Juries especially are prone to favor litigants and lawyers they like and case theories they easily understand.  That is human nature on display in the courtroom.

Certain types of patent claim theories and defenses possess greater “narrative allure” than others.  In patent litigation, the inventor’s journey of discovery is often a key trial narrative, including a recitation of the trials and tribulations incurred on his or her way to obtaining an official U.S. patent—together with its certified seal and blue ribbon.

For those accused of infringing patents—whether through being named as a defendant or identified as a culprit in a cease-and-desist letter writing campaign—the best choice for a compelling defense story is often less apparent.  Affirmative defenses, compulsory counterclaims or declaratory judgment causes of action are often asserted in blunderbuss fashion in order to preserve any and all claim or defense theories.

Patents and their dense, impenetrable prose and complicated technical and scientific jargon often make little sense to the uninitiated—i.e., to almost everyone other than inventors, patent prosecutors, expert witnesses, and patent litigators.  Advances in cognitive science are now showing that jurors will seek to avoid the mental strain associated with deciphering difficult trial testimony and jargon, and will instead rely on simpler, preconceived notions of how businesses and their executives operate in rendering their jury verdict decisions.[1]

By virtue of its relative simplicity and the seeming ease by which it can be understood by a lay jury, a “Walker Process” antitrust claim offers an appealing defensive/offensive claim theory for alleged patent infringers.  Named after a leading Supreme Court case[2] decided in 1965, a Walker Process claim stands for the proposition that “the enforcement of a patent procured by fraud on the Patent Office may be violative of § 2 of the Sherman Act provided that the other elements necessary to a § 2 [monopolization] claim are present.”[3]

The financial incentives for pursuing a Walker process claim are quite significant: a prevailing litigant may be able to recover treble damages and attorneys’ fees.  These claims most often appear as a compulsory counterclaim to an allegation of patent infringement.  However, they can also be asserted affirmatively, along with declaratory judgment claims for patent non-infringement, invalidity and unenforceability.

The jury appeal and potential monetary rewards of a Walker Process claim also raise corollary patent legal malpractice risks for both parties.  For the party prevailing on such a claim, the risks for the other side are obvious: a patent has been held unenforceable due to inequitable conduct and the client is facing a potentially huge monetary exposure or judgment for damages and the successful party’s attorneys’ fees and costs.  Even if the Walker Process claim is ultimately unsuccessful, the losing party may argue that the patent counsel’s prosecution conduct increased the litigation costs of enforcing a patent right and resulted in a weakened settlement position.

For the party who pursues and loses a Walker Process claim, the failure of the claim may well be due to an inability to meet one or more of the procedural and substantive requirements that accompany Walker Process claim litigation.  For example, if the client is not properly advised about these detailed requirements, or if proof was not appropriately marshalled and applied to various Walker Process claim elements, the failed claim may also subject the patent litigator to unwelcome malpractice exposure.

This article discusses both the potential jury appeal of and corollary patent legal malpractice risks associated one of the most alluring claims in the patent litigation pantheon.

The Jury Appeal of a Walker Process Claim

The intuitive jury appeal of a Walker Process claims is easy to grasp.  Patentees who sue others—especially competitors—based on patents that they know were fraudulently procured are readily perceived as “bad” actors and unworthy claimants.  When heavy-handed enforcement tactics are piled on top of an already soiled patent grant, it becomes a simple matter for a jury to decide who should prevail in a lawsuit.  An example of this jury decision-making in action is a recent jury verdict rendered in favor of a Walker Process claimant in Transweb v. 3M Jury Verdict.[4]

Two Federal Circuit cases involving food technology demonstrate the jury allure of Walker Process antitrust claims.  For example, in Dippin’ Dots, Inc. v. Mosey, 476 F.3d 1337 (Fed. Cir. 2007), the plaintiff owned a patent for the process of making a flash-frozen novelty ice cream product.  The lawsuit began when several former licensed distributors severed their business ties and entered into competition with Dippin’ Dots.  The evidence introduced in the case showed that that the inventor had sold at least 800 customers a form of Dippin’ Dots at a Festival Market mall over one year before applying for a patent—raising an on-sale invalidity bar under 35 U.S.C. § 102(b).

The Festival Market sales were neither mentioned during the USPTO’s examination of the subject patent application nor identified by the inventor as information that might be relevant to the patentability of the invention.  The inventor testified that these sales only practiced three out of six steps of the patented process; while the attorney prosecuting the patent application characterized the same sales as being “experimental,” since the manufacturing process used to make Festival Market sales could not be feasibly exploited commercially.[5]  The jury, however, found that both the inventor and patent attorney each had “with intent to deceive, made material misrepresentations or omissions in violation of the duty of candor to the PTO.”[6]  Although the jury rendered a verdict in favor of the Walker Process claim, it curiously awarded zero damages.

Similarly, in Unitherm Food Systems, Inc. v. Swift-Eckrich, Inc., 375 F.3d 1341 (Fed. Cir. 2004), the case involved a method for browning precooked meat products—a desired innovation for microwavable food products.[7]  Unitherm manufactured ovens and created a process for browning precooked meats.  ConAgra believed that the Unitherm process violated its patent rights and sent cease-and-desist letters to companies selling equipment for preparing and browning precooked meats and to its direct competitors, including Jennie-O (a division of Hormel).  Jennie-O had previously installed Unitherm equipment in its operations.[8]

Unitherm and Jennie-O joined forces and brought declaratory judgment claims for patent invalidity and unenforceability of the subject patent and an affirmative Walker Process antitrust claim.  The evidence developed through summary judgment proceedings showed that Unitherm had actually demonstrated its browning methods to ConAgra and others and sold “RapidFlow” ovens that utilized this browning process before the ConAgra patent application was filed.  The undisputed evidence demonstrated that the Unitherm process included each and every limitation of the alleged patented process.  In other words, ConAgra had tried to patent Unitherm’s process.  Based on these facts, the jury returned an $18 million verdict ($6 million trebled) in Unitherm’s favor with its respect to its Walker Process antitrust claim.[9]

The Exacting Legal Hurdles in Advancing a Walker Process Claim

Despite the treble damage and attorneys’ fees incentives associated with Walker Process claim recoveries and their potential narrative allure for juries, Walker Process claims face a plethora of procedural and substantive legal hurdles.  While the rewards of a successful Walker Process claim can be great, its litigation pathway is full of minefields and craters.  Here are some of the major hurdles.

Rule 11.  The first hurdle is presented by Fed.R.Civ.P. 11.  Walker Process claims include multiple elements, some of which are difficult to assess at the outset of a case.  These elements must be supported by an adequate pre-suit filing investigation:

• The patentee obtained the patent by knowingly and willfully misrepresenting facts to the USPTO.
• The party enforcing the patent was aware of the fraud when bringing suit.
• There is independent and clear evidence of deceptive intent.
• There is a clear showing of reliance, i.e., that the patent would not have issued but for the misrepresentation or omission.
• The necessary elements of an underlying violation of § 2 of the Sherman Act can be demonstrated, to wit, (a) specific intent to control prices or destroy competition; (b) predatory or anticompetitive conduct to accomplish the monopolization; (3) a dangerous probability of success; and (d) causal antitrust injury.

Misusing patent rights may constitute the “willful” or “predatory” conduct that renders a monopoly or an attempted monopoly illegal under § 2 of the Sherman Act.  Litigation costs can constitute a cognizable antitrust injury, so long as the claimant also demonstrates a “serious threat to competition.”  See Rickards v. Canine Eye Registration Foundation, Inc. 783 F.2d 1329, 1336 (9th Cir. 1986).

Because facts that may demonstrate the patentee’s fraudulent conduct are likely not publicly available or readily discoverable without access to the patentee’s files and records, it may be difficult to allege a Walker Process antitrust claim without some pretrial discovery.

Rule 9(b).  A second hurdle and pleading requirement will be Fed.R.Civ.P. 9(b), which requires that allegations of fraud be pled with particularity.  However, a party need not plead the intent element of its Walker Process claim with particularity. Rather, the “circumstances” constituting the fraud must be alleged with specificity.  See Competitive Techs. v. Fujitsu Ltd., 286 F.Supp.2d 1118, 1149 (N.D. Cal. 2003).  Again, it may be difficult to meet this Rule 9(b) pleading burden until some discovery has taken place.  Deadlines for amending pleadings can come up quickly in cases, so if a Walker Process claim appears potentially viable, it will be important to propound related discovery requests as soon as practicable.

Rule 12(b)(6).  A third hurdle is the inevitable motion to dismiss a Walker Process claim for failure to state a claim pursuant to Fed.R.Civ.P 12(b)(6).  Federal courts impose a “plausibility” standard in determining whether a claim is supported by alleged facts, and not just conclusory allegations.  Indeed, the first Supreme Court case to impose a plausibility requirement arose in the antitrust claim context.  See Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)(allegations of parallel conduct alone are not enough to sustain an antitrust conspiracy claim).  This heightened pleading requirement has led to an upsurge in early motion to dismiss practice in all federal cases.

Rule 56.  A fourth hurdle is summary judgment motion practice pursuant to Fed.R.Civ.P. 56.  The purpose of a summary judgment motion is to avoid unnecessary trials when there is no genuine dispute as to material facts, and the moving party can demonstrate that it is entitled to judgment as a matter of law.  A claimant is not allowed to rest upon its allegations, but rather must set forth specific material, disputed facts that warrant trial resolution.  Many Walker Process claims fall by the wayside during summary judgment proceedings.

A good example is found in the Federal Circuit’s very recent IGT v. Alliance Gaming Corp. decision affirming the district court’s summary judgment dismissal of a Walker Process claim.[10]  The case involved patents applicable to a computerized “Wheel of Fortune” casino game popular in Las Vegas.  The district court had determined that the subject patents were invalid as being obvious, setting the stage for a potentially viable Walker Process claim.  However, the district court could not find sufficient proof that a relevant product market or submarket of gaming machines existed for monopolization purposes.

Because patent monopolization claims always require an analysis of the economic impact of the exclusionary rights associated with the patent, it normally will be essential to develop expert witness testimony to analyze and substantiate the market power of the subject patent right in a relevant product market.[11]  This is because ownership of a patent in and of itself does not necessarily confer antitrust market power.

