Inequitable Conduct and Regeneron Pharmaceuticals, Inc. v. Merus N.V.: Trouble Waiting to Happen

Dennis wrote up the facts of this case on the main page, here.  Boiled down, a district court held a bench trial and held that people substantively involved in prosecution of the ‘018 Patent knew of but-for material references, which were not disclosed.  Although the district court had intended to hold a separate trial on intent to deceive, instead it held that the patentee’s discovery abuses (and other apparent misconduct) warranted an adverse inference of intent to deceive.  The discovery abuses were related to the inequitable conduct issue.  Accordingly, it held the patent unenforceable for inequitable conduct.

The panel split (Judge Newman dissenting), but affirmed 2-1, holding that the withheld art was in fact but-for material and that the district court had not abused its discretion by, under regional circuit law, imposing an adverse inference (more on that, the key and troublesome issue, below).

Before getting into the repercussions too much, one thing jumped out at me:  a few days before receiving a notice of allowance for the ‘018 Patent, a third-party submitted the later-withheld references in the parent application of the ‘018 Patent.  Rather than submit those references to the examiner (either by way of an RCE or otherwise), the patentee let the ‘018 Patent go to allowance, but then submitted those references in related applications that remained pending.  That fact jumped out at me because this is a recurring problem — learning of art at the last minute. I know there are ways to at least submit the art, but it won’t be considered (not sure if that procedure was available when the ‘018 was prosecuted).  Anyhow, the fact that the art was later disclosed in related cases obviously makes it harder to argue it was cumulative of art in the ‘018 prosecution, but also obviously, not disclosing the art later, in the other cases, would have created its own difficulties.

Let’s be clear what was decided:  the panel majority held that the district court had not abused its discretion under regional circuit law by imposing an adverse inference of specific intent to deceive because of litigation misconduct during efforts to enforce the ‘018 patent.  That inference is what allowed the district court to hold the ‘018 Patent unenforceable.

This case creates some complexities and lessons for trial counsel.

First off, according to the panel-majority, mere negligence by litigation counsel is enough to justify an adverse inference under the law of this regional circuit.  Here, much of the discovery fight seems to have been over the scope of what is the “same subject” when privilege has been waived by disclosure of some documents on a subject.  Determining the breadth of waiver — what is the “same subject — is not always a simple issue, and reasonable people can disagree about scope of waiver. From the panel-majority’s opinion, the patentee’s positions did not seem tenable, but the lesson for trial counsel is to be very careful because aggressively arguing for narrow scope can be found to be “negligent” and that can result in loss of a patent right.

Second, it seems to me odd that the Federal Circuit would rely on regional circuit law where, as here, the adverse inference goes to an issue of patent law — intent to deceive under Therasense, which interprets “unenforceability” as a defense listed specifically in the Patent Act.

Third, and related to that, an adverse inference instruction where the issue is intent to deceive is, effectively, even more draconian than terminating sanctions (e.g., striking a complaint or an answer).  The impact of the adverse inference here went far beyond making one party the winner in a specific case: it took away a presumptively valid property right, and, of course, will result potentially at least in fee-shifting under Section 285.

Finally, two broader points.

First, the approach of the panel-majority of relying upon an inference is going to lead to satellite litigation and erosion of Therasense.  Why bother trying to show clear and convincing evidence that the single most reasonable inference is is deceptive intent when you can try the trial lawyers?

Second, when the OED becomes aware of a judicial finding of inequitable conduct by an practitioner, it investigates.  I’m not sure the OED would here — where the adverse inference instruction is what led to the holding of inequitable conduct — but if the OED does do so, will prosecution counsel have a claim against litigation counsel for “negligently” litigating so that this inference arose?  What about the patentee suing the litigators?

Don’t misunderstand me:  I have no idea if the lawyers “deserved” this adverse inference instruction.  The panel-majority’s conclusion that the district court did not abuse its discretion is not a holding that they did deserve it.  But this one, well, she’s a doozy.

Exergen, Therasense, and the Amended Rules of Civil Procedure

I teach civil procedure, patent law, and ethics, and so this opinion granting a motion to modify a scheduling order, and to allow an amended pleading, to plead inequitable conduct jumped out at me because someone successfully navigated the pleading issues created by a combination of case law and the amended rules limiting discovery to claims or defenses plead.

The problem that lawyers face is this:  the combination of Exergen and Therasense require (generally) pleading that a person substantively involved in prosecution knew of but-for material information, knew the information was material, but withheld it with an intent to deceive (or engaged in “affirmative egregious misconduct) and — according to Exergen (which I think was wrongly decided, in an article I wrote before it was decided, and available here) — do so under the rigorous pleading standards of Rule 9(b).  Before pleading fraud with particularity, the lawyer of course has to have a Rule 11 basis to make the allegations.

