Reyna, J., dissenting). It has long been the law that privileged information must be disclosed to the USPTO if it is material to a patent application, and, in all events, it would be unusual for privilege to attach to material information, since facts do not become privileged by being disclosed to a lawyer. He also asserted that there was no need for a privilege because of the ability for lawyer supervision:

While some agents work as solo practitioners, “patent agents are more commonly found in law firms or as part of an in- house patent team for a large company.” Lisa Kennedy, Patent Agents: Non-attorneys Representing Inventors Before the Patent Office, 49 Advocate 21 (2006). A company desiring to use a patent agent but maintain a privilege may have its counsel, be it in-house or outside counsel, supervise the agent or hire an agent already working for a law firm Next, he stated that most documents in patent prosecution are destroyed because usually prosecution ends years before litigation occurs: Further, any purported need for an agent-client privilege is greatly minimized by the fact that patent agents and their clients have the opportunity to delete and destroy emails and other correspondence in the period of time between when they are exchanged and when they would be sought in litigation. Particularly for patent prosecution, which often occurs years before any litigation involving the patent, patent agents and their clients may influence any obligation to produce documents and correspondence in litigation via their retention and destruction policies. Under most circumstances, a patent agent helping a client prepare, file, and prosecute a patent application before the Patent Office has no duty to maintain in perpetuity all correspondence with the client regarding the patent application. Similarly, it is considered good practice among attorneys to have thoughtful document retention and destruction policies, and to encourage such practices for their clients.

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Id. Of course, the reasons he cites also would support not providing privilege to prosecution attorneys. Judge Reyna presciently explained the difficulties of recognizing the privilege:

The Majority gives a few examples of activities that would not be privileged if conducted by an agent: “[f]or instance, communications with a patent agent who is offering an opinion on the validity of another party’s patent in contemplation of litigation or for the sale or purchase of a patent, or on infringement.” Maj. Op. at 25 (citing Changes to Representation of Others Before the United States Patent and Trademark Office, 73 Fed. Reg. 47,650-01, 47,670 (Aug. 14, 2008)). However, 73 Fed. Reg. 47650 indicates that in some circumstances preparing an “opinion of the validity of another party’s patent when the client is contemplating litigation” is properly within the scope of a patent agent’s practice. The regulation explains that such an opinion is properly within the scope of an agent’s practice when the client is “seeking reexamination of the other party’s patent.” Id. This analysis regarding reexaminations would also be true of inter partes review and other practice before the Patent Trial and Appeal Board. Therefore, under the Majority’s newly created agent-client privilege, some validity opinions drafted by an agent will be privileged and others will not be, depending on the client’s intent in seeking the opinion from the agent. But how do we determine which is which, and what does such contentious activity say about the demand for truth? As another example, complications arise when we consider the scope of an agent’s authority to prepare assignments and other contracts. Under 37 C.F.R. § 11.5(b)(1)(ii), in certain circumstances an agent may properly draft assignments “in contemplation of filing or prosecution of a patent application,” as long as the agent “does no more than replicate the terms of a previously existing oral or written obligation of assignment.” The USPTO’s comments on this regulation indicate that this express statement of what an agent is permitted to do does not necessarily exclude agents from preparing contracts in other circumstances. The USPTO explained that “[t]he Office’s long-standing position has been that ‘[p]atent agents * * * cannot * * * perform various services which the local jurisdiction considers as practicing law. For example, a patent agent could not draw up a contract relating to a patent, such as an assignment or a license, if the state in which he/she resides considers drafting contracts as practicing law.’’’ Changes to Representation, 73 Fed. Reg. at 47,668 (ellipses in original). Therefore, in some respects, the scope of a patent agent’s authorized practice varies based on state law. Activities not expressly authorized by the

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USPTO’s regulation are neither clearly prohibited or permitted, and instead are permitted or prohibited based on state law regarding the unauthorized practice of law.

As the regulation only permits an agent to prepare contracts for assignments occurring before an application is filed, the regulation does not address when it is appropriate for an agent to prepare assignments while an application is pending or after a patent issues. However, the USPTO comments on the regulation indicate that, in some circumstances, an agent may properly draw up an assignment for an issued patent. Id. Yet, in some circumstances, doing so would be outside the scope of an agent’s authorized practice before the USPTO. Id. I believe that advising clients on whether a privilege would apply in court to the various acts a patent agent might be asked to perform is itself outside the scope of an agent’s authorized practice before the USPTO. Therefore, a client concerned about maintaining a privilege may need to hire an attorney to determine whether this court’s newly created agent-client privilege would apply in her circumstances.

Id. c. Texas Rejects Queen’s University. A decision from the court of appeals in Texas has given another reason to be careful. In re Andrew Silver (Tex. App. -- Dallas Ct. App. 05-160074-CV, Aug. 17, 2016). In that case, the plaintiff filed a patent application and apparently used a patent agent to do the work. When the defendant refused to pay the plaintiff for using the invention (it seems), the defendant sought discovery of all communications between the patent agent and the plaintiff. The trial court ordered their disclosure. The plaintiff sought mandamus review. The court of appeals refused to grant that extraordinary relief, stating in part:

No Texas statute or rule recognizes or adopts a patent-agent privilege. The trial court declined to recognize such a privilege here. Relator asks this Court to recognize a new discovery privilege and determine that the trial court abused its discretion for not recognizing the new privilege. Neither this Court nor the trial court has the authority to adopt a new discovery privilege. In re Fischer & Paykel Appliances, Inc., 420 S.W.3d at 848. We decline to do so here and, therefore, conclude the trial court did not abuse its discretion by refusing to adopt the privilege. Further, Queen’s University is not binding here. The Federal Circuit applies its own law for substantive and procedural issues if those issues are “intimately involved in the substance of enforcement of the patent right.” 820

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F.3d at 1290. This includes determination of whether documents are discoverable “in a patent case because they relate to issues of validity and infringement.” Id. at 1291. If the case involves substantive issues of patent law, such as claim construction, validity, and inequitable conduct, then the Federal Circuit applies its own patent law precedent. Id. Communications between a non-attorney patent agent and his client “that are not reasonably necessary and incident to the prosecution of patents before the Patent Office,” however, are outside the scope of a patent-agent privilege. Id. at 1301–02. Whereas the federal common law governs privilege in a federal case, “in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.” Id. at 1294 (quoting FED. R. EVID. 501).

This case is not a patent infringement case. It is a breach of contract case governed by Texas law. The underlying dispute does not involve a determination of the validity of the patent or whether Tabletop Media, LLC infringed on the patent. The Queen’s University court expressly excluded such cases from the scope of the privilege, and neither this Court nor the trial court is required to apply federal patent law to the merits of the case. Where, as here, the substantive claims are governed by state law, the state privilege law also applies. Texas does not recognize a patent-agent privilege, and we decline to create a new common law privilege.

Id. As noted above, what is missing from the decision is an appropriate choice of law analysis. Much like the Queen’s University case did, the Texas appellate court seemed to make whether a communication is privileged turn on the scope of the proceeding in which it is sought in discovery, or what law gave rise to the claim. (For example, the Dallas approach would mean that a communication that is not privileged under some foreign country’s law would be privileged if suit were filed in the United States.) d. Other Case Law After Queen’s University. As of the date of this paper, there have been no other case law developments. However, the USPTO apparently is studying whether it can recognize this privilege. See Amendments to the Rules of Practice Before the PTAB, 81 Fed. Reg. 18750-02 (explaining that the USPTO had previously asked for comments and stating that the USPTO may continue to act on this proposal). § 1.05 In-House Privilege Privilege subsists over communications between a lawyer who works for a corporation just as they do for outside counsel representing a corporate client. While there are some wrinkles – often whether the lawyer is acting as a “lawyer” or as a “business person” is more of an issue with in-house lawyers than outside counsel, the basics of attorney client privilege are essentially the same.

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However, what that means is that if a patent lawyer is living in a state where she is not licensed, then if the advice goes beyond the scope of patent practice, one would think that the same analysis for patent agents would apply: unless the advice is within the scope of authority granted by the USPTO, there would be no privilege. Strangely, there are only a few cases that have analyzed the issue, and although they have not analyzed the issue closely (nor after Queen’s University), they have essentially reasoned that if the person receiving the advice thought the person was authorized to provide the advice, then privilege subsisted. Whether that approach is correct, or consonant with Queen’s University, is an interesting but open question.