Appeal to the Specialized Federal Circuit.  The Federal Circuit represents a fifth hurdle in pursuing a Walker Process antitrust claim.  Even assuming that this claim is tried successfully to a final judgment in federal district court, the Federal Circuit has exclusive appellate jurisdiction over Walker Process claims, including any that are filed as compulsory counterclaims.  See 28 U.S.C. § 1295(a)(1).  As a specialized court, the Federal Circuit tends to exhibit a pro-patent bias; in other words, Walker Process claims will be very closely scrutinized by an appellate body disinclined to favor these claims.[12]

Whether an underlying patent has been fraudulently obtained is controlled by Federal Circuit jurisprudence.  Since the Walker Process claim is always premised on allegations of inequitable conduct before the USPTO, the accused infringer must prove that the patentee acted with the specific intent to deceive the USPTO.  Further, inequitable conduct must be based on “but-for” materiality.  For example, when an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the USPTO would not have allowed a claim had it been aware of the undisclosed prior art.  See Therasense, Inc. v. Becton, Dickinson and Co., 649 F.3d 1276 (Fed. Cir. 2011).  However, the Federal Circuit also recognized an exception for “affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit,” for which but-for materiality need not be established.  Id. at 1292 (“Although but-for materiality generally must be proved to satisfy the materiality prong of inequitable conduct, this court recognizes an exception in cases of affirmative egregious misconduct.”).

The two food processing technology cases previously discussed illustrate the Federal Circuit’s penchant for reversing Walker Process claim jury verdicts.  In the Dippin’ Dots case, the Federal Circuit opined that the applicant’s failure to disclose facts that implicated the on-sale bar did not rise to the level of specific intent to deceive the USPTO.  Id., 476 F.3d at 1347.  In contrast, in the Unitherm case, the Federal Circuit held that the facts supported a specific intent to deceive the USPTO about the true inventorship of the patented process, but that the Walker Process claimant had failed to prove a relevant product market that had been monopolized.  As mentioned, product markets are not necessarily coterminous with the scope of a patent right.  Id., 375 F.3d at 1363-65.  No material evidence had been submitted to demonstrate the presence or absence of viable economic substitutes for the food browning process at issue.

The Federal Circuit imposes exacting requirements on Walker Process claims in part because of its jurisprudential belief that an unenforceability remedy should dissuade patent applicants from engaging in inequitable conduct.  Inequitable conduct with respect to any single patent claim renders an entire patent unenforceable.  In the Therasense majority decision, this remedy is labeled as the “atomic bomb” of patent law.

Loss of  Insurance Coverage for Walker Process-Related Malpractice Claims

To prevail on a Walker Process claim, the accused infringer, as discussed must prove that the patentee acted with the specific intent to deceive the USPTO.  A finding that the misrepresentation or omission amounts to gross negligence or negligence under a “should have known” standard does not satisfy this intent requirement.

The problem with this strict formulation of the inequitable conduct standard lies with the roadblock it creates down the line in seeking insurance coverage for potential “Walker Process” legal malpractice claims.  Since the inequitable conduct at issue must be intentional and deceitful by definition, insurers can be expected to deny any obligation to provide indemnity coverage for such claims.  If the patent legal malpractice lawsuit follows a successful Walker Process verdict, the patent prosecution attorney–whose conduct forms the basis for Walker Process claim liability–will be fighting a proverbial uphill insurance coverage battle in any ensuing patent legal malpractice lawsuit.

To preserve coverage and a duty to defend, the involved patent prosecution counsel will need to demonstrate to the insurer that while the Walker Process claim alleges intentional conduct, the actual conduct at issue giving rise to the alleged Walker Process allegations involved negligent conduct, at most.  Because of these and other complications, patent lawyers whose conduct is at issue in infringement litigation under the guise of a Walker Process claim should consult with their own counsel because of the conflict and schism than can emerge between the patent owner and its own and (perhaps now former) patent prosecution counsel.

Conclusion

The Wheel of Fortune casino game at issue in the IGT case is an apt metaphor for the chances of ultimate success in pursuing a Walker Process antitrust claim.  The claim has tremendous jury appeal because it focuses on the personalities and actors and business motivations involved in the process of obtaining a patent, rather than the oftentimes dense technological subject matter of the invention.

If the Walker Process witnesses are not presentable and the patentee’s enforcement conduct lacks valid patent justification, a jury will have company villains on which to focus in its search for narrative truth and coherence.  Deciding who is good or bad is much easier for juries to evaluate than understanding mind-numbing technological jargon and prolix claim language.  Jurors prefer stories that conform to their worldviews—and the Walker Process claim provides a juicy one of supposed greed and deception in order to game the patent system and obtain an unfair market advantage.

Win, lose or draw, the Walker Process claim may also generate an ill-wind of patent legal malpractice claims.  The core of the claim is inequitable conduct.  If that type of conduct is even colorably demonstrated or if a Walker Process claim is brought at great expense and fails to pass muster, one can expect a fair amount of Monday morning quarterbacking from peeved clients regarding the course of patent prosecution that undermined what appeared to be a viable patent infringement claim.

The Federal Circuit first held that federal courts should exercise exclusive jurisdiction over patent legal malpractice claims in two separate panel decisions issued in October 2007.  In the view of a super-majority of Federal Circuit judges, exclusive jurisdiction is a done deal.  As Judge Dyk stated in his concurring opinion denying a rehearing in the Byrne v. Wood Herron case, “I see no reason to revisit this court’s repeated holdings that where the outcome of malpractice cases turns on federal patent law, federal jurisdiction exists.”

But some of members of the Federal Circuit beg to differ with this jurisdictional result.  Two impassioned dissents and two begrudging concurrences authored by Judge Kathleen O’Malley may well compel SCOTUS review.

Judge O’Malley’s dissent case in the Byrne case is blunt.  She rebukes the Federal Circuit for its supposed jurisdictional land grab: “It is time we stop exercising jurisdiction over state law malpractice claims.”  Per O’Malley, rather than “force the Supreme Court to correct our jurisdictional mistakes, we should take this opportunity to do so ourselves.”  She is not alone in her convictions.  Judge Evan Wallach, the appellate court’s newest member, joined in Judge O’Malley’s dissent.

In dissenting from a denial of a Memorylink v. Motorola rehearing some three weeks later, Judge O’Malley again opined that this “court’s routine extension of jurisdiction to purely state-law malpractice claims is improper and conflicts with governing Supreme Court precedent.”

Having already dissented twice, Judge O’Malley reluctantly concurred with the Federal Circuit’s dismissal of the state law claims implicating patent law in the USPPS v. Avery Dennison decision issued on April 17, because “our case law compels that we exercise subject matter jurisdiction over it.”  Although she conceded the import of the Federal Circuit’s holdings, Judge O’Malley added a stinging rejoinder that the “case exemplifies the mischief our jurisdictional over-reaching has caused in situations where a state law claim involves an underlying patent issue.”  Interestingly enough, Judge Mayer (a Federal Circuit judge since 1987) joined in this concurring opinion.

Finally, in a decision issued on April 23, 2012, Judge O’Malley concurred in the result of the Federal Circuit’s decision in Landmark Screens v. Morgan, Lewis & Bockius, but wrote separately because “our case law in this area treads unduly into matters which are—and should remain—governed by state law [and] I encourage our court to address the scope of our jurisdiction in these matters en banc.”

With this kind of jurisdictional gauntlet being laid down, the filing of petitions for writs of certiorari appears imminent.  Will the Supreme Court seize on this opportunity to rein in an expansionist Federal Circuit?  Or will it deny any forthcoming cert petitions and implicitly bless the Federal Circuit’s exercise of authority over patent legal malpractice claims?  This brief article examines this question further in light of legislative history of the Federal Courts Improvement Act of 1982 and a review of Byrne, Memorylink, USPPS and Landmark Screens case facts.

Divining 1982 Legislative History

Chief Judge Rader is a leading proponent of the Federal Circuit’s decision to fold patent legal malpractice cases into its patent jurisdictional mandate.  He, along with then Chief Judge Michel and Circuit Judge Lourie, issued the two panel decisions in 2007—the Air Measurement and Immunocept cases—that resolved an “issue of first impression,” i.e., whether 28 U.S.C. § 1338 jurisdiction exists where a legal malpractice claim requires resolution of an underlying question of patent law.

During a seminar at the ABA/IPL’s recent 2012 spring meeting, Chief Judge Rader talked about his early years on Capitol Hill and his work as counsel for the Senate Judiciary Committee.  One of his primary initial tasks involved working on what would become the Federal Courts Improvement Act of 1982, the legislation that formed the Federal Circuit and granted it exclusive authority over patent appeals.

The legislative history of the Act explains the need for a court of appeals whose jurisdiction is defined on a topical rather than geographical basis.  The Senate judiciary committee determined that “an adequate showing has been made for nationwide subject matter jurisdiction in the areas of patents and claims court appeals.”   S. Rep. No. 97-275, at 4, as reprinted in 1982 U.S.C.C.A.N. 11, 14.  The basic objective of the legislation is to provide for “uniformity of doctrinal development in the patent area.”  Id., at 5.  The testimony in support of the creation of the Federal Circuit demonstrated that “patent cases are inconsistently adjudicated” and that that “forum shopping [is] common in patent litigation.”  Id.

But the Senate committee report further notes that it “must be understood, however, that it is not the committee’s judgment that broader subject matter jurisdiction is intended for this court.  It must therefore be noted that any additional subject matter for the United States Court of Appeals for Federal Circuit will require not only serious future evaluation, but new legislation.”  Id. at 4 (emphasis added).

The legislative history does not explicitly discuss whether federal courts should exercise exclusive jurisdiction over state law patent legal malpractice claims.  Although concerns about forum shopping and inconsistent patent litigation adjudications animated passage of the Federal Courts Improvement Act of 1982, neither of these concerns was expressed in connection with the resolution of patent legal malpractice actions.  This absence of congressional discussion perhaps can be explained by the relative paucity of patent legal malpractice claims before the creation of the Federal Circuit.

Doctrinal uniformity of patent law is a vital goal of the 1982 Act.  That goal is arguably best satisfied by requiring that patent legal malpractice claims be filed in federal court in the first instance and that their appeals heard by a specialized patent appeals court.  By creating a more commercially robust patent system, the Federal Circuit spawned a system of high stakes patent prosecution and litigation.  By expanding jurisdiction over the lawyer “stakeholders” in the patent system as well as the intangible property created through a government grant, the Federal Circuit can exercise more complete control over the entire patenting process.