Therein comes the limitation on discovery in the 2015 amendments to the rules of civil procedure:  even with good cause, there can be no discovery into issues that are not relevant to a claim or defense.  So, how do you get discovery needed to plead inequitable conduct when you can’t plead it without discovery (usually)?

I know some courts have dealt with this problem by local rule or order, allowing discovery into knowledge of prior art, for example, even when it ordinarily isn’t relevant to validity that an inventor knew, or didn’t know, of particularly prior art (derivation being an obvious exception).  Even, however, if you can get the discovery, you then face the problem that, ordinarily, the cut-off to amend pleadings in most scheduling orders occurs long before fact discovery closes.

So, now you know why I found this case, Marical Inc. v. Cooke Aquaculture Inc. (D. Maine, July 31 2017) interesting.  On the last day of fact discovery, the accused infringer took the 30(b)(6) deposition of the inventor, who testified (basically) that he knew information that was but-for material but wasn’t disclosed to the USPTO during prosecution.  The patentee opposed the motion to amend the accused infringer’s pleading to assert inequitable conduct, arguing (a) there was no good cause to modify the cut-off date for amending pleadings, long past and (b) even if there were, the amendment was futile because it could not meet the Exergen/Therasense standard.

The magistrate held there was good cause (it said that the accused infringes was justified in waiting to assert inequitable conduct until after it deposed the inventor), and that the amendment was not futile because it met the Exergen/Therasense standard.

There’s a lot here to think on. One is to make sure that, if you have a local rule or case management order, that you follow it to make sure you plead inequitable conduct timely.  Another is, if there is no such order or rule, to be diligent and to perhaps put the other side on notice, early and before depositions, that you’re going to seek information relating to inequitable conduct even though you haven’t pled it, because you can’t plead it until you have discovery.

With Speedier Time-to-Market and Shorter Product Life Cycles: Diligent Prosecution and Beyond

I just finished a long article that attempted to look at what the past changes in the law, combined with ever-increasing changes in technology, means about patents.  I didn’t try to add a whole lot to the literature about the cases — you know that almost every case the Supreme Court has decided this century has in some way negatively affected the strength of patents, making them harder to get (e.g., KSR, Nautilus), easier to invalidate (same and of course Alice, Myriad), and riskier to enforce (e.g., Octane Fitness).  I also didn’t try to add a whole lot to the literature on how IPRs (and CBMs) have likewise negatively affected the strength of patents.

What I did try to do was look at what is happening, ever increasingly, which is that in many areas of technology time-to-market has become shorter, and, likewise, product life cycles have become shorter.  We get new products more often, and so obviously they’re coming and going more quickly. In many instances, and in a growing number, the product can get to market long before a patent issues after the (average) 25 month pendency, and it may not be on the market long enough to recoup investment. There was some interesting analysis of those last two points.

Where we are increasingly at is a place where economics may not justify applying for a patent.  Not everywhere, but more often, practitioners will find themselves in that place.

I have no idea the degree to which that is the case now, or the extent to which it will become the case more in the future. It is no doubt patent and industry specific.  But if you combine the negative legal landscape with market realities, you see less need for patenting. The direction is clear; the degree, no idea.

Add to that mix the rise of 3D printing, and you can see that infringement will also be occurring in a diffused manner, by individual consumers, and in circumstances often hard to detect.  (CADster should be a great domain name; grab it now.)

Competent practitioners should consider several things.  One is to recognize that diligent prosecution is becoming more important for clients.  Another is that examining whether to discuss with clients the use of Track One, PPH, or the pilot program (or the program — forget its name — that allows for accelerated examination when there’s an older inventor named).

Another is an odd provision in Section 154(d) that allows recovery of damages accruing after a defendant knows of a published patent application, to the extent that it “infringed” those published claims. Mailing copies of published applications to those who may infringe upon issuance may be good practice in some areas.

Anyhow, I’m about to head on vacation for two weeks, and thought I’d leave you with some broader thoughts.

And… a court says “You could’ve done what TC Heartland’s Defendant did”

Following up to the post below, in iLife Technologies v. Nintendo (N.D. Tex. June 27, 2017), the court held a venue challenge waived, writing in part: the “intervening twenty- seven years may have created reliance on VE Holding by litigants, including Nintendo, but that does not change the harsh reality that a party could have ultimately succeeded in convincing the Supreme Court to reaffirm Fourco, just as the petitioner in TC Heartland did.”

Where we are, I think is: (a) if venue is “now” improper in a case, you better be moving on it, no matter what you did in the past as far as waiving, raising, or conceding it, and filing your motion as soon as possible; but (b) there’s going to be, I think, deference given to district court decisions on this when and if one gets to the Federal Circuit. (I vaguely recall mandamus is available if a district court transfers a case out of a circuit, and that line of review may apply here, so maybe we’ll get a review before a final judgment, or maybe a judge will certify a case for interlocutory review, or it’s appeasable under Cohen, though I doubt that.)  Finally, people ought to look at the cases where, after a few recent Supreme Court cases narrowing general personal jurisdiction, folks tried to make a similar argument — that the law had changed.