§ 1.06 When Must a Patent Attorney Supervise a Patent Agent or In-House Counsel? At the outset, a practitioner can ask even non-practitioners to assist the practitioner to provide legal services. But delegation of legal work requires supervision for two distinct reasons, interrelated though they are. First, “a practitioner shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction, or assist another in doing so.” The USPTO is another jurisdiction for the purposes of this rule. See, e.g., In re Peirce, 128 P.3d 443, 444 (Nev. 2006) (holding that “another jurisdiction” includes the USPTO). Thus, while a practitioner can have a non-practitioner assistant, assisting the non-practitioner to practice patent law would violate this rule. A lawyer has an obligation to avoid assisting in the unauthorized practice of law, which is related to the second duty. Second, a non-practitioner must be supervised or the practitioner violates the affirmative obligation to use reasonable efforts to ensure that a non-practitioner supervised by the practitioner are not violating a rule, including the rule against the unauthorized practice of law. To put it simply: a lawyer likely cannot say “I didn’t know that a patent agent I was supervising was engaged in the unauthorized practice of law,” because the lawyer has an obligation to use reasonable efforts to make sure the patent agent is not doing so. Patent agents create an odd issue: if a patent agent is acting outside the scope of authority, are they “practitioners” or not? Likewise, a lawyer who is employed by a client, but not licensed in the state where she resides, may face similar issues. The following shows that this does not matter to the supervising practitioner, but it does to the patent agent or patent lawyer. There are two different rules in both the USPTO Rules and most states that address supervision by lawyers. State rules distinguish between lawyers and non-lawyers; the USPTO Rules distinguish between practitioners and non-practitioners. In substance, however, the duties are the same so far as the supervising lawyer (or, presumably, supervising patent agent) is concerned.

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The USPTO Rules regarding supervision of practitioners, and non-practitioners, are substantively identical, however: § 11.501 Responsibilities of partners, managers, and supervisory practitioners.

§ 11.503 Responsibilities regarding non-practitioner assistance.

(a) A practitioner who is a partner in a law firm, and a practitioner who individually or together with other practitioners possesses comparable managerial authority in a law firm, shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all practitioners in the firm conform to the USPTO Rules of Professional Conduct. (b) A practitioner having direct supervisory authority over another practitioner shall make reasonable efforts to ensure that the other practitioner conforms to the USPTO Rules of Professional Conduct. (c) A practitioner shall be responsible for another practitioner’s violation of the USPTO Rules of Professional Conduct if: (1) The practitioner orders or, with knowledge of the specific conduct, ratifies the conduct involved; or (2) The practitioner is a partner or has comparable managerial authority in the law firm in which the other practitioner practices, or has direct supervisory authority over the other practitioner, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.

With respect to a non-practitioner assistant employed or retained by or associated with a practitioner: (a) A practitioner who is a partner, and a practitioner who individually or together with other practitioners possesses comparable managerial authority in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person’s conduct is compatible with the professional obligations of the practitioner; (b) A practitioner having direct supervisory authority over the non-practitioner assistant shall make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligations of the practitioner; and (c) A practitioner shall be responsible for conduct of such a person that would be a violation of the USPTO Rules of Professional Conduct if engaged in by a practitioner if: (1) The practitioner orders or, with the knowledge of the specific conduct, ratifies the conduct involved; or (2) The practitioner is a partner or has comparable managerial authority in the law firm in which the person is employed, or has direct supervisory authority over the person, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.

Although essentially the same, there is one important difference that applies, not to the supervising lawyer or practitioner, but to the person supervised: only lawyers – or practitioners under the USPTO Rules – have a “safe harbor” that allows a

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lawyer/practitioner being supervised to defer to a supervising lawyer in certain circumstances. Specifically, § 11.502, entitled “Responsibilities of a subordinate practitioner,” provides:

(a) A practitioner is bound by the USPTO Rules of Professional Conduct notwithstanding that the practitioner acted at the direction of another person. (b) A subordinate practitioner does not violate the USPTO Rules of Professional Conduct if that practitioner acts in accordance with a supervisory practitioner’s reasonable resolution of an arguable question of professional duty.

See Model Rule 5.2. What if, for example, a patent agent is asked to do something by a supervising lawyer that is arguably within the scope of the agent’s authority, but the supervising lawyer, and agent, turns out to be wrong. Can the agent take advantage of the rule that allows for a safe harbor, or not?

a. If Patent Agent is Acting Within the Scope of Authority to Practice Patent Law, Supervision is Needed Only to Support a Privilege Only if Queen’s University Does not Control; if a Patent Agent is Acting Outside Scope of Authority to Practice Patent Law, a Patent Attorney Must Supervise Both to Avoid the Unauthorized Practice of Law, and Perhaps to Fulfill the Obligation to Supervise Non-Practitioners, and to Provide a Basis for Attorney-Client Privilege to Subsist.

There obviously is no ethical obligation to supervise a patent agent who is acting within the scope of authority granted by the USPTO in Section 11.5 and recognized by Sperry. Patent agents can practice on their own and – assuming competent delegation to the patent agent – no reason for a patent lawyer to supervise. Likewise, if there is a privilege for patent agent-client communications, the lawyer need not supervise the patent agent in those communications within the scope of the agent’s authority. That is the consequence of Queen’s University, as that court explained:

Communications between non-attorney patent agents and their clients that are in furtherance of the performance of these tasks, or “which are reasonably necessary and incident to the preparation and prosecution of patent applications or other proceeding before the Office involving a patent application or patent in which the practitioner is authorized to participate” receive the benefit of the patent-agent privilege. Id.; see also id. § 11.5(b)(1)(i)–(ii).

Communications that are not reasonably necessary and incident to the prosecution of patents before the Patent Office fall outside the scope of the patent-agent privilege…. [L]itigants must take care to distinguish communications that are within the scope of activities authorized by Congress from those that are not. The burden

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of determining which communications are privileged and which communications fall outside the scope of the privilege rests squarely on the party asserting the privilege.

Queen’s University, supra. See John Labatt Ltd. v. Molson Breweries, 898 F.Supp. 471 (E.D. Mich. 1995) (no privilege over communications from patent agent about trademarks). But, if the agent is providing legal advice or services beyond the authority granted by the USPTO, then the practitioner is not authorized to practice law, and must be supervised. That may be because the patent agent is now a “non-practitioner” or because of the duty to avoid assisting with the unauthorized practice of law. In addition, it is settled that privilege can exist over communications between a non-lawyer and a client if the non-lawyer is “supervised” by the lawyer; it is enough if the client is seeking advice from the lawyer indirectly. See HPD Labs., Inc. v. Clorox Co., 202 F.R.D. 410 (D. N.J. 2001) (discussing discoverability in patent suit of communications from in-house non-lawyer who had provided advice to corporate employees concerning various issues). Thus, to the extent that a patent agent provides services beyond those authorized by the USPTO, a claim of privilege may fail unless the patent agent is “supervised.” See, e.g., John Labatt Ltd. v. Molson Breweries, 898 F. Supp. 471 (E.D. Mich. 1995) (no privilege over communications from patent agent about trademarks). Likewise, a cautious practitioner may want to “supervise” all communications between a patent agent and practitioner because of the uncertainty concerning the existence, and scope, of privilege after Queen’s University. Which raises the question of: can “supervision” exist short of the lawyer actually receiving and actively reviewing every communication from a patent agent to the client? b. Does the Same Hold True for Patent Lawyers Not Licensed by the State in Which They Reside? Some states allow in-house counsel to provide advice to their corporate employer (and, sometimes, affiliates), even if the lawyer is not licensed in the state. A list of these states and links is below. I’ve put the ABA’s first, but many of the links are broken, and so the correct ones follow:

• http://www.americanbar.org/content/dam/aba/administrative/professional_responsibility/in_house_rules.authcheckdam.pdf

• AL: https://www.alabar.org/assets/uploads/2014/08/Auth.-House-Counsel-

ruleVIII.pdf

• CA: http://www.courts.ca.gov/cms/rules/index.cfm?title=nine&linkid=rule9_46

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• DE: http://courts.delaware.gov/rules/pdf/SupremeCourtRules.pdf RULE 55.2

• ID: https://isb.idaho.gov/pdf/rules/ibcr.pdf RULE 225

• IA: https://www.legis.iowa.gov/docs/ACO/CourtRulesChapter/06-14-2012.31.pdf

RULE 31.16

• KS: http://www.kscourts.org/rules/Rule-List.asp?r1=Rules+Relating+to+Admission+of+Attorneys RULE 712

• KY:

https://govt.westlaw.com/kyrules/Document/NC4429FD0A91C11DA8F5EE32367A250AE?viewType=FullText&originationContext=documenttoc&transitionType=CategoryPageItem&contextData=(sc.Default)

• MI:http://courts.mi.gov/courts/michigansupremecourt/rules/documents/rules%20f

or%20the%20board%20of%20law%20examiners.pdf RULE 5

• MN: https://www.revisor.mn.gov/court_rules/rule.php?type=pr&subtype=admi&id=9

• NE: https://supremecourt.nebraska.gov/supreme-court-rules/ch3/art12

• OH: http://www.supremecourt.ohio.gov/LegalResources/Rules/govbar/govbar.pdf

RULE VI SECTION 6

• OK: http://www.okbar.org/Portals/13/PDF/Governance/Rules-Creating-Control.pdf ART II SECTION 5

• RI:

https://www.courts.ri.gov/Courts/SupremeCourt/Supreme%20Court%20Rules/AdmissionBar-ArticleII.pdf RULE 9

• TN: http://tncourts.gov/rules/supreme-court/7 SECTION 10.01

• VA: http://www.vsb.org/pro-guidelines/index.php/corp-council/

If a lawyer registers, several issues arise: First, does the scope of authority extent to giving advice to corporations other than the actual corporate employer? Some of the rules expressly say so, some seem limited to just the “employer,” and have been so interpreted, and others seem limited to the employer but are interpreted to give authority to advise not just the employer, but related entities. Second, if the corporation receiving advice is not the actual employer but makes some sort of charge (internal accounting) for the lawyer’s time, this can create real fee splitting and other problems. There are some Texas ethics opinions on the point.