A super-majority of the Federal Circuit obviously believes that no new legislation is necessary to support exclusive federal court jurisdiction over state law claims whose merits turn on issues of federal patent law.

 Are Judge O’Malley’s “Substantiality” and “Federalism” Objections Valid or Overstated?

What should one make of Judge O’Malley’s vigorously expressed substantiality and federalism concerns in extending federal court jurisdiction over patent matters?

To meet the Supreme Court’s Grable test for determining whether a federal issue embedded in a state law claim warrants the exercise of federal question jurisdiction, courts must consider whether: (1) the federal issue is a necessary element of a state law claim; (2) a federal issue is actually disputed; (3) the federal issue is substantial; and (4) exercising federal jurisdiction will disturb the balance of federal and state judicial responsibilities.

The first two Grable  factors are generally viewed as favoring an exercise of federal jurisdiction over patent legal malpractice claims.  The “case within a case” nature of a patent legal malpractice claim means that patent issues are embedded and that the outcome of the malpractice claim may require resolution of those underlying patent issues.  In addition, individuals who are registered to practice before the USPTO are bound by ethical canons and disciplinary rules set forth in Code of Federal Regulations (see 37 C.F.R. § 10.1 et seq.).  These two topics implicate federal patent law and are likely to arise in any patent legal malpractice action.

The jurisdictional debate essentially revolves around whether federal patent issues can be classified as “substantial” when the court rulings in a legal malpractice claim cannot create binding law regarding the patent grant itself.  If so, can the insubstantial result justify upsetting the traditional balance of federal and state judicial responsibilities?  Judge O’Malley frames the issue succinctly in her USPPS concurrence:

“Where [. . .] the resolution of any patent issue will relate to hypothetical circumstances and neither result in a finding of either infringement or invalidity nor have any precedential effect in any patent law action, the federal interest is marginal at best.  *  *  * *  Left unchecked and unrevised, our case law will continue to upset the balance of federal and state judicial responsibilities.”

The facts of the four recent precedential cases can shed analytical light on whether Judge O’Malley’s substantiality and federalism concerns are justified.

Byrne v. Wood Herron

Byrne’s malpractice claim centered on an allegation that his patent prosecution counsel “negligently failed to secure broader patent rights [for a lawn trimmer device] from the [USPTO] and, as a result, Byrne was unsuccessful in a subsequent patent infringement lawsuit against Black & Decker [and related entities].”  The district court’s dismissal of Byrne’s claims turned on whether Byrne and his patent attorney expert were sufficiently qualified to opine as experts or as persons of at least ordinary skill in the relevant art of string trimmers.

The Byrne facts present classic patent law questions.  They would be understood and resolved most readily by those familiar with patent law jurisprudence.  These issues would not be second nature to state court jurists, however.  Most state court judges will never rule upon a POSITA (an acronym for “person of ordinary skill in the art”) issue in their judicial tenures.

The Federal Circuit’s Byrne panel decision (even though technically non-precedential) is illuminating and clarifies the standards by which expert and POSITA declarations should be evaluated by patent practitioners.  In contrast, a state court opinion on the standards for POSITA declarations would be rather meaningless.  A dissent argument that patent legal malpractice cases perforce have no precedential impact ignores this significant point.  Federal court malpractice cases will establish precedential standards for the patent bar where state court adjudications of such claims may well yield no binding guidance.

Memorylink v. Motorola

The Memorylink case involves allegations that Motorola basically co-opted inventorship of two U.S. patents regarding technology to wirelessly transmit and receive multimedia data.  Memorylink and Motorola had previously entered into a joint development agreement regarding this technology.

Memorylink named five in-house Motorola patent counsel in a malpractice claim.  The malpractice complaint was preceded by and closely tied to another complaint that included claims for correction of patent inventorship and patent infringement.  The federal district court dismissed Memorylink’s malpractice claim as untimely under applicable Illinois statutes of limitation and repose.  The Federal Circuit summarily affirmed the dismissal pursuant to Fed. Cir. R. 36.

Judge O’Malley’s substantiality and federal/state balance of power concerns gain more traction in this case.  Because the case turns on state statutes of limitation and repose, no issue of patent law was actually litigated.  On the other hand, federal court judges would not need an instant education regarding inventorship issues if the malpractice claim had survived dispositive motion practice.  State court judges would have.

How joint ventures operate in the context of federal ethical canons and disciplinary rules eventually would have surfaced in the Memorylink case.  Motorola’s in-house patent counsel would have had their conduct scrutinized in the context of those federal regulations.  Having a federal judiciary experienced with patent law rules would have been much more efficient than having an inexperienced state judiciary deal with these issues.  Had the case proceeded, it may well have led to a precedential ruling of intense interest to the patent bar.

State judges and bar associations likely would have no experience applying CFR-imposed ethical canons and disciplinary rules to the practice of patent prosecutors.  In this regard, patent agents are not attorneys, but are subject to federal examination and ethical and disciplinary requirements governing their patent practice.

Evaluated against this factual milieu, the dissent’s assertion that exercising exclusive federal jurisdiction over the Memorylink malpractice claim upsets a state/federalism balance rings hollow.  It might be marginally more efficient in the short run for a state court adjudication of statute of limitations and repose issues upon which many patent legal malpractice cases turn.  However, those efficiencies would be lost when patent issues surface, as they eventually must in non-dismissed actions.  Because federal district court judges rule on statutes of limitation and repose issues repeatedly, there is no reason to believe that they would be less able to apply state law as well as state court judges in their jurisdictions.

Further, the malpractice claim in Memorylink involved issued, non-expired patents.  Far from being non-precedential, a ruling on inventorship (or lack thereof) in a state court proceeding could well have profound effects on the ultimate enforceability of the subject patents over their lifespan.  Certainly, a federal court or appellate ruling would have even more force and would provide uniform guidance to those involved in patent-based joint ventures.  These more nuanced federalism issues are not broached in Judge O’Malley’s recent opinions.  They raise federalism concerns in a rather nostalgic fashion; they do not examine the actual, palpable efficiencies that can be expected from an assertion of exclusive federal court jurisdiction over state law claims founded on patent law.

USPPS v. Avery Dennison

Like the Memorylink case, the USPPS case stems from a falling-out between an inventor and his licensee and the licensee’s attorneys who took over prosecution of the patent application under the terms of a licensing agreement.   The licensor sued both Avery Dennison and its outside law firm claiming that they had mishandled the patent prosecution, leading to an abandonment of the patent application.  The district court dismissed the claim on statute of limitations grounds.

Judge O’Malley’s substantiality and federalism concerns have some facial appeal with respect to USPPS case facts.  No patent had ever issued, and the case dismissal turned on state law grounds.  Had the case not been dismissed, the embedded patent conflict of interest rules would have become litigated subject matter and would likely have provided guidance to patent lawyers about their relative duties and obligations under this kind of licensing scenario.  State court rulings would lack national uniformity and thus would not provide the kind of real guidance patent practitioners may need regarding their CFR-imposed ethical obligations.

Landmark Screens v. Morgan Lewis

The Landmark Screens case involves an invention of a light-emitting diode electronic billboard.  The inventor retained the former Pennie & Edmonds law firm to prepare his patent application.

The underlying alleged patent legal malpractice concerned deficiencies with respect to a divisional patent application that adversely affected its ability to benefit from the priority date of the original patent application.  Because of these errors, when the original patent application was published, it became prior art to the divisional application.  A bad result.

Landmark Screens filed a patent legal malpractice claim in November 2005 in state court, but that case was dismissed for lack of subject matter jurisdiction in 2008 in light of Federal Circuit’s Immunocept and Air Measurement cases.  When the claims were refiled in federal court, the patent legal malpractice claim was dismissed based on California’s one year statute of limitations.  An amended state fraud claim would later be dismissed on statute of limitations grounds.  Potential damages were previously limited by an order restricting their permissible scope.

The Federal Circuit reversed the dismissal of the attorney fraud claim and vacated the damages limitation order.  To do so, it applied California equitable tolling law.  The district court’s damages ruling stemmed from how damages are impacted by a reissued patent claims.  To prevent a reissued patent from claiming scope “lost” by the defective divisional patent application, the lower court cut off any damages as of the date of the reissued patent.

The Landmark Screens case demonstrates some clear efficiencies of exclusive federal court jurisdiction.  The interplay between divisional and reissued patents and their predecessors is a complex patent law issue.  To rule on these matters effectively at a state court level would have required extensive briefing and education and potential use of expert witnesses.  Federal courts are much more versed in these issues and by granting them jurisdiction, much of the state court patent education expense can be avoided by party litigants.

The “mischief” that Judge O’Malley refers to in her opinions is really directed to the stumbling procedural snafus caused by courts and party litigants as they began to find, understand and apply the Federal Court’s new case law regarding exclusive federal court jurisdiction over patent legal malpractice claims.  Now that this basic rule of federal exclusivity is more well-known, these procedural snafus—such as not filing the malpractice claim in federal court in the first instance or appealing a patent-based case to a regional circuit rather than the Federal Circuit—should naturally fall away.

Conclusion

What began as a fissure in a Byrne panel decision questioning the continued wisdom of exercising federal jurisdiction developed into a full-blown string of vigorously stated dissents and concurrences in four recent Federal Circuit precedential decisions.  The fissure that emerged is now as wide as the Columbia Gorge.

Unless Judge O’Malley’s dissenting voice catches fire soon with those reviewing Supreme Court writ of certiorari petitions, the Federal Circuit’s s Byrne, Memorylink, USPPS and Landmark Screens holdings plainly show that exclusive federal jurisdiction over patent legal malpractice cases is here to stay.

Add to this mix these salient facts: (1) neither Protostorm nor its counsel appears to ever proofread the completed PCT patent application after it is filed; (2) Protostorm fails to pay its patent attorneys and closes up shop; and then (3) some five years later, the start-up principals learn that Google might be infringing upon their patent right.

The answer to this delegation of patent prosecution question is an abandoned, misdesignated PCT patent application and a flurry of client and attorney fingers all pointing at each other.  In other words, a patent legal malpractice mess that is very hard to resolve through summary judgment proceedings.

This Protostorm cautionary tale takes place against the immutable backdrop of a statute prohibiting the unauthorized practice of patent law.  35 U.S.C. § 33 provides that “[w]hoever, not being recognized to practice before the Patent Office, holds himself out or permits himself to be held out as so recognized or as being qualified to prepare or prosecute applications for patent, shall be fined not more than $1000 for each offense.”