Raising Venue Post TC Heartland

There’s going to be a lot of litigation over whether a defendant who failed to object to venue pre-TC Heartland can raise it now.  In fact, why not a plaintiff?

One argument has succeeded, but I honestly wonder about its foundation.  The argument goes like this:  (a)  Rule 12 only operates to waive certain 12(b) “defenses,” including improper venue, only if the defense was “available” when the defendant filed its answer or filed its pre-answer motion (waiver also occurs if someone includes an objection to improper venue in its answer, but doesn’t raise it promptly in a post-answer motion); (b) because of VE Holdings, the objection to improper venue was not available; and so (c) there was no waiver and the objection is now available.  A recent district court Westech Aerosol Corp. v. 3M Co. (W.D. Wa. June 21, 2017) accepted this argument, allowed the objection to be raised.  It did, however, consider issues like prejudice and delay — which, ordinarily, aren’t issues in improper venue motions.

Well, okay maybe.  But if I were a judge, especially if the case had been pending a while, I’d say: “the defendant in TC Heartland raised the issue, so are saying you’re special, and it was ‘available’ only to that defendant?”  Put in legalese, there has been a non-frivolous basis for arguing that VE Holdings was wrongly decided since, well, the day that case was decided.

Granted, there is probably a spectrum here:  a defendant who included the objection to improper venue in its answer, but then did not move to dismiss, is no doubt in a better place than a defendant who did not include it at all (at least as far as atmospherics go), and plainly courts should consider the disruption and prejudice that these “now available” motions will raise.

Competent lawyers should think about whether to raise the defense (it may be a bad idea for a client, even if it is available), and how to defeat it.  Likewise, a plaintiff might consider a strategic motion, too!

 

Texas Supreme Court to Hear Arguments on Patent Agent Privilege

The Federal Circuit last year in In re Queen’s University held that its law controlled and there was a patent agent-client privilege. That brought some clarity, since there had been a split on even the existence of the privilege.

Enter Texas, where one of its court of appeals held that, because the claim in that case was not patent infringement, but a state law claim, Texas law applied, and under it, there was no patent agent privilege.  My earlier post about it is here.  That post also links to the amicus brief I filed, arguing a point not raised by the parties: that under Texas choice of law principles, Federal Circuit law applied and there was good reason to defer to its approach.

The Texas Supreme Court just announced that it will hold oral argument on the pending petition for mandamus relief.  My instincts tell me that this means the court is likely going to reverse, which would be a good thing because clarity will reduce costs.  No date is set, yet.

PTAB Grants Permission to File Motion to Disqualify Expert

The PTAB in Fujifilm Corp.  v. Sony Corp. (IPR 2017-01267 & 2017-01268) granted permission to the patentee to file a motion to disqualify an expert for the petitioner.   APJ Kokoski, after a teleconference, granted permission to file the motion.

Expert witnesses are not subject to the more familiar rules that govern loyalty and attorneys.  To disqualify an expert, the decision explained:

Disqualification of an expert is a drastic measure we hesitate to impose except when absolutely necessary. See LaCroix v. BIC Corp., 339 F. Supp. 2d 196, 199 (D. Mass 2004) (noting that “courts are generally reluctant to disqualify expert witnesses”). To resolve a motion to disqualify an expert, district courts generally apply a two-prong test to determine (1) whether it is objectively reasonable for the moving party to believe that it had a confidential relationship with the expert; and (2) whether the moving party disclosed confidential information to the expert that is relevant to the current proceeding. Id. at 199–200. A court is compelled to disqualify an expert only when the answers to both inquiries is affirmative. Wang Labs., Inc. v. Toshiba Corp., 762 F. Supp. 1246, 1248 (E.D. Va. 1991); see Agila Specialties Inc. v. Cephalon, Inc., Case IPR2015-00503, slip. op. at 4 (PTAB Aug. 19, 2015) (Paper 13).

It will be interesting to see if the patentee can meet this standard, but a takeaway is to monitor for conflicts (and to check to see, for example, if a prosecution bar in a prior case might prohibit conduct that the ‘common law’ of expert disqualification might not reach.

Issue Preclusion and Disqualification

As a general rule, unless the former client consent, a lawyer cannot represent a client in a matter that is materially adverse to a former client if it is the same matter he had represented the former client in, or if the adverse matter is “substantially related” to his prior work.  So, for example, ordinarily, if I represent Client A in a suit asserting the ‘123 Patent, I can’t later represent a defendant against whom Client A asserts the ‘123 Patent; that would be the “same” matter, and obviously representing a defendant against a plaintiff is materially adverse.