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If a patent lawyer is registered, but goes beyond the scope of authority permitted by the state registration statute, then it would seem that unless the activity is “practice before the office,” the lawyer is engaged in the unauthorized practice of law. As noted above, under the Queen’s University approach, this would mean no privilege. Also as noted above, courts have not, yet, taken that approach but instead say that if the person receiving the advice reasonably believed the in-house lawyer was authorized to give it, there is privilege. Whether that remains the law remains to be seen. c. What Does “Supervision” Mean in the Privilege Context? The foregoing shows that to the extent a patent agent or in-house lawyer not license din a state provides services beyond those reasonably necessary to practice before Office and, in the case of in-house lawyers, goes beyond state registration permission, the agent or lawyer exceeds the scope of authority granted by the Office and so must be supervised if working at the behest of a practitioner. Likewise, for privilege to exist over communications in that circumstance, supervision is required for patent agents and, presumably, for patent lawyers. What is sufficient for a practitioner to satisfy the requirement, when it exists, of “supervising” a patent agent or lawyer? A communication from a non-lawyer to a client may be privileged if the communication is made at the direction or request of the lawyer, or if there is supervision by the lawyer. HPD Labs., Inc. v. Clorox Co., 202 F.R.D. 410 (D. N.J. 2001). There are easy cases, and then the uncharted middle about what is “enough” to be supervision. On one end of the spectrum, if there is no supervision at all, then it is clear that – even if the person is an “expert” on the subject and even if the person is dispensing legal advice, if the person is not an attorney there can be no attorney-client privilege. In HPD Labs., Inc. v. Clorox Co., 202 F.R.D. 410 (D. N.J. 2001), a woman who was not an attorney but who worked in the corporation’s legal department had become relied upon and seemingly an expert in giving corporate employees legal advice. The employees approached her for her advice, and she did not convey their questions – or her answers – to any lawyers. Nor was there evidence the recipients of the advice thought she had been a lawyer. In those circumstances, the court held that there was no privilege. The court noted that functioning “under the theoretical direction of an attorney” was no enough because “she did not receive any discernable supervision or guidance” from a lawyer. See Hanwha Azdel, Inc. v. C&D Zodiac, Inc., 2013 WL 5918518 (W.D. Va. Sept. 11, 2013) (no privilege over advice among in-house personnel “developed and disseminated by the paralegal”). On the other end of the spectrum, documents prepared by a non-lawyer at the direction of an attorney, and then transmitted to the client directly, may be privileged. See id. (collecting cases). A document sent from a lawyer to a patent agent asking for input to allow the lawyer to advise the client is subject to privilege just as if it had been sent from a lawyer to a junior associate. Hercules, Inc. v. Exxon Corp., 434 F. Supp. 136 (D. Del. 1977)

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The exact degree of supervision has been expressed variously, but actual involvement or control appear to be the touchstones. John Labatt Ltd. v. Molson Breweries, 898 F. Supp. 471 (E.D. Mich. 1995). “Theoretical” involvement, or the mere presence of the non-lawyer in a legal department are not enough. Clorox, supra. See Stryker Corp. v. Intermedics Orthopedics, Inc., 145 F.R.D. 298 (E.D.N.Y. 1992) (“patent agents acting under the authority and control of counsel”); Cuno, 121 F.R.D. at 201 (“if that patent agent is working on behalf of and under the direction of the attorney”); Willemijn Houdstermaatschaapij BV v. Apollo Computer, Inc., 707 F. Supp. 1429 (D. Del. 1989) (“constructive employee”); Congoleum Indus., Inc. v. GAF Corp., 49 F.R.D. 82 (E.D. Pa. 1969) (“agents or immediate subordinates”), aff’d, 478 F.2d 1398 (3rd Cir. 1973); Hercules, Inc. v. Exxon Corp., 434 F. Supp. 136 (D. Del. 1977) (in-house patent agent “may qualify as a ‘subordinate’ of an attorney if he is working at the direction or under the supervision of an attorney”); Burlington Indus. v. Exxon Corp., 65 F.R.D. 26 (D. Md. 1974) (“The agents of the attorney for purposes of the privilege … are those persons essential to the lawyer’s performance of legal services.”) d. What About Communications from Patent Agent to Lawyer, But not Client, or After Issuance and Not Related to Maintenance Fees or Post-Grant Proceedings? Suppose a patent agent prepares a prior art search report, and sends it only to the patent lawyer. Ordinarily, that document would not be privileged, since it is not a communication to the client. Ordinarily, work product protection would not be available, either. The courts are split on this issue. See Cargill, Inc. v. Sears Petroleum & Transp. Corp., 2003 WL 22225580 (N.D.N.Y. Sept. 17, 2003) (collecting cases and discussing split). Similarly, once a patent issues, a communication from a patent agent to a client would not – absent something occurring before the Office such as a due date for a maintenance fee, or a post-grant proceeding – would not seem to be likely to be reasonably incident to patent prosecution. John Labatt Ltd. v. Molson Breweries, 898 F. Supp. 471 (E.D. Mich. 1995) (explaining that “a patent agent’s discussions with a client after a patent issued, concerning the patent having been infringed or its legal validity if challenged in court are not privileged….”).

§ 1.07 Conclusion. A two-one panel decision on this issue provides some comfort to patent practitioners and their clients that a privilege exists between patent agents and clients. But it could turn out to be cold comfort if, as did the Texas appellate court, a court applies state law to the question, or if later the Federal Circuit en banc rejects or limits the holding of Queen’s University. Further, the circumscribed nature of the privilege, even under Queen’s University, makes it clear that there is no basis to act as if the same protection afforded by the patent attorney-client privilege applies to patent agent-client communications. This issue, incidentally, is not one that arises only in patent practice.

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See, e.g., N.J. Comm. on Unauthorized Practice of Law Op. 53 (May 16, 2016) (while nonlawyers are authorized to provide some services to Medicaid applicants, they cannot give advice regarding tax advice, guardianships, and other related subjects without engaging in the unauthorized practice of law). Thus, patent agents should be sure to advise clients on the risks of communication, particularly if the agent is providing representation at the “edges” of practice before the office. Likewise, patent attorneys who work with or employ patent agents – including in-house counsel – should to the extent practicable supervise patent agents, again particularly with activities at the edges of patent practice. With patent lawyers, in-house counsel should carefully examine the scope of state registration and when acting outside of it, ensure either than the activity constitutes “practice before the office” or that the communication is “supervised” by a lawyer licensed in the appropriate jurisdiction. Finally, and not to lose the forest from the trees, most issues concerning privilege do not arise from the definitions of practice before the Office or other niceties, but from the common problems that lead to loss of privilege. These are well known but include clients forwarding privileged communications beyond those who need to know the information, inadvertent production during litigation, and the failure to properly claim privilege. § 2.0 Inter Partes Review, Including Concurrent Litigation* Inter partes review in the few short years of its existence has become a major tool in the patent litigators’ tool kit. The existence of IPR raises many issues, some for patent litigators, some for litigators who are involved in IPR proceedings. For example, a litigator hired to enforce a patent must be aware of the availability of IPR, and examine whether it should be used in lieu of, or as a complement to, patent litigation. Counsel for an accused infringer must do the same. IPR may be a way to force the patentee to take claim construction positions, disclose prior art, and can result in stay of expensive patent litigation. Further, because a lawyer may be litigating a patent that is related to one that is in IPR, litigators need to be aware of the obligations of candor that may arise and require the need for information disclosed during litigation to be disclosed to the USPTO in the IPR proceeding. Finally, because the USPTO permits non-registered lawyers to be admitted pro hac vice to represent parties in IPR proceedings, a litigator must be aware of the ethical issues that can arise during IPR proceedings themselves. This chapter addresses these and related issues.

* This section is based upon a chapter in my book, David Hricik, Patent Ethics: Litigation (Lexis/Nexis 2016-17 ed.). It is used by permission.

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§ 2.01 Choice of Law and General Ethical Issues The OED has authority to discipline a lawyer who appears in a representative capacity before the USPTO in an IPR proceeding. This is because the USPTO Rules apply to “practitioners” who “practice before the Office.”1 As explained in Chapter 2, this means that for purposes of discipline, the OED will apply its rules to the conduct of a practitioner who has appeared in a representative capacity in an IPR proceeding. However, the USPTO does not apply its rules to petitions to disqualify; those, instead, are decided on a case-by-case basis. Thus, lawyers who have appeared before the USPTO in an IPR proceeding should comply with the USPTO Rules, but should be aware that those rules will not necessarily govern disqualification petitions. Further, as is also explained in Chapter 2, whether a state disciplinary authority would apply its rules, or the USPTO Rules, turns on the state’s approach to choice of law. Finally, if parallel federal court patent litigation is involved, ethical issues that arise that have a connection to the federal suit may not be governed by the USPTO Rules or its approach to petitions to disqualify. Although IPR proceedings are a hybrid – a specialized administrative proceeding akin to litigation but distinct from it -- many of the ethical issues common during patent litigation can arise during IPR proceedings. Expert witnesses may have conflicts or other issues, improper ex parte contacts may occur, and other ethical issues can occur in IPR just as in patent litigation. Further, protective orders in IPR may limit disclosure of information.2 Accordingly, although care must be given to choice of law, the chapters in this book of ethical issues in patent litigation may help guide practitioners in IPR.