A violation of 35 U.S.C. § 33 and related USPTO rules can have a profound, reverberating effect leading to patent unenforceability, as one Protostorm ethics expert opines.

The facts giving rise to the Protostorm legal malpractice claim will seem commonplace enough in our information age.  Protostorm wants to obtain worldwide patent rights for an online computer game and related software.  Its regular corporate counsel does not engage in patent work, so it refers the company to a lawyer (Kathy Worthington) who is knowledgeable about intellectual property matters.  By her own admission, she is not registered to practice before the USPTO.  Worthington, in turn, introduces her new client to Antonelli, Terry, Stout & Kraus, LLP (“ATS&K”), a law firm specializing in patent work.

All goes well with the preparation filing of a first U.S. provisional application.  Worthington prepares it and an ATS&K attorney (admitted to practice before the USPTO) reviews, signs and files it.  Worthington’s bills are sent to Protostorm’s corporate counsel for payment.  Protostorm is advised that a non-provisional patent application must be filed within one year in order to take advantage of the provisional patent application’s filing priority date.

Then patent prosecution runs head-on into a § 33 roadblock.  Worthington prepares and files a second provisional application to address some additional invention developments.  The second provisional patent application is reviewed by the Protostorm’s corporate counsel, but is not reviewed nor supervised by patent counsel authorized to appear before the USPTO.

In the course of preparing the second provisional patent application, Worthington seeks the advice of a different ATS&K lawyer—not the associate or partner involved in the first provisional patent application filing.  This ATS&K lawyer (George Stevens) declines to provide any advice and instead informs Worthington that he cannot assist her because of to do so would result in his aiding a non-patent practitioner in the unauthorized practice of law.  See 37 C.F.R. § 10.47(a).  Stevens does not self-report this potential violation to the USPTO because he believes he had gained this information in Worthington’s attempt to form an attorney-client relationship with him.

Worthington signs and files the second provisional patent application anyway and lists herself as the “contact.” Worthington never informs the other two ATS&K lawyers whom she had worked with previously about Steven’s unwillingness to assist her in the preparation of the second U.S. provisional patent application.

As the one year deadline nears for filing of the non-provisional U.S. patent application, a scramble is on to prepare it.  A sole practitioner, Dale Hogue, is contacted.  He is formerly of counsel in the ATS&K firm.  Hogue enters into a retainer agreement with Protostorm.  It states that ATS&K may assist him in patent application filing logistics.  Hogue is the only attorney who enters into a formal retainer agreement with Protostorm.

Because of Protostorm’s delay in retaining him, Hogue believes he is in “almost an impossible situation” to file the patent application on time.  Despite this rush, he drafts and sends it to the client, Worthington, and his former ATS&K colleagues for review and filing.  He tells ATS&K lawyers that Worthington will provide separate instructions regarding foreign patent application filings.  Hogue expects that ATS&K will take all the steps necessary to prosecute the patent application and assumes he will have no further involvement with it.  After receiving Protostorm’s instructions, Worthington directs ATS&K to file a PCT application and designate protection for every PCT signatory country.

Over a hundred boxes are checked for PCT signatory countries in the application filed by ATS&K.  Curiously, boxes are left unchecked for Mongolia, Zimbabwe and the United States.  The filed PCT application is circulated to Protostorm and various attorneys.  ATS&K  calendars the various key PCT deadline dates.  No separate U.S. patent application is ever filed.

“Things Fall Apart”

When a court uses a caption “Things Fall Apart” in a summary judgment ruling, you know the outcome cannot be good for the lawyers involved.

To make a long story short, despite the fact that the completed PCT application was circulated by ATS&K to Protostorm’s principals, its corporate counsel, Hogue and to Worthington, no one notices that fact that the PCT box for the United States had not been checked, and that no separate U.S. patent application had been filed.  The record explanation is that the PCT country designation page was inadvertently missing from the completed PCT application circulated to the client and all counsel after its filing.

ATS&K eventually receives a “Invitation to Correct Defects in the International Application” from the United States Receiving Office (where the PCT application had been filed).  Among other things, it points out that the patent application had been signed by an agent/common representative—but was not accompanied by a requisite power of attorney (“POA”).  ATS&K also receives a World Intellectual Property Organization (“WIPO”) notice informing them that the PCT application had been received and that certain countries had been designated.  The US designation is not among them.

Worthington sends the POA to Protostorm’s principals and requests that they sign it.  She also informs them that they she will not do any more work for Protostorm until her bill is paid.  (Protostorm failed to pay Worthington $8,865 out of total of $11,640 in billings.)

ATS&K also realizes that it too had not been paid by Protostorm.  As a result, an ATS&K internal note states: “DON’T DO ANY FURTHER WORK ON THIS CASE.”  (Protostorm apparently believed that any amount owed to ATS&K should have been covered by an initial retainer paid to Protostorm’s non-patent corporate counsel.)

Protostorm and its corporate counsel are informed that their failure to file a completed POA will result in abandonment of their patent application.  Protostorm’s principals become concerned.  They then call Hogue and the ATS&K partner involved in the PCT filing and take notes of their conversations.  They are told that the PCT application is fine, but needs some “procedural things” accomplished.  Protostorm is further told that the patent application could “meander” for two to four years through the patent office.  Protostorm’s principals contend they sent another completed POA form to ATS&K as a result of these conversations, but ATS&K has no record of ever receiving it.  Protostorm assumes and believes that the administrative details regarding its PCT patent application will be taken care of by its attorneys.

At this point, Protostorm ceases operations and closes its office.  No one takes any further action with respect to the PCT patent application.  None of the attorneys involved informs Protostorm in writing of a withdrawal of patent prosecution representation.  The foregoing events take place in 2000 and 2001.

Fast Forward to 2006

In early 2006, one of Protostorm’s principals learns that Google is beginning to test its Gmail system, which he believes incorporates several features of their alleged invention.  His initial attempts to reach Hogue and ATS&K are unsuccessful.  When he finally reaches an ATS&K attorney, he is informed that the PCT application had been deemed withdrawn because no POA or “national stage” submissions had been filed.

Life Lessons and Practice Pointers

Having survived summary judgment, Protostorm’s patent legal malpractice claims are scheduled to go to trial on September 10, 2012.  In addition to the plaintiff’s malpractice claims, the involved attorneys also will be litigating their respective contribution claims against each other.  What life lessons and practice pointers can be gleaned from this cautionary tale of pointing fingers?  At least three points come to mind.

First, obtain written retainer agreements that include “scope of representation” and “withdrawal from representation” provisions.  Had ATS&K entered into a formal retainer agreement, it might have had an opportunity to limit the scope of its representation.  In reality, it was being used as a mail-drop.  However, according to plaintiff’s expert witness and the revisionist history that often characterizes patent legal malpractice allegations, ATS&K was supposed to have closely inspected the application and discovered its various flaws.  In actuality, ATS&K had not been involved in any substantive patent application drafting.  Had a written retainer agreement been drafted, the firm may well have been able to limit its representation explicitly.  It could also have included a provision that the firm may withdraw for non-payment of fees or costs reasons.

Second, send letters confirming the closure of case files and cessation of representation.  Despite the passage of years that could have supported a viable statute of limitations defense in this case, the court could not grant a motion for summary judgment on that ground because of the “continuing representation” rule.  Under that rule, the statute of limitations is tolled for as a long as there is a mutual understanding between the attorney and client of the need for further representation regarding the specific subject matter underlying the malpractice litigation.  The continuous representation rule is especially pointed in patent matters because patent prosecution activities take place over long periods of time with sequential periods of inactivity.

Protostorm’s principals were never unequivocally told that ATS&K and Hogue would no longer represent Protostorm.  Rather, the attorneys’ oral conversations with Protostorm’s principals left them with the impression that their attorneys would be taking care of PCT procedural requirements and that Protostorm should expect nothing to happen with respect to patent prosecution for an extended period of time.  Faced with these mixed factual messages, the Court could not grant summary judgment in patent counsel’s favor on statute of limitations grounds.  Had a closing letter been written, however, a statute of limitations defense may well have been a dunk shot for dismissal of Protostorm’s malpractice claims under applicable New York law.

Third, do not assist non-practitioners or non-lawyers in preparing and filing patent applications; or in other words, you should know the USPTO credentials of those with whom you are collaborating on patent matters in order to protect yourself from aiding and abetting the unauthorized practice of patent law.  The involvement of unsupervised, non-patent practitioners in the preparation and filing of the second provisional patent application cast a large dark cloud of legal uncertainty over Protostorm’s PCT patent application.  Pursuant to 37 C.F.R. § 10.47(a), a “practitioner shall not aid a non-practitioner in the unauthorized practice of law before the Office.”  Per 37 C.F.R. § 10.47(c), a “practitioner shall not aid a non-lawyer in the unauthorized practice of law.”

While it may be tempting to work with a client’s slicing and dicing arrangements regarding patent application preparation, doing so can lead to the untoward facts that characterize this case.  According to ATS&K’s ethics expert witness (Professor David Hricik) Worthington’s unauthorized filing of a second provisional patent “by itself, would have severely reduced if not eliminated the likelihood that any patent would have been ever been enforced in litigation or otherwise.”  See Dkt No. 299, at p. 23 of 71 (Protostorm v. ATS&K, et al., Case No. 1:08-cv-00931 (E.D.N.Y.)).

Further, you may have to determine whether you have a self-reporting duty to inform the USPTO about the conduct of others unlawfully involved in the preparation and filing of an unauthorized patent application.  Among other things, this obligation may arise under the duty of candor imposed by 37 C.F.R. § 1.56.  ATS&K’s ethics expert witness opined that Worthington, Protostorm and its regular counsel (the Duval firm) “each violated Rule 1.56 and the duty of candor by not disclosing Mr. Ginley’s and Ms. Worthington’s involvement [in the preparation of the second provisional patent application] to the [USPTO] while that application was pending.”  See Dkt No. 299, at p. 23 of 71 (Case No. 1:08-cv-00931 (E.D.N.Y.)).

*  *  *  *

If you are ever called upon to assist in the delegation of patent prosecution tasks among and between law firms and solo practitioners in the future, a review of the Protostorm summary judgment record may well quell your appetite for engaging in this kind of joint business venture—regardless of the prevailing economic climate.