Figuring out what is “substantially related” to the ‘123 Patent, however, is a complicated problem.  The starting point obviously is the ‘123 Patent and what it discloses.  But how broad technologically speaking do we go?  Does it include patents issued off of continuations?  Probably.  Issued off of CIPs?  Maybe.  What about information I learned in litigation by reason of representing Client A that wasn’t really technologically related?  For example, what if I learned of its financial situation? While the vast majority of courts recognize that the fact that I might have learned how Client A litigated patent cases doesn’t “count” in this context, a few do.  So where do I draw the line(s)?

That uncertainty is underneath a decision from the divided Colorado Supreme Court, in a non-patent case but one worth noting because patents are often asserted serially, or concurrently, against multiple parties.  (There are several cases where Law Firm 1 represents a “Client A” against non-clients, while other firms assert the same patent for Client A against a client of Law Firm 1, which creates related issues.)

Because of the nature of patent litigation, whether a representation against a former client is ethical, or not, could come up more than once. Suppose it’s fully litigated the first time.  Does the fact that in the first motion to disqualify, a court holds there is no “substantial relationship” mean that, in a subsequent very similar later case, there also won’t be one?

In Villas of Highland Park Homeowners Ass’n. v. Villas at Highland Park, LLC, (Yolo. May 22, 2017), a law firm defeated a motion to disqualify brought by its former client.  It showed up again in another suit, very similar. The former client again moved to disqualify.  The trial court in the second case, at least in the 4-judge majority’s view, reasoned that because the first suit was not substantially related to the lawyer’s work for his former client, neither was the very similar second suit.

The majority held that the trial court abused its discretion and emphasized that determining whether there is a substantial relationship is fact-intensive.  Three judges dissented, and bemoaned the fact that this could lead to seriatim disqualification motions.

So, for patent lawyers, this case means to always carefully assess a potential representation.  Perhaps you avoided disqualification earlier: that doesn’t mean you are free and clear this time.

Tech Transfer Reports on AIA Drafting Flaw Affecting Thousands of Patents

No idea if this is correct, but figured it deserved a post.  The article asserts that if a provisional was filed in the name of the assignee (applicant), it cannot serve as the basis for a priority claim because the statute says only that a provisional filed by “an inventor” can serve that purpose.  Anyone have insight? Further, the article portrays this as affecting only universities, but one would think a broader impact more likely?

Discovery Ethics: 30(b)(6)

So…

Lawyer sends over a 30(b)(6) request trying to get the deposition of the corporation as to why certain prior art had not been submitted during prosecution.  Rather than have an employee investigate and figure out why the art wasn’t disclosed, or object to the notice, the recipient produces an employee who basically says, “I didn’t investigate but we’re an honest company and so if we didn’t disclose it, it’s because we didn’t know about it or it wasn’t material.”

The judge wasn’t amused, and the decision in Raytheon v. Cray (E.D. Tex. Payne, J., June 6, 2017), is here.  “The rules don’t give Ratheon the right to ignore” the 30(b)(6) notice is about as simple as it gets.  Boy, there are days I don’t miss litigation!

Augmented Patent Drafting and Ethics

We live in interesting times.  Specficio (here) allows registered practitioners to submit a claim set (one independent with as many dependent as desired), and the software drafts a specification for review before submission.  Currently, it supports only software-related inventions.  The biographies of the founders reveal a lawyer, a venture capitalist, a linguistic expert, and more.

AI is going to affect everything in the law, and it happened already and will increase in speed exponentially (literally) over the next few years.  Beyond the basic question of the quality of the value-add the service provides, I had these questions:

First, what about conflicts?  This entity is going to provide a specification to anyone who submits a claims set.  So, imagine two competitors, and a lawyer for Company A and a lawyer for Company B submit claim sets, and submit them.  This company provides specs for claims that interfere.  Conflict of interest?  If it’s not, why not?  In this regard, the TOS says that it is not providing legal advice, and so any ethical rules about conflicts would not apply, presumably.

Second, and related to that, what about confidentiality?  The privacy policy states that it is taking steps to avoid “cross pollination” of applications and that no human looks at the text. The privacy policy is a complex read:

  1. Privilege and Confidentiality.

Privilege

You are engaging Specifio to provide the Site and Services in order to assist you in providing provision of legal advice to your client.

It is understood that only you and your client have the right to assert or waive the attorney-client privilege, not Specifio.

To the extent permitted by law, it is intended and agreed that any communications made to Specifio by you or your client in connection with your use of the Site and Services shall be privileged and that any such communications shall be made to facilitate communications between you and your client and to aid you in rendering legal advice to your client.  We, therefore, shall not divulge to anyone any communication (or part or substance thereof) received from you or your client in connection with the Site and Services.

Definition of Confidential Information

For the purposes of this paragraph 1, “Confidential Information” means patent claims, and any resultant draft patent application specifications and/or drawing figures generated by the Services, that you e-mail to us or that we e-mail back to you in accordance with the intended use of the Services.