§ 2.02 Concurrent IPR Proceedings on the Same or Related Patent in Litigation IPR petitions can be stand-alone proceedings, or take other forms. Usually, if a defendant files an IPR petition and then seeks stay of on-going litigation, the case will be stayed. However, if a petition for stay is denied, or if one patent is in IPR and a related one is in litigation, it may be necessary for counsel in the proceedings to coordinate with each other. Further, parallel IPR proceedings present the risk of violating any prosecution bar governing the litigation. [1] Coordinating Among Counsel in Litigation and IPR

1 37 C.F.R. § 11.19 2 See RPX Corp. v. Applications in Internet Time, LLC, Case IPR 2015-01750 (PTAB May 6, 2016) (finding violation of protective order may have occurred); RPX Corp. v. Applications in Internet Time, LLC, Case IPR2015-01750 (PTAB July 1, 2016) (ordering payment of fees for breach of IPR protective order).

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There are many issues that may require litigation and IPR counsel to coordinate or consult before either takes a position before the USPTO or in court. Because of the narrow scope of IPR, the most common issues will concern claim construction. Tere are many ways the need to coordinate on claim construction could arise. The position taken in IPR obviously must not only be supportable under the broadest reasonable construction standard, it must be consistent with the position of the client in litigation under the Phillips approach. The reason for the need for consistency – viewed within the prism of the different applicable approaches to claim construction – is that a position taken in one forum could harm or eliminate the ability of the client to succeed in the other. For example, a claim could be argued so narrowly in an IPR proceeding that it would not be infringed in litigation. [2] Complying with the IPR Duty of Candor As discussed below, the scope of the duty of candor in an IPR proceeding is in many respects much broader than the duty of candor that applies during patent prosecution. Significant for patent litigators, information known to people who are likely to be involved patent litigation may need to be disclosed to the USPTO if there is a concurrent IPR proceeding on the same or related patent as is being asserted in the litigation. The failure to disclose required information can result in unenforceability of the claims that are found patentable in an IPR. Obviously, counsel representing the client in the IPR has the obligation to ensure that the duty of candor to the USPTO in the IPR is met. Plainly, IPR counsel who is also serving as litigation counsel must ensure that the information is disclosed. In addition, if there are parallel proceedings, litigation counsel may need to ensure that IPR counsel is “in the loop” or otherwise knows of material information. Information known to a person involved in an IPR that is within the duty of candor to the must be properly and timely disclosed to the USPTO. In making the determination of whether and if so what information must be disclosed, so, and as discussed in Chapter 10, counsel should ensure that disclosure is permitted by the protective order in the patent suit. [3] Ensuring Prosecution Bars and Protective Orders are Honored by the Lawyer’s Side and the Opponent as well as its Lawyers, Experts, and Others As discussed in Chapter 10, protective orders in litigation may prevent disclosure of information, and prosecution bars in litigation may prevent a lawyer (or others) from participating in certain IPR proceedings, as well as certain patent prosecution or other activities. Where federal litigation proceeds with a co-pending IPR proceeding, a prosecution bar needs to be carefully examined because it could preclude litigation counsel – experts, inventors, and many others -- from participating in the IPR. Further, lawyers need to examine whether the other side is complying with a prosecution bar.

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§ 2.03 Ethical Issues Specific to IPR IPR has only existed for a few years, and rules were greatly amended and modified in May, 2016. Further, only some PTAB decisions are “informative” and so binding. Thus, practitioners sometimes are left to follow rules that could change or decisions that a later PTAB panel could reject. At the margins, practitioners should tread carefully. [1] The Rule 11-type Certification Requirement In May 2016 the USPTO adopted a requirement, based on Federal Rule of Civil Procedure 11, stating that by signing and submitting a document, a practitioner makes certain representations to the office. Specifically, 37 C.F.R. § 42.11 provides that by “presenting to the Board a petition, response, written motion, or other paper - whether by signing, filing, submitting, or later advocating it - an attorney, registered practitioner, or unrepresented party attests to compliance with the certification requirements under § 11.18(b)(2) of this chapter.” In turn, Section 11.18(b)(2) provides in full:

To the best of the party's knowledge, information and belief, formed after an inquiry reasonable under the circumstances, (i) The paper is not being presented for any improper purpose, such as to harass someone or to cause unnecessary delay or needless increase in the cost of any proceeding before the Office; (ii) The other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; (iii) The allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and (iv) The denials of factual contentions are warranted on the evidence, or if specifically so identified, are reasonably based on a lack of information or belief.

As explained more fully in Chapter 5, Rule 11 generally requires an objectively reasonable investigation into the law and facts.3 Further, as a general matter, whether Rule 11 has been violated turns on the facts as they existed at the time of filing the allegedly offending paper. For example, if a practitioner filed a paper, then learned information showing that a statement in the paper was false, the practitioner would not violate Rule 11 by failing to withdraw the paper, and the filing of the paper would not have violated Rule 11. Later advocating the false statement – even orally -- would, in

3 For a case addressing frivolous positions, though pre-dating this rule, see Leveen v. Edwards, 2002 WL 1049713 (Bd. Pat. App. & Interf. 2002).

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contrast, violate the rule. Presumably, Section 42.11 should be interpreted consistently with Rule 11. It is almost verbatim from that rule. In its comments made during adoption of Section 42.11, the USPTO stated that the rule “provides greater detail on the Office's expectations for counsel and parties participating in post grant proceedings.”4 Procedurally, Section 42.11 is distinct from Rule 11 in several respects. First, in addition to serving the motion and giving the opposing the same 21-day safe harbor required by Rule 11, Section 42.11 then requires the movant to obtain authorization from the office before filing the motion. Second, Section 42.11 does not permit sanctions to be imposed against a firm – just a practitioner, the client, or both, depending on the nature of the violation.5 Third, Rule 11 prevents a court from imposing sanctions for making a frivolous legal argument; Section 42.11 permits this.6 The opposing party in an inter partes proceeding can file a motion for sanctions (after providing 21-days safe harbor after serving it, and getting the USPTO’s authorization to file the motion) and, in narrower circumstances, the USPTO can seek sanctions on its own initiative.7 A violation of Section 42.11 can result in severe

4 Amendments to the Rules of Practice for Trials Before the Patent Trials and Appeal Board, 81 FR 18750 (Apr. 1, 2016). 5 Federal Rule of Civil Procedure 11 provides in part: “Absent exceptional circumstances, a law firm must be held jointly responsible for a violation committed by its partner, associate, or employee.” In response to a comment, the USPTO explained that it was expressly rejecting this aspect of Rule 11:

Comment 8: One comment suggested that the sanctions provisions should not apply to law firms. Response: The comment is adopted. The sanctions provision is modified in the final rule to eliminate sanctions on law firms. The Office believes that sanctions directed to practitioners and parties are sufficient deterrents.

Amendments to the Rules of Practice for Trials Before the Patent Trials and Appeal Board, 81 FR 18750 (Apr. 1, 2016). 6 Rule 11(c)(5)(A) prevents imposition of sanctions on a represented party for making frivolous legal arguments, but Section 42.11 contains no limiting language. However, it could be interpreted as being so limited because sanctions may be imposed only on the person who violated or is responsible for the violation. 7 The rest of the section provides:

(d) Sanctions - (1) In general. If, after notice and a reasonable opportunity to respond, the Board determines that paragraph (c) of this section has been violated, the Board may impose an appropriate sanction on any attorney, registered practitioner, or party that violated the rule or is responsible for the

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sanctions. [2] The Unique IPR Duty of Candor The duty of candor is typically implicated in IPR when the patentee, faced with art that renders issued claims in the proceeding unpatentable, seeks to substitute claims. Under those circumstances, the patentee has the obligation to show that the claims are patentable over more than just the art presented in the proceeding. Further, the patentee must investigate the knowledge of people who are not substantively involved in the

violation. (2) Motion for sanctions. A motion for sanctions must be made separately from any other motion and must describe the specific conduct that allegedly violates paragraph (c) of this section. The motion must be authorized by the Board under § 42.20 prior to filing the motion. At least 21 days prior to seeking authorization to file a motion for sanctions, the moving party must serve the other party with the proposed motion. A motion for sanctions must not be filed or be presented to the Board if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service of such motion or within another time the Board sets. If warranted, the Board may award to the prevailing party the reasonable expenses, including attorney's fees, incurred for the motion. (3) On the Board's initiative. On its own, the Board may order an attorney, registered practitioner, or party to show cause why conduct specifically described in the order has not violated paragraph (c) of this section and why a specific sanction authorized by the Board should not be imposed. (4) Nature of a sanction. A sanction imposed under this rule must be limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated and should be consistent with § 42.12. (5) Requirements for an order. An order imposing a sanction must describe the sanctioned conduct and explain the basis for the sanction.