Alleged errors in patent prosecution and patent litigation both raise substantial federal issues because the “case-within-a-case” analytical structure of a legal malpractice claim generally requires an underlying analysis of patent law standards, proximate causation issues, and patent damages calculations.  In other words, the legal malpractice allegations cannot be determined without an analysis of the merits of the underlying patent right at issue.

The reasoning of the Immunocept/Air Measurement cases is increasingly under attack.  Even a Federal Circuit panel recently stated that “we believe this court should re-evaluate the question of whether federal jurisdiction exists to entertain a state law malpractice claim involving the validity of a hypothetical patent . . . .”  Byrne v. Wood, Herron & Evans, et al., 2011 WL 5600640 (Fed. Cir. 2011)(non-precedential decision).  Predictably, the losing appellant requested a rehearing of this case en banc.  That request is pending.

Federal Circuit jurisprudence presently does not make distinction about whether a hypothetical or issued patent claim is at issue for the federal jurisdictional purposes.  Both types of patent legal malpractice claims are subject to exclusive federal jurisdiction.  However, state and federal courts have seized on a distinction between hypothetical and issued patent claims as potentially dispositive of the jurisdictional determination.

Those seeking to distinguish or criticize the Air Measurement/Immunocept line of case authorities argue that they cases do not adhere sufficiently to the leading Supreme Court case on when “embedded” federal law issues in state law claims give rise to federal jurisdiction, Grable & Sons Metal Prods., Inc. v. Daurue Eng’g & Mfg., 504 U.S. 308 (2005).  In summary, Grable holds that federal question exists where: (1) resolving the federal issue is necessary to the resolution of the state law claim; (2) the federal issue is actually disputed; (3) the federal issue is substantial; and (4) federal jurisdiction will not disturb the balance of federal and state judicial responsibilities.

Those declining to follow Air Measurement/Immunocept case holdings generally concede that the federal issue is necessary to the resolution of the malpractice claims.  They instead focus on whether the federal issues are disputed and substantial and whether exercising jurisdiction disturbs the federal/state judicial balance.  The most eloquent discussion of these points is the recent dissenting opinion of Justice Eva Guzman in Minton v. Gunn, S.W.3d ___, 2011 WL 6276121 (Dec. 16, 2011).

With respect to hypothetical patent claims, critics of exclusive federal jurisdiction must also acknowledge that the federal issue of claim construction is actually disputed.  In this regard, because “patent claim scope defines the scope of patent protection . . .  we surely consider claim scope to be a substantial question of federal law.”  Immunocept, 504 F.3d at 1285 (case citation omitted).  “After all, claim scope determination is the first step of a patent infringement analysis.”  Id.

The real battleground is whether the hypothetical patent claim construction issues can be substantial by definition.  They will necessarily be a fact-specific exercise result of no precedential import to any person other than the party litigants.  Based on this, critics contend that Grable sought to embrace federal jurisdiction for embedded federal issues only when the federal issues posed were issues of law—and not fact-bound and situation-specific.  This is their strongest point.

With respect to whether federal court jurisdiction will upset the division of labors between federal and state courts, the discussion becomes more philosophical and political.  For example, Justice Guzman’s dissent in Minton v. Gunn bemoans the loss of Texas sovereignty and oversight over lawyers practicing within the state.

In reality, the balance favors much more efficient federal court resolution of hypothetical patent claim issues.  The Immunocept court observed that:

Claim scope determination is a question of law that can be complex in that it may involve many claim construction doctrines.  Litigants will benefit from federal judges who are used to handling these complicated rules. Additionally, Congress’ intent to remove non-uniformity in the patent law, as evidenced by the enactment of the Federal Courts Improvement Act of 1982 . . . is indicium that [federal] jurisdiction is proper here.

Id., at 1285-86.

Patents differ from all other intellectual property assets in their complex prosecution and litigation.  State court judges could spend their entire careers without ever having to review a claim chart, dissect a specification, determine whether a witness is a POSITA (person of ordinary skill in the art), evaluate whether prior art anticipates a patent claim or renders it obvious, or decide whether an attorney committed inequitable conduct by failing to alert the USPTO to relevant prior art.

Critics of Air Measurement/Immunocept brush aside these pragmatic, efficiency points by pointing out that patent issues are sometimes ancillary to state law contract claims.  The comparison is misleading.  Hypothetical patent claims go to the core of how patents are formed and operate.  A state law licensing dispute over failure to pay royalties is not an apt comparison.

Further, there is no loss of state control over any of the run-of-the-mill disputes that state bar associations already exercise in matters of professional responsibility.  Only a small fraction of a state’s bar consists of those licensed to practice before the USPTO or those whose practice is devoted to patent litigation.  Their conduct is already largely regulated by federal statutes, regulations and guidance.  It is difficult to ascertain how any federal/state court balance is upset under these specialty practice circumstances.

Trying to use issued versus hypothetical patent claims as a litmus test for determining whether federal jurisdiction lies is problematic from a pleading standpoint.  This practice point is not addressed by courts that seek to attach importance to whether the patent rights were granted or remain hypothetical in a malpractice action.  The common reality is that patent malpractice allegations can be vague and conclusory even under federal “plausibility” pleading standards.  It often takes some discovery to sort out and clarify the status of allegedly compromised patent rights.  Indeed, there could well be a mix of issued and hypothetical patent rights at issue.

No doubt, the search for some grounded way to cut back on federal control over patent legal malpractice claims will continue.  But trying to build a jurisdictional test based on hypothetical versus issued patent rights appears to create more knotty issues than the Federal Circuit’s current bright line rule.

The Federal Circuit’s recent precedential decision, Warrior Sports, Inc. v. Dickenson Wright, P.L.L.C. (issued on January 11, 2011), demonstrates (once again) the sheer power and ability of the “case-within-in-case” doctrine to jurisdictionally transform a state law malpractice claim into a case arising under federal patent law.

In an unusual twist, the Warrior Sports plaintiff and defendants agreed that the federal court could exercise federal question jurisdiction over the patent legal malpractice claim. But the federal court judge (the Hon. Gerald E. Rosen from the Eastern District of Michigan) was not convinced. He issued a show cause order requiring the plaintiff to establish why the state law claim should not be dismissed for lack of federal subject matter jurisdiction.

The state law malpractice claim arose out of alleged administrative and litigation errors that occurred with respect to a reissued patent for a “Scooped Lacrosse Head” (U.S. Patent No. RE 38,216). As recited in the district court’s order dismissing the case, plaintiff claimed that defendants “(1) failed to pay a maintenance fee resulting the lapse of Warrior’s patent, (2) forced Warrior to settle previous litigation on terms Warrior considers unfavorable, (3) failed to timely effectuate the reinstatement of Warrior’s patent, and (4) committed sundry other breaches of their professional duties, the precise contours of which breaches are not altogether clear from the Complaint.”

The District Court Decisions Denying Federal Court Jurisdiction

The district court judge was not persuaded that the malpractice allegations required the court to address “actually disputed and substantial” questions of federal patent law. Judge Rosen distinguished the Federal Circuit’s precedent in the following important passage:

In this case, unlike Immunocept and Air Measurement, Warrior’s claim that Defendants’ negligence caused Warrior to settle under less favorable terms, lose profits and lose royalties on the lapsed patent, does not necessarily require a court to engage in claim construction, evaluate the viability of underlying patent litigation, or determine if others are infringing the patent in question.

Based on his reading of Michigan law, Judge Rosen did not view the “suit-within-a-suit” doctrine (as it is also sometimes called) as requiring a full-blown analysis of patent-related proximate causation issues, i.e., whether but for the attorney’s alleged malpractice, the plaintiff would have been successful in the underlying patent lawsuit.

In the course of denying defendants’ subsequent motion for reconsideration, Judge Rosen further explained his reasoning justifying avoidance of a more complex patent “case within a case” analysis:

The underlying patent issues–including inequitable conduct, claim construction and infringement–may well be complex. Nevertheless, they remain only a sub-inquiry,incidental to Plaintiff’s primary allegations against the defendant attorneys. Moreover, those primary allegation revolve exclusively around missed filing deadlines, failure to communicate and professional negligence. As such, even if the allegation touch upon patent issues or require assessment of underlying patent disputes, they hardly raise substantial issues of federal law. In light of the foregoing, the Court cannot see how it may adjudicate this case without disturbing the congressionally approved balance of federal and state judicial responsibilities.

Judge Rosen’s dismissal of the Warrior Sport’s patent legal malpractice claim rests on the general principle that federal statutes regulating the jurisdiction of federal courts must be narrowly construed. He did not accept the parties’ proposition “that the Federal Circuit’s decisions with respect to its own subject jurisdiction over state-law claims are binding on this Court” and indeed was openly critical of them:

While the Federal Circuit appears to have no reservations about exercising its power over underlying patent issues as leverage to reach purely state-law causes of action [citing the Touchcom, Air Measurement and Immunocept cases], this Court remains wary of such an open-ended analysis of federal question jurisdiction. Simply put: there is no “‘single, precise, all-embracing’ test for jurisdiction over federal issues embedded in state-law claims between non-diverse parties.” [Citing Supreme Court cases.] In Touchcom, Air Measurement and Immunocept, the Federal Circuit appears to impose precisely such an all-embracing test, effectively aggregating ever greater swaths of state-law claims into its jurisdictional sweep. Yet, this alone cannot render its decisions with respect to subject matter jurisdiction binding on this Court.

While Judge Rosen’s views regarding subject matter jurisdiction were ultimately rejected by the Federal Circuit, his views will resonate with those in the bench and bar who believe that the Federal Circuit’s desire and willingness to review patent legal malpractice claims represents a jurisdictional land grab of sorts.

The Federal Court Has No Difficulties in Exercising Jurisdiction Over a State Law Patent Legal Malpractice Claim

When the Federal Circuit’s Warrior Sports decision is read against the backdrop of the district court’s dismissal and denial of reconsideration orders, the strong rebuke it represents becomes clear.