Restrictions on Use and Disclosure 

Keeping your Confidential Information safe is paramount for Specifio.  In addition to our obligations respecting privilege described above, we will not use your Confidential Information except to provide you with the Services and as described in this Privacy Policy.  We will maintain in confidence and protect your Confidential Information using at least the same degree of care as we use for our own information of a similar nature, but in all events at least a reasonable degree of care.

Your patent claims can be e-mailed to Specifio in password-encrypted Microsoft Word documents, which is how Specifio returns draft specifications to you.  Specifio runs on secured (data encrypted) U.S.-based servers and does not keep copies of Confidential Information, except for the obscured content-stripped versions described below.  At every step of the way, Confidential Information is guarded from human eyes or other outside access, as described in this Privacy Policy.

We may keep and use obscured content-stripped versions of your Confidential Information; however, the content words will be removed from the documents and replaced with nonspecific symbols so that the meaning of the text cannot be ascertained.  For example:

The statement

The present disclosure relates to systems and methods for facilitating review of a confidential document by a non-privileged person by stripping away content and meaning from the document without human intervention such that only structural and/or grammatical information of the document are conveyed to the non-privileged person

would look something like this:

the p0018 d0017 r0019s to systems and methods for f0000ing r0001 of a c0002 d0003 by a n0004 p0005 by s0006ing a0007 c0008 and m0009 from the d0003 without h0010 i0011 such that only s0012 and/or g0013 i0014 of the d0003 are c0015ed to the n0004 p0005.

We use these obscured content-stripped versions for limited internal purposes only, such as to analyze document structures and word forms, which helps use do things like provide you with better support services and improve the Services.

In addition, Specifio does not train its machine-learning models on the content of any Confidential Information.  This helps ensures there is never “cross pollination” between patent applications.

We will not disclose to anyone that you are a Specifio customer or that you are using the Services, without your prior written consent in each instance.

Exclusions

The restrictions set forth in paragraph 1 will not apply with respect to any Confidential Information that: (i) was or becomes publicly known through no fault of ours; (ii) was rightfully known or becomes rightfully known to us without confidential or proprietary restriction from a source other than you who has a right to disclose it; (iii) is approved by you for disclosure without restriction in a written document which is signed by you; or (iv) we independently develop without access to or use of your Confidential Information.  The restrictions set forth in paragraph 1 will not restrict us from disclosing Confidential Information pursuant to the order or requirement of a court, administrative agency, or other governmental body, provided that we give you reasonable notice to enable you to contest such order or requirement

The restrictions set forth in this paragraph 1 will survive the termination or expiration of your use of the Site and Services.

You agree to reimburse us for reasonable legal fees and expenses incurred in connection with any litigation or administrative proceeding resulting from: (i) our failure or refusal of to comply with any attempt to compel us to disclose any communication described in described in this paragraph 1 (or part or substance thereof) or to produce documents or (ii) the obtaining of, or attempt to obtain, a court order compelling us to disclose any communication described in this paragraph 1 (or part or substance thereof) or to produce documents.

Given this, one would think the information submitted would remain privileged because of normal privilege doctrine (a lawyer can have non-lawyers help her draft a spec, for example, without waiving privilege), and the site’s privacy policy quoted above indicates that it will do its best to preserve whatever privilege you have.  (Though apparently it won’t assert privilege.)

To sum up for a moment, the folks behind this seem to have thought a number of issues through, and there is great comfort in the TOS and privacy policy in some respects.  But, if I were you, I’d do some due diligence on what is behind the words, in part because of the limitations on liability and other limitations you will be agreeing to on behalf of your client. Among other things, the TOS basically eliminates, prospectively, almost all liability, requires you to indemnify it for any claims, and requires you arbitrate — which may require consultation with your client.

Next, despite saying that it’s not providing legal services, drafting a specification is — at least as the term is now understood — the practice of law.  If that is so, then we have a corporation providing legal services.  Can you use a corporation to provide legal services to your client in your state?  That might be the unauthorized practice of law, so check.  Further, the founders, presumably sharing the fees, do not appear to all be lawyers, or registered practitioners.  Lawyers cannot let non-lawyers control representations.  Lawyers cannot share legal fees with non-lawyers.  It all could be perfectly fine, but those facts gave me pause. Again, it’s a new world.

Further, the TOS says the services can be performed anywhere in the world.  That could create a need for disclosure to a client, and, potentially at least, some other issues if the information in the claims is particularly sensitive.

Please note: I’m not saying this is unethical, illegal, or a bad idea.  I have no informed opinion. I see issues.  I am a big fan of reducing legal costs and speeding up patenting (that’s going to be critical in the near future).  But, despite looking at the entity’s web page, I have questions that, if I were you, I’d investigate first.

PTAB Judges and the Lack of an Applicable Ethics Code

Someone reached out to me and pointed out that Gene Quinn over on ipwatchdog is quite upset by the fact that there is no code of judicial ethics specific to PTAB judges and the like. His latest article, of many, is here.  That’s a good idea.