(c) Violations of any of paragraphs (b)(2)(i) through (iv) of this section are, after notice and reasonable opportunity to respond, subject to such sanctions or actions as deemed appropriate by the USPTO Director, which may include, but are not limited to, any combination of -

(1) Striking the offending paper; (2) Referring a practitioner's conduct to the Director of Enrollment and Discipline for appropriate action; (3) Precluding a party or practitioner from submitting a paper, or presenting or contesting an issue; (4) Affecting the weight given to the offending paper; or (5) Terminating the proceedings in the Office.

(d) Any practitioner violating the provisions of this section may also be subject to disciplinary action.

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proceeding to identify material information. This section discusses the unique duty of candor applicable in IPR. At the outset, IPR is not subject to Rule 1.56, since that rule is limited by its terms to patent prosecution, and IPR is not prosecution. Instead, the USPTO in adopting regulations to implement the AIA, adopted a rule that is distinct: in some respects it is narrower than Rule 1.56, but in other respects it is broader. As now adopted, the rule provides in full: “Parties and individuals involved in the proceeding have a duty of candor and good faith to the Office during the course of a proceeding.”8 The language of the rule is remarkably broad when compared to Rule 1.56. Among other things, the USPTO did not limit the rule to information material to patentability of a claim. Thus, for example, the PTAB cited the obligation of candor in connection with an expert’s misrepresentation of his credentials, stating that “[e]ven the slightest accommodation of deceit or a lack of candor” could call into question the validity of the proceeding.9 Likewise, it is clear that the identity of the real party in interest is material.10 Even with respect to disclosure of prior art and information material to patentability, the rule is different from Rule 1.56. In its decisions written before adoption of the final rule, the PTAB in an informative case had explained that the patentee had the burden to show patentability over the prior art of record and also prior art known to the patent owner.”11 In a later case, the USPTO clarified that statement somewhat. Specifically, it explained that the reference to “prior art of record” meant:

1. any material art in the prosecution history of the patent; 2. any material art of record in the current proceeding, including art asserted in

grounds on which the Board did not institute review; and 3. any material art of record in any other proceeding before the Office involving the

patent.12 Although it did not adopt this language in the final rule itself, in a comment the USPTO apparently adopted this definition – but then it added the emphasized language:

8 37 C.F.R. § 42.11 9 Blackberry Corp. v. Zipit Wireless, Inc., Case IPR2014-01506 (March 29, 2016). 10 E.g., Reflectix, Inc. v. Promethean Insulation Tech. LLC, Case PTAB IPR2015-00039 (PTAB Apr. 24, 2015); Square, Inc. v. Rem Holdings 3, LLC, Case IPR2014-00312 (PTAB July 10, 2014). 11 Idle Free System, Inc. v. Bergstrom, Inc., Case IPR2012-00027, Paper 26 (PTAB June 11, 2013) (informative) at 7 (emph. added). 12 MasterImage 3D, Inc. v. RealD, Inc., Case IPR2015-00040, Paper 42 (PTAB July 15, 2015). This is consistent with the Federal Circuit decision in Prolitec, Inc. v. Scentair Techn., Inc., 807 F.3d 1353 (Fed. Cir. 2015). See Avx Corp. v. Wilson Greatbatch Ltd., Case IPR2015-00101 (PTAB May 2, 2016).

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[A] patent owner must argue for the patentability of the proposed substitute claims over the prior art of record, which include: (a.) Any material art in the prosecution history of the patent; (b.) any material art of record in the current proceeding, including art asserted in grounds on which the Board did not institute review; and (c.) any material art of record in any other proceeding before the Office involving the patent. The Patent Owner must also distinguish over any art provided in light of a patent owner’s duty of candor, and any other prior art or arguments supplied by the petitioner, in conjunction with the requirement that the proposed substitute claims be narrower than the claims that are being replaced.13

According to the text, the regulation contemplates disclosure by the patentee of material art beyond those in the enumerated list, since otherwise the emphasized language is redundant of the preceding sentence. In that regard, the PTAB has stated that the “duty of candor to the Office requires that [a patentee proposing substitute claims] discuss any relevant prior art not of record but known to it.”14 Further, it is easy to see how non-prior art information might be material to the patentability of a substitute claim. For example, a prior sale might bar a narrower claim, or be the closest evidence that the invention would have been obvious. Thus, the general language of the rule to act with candor should be recalled, not the details of particular PTAB decisions or a comment to the rule. In this regard, narrowed claims obtained through an IPR but obtained while withholding material information would apparently be subject to an inequitable conduct defense, since that litigation defense has elements that are distinct from Rule 1.56 in any event.15 A patent obtained inequitably can be found unenforceable in court whether, or not, USPTO regulations were met, in other words, because the USPTO does not regulate substantive patent defenses. Likewise, although not literally within the scope of the PTAB decisions and the comments, information from foreign proceedings involving the same or a closely related patent may be within the scope of the duty of candor in IPR. The PTAB also explained how to apply the test for materiality to a (necessarily) narrowed substitute claim:

Thus, when considering its duty of candor and good faith under 37 C.F.R. § 42.11 in connection with a proposed amendment, Patent Owner should place initial emphasis on each added limitation. Information about the added limitation can still be material even if it does not include all of the rest of the claim limitations. See VMWare, Inc. v. Clouding Corp., Case IPR2014-01292, slip op. at 2 (PTAB

13 Id. (emph. added). 14 Reg Synthetic Fuels LLC v. Neste Oil Oyj, Case IPR2014-00192 (PTAB June 5, 2015). 15 See Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1288-89 (Fed. Cir. 2011); David Hricik & Seth Trimble, Congratulations on Your Hallucinations: Why the PTO’s 1992 Amendment to Section 1.56 is Irrelevant to Inequitable Conduct, 38 Am. Intell. Prop. L.Q.J. 1 (2010).

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Apr. 7, 2015) (Paper 23) (“With respect to the duty of candor under 37 C.F.R. § 42.11, counsel for Patent Owner acknowledged a duty for Patent Owner to disclose not just the closest primary reference, but also closest secondary reference(s) the teachings of which sufficiently complement that of the closest primary reference to be material.”). 16

The breadth of whose information matters for purposes of the duty of candor is extremely broad, at least on its face. Section 42.11 when read against Rule 1.56 reveals some stark differences as to who is covered. Rule 1.56 only requires disclosure of material information from a person substantively involved in patent prosecution. In contrast, Section 42.11 is different in two ways, in both respects making it broader than Rule 1.56. First, it applies to those who are “involved” – as compared to “substantively involved” – in the IPR. Second, it applies to “parties and individuals” involved. Taken at face value, and in light of the duty to investigate, this would require an attorney representing a patentee to take reasonable efforts to determine if any employee of a corporation – since it is the “party” -- with a patent in IPR knew of material information, since the statement was not limited to knowledge known to persons affiliated with the patent owner who were substantively involved in the IPR. Thus, particularly where the same patent is in IPR and litigation, or a related patent is in IPR, IPR counsel should be aware of the duty of disclosure and those persons “involved” in IPR should understand their obligation to disclose material information to the USPTO. Again, this obligation may be frustrated if the protective order in litigation does not make disclosure permissible. Plainly, information that is material to the patentability of a substitute claim known to a person covered by Section 42.11 should be submitted along with the proposed substitute claims. However, the duty of candor runs throughout the proceedings. In a case pre-dating the rule, the PTAB stated that there is a “continuing duty of candor to update any changes in the representations” made about who was real party in interest in an IPR.17 Where there are parallel proceedings involving related applications or the same or related patents, the need to supplement submissions may arise. In this regard, § 42.123 allows for filing supplemental information, but contains specific limitations and requirements that vary depending upon when the submission is sought.18 In an

16 Id. 17 Innolux Corp., IPR2013-00028 (PTAB May 21, 2013). 18 In full, that section provides:

(a) Motion to submit supplemental information. Once a trial has been instituted, a party may file a motion to submit supplemental information in accordance with the following requirements:

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interesting case, the patentee in an IPR learned of additional prior art because it had been cited in a corresponding foreign application. Recognizing that IDSs were not permitted, the patentee asked the panel how to comply with its duty of candor under Section 42.11. In response, the PTAB stated neither party had given it any basis to conclude that the information was properly within its consideration under Section 42.123(c). [3] The Duty to Disclose Inconsistent Information A party in an IPR must serve information – as part of “routine discovery” -- that undermines positions it takes in a filing in an IPR. Specifically, Section 42.51(b)(1)(iii) provides:

Unless previously served, a party must serve relevant information that is inconsistent with a position advanced during the proceeding concurrent with the filing or documents or things that contains the inconsistency. This requirement does not make discoverable anything otherwise protected by legally recognized privileged such as attorney-client or attorney work product. This requirement extends to inventors, corporate officers and persons involved in the preparation or filing of the documents and things.

In comments adopting this regulation, the USPTO explained that the phrase “inconsistent information” was known, and pointed to the rules of evidence.19 It

(1) A request for the authorization to file a motion to submit supplemental information is made within one month of the date the trial is instituted. (2) The supplemental information must be relevant to a claim for which the trial has been instituted.