In a direct fashion, the Federal Circuit panel (Judges Newmon, Bryson and Prost) held that even a watered-down version of “case-within-a-case” element of a legal malpractice claim controlled by Michigan law raised substantial and disputed issues of patent law. A key case quotation that sums up the Warrior Sports holding as follows:

Warrior’s theory under its first malpractice claim is that but for the availability of the inequitable conduct defense that was attributable to its attorneys’ conduct, it would not have settled its meritorious infringement action against [the accused infringer], and that the availability of the inequitable conduct defense forced Warrior to settle for much less than the true value of the claim. As part of its prima facie case, Warrior must prove that it suffered a compensable loss that was proximately caused by appellant’s negligence. If the accused products do not infringe the ’216 patent, then the availability of the inequitable conduct defense did not proximately cause any harm to Warrior. That is, to prove the proximate cause and injury elements of its tort claim, Michigan law requires Warrior to show that it would have prevailed on its infringement claim against [the accused infringer] and would have been entitled to an award of damages as a result.

The Warrior Sports holding thus requires patent malpractice plaintiffs to essentially (re)try their underlying infringement case as a prerequisite for satisfying the classic proximate causation and fact of damage elements of a state law malpractice tort claim.

While federal district courts may be reluctant to revisit underlying patent infringement, invalidity and unenforceability issues in order to assess the merits of patent legal malpractice claim, the Federal Circuit’s line of case precedents from Air Measurement through Warrior Sports is clearly insisting on a more rigorous evaluation of a patent’s true worth. Proximate cause and damage analysis shortcuts are not acceptable–especially when a malpractice plaintiff’s damages are predicated on an “impaired settlement value” claim theory.

Engaging in a full-blown patent “case-within-a-case” analysis obviously is an expensive undertaking. But imposing that requirement does have the curative effect of preventing malpractice plaintiffs from isolating alleged attorney errors and arguing (in hindsight) that they–and not other inadequacies in the subject patent–are the real reason why a patent claim had to be settled on less than favorable terms.

Even the best substantive points and arguments can turn sour when they are brought by procedurally tardy litigants.  Arguing that “we really did try to make it” does not play well to a federal court audience, even if Carole King’s song “It’s Too Late” topped the Billboard record charts in 1971.

The plaintiff, Conrad Gardner, is the inventor of U.S. Patent No. 7,290,627, entitled “Extended Range Motor Vehicle Having Ambient Pollutant Processing.”  His case did not start out its life on a judge’s troublesome list, but it appears to have ended there.  If anything, Gardner’s patent claims had some very sympathetic hallmarks for a case venued in Seattle federal court.  Gardner is in his mid 70s.  In addition to being a former Boeing engineer, Gardner is a patent attorney and former patent examining attorney for the United States Patent and Trademark Office (USPTO).  Surely, he knows the ropes of patent prosecution.

The ’627 patent covers hybrid vehicle technology for automobiles.  More specifically, the patent “relates to the use of an internal combustion engine and separate electric motor for powering a hybrid vehicle.”   View Order    Gardner filed his patent lawsuit in 2008 claiming that Toyota’s Prius, Camry and two-wheel drive Highlander automobile models infringed the ’627 patent.

The numerical imbalance (2 vs. 6 attorneys) between plaintiff and defense counsel did not seem that overmatched when the case was first filed.  In addition to the plaintiff being a patent lawyer and former patent examiner, Gardner was represented by out-of-state patent counsel and a solo practitioner with extensive commercial litigation experience.  Five attorneys from the well-known Finnegen Henderson law firm entered appearances on behalf of Toyota, as well as a local counsel from a Seattle law firm.

So, how did the case unravel for Gardner?  A perplexing inability to meet case schedule deadlines provides an atmospheric explanation.  Much of Toyota’s consternation stemmed from Gardner’s tardy submissions with respect to simultaneous filings often required by local patent rules, e.g., proposed claim element terms for construction and disclosures of extrinsic evidence and responsive claim construction briefs.

Delays in filing simultaneous submissions can lead to a tactical advantage for the late filer—as Toyota would convincingly argue.  Gardner’s counsel appeared to make a habit of granting himself one more day to work on these “simultaneous” submissions.  It’s always nice—but certainly not fair—to know where the other side is coming from when preparing your so-called simultaneous submission.

Adding a fuel to the fire for Toyota’s contentions regarding Gardner’s slack regard for meeting case schedule deadlines, no patent litigator wants to read a minute order stating: “Plaintiff’s counsel did not appear at the scheduling conference, and has not contacted the court to explain his absence.”  Gardner’s counsel apparently miscalendared the date and time of a scheduling hearing he had helped organize.  Ouch!

After missing more due dates or seeking belated extensions of them, the Court convened another hearing that resulted in yet another nightmare-inducing minute order: the “Court will not tolerate any further missed deadlines and will consider a motion for sanctions by Defendant.”

What were Gardner’s excuses for missing case and discovery schedule deadlines?  In opposing Toyota’s motion for sanctions, plaintiff’s papers revealed that Gardner himself was infirm (he was battling cancer), his Seattle counsel was a busy solo practitioner, and his out-of-state counsel was not involved in drafting pleadings, but only served as an advisory resource for strategy purposes.  Deadlines were variously missed due to an epic December 2008 snowstorm in Seattle, an alleged two-day shutdown of a DSL internet line, and the general complexity of the briefing tasks involved in patent-related summary judgment motions.

None of these excuses garnered sympathy with the Court.  They did not amount to excusable neglect.  While the delays involved did not warrant the terminating sanction of case dismissal—as  Toyota urged—the Court ruled that a monetary award was an appropriate sanction.  Toyota requested an award of $133,371 in its fee petition.  The Court discounted the requested sanctions amount by 35% because that appeared to be the difference in overall patent litigator rates between Washington D.C. and Seattle counsel.  The Court ordered Gardner to reimburse Toyota $88,952 in attorneys’ fees.  View Order

Although not its intended purpose, the Court’s fee petition order offers Seattle-based patent litigators with a selling point: litigating patent cases is generally one-third cheaper using them instead of their “other” Washington counterparts!

Gardner’s patent claims ultimately did not survive dispositive motion practice.  One claim was ruled invalid; all others were ruled non-infringed.  Gardner was also unsuccessful in seeking summary judgment dismissal of Toyota’s inequitable conduct counterclaim.

Did the Court’s expressed displeasure with Gardner’s proclivity for missing deadlines color and impact the substantive rulings in the case?  No one can say for sure.  The case is now on appeal.

Gardner’s timeliness issues aren’t over yet though.  Although he appealed the fee sanction and moved to stay its enforcement, Gardner did not file a supersedeas bond.  Rather, he moved for Court approval of the proposed terms of a bond.  Toyota then moved for entry of a separate final judgment for the fee sanction amount, arguing that a motion for approval of a “hypothetical” bond does not stay enforcement of a judgment.  In characteristic fashion, Gardner’s counsel missed the the due date for filing opposition papers to Toyota’s motion by one day.

Infectious disease terminology serves as the reigning metaphor in Federal Circuit cases decrying the rampant assertion of inequitable conduct defenses in patent litigation. The Federal Circuit’s first use of the word plague in this context can be traced back to Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir.1988), when the court stated that “the habit of charging inequitable conduct in almost every major patent case has become an absolute plague.” (Emphasis added.)

“Inequitable conduct” charges at one time were more commonly labeled as “fraud on the Patent Office” claims. Because the latter label was deemed “pejorative,” it was dropped. But as the Dayco panel observed, “the change of name does make the thing itself smell any sweeter.” Id., at 1422.

Judge Pauline Newman is a frequent dissenter in Federal Circuit cases affirming the unenforceability of a patent based on an inventor’s or patent attorney’s alleged inequitable conduct. She describes the seeming proliferation of inequitable conduct defenses in patent litigation as follows:

“Inequitable conduct” in patent practice means misconduct by the patent applicant in dealings with the patent examiner, whereby the applicant or its attorney is found to have engaged in practices intended to deceive or mislead the examiner into granting the patent. It is a serious charge, and the effect is that an otherwise valid and invariably valuable patent is rendered unenforceable, for the charge arises only as a defense to patent infringement.

As this litigation-driven issue evolved, the law came to demand a perfection that few could attain in the complexities of patent practice. The result was not simply the elimination of fraudulently obtained patents, when such situations existed. The consequences were disproportionally pernicious, for they went far beyond punishing improper practice. The defense was grossly misused, and with inequitable conduct charged in almost every case in litigation, judges came to believe that every inventor and every patent attorney wallowed in sharp practice.

Ferring B.V. v. Barr Laboratories, Inc. 437 F.3d 1181, 1195 (Fed. Cir. 2006)(dissenting opinion).

The Federal Circuit’s en banc decision in Kingsdown Medical Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867 (Fed.Cir. 1988) was intended to curb the patent litigator’s seemingly ravenous appetite for willy-nilly assertions of inequitable conduct. That case held that the intent element of inequitable conduct must be established by clear and convincing evidence of deceptive intent. Gross negligence is not supposed to suffice and “does not of itself justify an inference of an intent to deceive.” Id., at 872.

But the Kingsdown Fix Apparently Didn’t Work

By 2003, Judge Newman believed that errant Federal Circuit panels were again reviving a “misbegotten era” of metastasizing inequitable conduct claims and she bemoaned the resuscitation of this undesirable trend:

Litigation-induced assaults on the conduct of science and scientists, by aggressive advocates intent on destruction of reputation and property for private gain, produced the past “plague” of charges of “inequitable conduct.” A successful attack on the inventor or his lawyer will destroy the patent, no matter how valid the patent and how sound the invention. The uncertainties of the processes of scientific research, the vagaries of the inductive method, the complexities of patent procedures, and the twists of hindsight, all provided grist for this pernicious mill. Indeed, the prevalence of accusations of inequitable conduct in patent cases led judges to suspect that all scientists are knaves and all patent attorneys jackals. Today this court revives that misbegotten era.

Hoffmann-La Roche, Inc. v. Promega Corp., 323 F.3d 1354, 1372 (Fed. Cir. 2003)(dissenting opinion).

As the new millennium progressed, the frequency of inequitable conduct claims had not abated, leading Judge Newman to once again chastise a majority Federal Circuit panel for feeding this frenzy. This time, however, Judge Newman injected a new noun, “scourge,” into the lexicon as a description for this recurrent pleading practice. In her dissent in the Ferring case, Judge Newman included a commentator’s recitation of Federal Circuit history on the subject:

As is known, about 20 years ago inequitable conduct was frequently pleaded as a defense to patent infringement; a patent that is “unenforceable” due to a finding of inequitable conduct is dead. The defense was so misused by alleged infringers that the Federal Circuit once called this defense a “scourge” on U.S. patent litigation …. The famous Kingsdown seemed to put a stop to the defense of inequitable conduct….