There should be a specific and distinct set of ethical rules applicable to them. I’m not sure there isn’t one already. 28 USC 455 applies to all federal judges, including somewhat analogous magistrates, and could be interpreted to extend to them. (I doubt it, but I haven’t researched it.)  If it doesn’t, the USPTO could by regulation (or internal operating procedure, perhaps) simply adopt the language of Section 455 and get this done.  And it should.

Mr. Quinn goes on at length about alleged personal unethical conduct, and makes some sharp accusations and personal attacks that I don’t want to leave any impression that I agree with.

But some of his accusations arise from his belief about legal ethics or federal law that go directly to the idea of the substance of a code and so I’ll touch on those limited ones, and only some of those.  For example, Mr. Quinn writes  “there is no time limit on a duty to a former client, at least if you are a patent practitioner. So the 1-year recusal period is wholly without precedent and inappropriate for PTAB judges.”  Likewise, Mr. Quinn states that federal law governing Article III judges “has specific provisions that would seem to absolutely prohibit a judge from handling a case where a litigant is a former client.”

Neither argument should be taken seriously in crafting a PTAB code.

With respect to lawyers, pretty much every jurisdiction recognizes there is a “time limit” (as he puts it).  It works this way:  I can be adverse to a former client if information I learned from the former representation has become generally known or has become “stale.”  So there is a “time limit” of sorts, by rule in most jurisdictions and in case law in others so far as I know.

As for judges, there is no prohibition against a judge ever adjudicating a dispute involving even a former client the lawyer personally represented.  No, the federal statute regulating Article III judges (and magistrates) (28 USC 455) and the Code of Judicial Conduct don’t state some  minimum amount of time that must pass after a lawyer represents a client before she can judge a dispute involving that former client. But, with the federal judiciary, two years seems to be the outside long “norm” for a judge to wait before adjudicating cases involving former clients the judge actually and personally represented.  See, e.g., Sphere Drake Ins. Ltd. v. All Am. Life Ins. Co., 307 F.3d 617, 621-22 (7th Cir. 2002) (“The norm among new appointees to the bench is that once two years pass, perhaps even earlier, a judge is free to sit in controversies involving former clients”) (emph. added)).

My point is that having a set of rules specific to adjudicative officials is probably a good idea.  I do hope the USPTO takes the idea to adopt a set of rules applicable to adjudicative officials seriously, both to encourage confidence in the system and to avoid subjecting officials to criticism unanchored to a well-known standard like Section 455.

New Patent Assertion Entity Flying Above the Radar: Blackbird

Perhaps there are other entities like this, but if so they haven’t made the boom that this one has.  Blackbird Technologies was founded by former big-firm (WilmerHale, Kirkland Ellis) patent litigators. It buys (or somehow obtains rights to assert) patents and asserts them with its own in-house staff of litigators.  Its “news” page reports a number of suits — at least 100 in its short life — and reports that it settled many.

It came onto my radar because of an interesting case involving a prosecution bar.  A defendant pointed out that because Blackbird’s business is buying patents to assert, no lawyer at it should see the defendant’s highly confidential information because those lawyers could then go acquire patents that covered the defendant’s planned products.  The court resolved the issue by requiring the company to covenant not to sue with respect to future products, an interesting resolution of the problem.  A pertinent part of the order in Blackbird Tech LLC v. Service Lighting and Electrical Supplies, Inc., et al., C.A. No. 15-53-RGA (D. Del. May 18, 2016) (Andrew, J.) provides:

the Court will require that Blackbird agree to a covenant not to sue any of these Defendants for infringement of patents involving lighting technology that are acquired during the time between the entry of the protective order and one year after the conclusion of the litigation. To be clear, if Blackbird acquires a patent on any lighting technology6 during the restricted time period, it may never assert that specific patent against these Defendants.

(As an aside, I would love to see how it acquires patents, since some interesting ethical issues could arise from its acquisition practices, since it’s a corporation but it’s practicing law, it seems.  There are some very odd issues that arise sometimes.)

Then I read that Blackbird has sued Cloudflare (Blackbird Tech LLC v. Cloudflare, Inc., which it seems is an Internet security company.  In response, Cloudfare put a “bounty” on every Blackbird patent.  That story is reported widely, including here and here, for example.

Blackbird states that it is designed to help small inventors overcome the obstacles of patent litigation, including the obstinate, more powerful defendant.  I am know that small inventors, and small companies, sometimes face the 800 pound gorilla defendant who refuses to deal fairly, and so the benefit that something like Blackbird can bring is real.  It will be interesting, however, to see if that is what Blackbird is, or if it is going to bring a bunch of nuisance suits, which Cloudflare believes it has done, as it has stated here.

Nova Chemicals v. Dow Chemical: Does 285 Apply to Independent Actions to Set Aside Judgments and Does the CAFC Have Subject Matter Jurisdiction?