(b) Late submission of supplemental information. A party seeking to submit supplemental information more than one month after the date the trial is instituted, must request authorization to file a motion to submit the information. The motion to submit supplemental information must show why the supplemental information reasonably could not have been obtained earlier, and that consideration of the supplemental information would be in the interests-of-justice. (c) Other supplemental information. A party seeking to submit supplemental information not relevant to a claim for which the trial has been instituted must request authorization to file a motion to submit the information. The motion must show why the supplemental information reasonably could not have been obtained earlier, and that consideration of the supplemental information would be in the interests-of-justice.

19 “The term ‘inconsistent statement’ is one that is well recognized in the field, as it appears in the Federal Rules of Evidence, which will have general applicability to the proceedings (see § 42.62). For example, FRE 613 and 806 permit courts to admit evidence of a ‘declarant’s inconsistent statement or conduct.’” 77 Fed. Reg. 48612,

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explained the reason for the requirement: “the information covered by § 42.51(b)(1)(iii) is typically sought through additional discovery and that such information leads to the production of relevant evidence,” and so it was requiring its disclosure to avoid parties having to seek the additional discovery, and thereby increasing “burdens on the parties and the Office.”20 What is “inconsistent” will obviously depend upon the facts. The USPTO has made a few statements illustrating its scope. In comments, the USPTO gave an example while also reiterating its purpose, which helps to understand its scope:

For example, absent § 42.51(b)(1)(iii), a petitioner could allege that the claims are unpatentable based upon an intervening prior art where 35 U.S.C. 120 benefit is allegedly lacking due to an enablement problem based on selected petitioner test data showing a lack of enablement. While a patent owner could obtain evidence of a petitioner’s contrary test data through additional discovery once the trial is instituted, the Office believes that the better course of action is to have the petitioner provide any inconsistent test data earlier in the process, such that the patent owner could potentially address the inconsistency in its preliminary patent owner response.21

Later in comments during rule-making, the USPTO gave two examples that give some idea of the scope:

Example 1: Where a petitioner relies upon an expert affidavit alleging that a method described in a patent cannot be carried out, the petitioner would be required to provide any non-privileged work undertaken by, or on behalf of, the petitioner that is inconsistent with the contentions in the expert’s affidavit. Example 2: Where a patent owner relies upon surprising and unexpected results to rebut an allegation of obviousness, the patent owner should provide the petitioner with non-privileged evidence that is inconsistent with the contention of unexpected properties.22

These are stark examples. Beyond them, the scope of what is inconsistent are and will be fleshed out in motions seeking additional discovery, where a party asserts that the other side has failed to disclose inconsistent information.23 The USPTO has stated that the obligation “is narrowly directed to specific information known to the responding party to be inconsistent with a position advanced . . . , and not broadly directed to any

48622 (August 14, 2012). 20 77 Fed. Reg. 48612, 48622 (August 14, 2012). 21 Rules of Practice for Trials Before the Patent Trial & Appeal Board and Judicial Review of Patent Trial and Appeal Board Decisions, 77 F.R. 48612 (Aug. 14, 2012). 22 Id. 23 E.g., C&D Zodiac, Inc. v. B/E Aerospace, Inc., Case IPR2014-00727 (PTAB Apr. 14, 2015) (Paper 37).

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subject area in general within which the requesting party hopes to discover such inconsistent information.”24 With respect to whose information must be disclosed, the USPTO did not adopt the “substantively involved” standard from Rule 1.56, nor the same “party” or “person involved” standard as in the duty of candor in IPR in Section 42.11. Instead, it adopted a unique definition of whose knowledge must be disclosed, extending it “to inventors, corporate officers and persons involved in the preparation or filing of the documents and things.”25 This definition to include “corporate officers” could create difficult compliance issues in some circumstances, particularly where the officer has had no involvement at all in the IPR, and so may be wholly unaware of any obligation to disclose. Further, inventors who have parted ways with the patentee, or who indeed may be adverse to the patentee, create obvious additional problems. Finally, with respect to timing, it is clear that a party must serve any known “inconsistent” information along with the paper containing the inconsistent. But what if someone covered by the Rule later learns of inconsistent information? Must that be served on the other party? Read literally, the answer would appear to be no, since the rule does not require supplementation. The general duty of candor, discussed above, may be implicated, but it may be that someone would not be covered by it, but would be covered by this obligation. Plainly, disclosure of after-acquired inconsistent information to the other party, and if need be, to the USPTO, in most instances will be required. What are the consequences of a failure to disclose inconsistent information? Beyond the fact that it could subject the lawyer to discipline and the lawyer, or client, to sanctions, it may be that claims issuing from an IPR will be challenged as unenforceable where inconsistent information was withheld with an intent to deceive. Whether the Federal Circuit would recognize that defense, and its contours, remains to be seen, however.

§ 3.0 Exceptional Case Fee Shifting Under 35 U.S.C. § 285 and the Ethical Issues Inherent in the Current Approach.

§ 3.01 Background to the Current Approach. The standards governing whether and if so when a district court can make the loser pay the prevailing party’s attorneys’ fees has gone through a radical transformation in the last few years because of the Supreme Court accepting certiorari and reversing the Federal Circuit in two cases. Some background to those decisions is helpful to

24 Garmin Int'l Inc. et al. v. Cuozzo Speed Techs. LLC, IPR2012-00001, Paper 26, 3-4. 25 37 C.F.R. § 42.51(b)(1)(iii).

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understanding why there is a “gap” that implicates professionalism issues. Perhaps surprisingly, fee shifting was not available in patent cases until 1946, when Congress adopted 35 U.S.C. § 70. That statute granted federal courts broad equitable powers to allow for fee shifting to prevent injustice to accused infringers, as well as to ensure that an accused infringer would not pay only a royalty, thus leaving it in the same position it would have been in had it taken a license, and the patentee no better off.12 In the years following its adoption, courts recognized the equitable nature of the statute, for example stating that awarding fees should be “bottomed upon a finding of unfairness, or bad faith in the conduct of the losing party, or some other equitable consideration of similar force, which makes it grossly unjust that the winner … be left to bear the burden of his own counsel fees … .”13 Equity was viewed as the touchstone, with courts considering all of the facts.14 Courts recognized fees could be shifted in circumstances very similar to those that cause concern today: unreasonable infringement allegations, delay in suing, dropping customer-defendants, and the like.15 In 1952, Congress moved Section 70 into Section 285 of title 35, expressly stating it was adopting the cases that the courts had decided under Section 70, and explaining that was it was adding the phrase “exceptional case” to Section 285 only to capture the approach of those cases decided between adoption of Section 70 in 1946 and the codification of Section 285 in 1952.16 As it stands today, Section 285 permits an award of attorney fees to a “prevailing party” in an “exceptional case.” Thus, there are two requirements to obtaining fees: first, the party seeking fees must be the “prevailing” party and second, the case must be “exceptional.” While little has changed with respect to who is a “prevailing party,” the definition of when a case is “exceptional” has changed radically in just the past few years.

§ 3.02 The Current Approach and the Tension that Raises Ethical Concerns. Because the issue is unique to patent law, Federal Circuit law applies to determine whether a case is “exceptional,” under Section 285.24 In Octane Fitness, the Supreme Court radically recast how the Federal Circuit had been determining whether a case is “exceptional” in terms of Section 285 as follows:

12See S. Rep. No. 1503 (79th Cong. 2d Sess. 1946). 13Park-In-Theatres, Inc. v. Perkins, 190 F.2d 137, 142 (9th Cir. 1951). 14E.g., Merrill v. Builders Ornamental Iron Co., 197 F.2d 16 (10th Cir. 1952) (analyzing various facts, including whether the patentee-plaintiff could have simplified the case earlier). 15E.g., Aeration Processes, Inc. v. Walter Kidde & Co., 170 F.2d 437 (2d Cir. 1948); Brennan v. Hawley Prods. Co., 98 F. Supp. 369 (N.D. Ill. 1951). 16 See Mach. Corp. of Am. v. Gullfiber AB, 774 F.2d 467 (Fed. Cir. 1985) (explaining the addition by Congress of the “exceptional case” language to the statute). 24Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295 (Fed. Cir. 2004); Superior Fireplace Co. v. Majestic Prods. Co., 270 F.3d 1358, 1377 (Fed. Cir. 2001).