Michael D. Kaminski, Effective Management of U.S. Patent Litigation, 18 Intell. Prop. & Tech. L.J. 13, 24 (2006) (footnote omitted) (citing Kingsdown Med. Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867 (Fed.Cir.1988) (en banc in relevant part)).

While the commentator’s quotation marks around the word scourge would suggest that the Federal Circuit had previously used that terminology in some prior decision, in fact, scourge was not a word the Federal Circuit had heretofore adopted to describe a perceived spate of inequitable conduct claims. A subtle switch from plague to scourge had taken place, sub silentio, as it were.

Why We Should Be Concerned About Pejorative Patent Labels

As patent practice professionals, should we be concerned about whether proliferating inequitable conduct claims are more accurately characterized as a scourge or a plague? Given their synonymous nature, it is hard to quibble with the word choice. Both words refer to widespread afflictions. The word plague carries a connotation of the spread of infectious diseases or pestilence often associated with divine retribution; whereas scourge connotes destruction and devastation more often associated with warfare. The etymological roots of scourge are drawn in part from the Old French verb, escorgier, “to whip.” The American Heritage College Dictionary, at 1044, 1224 (3rd Ed. 1997).

The language of dissents is often intended to be colorful. In the case of associating the inequitable conduct defense with labels connoting widespread affliction, the Federal Circuit is driving home its perception that inequitable conduct charges had become an abusive litigation tactic resorted to by overzealous litigators.[1] Whether or not the Federal Circuit had formally used the word scourge before, Judge Newman’s inclusion of that word in her Ferring dissent captured the scorched earth spirit of the absolute plague label that was the au courant expression of an earlier decade of Federal Circuit decisions.

Putting aside their memorable nature compared to the typically dry language of case facts and holdings, the injection of pejorative labels into Federal Circuit decisions is usually not a good thing. They invariably become a cheap substitute for more penetrating analysis.

Because of the viral age in which we live, the “insta-analyses” of bloggers focus on sound bites, which dissents often provide in a more florid fashion than majority decisions. Indeed, scourge has already has taken on a viral life of its own in the patent blogosphere. See, e.g. Measuring the Plague of Inequitable Conduct and CAFC Bad Actor Makes Bad Inequitable Conduct Law.

As the anticipation mounts for the oral argument in the Therasense case this November, we can expect more and more patent law commentators to incorporate the word scourge into their articles discussing how the Therasense en banc rehearing may change the landscape of inequitable conduct patent law.

While the utterance of epithets may make one feel better, economic rationales probably far better explain the pervasive assertion of inequitable conduct defenses in patent litigation. Inventions as conceived, prosecuted and granted can often seem to bear little relation to the grandiose scope of alleged inventions pursued in litigation. Litigation creates its own “examination” dissonance, bringing much more prior art into play as the metes and bounds of a patented inventions are expanded doctrinally beyond their natural breaking points.

Coupled with the fact that inventions as disclosed often appear to judges and juries to be much far different from the scope of the inventions asserted in litigation, a growing presence of non-practicing entities as patent plaintiffs contributes to a healthy skepticism of the legitimacy of our patent process. Patents were classically perceived as a means to recover the fixed costs of invention. See W. Landes and R. Posner, The Economic Structure of Intellectual Property Law (2003), at 294 (“The conventional rationale for granting legal protection to inventions as expressive works is the difficulty that a producer may encounter in trying to recover the fixed costs of research and development when the product or process is readily copiable. A new product, for example, may require the developer to incur heavy costs before any commercial application can be implemented . . . .”).

If the primary investment in a patent is a constructive reduction to practice—i.e., the preferred embodiment(s) disclosed in a patent application have never actually been produced as working prototypes—it becomes harder and harder to accept at face value the cherished, but perhaps nostalgic belief that patents are a leading indicator of the innovativeness of our economy. To the extent the worth of patents resides in their high nuisance value—e.g., as multi-defendant cases routinely filed in the Eastern District of Texas—the real innovation of our age appears to lie in how best to game our patent and court systems.

Rather than heap scorn on patent litigators for zealously exploring the dissonance between what was actually invented and disclosed versus what is sometimes cavalierly claimed in litigation, it would be refreshing to see some occasional, if faint praise in a Federal Circuit decision for litigators who ferret out patent abuses. The vigilance of such lawyers serves a larger public interest. As the Supreme Court stated in Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery, 324 U.S. 806, 816 (1945), the “far-reaching social and economic consequences of a patent, therefore, give the public a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud and other inequitable conduct and that such monopolies are kept within their legitimate scope.”

While no one should probably hold their breath for words of praise from the Federal Circuit for patent litigators who successfully run the Exergen[2] gauntlet in pleading and proving inequitable conduct, the forthcoming Therasense decision would do well by at least dispensing with the urge to demonize an important patent unenforceability defense with inapplicable metaphors drawn from clouds of locusts and the blitzkriegs of war.

_______________________________

[1] Judge Gajarsa’s dissent in Taltech Ltd. v. Esquel Apparel, Inc., 604 F.3d 1324, 1335 (Fed. Cir. 2010), uses the word pandemic to describe the phenomenon of allegedly baseless inequitable conduct charges. That is more in keeping with the infectious disease metaphor that inaugurated the use of this type of language in the Dayco case.

[2] Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009)

In tracing the lineage of perhaps the most popular bromide about the inventive process, I discovered (somewhat to my surprise) that the saying “necessity is the mother of invention” finds its origins in a Socratic dialogue in Plato’s The Republic about the nature of an ideal state.

What started out as a discussion about political structures has become a catch-all description for what often motivates the inventive process.

Like this transmogrified quotation from Plato’s The Republic, much of United States’ patent history in the late 18th and 19th centuries is recounted in nostalgic, patriotic terms. The fondness of our earliest American presidents for our patent system (especially Thomas Jefferson and James Madison) is often duly emphasized.

President Lincoln’s love of inventions is emblematic.  His experiences in navigating to and from his homestead on the Sangamon River in Illinois led directly to the inventive work forming the basis for U.S. Patent No. 6,469, entitled “Buoying Vessels Over Shoals.”

He states, “Be it known that I, Abraham Lincoln . . . have invented a new and improved manner of combining adjustable buoyant air chambers with a steamboat or other vessel for the purpose of enabling their draught of water to be readily lessened to enable them to pass over bars, or through shallow water, without discharging their cargoes . . . .”

Should patent practitioners care about what potential jurors can (or cannot) call to mind about our collective American history of patenting in previous centuries?  Or is it just dusty, musty history, best forgotten?

This post examines some of the “mythology” of patents and inventors and how those ideas may subtly impact a jury’s expectations about inventors and inventions.  Patent litigators, especially, ignore the inherited mindset of jurors at their peril.

Everything I Learned About Inventive Genius I Learned in Mrs. Sunda’s Grade School Class

For a portion of a typical patent jury pool, elementary school may well be the last time they gave any serious thought to our American history of inventors and invention.

The “Inventive Genius” website, prepared by the classmates in Mrs. Sunda’s Gifted Resource Class at Brisas Elementary School (in Chandler, Arizona), offers some keen insights into our primordial understanding of inventions and patents.

What trial advocacy lessons can we glean from from the “Inventive Genius” website?

Mrs. Sunda’s students studied the usual laundry list of famous inventors. The American inventors are stacked with with 18^th and 19^th century notables such as Eli Whitney, Benjamin Franklin, Robert Fulton, Alexander Graham Bell, John Deere, Samuel Morse and Thomas Edison.  When we reach the 20^th century, the list veers towards theoretical research scientists, such as Albert Einstein and Enrico Fermi.

Biographical sketches created by Mrs, Sunda’s students highlight the personal foibles of famous inventors and the various challenges they faced in their lives.

In a “Who am I” poem, a student named “Jake” describes his pastiche impressions of John Deere, the inventor in part as follows: ” Write like a five year old who never went to school.  Work well with your hands, even when they’re next to burning coals.  Never have any pictures taken because you always have ash on your face.”

Another student, Amy, portrays the life of Thomas Alva Edison in this manner: “Don’t feel disappointed when you almost get put in special education classes.  Read Shakespeare’s plays at the age of eight.  Sell newspapers and snacks on the local train at the age of twelve.  Create the first vote counter in 1869 and hope Florida doesn’t misuse it.”

Thus, early on, we develop a romantic understanding of the individual inventors. We invest famous inventors with “inventive genius,” a concept that is never really explained, but usually portrayed through photographs—with Einstein’s frizzy hair image being the most resonant in modern times, followed closely by Ludwig Beethoven’s. (Bill Gates may well have already overtaken these personages; he is a venerated as a genius in many parts of the world.)

These indelible, grade school impressions regarding the nature of inventors and inventions cannot help but shape a jury’s deliberations in a patent case.  Our grade school sensibilities, however, can clash with key patent principles.  Hence, patent litigators need to be alert to a jury’s unconsciously formed expectations about the attributes of “true” inventors.

Observation One:  Whether proper or not, jurors will conflate the inventor and the invention.

We instinctively imbue inventors with “genius” as a way to distinguish ordinary innovation from that which is worthy of being patented.

Abraham Lincoln is famously quoted as stating that the patent system “added the fuel of interest to the fire of genius, in the discovery and production of new and useful things.”  (Second Lecture on Discoveries and Inventions, February 11, 1859.)

In KSR v. Teleflex, the Supreme Court characterized the process of invention, and could not resist adding in a reference to the possible role of genius:

“We build and create by bringing to the tangible and palpable reality around us new works based on instinct, simple logic, ordinary inferences, extraordinary ideas, and sometimes even genius. These advances, once part of our shared knowledge, define a new threshold from which innovation starts once more. And as progress beginning from higher levels of achievement is expected in the ordinary course, the results of ordinary innovation are not the subject of exclusive rights under patent laws.”

United States courts have long struggled to differentiate patentable inventions from ordinary innovation. The “spark of genius” of the inventor provided a comforting barometer of relative merit of his or her invention in the 19^th century.  It became a shorthand way of expressing the notion that the patent laws seek to benefit an inventor’s genius, not a scrivener’s talents (whom one envisions hunched over a poorly lit desk in Dickensonian London).

The problem with these rather thoughtless references to genius is that the vague concept conflates the inventor with the invention. Section 103 of the Patent Act of 1952 sought to eliminate this cause of patent confusion by providing that “Patentability shall not be negatived by the manner in which the invention was made.”  The legislative history notes that the last sentence of § 103 makes it “immaterial whether [an invention] resulted from long toil and experimentation or from a flash of genius.”