This one, Nova Chemicals Corp. v. Dow Chemical Co., __ F.3d __ (Fed. Cir. May 11, 2017) (here) is interesting because of the issue it doesn’t raise, but more on that in a moment.  Patentee Dow sues and obtains a judgment against Nova.  Years later, the defendant believes that the judgment had been obtained by fraud, and brings an independent action in equity (as allowed by FRCP 60) to set aside that earlier judgment.  Basically, Nova asserted that Dow had lacked standing, basing its argument on some later testimony in an unrelated case, and that the infringement proofs had been misleading.

To set aside a judgment under these circumstances, through an independent action, requires proof of fraud on the court or a truly grave miscarriage of justice.  The district court dismissed the complaint and the CAFC affirmed that dismissal under Rule 36, without any opinion.

Then Dow moved in the district court for fees.  The district court granted them under Section 285, which of course allows a court in patent cases which are “exceptional” to award fees.  Nova never argued 285 did not apply, and the CAFC noted that on appeal.

The CAFC affirmed the district court’s findings, and it’s an odd case not likely to recur, so the substance of the panel’s 285 analysis isn’t too revealing.

But what is interesting to me are two things.  First, the apparent concession by Nova that 285 applies to equitable actions to set aside judgments. I’m not sure that is so clear but presumably they looked at that.  But it is also interesting to me, and is related to that, that this appeal (and the earlier appeal) was taken to the Federal Circuit, not to a regional circuit.  The Federal Circuit’s appellate jurisdiction is limited to civil actions arising under the patent laws, which an independent action to set aside a judgment is not, one would think…

The Jenner & Block Contingent Fee Case Heads to SCOTUS… the Client Hopes

I’ve discussed a few times this fight over whether a patent assertion entity should be required to pay full hourly fees, or anything, to a firm that dumped it after losing the case on summary judgment, when the client hired another firm, got the case reversed on appeal by paying hourly rates to the new firm, and later settled the case for significant money.  The last post on it was here, and, full disclosure: I was an expert opposed to Jenner & Block, which was awarded money in the arbitration and prevailed in the state court fight over confirmation of that award.

Generally, the question before the Supreme Court is whether the Federal Arbitration Act preempts a state from setting aside an award if it violates a state public policy.

An amicus brief in support of cert was just filed by the Eagle Forum (yes, Phyllis Schafly’s outfit), which is interesting in and of itself.  A link to that brief is here.  According to it, there is a circuit split on this issue. If, as apparently the courts below held, an arbitration award cannot be challenged even if it requires enforcement of an unethical fee agreement, it’d be nice to have the Supreme Court make that point, so the rest of us can take corrective action in legislatures.  Can you imagine the holding, if the allegations are true:  “an unreasonable fee can be enforced in arbitration because that’s what Congress intended when it adopted the FAA in 1925…”

It seems to me that if this is the law, maybe every lawyer-client arbitration clause will need to say: “In addition to losing your right to trial by jury, any ethical limitation on our fees will not apply…”

Think on that one.

Alleged Unethical Payments to Experts Who “Volunteered” to Testify

I serve as an expert witness, and there are a variety of difficult ethical issues that being one presents, but whether you can say you’re not being paid when you are isn’t one of the difficult issues.

The case where experts allegedly were being paid when the jury was told they weren’t isn’t a patent case, but it’s interesting.  At trial, the plaintiff’s lawyer allegedly told the jury that his experts weren’t being paid, but had volunteered out of concern for people injured by the product, a hip replacement device made by the defendant, J&J.

J&J loses, and it’s not just any loss, but a “bellwether” case — the first case in a series of cases, and so its outcome will affect the value of the rest of the cases. And it’s not just a loss, it’s a $500m judgment, reduced to “only” $150m under tort reform caps.  And it’s not just a series of cases: there apparently 9,000 similar cases pending.

J&J has moved under 60(b) to set aside the judgment because, it asserts, in fact the experts knew they were going to be paid and were paid after trial, and a charitable donation was made.  The case is on appeal in the Fifth Circuit, and there’s a longer story about it, here.

IP Firm Sues Former Lawyer for Improperly Soliciting Clients Before Departure

Lawyers leaving a firm are often tempted to try to persuade clients to go with them, to make copies of files that may not be their property, and to engage other activity that may constitute breach of fiduciary duty to their current firm.  Some of that — and more allegedly happened in Houston, resulting in the filing of JL Salazar Firm v. Friedrich.  An article about the case is here.

I’ve walked lawyers through departures many times, and most states have bar opinions providing step-by-step “instructions” for what can, and cannot be done.  Often lost in the desire to leave, and to make a new start, is the fact that the clients don’t “belong” to anyone.

 

Supreme Court Affirms Causal Requirement for Sanctions under Inherent Power

In patent litigation, as in all civil litigation, district courts have various means to impose sanctions for litigation misconduct.  Rule 11, Rule 37, Section 1927, and, of course, Section 285 are rule- or statutorily-based means to impose costs on those who litigate improperly.