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[A]n “exceptional” case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances.25

In its first post-Octane decision affirming an award of attorneys’ fees for a prevailing plaintiff against the patent-holder, the Federal Circuit explained:

[The accused infringer-defendant] argues that the district court’s fee calculation was not sufficiently rooted in the conduct that the court found exceptional. The district court, [the defendant] contends, should have limited the award to the costs that [the plaintiff] incurred in responding to specific acts of litigation misconduct. We decline, however, to require such granularity from the district court, particularly because it is the “totality of the circumstances,” and not just discrete acts of litigation conduct, that justify the court’s award of fees.26

Thus, the totality of the circumstances, and not specific conduct such as the filing of a motion or pleading, is the basis to determine whether a case is “exceptional.” Likewise, after Octane district courts are generally applying these nonexclusive actors when deciding whether a case is “exceptional.”27 But they are merely factors, not required

25Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756, 188 L. Ed. 2d 816 (2014). 26Homeland Housewares, LLC v. Sorensen Research & Dev. Trust, 581 Fed. Appx. 877, 881 (Fed. Cir.2014) (citing Octane, 134 S. Ct. at 1756). 27See Chalumeau Power Sys. LLC v. Alcatel-Lucent, 2014 U.S. Dist. LEXIS 127645, at *9 (D. Del. Sept. 12, 2014) (awarding attorneys’ fees after finding suit and plaintiff’s claim construction positions, as a whole, to be frivolous, and finding plaintiff’s motivation for filing “a frivolous lawsuit” was for the “sole purpose of extorting a settlement fee”); Precision Links, Inc. v. USA Products Group, Inc., 2014 U.S. Dist. LEXIS 85694 (W.D.N.C. June 24, 2014) (awarding partial attorneys’ fees because plaintiff’s litigating position on two claims was objectively baseless, even infringement theory as to another claim was not objectively baseless); Yufa v. TSI Inc., 2014 U.S. Dist. LEXIS 113148 (N.D. Cal. Aug. 14, 2014) (awarding attorneys’ fees in exceptional case in part because plaintiff “testified that he filed this action without purchasing or testing any of [the] accused products to determine if they infringed … [which] suggests that [the plaintiff] did not conduct an adequate investigation prior, at the very least, to filing his first amended complaint”); Romag Fasterners, Inc. v. Fossil, Inc., 2014 U.S. Dist. LEXIS 113061, at *12 (D. Conn. Aug. 14, 2014) (“Although Defendants’ arguments with respect to non-infringement were not entirely groundless, the Court concludes that Defendants’ pursuit of its indefiniteness invalidity defense, and its failure to formally withdraw its remaining invalidity defenses until after the close of evidence [when the plaintiff moved for judgment as a matter of law] weigh in favor of an award

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elements: “Under the [Octane] standard, no bright-line rules define the parameters of what is exceptional, and no single element (such as baselessness or whether the conduct violates a rule relating to sanctions, such as Rule 11) is dispositive.”28 For this reason, a case may be exceptional and fees may be shifted even if “litigation conduct was not quite sanctionable….”26 A study from the summer of 2016 showed that the the number of motions seeking fees, as well as the percentage granted, had increased, but that even with the lower standard the success rate was about 33 percent.27 Finally, even if case is “exceptional,” a district court must “weigh intangible as well as tangible factors: the degree of culpability of the infringer, the closeness of the question, litigation behavior, and any other factors whereby fee shifting may serve as an instrument of justice.”31 Courts have viewed this step as including whether the misconduct “unfairly prejudices the opposition and improperly increases litigation expense.”28

§ 3.03 Determining Whether a Losing Patentee Brought an Exceptional Case It is clear, first, that conduct that was “exceptional” before Octane remains so today. Thus, district courts will likely continue to find cases to be exceptional where, for example, (1) the patentee failed to adequately investigate before filing suit; (2) the party should have known its claim was meritless; (3) the patentee sued solely to extract settlement to avoid costly litigation; (4) bad faith by either part; and (5) litigation misconduct.29 Further, when the accused infringer prevails against a patentee, an exceptional case finding can also follow a holding that the patent was obtained through inequitable conduct.29

of fees in this case.”); Ohio Willow Wood Co. v. Alps S., LLC, 2014 U.S. Dist. LEXIS 137485, at *125 (S.D. Ohio Sept. 24, 2014) (“Given the finding of inequitable conduct and the fact that [the defendant] prevailed on [the plaintiff’s] infringement claims, the Court concludes that this case is exceptional within the meaning of 35 U.S.C. § 285.”). 28EON Corp. IP Holdings LLC v. Cisco Sys. Inc., 2014 U.S. Dist. LEXIS 101923 (N.D. Cal. July 25, 2014) (citation omitted). 26 Lumen View Tech. LLC v. Findthebest.com, Inc., 811 F.3d 479, 483 (Fed. Cir. 2016). 27 Lionel M. Lavenue, Sean D. Damon, & R. Benjamin Cassady, Making the Nonprevailing Party Pay: The Statistics of Exceptional Cases Two Years After Octane and Highmark, Landslide 27 (July/Aug. 2016). 31 Nat’l Presto Indus., Inc. v. West Bend Co., 76 F.3d 1185, 1197 (Fed. Cir. 1996). Accord Superior Fireplace Co. v. Majestic Prods. Co., 270 F.3d 1358, 1377 (Fed. Cir. 2001); see Modine Mfg. Co. v. Allen Group, Inc., 917 F.2d 538, 543 (Fed. Cir. 1990) (similar test). 28 Magnetar Tech. Corp. v. Six Flags Theme Pars Inc., 2015 WL 4455606 (D. Del. July 21, 2015). 29Bayer CropScience AG v. Dow Agrosciences LLC, 2015 U.S. Dist. LEXIS 5880 (D. Del. Jan. 5, 2015). 29 E.g., Nilssen v. Osram Sylvania, Inc., 528 F.3d 1352 (Fed. Cir. 2008).

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Although the degree of culpable conduct necessary to warrant fee shifting has lessened, losing a patent case is not enough to justify fee shifting,30 and particularly where the loss stems from rulings made during litigation that weakened an otherwise reasonable case, fees will be denied.31 Even so, prevailing accused infringers will be able to obtain fees more readily from patentees than in the past, and inadequately adhering to claim construction rulings or asserting frivolous constructions remains a high-risk strategy.32

As a result, attorneys for patentees need to carefully assess the case and litigate

the case in a way to avoid an exceptional case finding. More fundamentally, the lawyer’s need to damper a client’s zealous – but non-frivolous – position means that a lawyer must consider professional obligations that balance both the client’s interests in zealous representation with the interests protected by the new fee shifting regime.

§ 3.04 Determining Whether a Losing Infringer Defended an Exceptional Case A losing accused infringer faces perhaps an even greater increased risk of fee shifting after Octane, and for two reasons. First, prior to Octane courts had generally held that, absent willful infringement, an attorneys’ fees award was improper.33 Putting to the side for the moment whether requiring willful infringement before awarding attorneys’ fees to a prevailing patentee was correct, the Supreme Court held that willful infringement is not required to enhancing damages in Halo Electronics, Inc. v. Pulse Electronics, Inc. 34 Given that

30 See Magnetar Tech. Corp. v. Six Flags Theme Pars Inc., 2015 WL 4455606 (D. Del. July 21, 2015) (noting that even a “plaintiff who is a hyper-litigious non-practicint entity is not prevented from asserting non-frivolous claims”); Canvs Corp. v. Nivisys, LLC, 2016 WL 659155 (M.D. Fl. Feb. 18, 2016) (explaining that a losing infringement position that was not made in bad faith, frivolous, ignored the specification or file wrapper, or had no intrinsic support was not itself the basis for fee shifting); Walker Digital, LLC v. Google, Inc., 2015 WL 5190685 (D. Del. Sept. 4, 2015) (denying sanctions); Western Falcon, Inc. v. Moore Rod & Pipe, LLC, 2015 WL 3823629 (S.D. Tex. June 18, 2015) (denying sanctions after evaluating numerous issues). 31 Cf. Angioscore, Inc. v. Trireme Med., Inc., 2015 WL 8293455 (N.D. Cal. Dec. 9, 2015); Trover Group, Inc. v. Dedicated Micros USA, 2015 WL 4910875 (E.D. Tex. Aug. 17, 2015) (Bryson, J., sitting by designation). 32 See Novartis Corp. v. Webvention Holdings LLC, 2015 WL 6669158 (D. Md. Oct. 28, 2015) (relying upon demand for nuisance settlements, failure to disclose information to the PTO during co-pending reexam, and other issues as basis for imposing fees on losing patentee); Magnetar Tech. Corp. v. Six Flags Theme Pars Inc., 2015 WL 4455606 (D. Del. July 21, 2015) (infringement opinion that lacked even basic informationalong with failure to address inventorship issue).

34 136 S.Ct. 1923 (2016).

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willful infringement is not required to award enhanced damages, it should not be required under Octane for shifting fees. Even though whether a case is “exceptional” under Octane should be determined under its standards, courts will no doubt look to Halo and its view on when damages can be enhanced as providing some additional guidance to when cases are exceptional and fees can be shifted.35

Before Halo a patentee was required to establish, by clear and convincing evidence, that the accused infringer had acted both objectively and subjectively recklessly. 36 To prove the objective prong, a patentee had to prove by clear and convincing evidence that “the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.”37 The accused infringer's state of mind was irrelevant to this objective prong of the claim, and it often turned on whether, even as late as trial, the defendant had a reasonable defense.38 The subjective prong required clear and convincing evidence establishing that a “defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.”39

In Halo, the Supreme Court rejected the Federal Circuit’s “unduly rigid” test and instead held that Congress had in Section 284 given discretion to district courts to determine whether to award enhanced damages. Now, “[t]he subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.” In addition, willful infringement need only be proven by preponderant evidence.40 The Court gave little guidance as to when damages could be enhanced:

Section 284 gives district courts the discretion to award enhanced damages against those guilty of patent infringement. In applying this discretion, district courts are “to be guided by [the] sound legal principles” developed over nearly two centuries of application and interpretation of the Patent Act. Those principles channel the exercise of discretion, limiting the award of enhanced damages to egregious cases of misconduct beyond typical infringement. 41

35 District courts are holding that a jury finding of willfulness based upon the pre-Halo standard suffices to establish a basis to enhance damages under the lower post-Halo standard. E.g., Sociedad Espanola de Electromedicina y Calidad, S.A. v. Blue Ridge x-Ray Co., Civ. A. No. 1:10-cv-00159-MR (July 8, 2016). 36 See In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc). 37 Id. 38 Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 682 F.3d 1003, 1005 (Fed Cir. 2012). 39 Seagate, at 1371. 40 Halo, 136 S.Ct. at 1935. 41 Halo, 136 S.Ct. at 1935(quoting Martin v. Franklin Capital Corp.,, 546 U.S. 132, 139 (2005) (internal quotation marks omitted)).

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Thus, fees may be shifted without a finding of willfulness,42 and likely the same factual inquiries that lead a court to enhance damages will influence its decision to shift fees.43 Indeed, under pre-Halo and pre-Octane case law, which district courts are still following, a finding of willful infringement – now a finding of egregious infringement – compels a district court to explain why a case is not “exceptional.”44 The big picture is that prevailing patentees will be able to obtain fees more readily from accused infringers in the past. As a result, attorneys for accused infringers need to carefully assess the case and litigate the case in a way to avoid an exceptional case finding. The cases are highly fact-specific. A recent case applied Octane to facts found by the jury to have constituted willful infringement under the higher, pre-Halo standard. The Eastern District of Texas identified several examples of the losing accused infringer of repeating arguments that the court had found meritless, including the argument that an expert cannot rely upon hearsay in forming his conclusions.45 This type of conduct, and not simply losing a patent case, will result in fee shifting.46

§ 4.0 Liability Even Without Full-Blown Prosecution Laches or Inequitable Conduct

§ 4.01 Languid Prosecution. Patent prosecution takes time. About that there is no doubt, and there likewise is no doubt that often delays are simply part of the process. But practitioners have an obligation to competently and diligently advance prosecution, consistent with their client’s objectives and the USPTO rules and regulations. Delays in prosecution can, in extraordinary circumstances, lead to unenforceability of a patent due to prosecution laches. This is a rare instance, however: of the 8,000,000 patents, the Supreme Court and Federal Circuit have found about five unenforceable for this reason.

42 E.g., Texas Advanced Optoelectronic Solutions, Inc. v. Inersil Corp., 2016 WL 1659926 (E.D. Tex. Apr. 26, 2016). 43 Thus, one recent decision held that, although the jury will determine whether infringement was egregious, whether to enhance was a question of law for the court. Transdata, Inc. v. Denton Mun. Elec., Civ. A. No. 6:10-cv-00557-RWS-JDL (June 29, 2016). 44 See Georgetown Rail Equip. Co. v. Holland L.P., 2016 WL 3346084 (E.D. Tex. June 16, 2016). 45 Georgetown Rail Equip. Co. v. Holland L.P., 2016 WL 3346084 (E.D. Tex. June 16, 2016). See Texas Advanced Optoelectronic Solutions, Inc. v. Inersil Corp., 2016 WL 1659926 (E.D. Tex. Apr. 26, 2016). 46 See, e.g., Chizmar v. Acco Brands Corp., 2015 WL 4388326 (S.D.N.Y. July 17, 2015) (examining totality of facts and denying fees); Texas Advanced Optoelectronic Solutions, Inc. v. Inersil Corp., 2016 WL 1659926 (E.D. Tex. Apr. 26, 2016) (same).

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The elements of prosecution laches, when asserted in litigation, are an unreasonable and undue delay in prosecution and prejudice to the accused infringer.47 Similarly, the USPTO has also authorized examiners to reject claims due to prosecution laches, but only under similar narrow circumstances. Specifically, the MPEP provides:

The Federal Circuit affirmed a rejection of claims in a patent application on the ground that applicant had forfeited his right to a patent under the doctrine of prosecution history laches for unreasonable and undue delay in prosecution. In re Bogese, 303 F.3d 1362, 1369, 64 USPQ2d 1448, 1453 (Fed. Cir. 2002) (Applicant “filed twelve continuation applications over an eight-year period and did not substantively advance prosecution when required and given an opportunity to do so by the PTO.”). While there are no firm guidelines for determining when laches is triggered, it applies only in egregious cases of unreasonable and unexplained delay in prosecution. For example, where there are “multiple examples of repetitive filings that demonstrate a pattern of unjustified delayed prosecution,” laches may be triggered. Symbol Tech. Inc. v. Lemelson Med., Educ., & Research Found., 422 F.3d 1378, 1385, 76 USPQ2d 1354, 1360 (Fed. Cir. 2005)(Court discussed difference between legitimate reasons for refiling patent applications and refilings for the business purpose of delaying the issuance of previously allowed claims.). An examiner should obtain approval from the TC Director before making a rejection on the grounds of prosecution history laches.48

A review of the MPEP provision and the cases cited there demonstrate that it will be rare indeed that a patent is found unenforceable due to prosecution laches. But delay can harm clients in other ways. For example, a client can lose valuable front-end patent term, lose overall term, be left without assets necessary to obtain financing, and simply spend more money than it should. These concerns – not prosecution laches – should drive practitioners’ focus since those harms are far more likely to occur than 5 (or so) in 8 million.

Again, some delays are inherent in the process, and some delays are attributable to things beyond the practitioner’s control, such as the client’s inability to provide necessary disclosure or test data. But a practitioner should not unnecessarily request

47 See Cancer Research Tehn. Ltd. v. Barr Labs., Inc., 625 F.3d 724, 728 (Fed. Cir. 2010); In re Bogese, 303 F.3d 1362, 1369, 64 USPQ2d 1448, 1453 (Fed. Cir. 2002); Symbol Tech. Inc. v. Lemelson Med., Educ., & Research Found., 422 F.3d 1378, 1385, 76 USPQ2d 1354, 1360, amended on reh’g in part sub nom Symbol Techn., Inc v. Lemelson Med., Educ. & Research Found. LP, 429 F.3d 1051 (Fed. Cir. 2005). 48 MPEP § 2190 (emph. added). See also Ex Parte Riddle, 2011 WL 861732 (Bd. Pat. App & Interf. March 10, 2011).

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extensions, and certainly should not bill the client when the extension is sought to accommodate the practitioner’s personal or business needs, not those of the client.

§ 4.02 Disclosure of Material Information: Inequitable Conduct is Not the Primary Concern. Since Therasense, inequitable conduct claims have been harder to plead, let alone prove. Without the sliding scale and with the requirements of but-for materiality (or “affirmative egregious misconduct”) and specific intent to deceive being the single most reasonable inference, the likelihood of a patent being ultimately held to be unenforceable for inequitable conduct have grown small. But withholding art or making misrepresentations can harm clients in many more likely ways. For example, a patentee seeking to enforce a patent through a licensing regime may face a party who will raise the costs of enforcing the patent, and overcoming inequitable conduct, as a basis to reduce the license fee. That leverage is further exacerbated post-Octane, with the threat of fee shifting even without a “frivolous” case.

§ 5.0 An Update on Conflicts of Interest in Prosecution

In late 2015, the high court of Massachusetts issued a decision in Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, 42 N.E.3d 199 (Mass. 2015). Boiled down, the court affirmed the grant of the firm’s Rule 12(b)(6) motion to dismiss a complaint that in broad terms alleged that the Finnegan firm had a conflict because it represented the plaintiff and another client in obtaining patents claiming screwless eyeglass hinge inventions. There were two broad issues the court faced: when is prosecution of patents for one client adverse to another, and when are two patent applications so close that prosecuting them creates a material limitation on the lawyer’s ability to represent either client.

With respect to adversity, this form of conflict is sometimes viewed as a “finite

pie” conflict, where two clients are fighting for a resource that cannot meet both their demands. In Maling, the court relied on a case that I’ve cited for two decades now that involved a firm representing two companies each pursuing a license to a radio channel. The court reasoned there that so long as they were not fighting over the same channel, and there was no electrical interference between the two channels, there was no direct adversity and so no conflict. By analogy, the court’s essential holding was that unless patent claims interfere or are to obvious variations of each other, there is no direct adversity. (The court also noted that giving an infringement opinion to one client about another client’s patent would be adverse, but that was not alleged, apparently, here.)

With respect to material limitations, this form of conflict arises when a lawyer’s

obligations to anyone (including himself) precludes him from competently representing a client. The basic test is: imagine what a lawyer without the “obligation” would do; and

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then ask whether the obligation the allegedly conflicted lawyer had would result in a material limitation. Simple example: if a lawyer represents a car wreck plaintiff, the lawyer generally cannot cross-examine that plaintiff even in an unrelated matter if it doing so would involve, say, exposing eyesight problems that could be used against the plaintiff in the car wreck. The court in Maling contrasted the allegations in the complaint to situations where firms have shaved claims for one client to avoid another client’s patent. There was nothing like that here, and nothing like what the court suggested might otherwise be a material limitation.

The court ended with admonitions to lawyers to be sure to monitor for conflicts carefully. I’ll end by noting that this is not the first, or last, word on this topic.

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NOTES

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