Federal courts also have the “inherent power” to impose sanctions even if one of those rules or statutes is not violated.  But, because it is judicial in nature and cannot be used to swallow the rule, inherent power has long been somewhat cabined. Among other things, the Court has always held that any sanctions imposed must be causally related to the misconduct.

The Court affirmed that requirement in a non-patent case, Goodyear Tire & Rubber Co. v. Haeger (Apr. 18, 2017).  In that case, Goodyear engaged in a years-long effort to hide key documents from the plaintiffs, who, not knowing of them, settled the case.  When they sought sanctions, the district court awarded all of the litigation fees the plaintiff had incurred from the time when the scheme had begun:  $2.7 million.  It also held, conditionally, that $2 million was caused directly by the shenanigans.

The Ninth Circuit affirmed, but the Court reversed, unanimously.  It reiterated that in some cases — such as when the entire defense or entire claim are brought in bad faith — a shifting of all fees is proper, but found that was not the case here.  Instead, unable to discern if the $2 million conditional award was appropriate, it remanded for the courts below to decide what amount had actually been caused by Goodyear’s misconduct.

Section 285 is often the myopic focus of patent litigators.  While the Goodyear opinion confirms the causation requirement of inherent power, it also should remind litigators to think of all available means to seek compensation for improper litigation conduct.

Employee’s use of Employer’s Email Server Waives Privilege

Many employers allow employees to use email, but have policies that state that the employer is free to monitor email.  Many cases have held that, depending on the facts, the employee cannot assert privilege under those circumstances:  both in claims between employee and the employer and between the employee and a third party.

This doctrine bit another employee recently, in a New York Appellate Division case, Peerenboom v. Marvel Entertainment, LLC, (N.Y. App. Div. March 16, 2017), available here.  The court found spousal privilege and attorney client privilege waived because the employee (the chair of the company) lacked a reasonable expectation of privacy based upon application of the four factors from the leading case.

Any time a lawyer is aware that his client is sending emails from an employer, he should consider whether privilege will be deemed waived, and, conversely, lawyers should look to see if the opponents are doing this, and so waiving privilege.

This is not a new body of law, but it continues to bite people.

Pleading Infringement, Pre-Suit Investigation, and a New Ruling

As you know, it used to be you could file a complaint for patent infringement using Form 18, which barely said anything beyond “Plaintiff owns a patent, and you infringe it.”  Nowadays, patent infringement complaints, like all others, must comply with Iqbal and Twombly, which require pleading factual material that, if taken as true, plausibly states a claim upon which relief can be granted.

A while back, I wrote about how this is going to be difficult to do in some cases: how do you gather a Rule 11 basis to plead plausible facts when, for example, the claimed method is practiced by a corporation inside its well-guarded factory?

A recent decision, Harvard v. Micron (17-11249, D. Mass. Jan. 31, 2017) (available here), gives a real world example of this.  The original complaint alleged that the patented method was commonly used to perform the accused process.  The defendant moved to dismiss, asserting that this was not enough to make it “plausible” that, in fact, the defendant used the method.

The district court granted the motion, and the plaintiff re-pled. The defendant moved to dismiss again, saying the amendment was futile because it still failed to show plausibility.  The judge denied the motion:

Harvard admitted there are multiple methods of achieving the film found on Micron’s chips, and Harvard had no way of demonstrating Micron used the patented “common” method and not one of the other procedures. Tr. Mot. Dismiss 5:13-6:16. Hence, all Harvard plausibly could argue with regard to Micron is that Micron’s chips possessed a film (which itself is not patented), and Harvard’s patented method is one of a number of possible ways to create that film. That is, Harvard suggested that it is possible that Micron uses Harvard’s patented precursors without rendering it plausible that Micron does so.

A complaint that merely argues it is possible the defendant infringes is insufficient under the Twombly standard. See Garcia-Catalan 734 F.3d at 104-05. In its amended complaint, however, Harvard does more than simply state that Micron might use the patented method because it is common. Harvard alleges that Micron has publicly contemplated using the patented precursors, as evidenced by Micron’s own patents. Am. Compl. ~ 44. In the ‘725 Patent, Micron suggests using alkylamides as an ALD precursor. Def.’s Opp’n, Ex. B, ‘725 Patent col.S, 11.24-30, ECF No. 39-3. Alkylamides are amongst the precursors encompassed by claim 24 of Harvard’s ‘539 Patent. Compl., Ex. B, ‘539 Patent col.32, 11.17-22. This explicit identification of a patented precursor makes it plausible to believe that Micron infringed upon the ‘539 Patent, and that plausibility is all that is needed to survive a motion to dismiss, see Twombly, 550 U.S. at 559-60. Because the amended complaint survives the Twombly standard, its filing would not be futile.

While all well and good, the problem is that often this evidence will not be available, allowing infringement to go unchecked.  Further, this pleading problem means that patent drafters should think of ways to claim the method in such was as to avoid the problem.  That may not always be possible, of course.