As the Hon. Giles S. Rich stated in his seminal article, The Principles of Patentability, “Patents are not Nobel or Pulitzer prizes. They are not for exceptional inventors, but for average inventors and should not be hard to get.”

Even though a “spark of genius” is not required for patentability purposes, presenting a compelling “inventor’s” story is oftentimes critical.  Embellishing the status of the individual inventor for “story” purposes understandably may be difficult, since most inventions now arise in a corporate, bureaucratic setting. Nevertheless, patent litigators will need to satisfy the juror’s almost unconscious desire that the inventor’s discovery rise above ordinary innovation.

Observation Two:  Judges and Juries Seem to Expect ALL Inventors to Act Like Scientists

When the attention turned to the 20^th century. Mrs. Sunda’s class concentrated on theoretical research scientists, rather than on inventors who got their fingernails dirty making plows, steam engines, cotton gins, and other mechanical devices.

Likewise, the Supreme Court’s catch-all description of the process of innovation in KSR v. Teleflex sounds more like a process of scientific discovery than how would-be inventors might tinker about creating gadgets in their garage or home shop.

In a recent Federal Circuit case, Media Technologies Licensing, LLC, v. The Upper Deck Co., Judge Rader’s dissent criticized the majority panel for its “bias against non-technical arts.”  The case involved an obviousness dismissal of an invention in which cut-up pieces of memorabilia are provided with a trading card. Judge Rader observed:

“No doubt, the invention of the transistor or of the polio vaccine came from more scientific fields and contributed more to the welfare of humanity.  This court cannot overlook that many individuals invest vast energies, efforts, and earnings to advance these non-technical fields of human endeavor.  Those investments deserve the same protection as any other advances.  The incentives for improvement and the protection of invention apply as well to the creator of a new hair-extension as to a researcher pursuing a cure for cancer.”

Obviously not all patents are created equal in the minds of judges or juries. Because of the science involved in many technological inventions, and the fact that the patent bar and and USPTO examining corp are themselves composed of individuals with advanced university degrees, the chasm between non-technical vs. “scientific-sounding” patent applications is only growing.

To lessen a potential, innate bias against inventors in the non-technical arts, patent litigators may want to consider developing a special jury instruction formulated along the lines of the Judge Rader’s quotation from his dissenting opinion in the Media Technologies Licensing case.

There are doubtless many other lessons to be learned from analyzing Mrs. Sunda’s “Inventive Genius” website.  Patent juror comprehension issues promise to be a continuing object of discussion in Lane Powell’s Patent Practice Professional Liability Reporter.

Note: the photo of the Sangamon River near President Lincoln’s first home is subject to the Creative Commons Attribution ShareAlike 3.0 License.

Most will read and analyze the Davis case for its ultimate holding, i.e., conclusory expert witness testimony regarding the patentability of a “lost” or foregone patent right is insufficient to support the “case-within-a-case” causation element of a legal malpractice claim.

While that take-away point is crucially important, the underlying district court record also discloses a paradigm example of how client relationships can unravel at their outset.  Some real life lessons of the case are revealed by the halting interactions between the seemingly prospective client and counsel in their early dealings with each other.  One of the key factual issues becomes “When was an attorney-client relationship formed?”

The salient facts are these.  In late 2003, Heather Davis contacted Daniel Thomson, then a partner in the Brouse McDowell law firm “to find out just some general questions about intellectual property.”  (The quoted material is from the district court’s summary judgment decision (pdf).) 

The two spoke over the phone. Davis explained that she was interested in finding an attorney she could “eventually” work with in connection with her alleged invention of an “IP-Exchange” where intellectual property could be bought and sold.  Davis stated that she was particularly interested in pursuing international coverage for her inventions.  (More after the jump.)

Alleged Malpractice Mistake No. 1. Thomson sent Davis a “marketing” letter in December 2003 that explained the general law relating the Patent Cooperation Treaty.  It explored a number of benefits for invoking the PCT.  The letter, however, did not discuss the “absolute novelty rule” of some foreign jurisdictions, i.e., the rule that disallows a patent when an invention has been disclosed to the public before a patent application is filed.

Along with the “marketing” letter, Thomson mailed Davis a proposed engagement letter, which she never signed.  In fact, Davis testified in her deposition that she didn’t ever remember receiving the “marketing” letter and that she did not retain Thomson in 2003. Yet the marketing letter would form the a key basis for the plaintiff’s legal malpractice claim theory because it did not include any “absolute novelty bar” discussion.

Other than a phone call in November 2004 with Thomson in which she believed she discussed the launching of her IP-Exchange website, Davis did not remember using Thomson or any other Brouse McDowell attorney from 2003 to 2005.

Davis Retains Separate Patent Counsel in November 2004.  Davis hired a separate patent agent to prepare a provisional patent application related to her IP-Exchange website and then launched the website. She did not follow up her provisional application with non-provisional applications within one year as required and they lapsed.  She then filed two provisional applications with the USPTO in January 2006.

Alleged Malpractice Mistakes Nos. 2 and 3.  Five (5) days before her provisional applications were set to expire in January 2007, Davis called Thomson and informed him that she wanted to file non-provisional patent applications to preserve the January 2006 “priority” date for her self-filed provisional applications. Despite the short turn-around time, Thomson agreed to do the work, but informed Davis he was leaving town for the weekend.

Davis provided Thomson with 14 pages of single-spaced patent claims, but couldn’t send some 275 pages of other materials because her fax machine was broken.  Those materials were eventually hand-delivered to Thomson’s secretary along with a $5000 retainer.  No other Brouse McDowell attorney worked on the applications while Thomson was out of the office.  When Thomson returned to work, he had until the end of the day to prepare the patent applications. He filed three U.S. patent applications (he intended to “clean them up later”), but did not file any PCT application.

That same evening, Davis inquired about the PCT applications, and Thomson informed her that, based on their conversations, he did not think they were worth the monetary expenditure because Davis’s premature launch of the website precluded her from obtaining patent coverage in Europe.  However, he eventually agreed to prepare the PCT applications, which were filed three days later.

The working relationship  between Thomson and Davis deteriorated and he informed her he would be withdrawing as her attorney before the USPTO. In June 2007, the USPTO granted two out of Thomson’s three requests to withdraw, but apparently misplaced the third request. That request was not granted until July 2008.

Ultimately, Davis’s patent application went abandoned. In the malpractice lawsuit, she alleged that because her inventions lacked patent protection, her investors withdrew, leaving her unable to operate the IP-Exchange as a business.

Davis blamed her business collapse on sloppy patent work on the applications that were filed, on the failure of her counsel to timely file a PCT application, as well as on the firm’s deficient marketing letter that made no mention the absolute novelty rule.

Her experts opined that her damage claim was worth approximately $14M based on a lost profits analysis.  (The lost profits analysis would also founder and be dismissed on summary judgment grounds because the lost profits damages claim associated with a new business was too speculative.)

Was Brouse McDowell “Hired” But Not Retained in 2003?  In the revisionist history world that often characterizes legal malpractice claim-making, Davis argued that she had an attorney-client relationship with Thomson that continued uninterrupted from 2003 through July 2008. Having a 2003 attorney-client relationship in existence was vital to Davis’ claim that the “marketing” letter’s failure to discuss the “absolute novelty” bar constituted malpractice.

While Davis admitted that she had not “retained” Thomson in 2003, that fact was not dispositive of her claim because she thought that meant she hadn’t paid him—even though she considered him to be her lawyer.

An obvious, initial practice pointer emerges from these facts: advise prospective clients that no attorney-client relationship is formed until a formal retainer agreement is entered into between the lawyer and the client.  Make sure that “no attorney-client” relationship formation language is included in correspondence, so it can be documented later.  Also, include a discussion of the “absolute novelty” rule in any general letter outlining the benefits of filing a PCT application. This case is an prime example of how even firm “marketing” materials can be used to bolster a legal malpractice claim.

Why Was Plaintiff’s Expert Witness Testimony Insufficient for Summary Judgment Purposes?  The Davis case illustrates perfectly the “case-within-case”causation difficulties faced by plaintiffs pursuing patent legal malpractice claims.

Plaintiff’s liability (and damages) expert, James O’ Shaughnessy, was certainly well-credentialed and experienced.  Among other things, he had been a partner at Foley & Lardner for 10 years.

His 61 page expert witness report provided detailed opinions about alleged breaches of the standard of care committed by plaintiff’s patent prosecution counsel. There was more than enough in his expert witness report to raise a disputed issue of material fact regarding patent prosecution counsel’s alleged breach of duty to his client.

With respect to the “case-within-case” causation issue—i.e., but for the patent prosecution’s alleged errors, the plaintiff would have obtained a patent for her invention—the Shaughnessy expert witness report, however, was too general for both the district and appellate court’s liking.  He essentially opined that some patent would issue from Davis’s applications; in other words, that the applications filed by plaintiff contained patentable subject matter. He did not attempt to draft or analyze hypothetical claims that could or should have issued after USPTO examination.

The liability expert’s failure to more precisely define the patent claims that may have issued from Davis’s inventive work proved to be a dispositive flaw in her patent legal malpractice claim.  Her expert admitted during his deposition that he had not performed a formal patentability analysis. He defined a “patentability analysis” as the “question of whether the claims are patentable in [an] application over prior art.”

Davis tried to repair this evidentiary deficiency by arguing that her expert performed a “pre-application” analysis of patentability that did not require an analysis of any actual, draft patent claims. The district court was not impressed by this argument.  The distriict court judge rejected the expert’s causation analysis as conclusory and not comporting with Daubert expert witness admissibility standards.

A pivotal expert witness practice pointer arises from the Davis case.  Make sure your patent malpractice liability expert performs some form of patentability analysis and includes it in his or her expert witness report.  Do not wait until after receiving defendant’s summary judgment motion to prepare a responsive affidavit on this point.  In this case, that responsive affidavit came too late.  Defendants successfully argued that it should be stricken because it was not included in the body of his expert witness report.  Hence, defense counsel had no opportunity to depose the expert on this point.

In summary, a malpractice claimant cannot rest on providing a laundry list of errors that may have occurred without tying them causally to patent claims that would have issued but for the patent prosecution errors. It may be tempting to give short shrift to a patentability analysis in a case because of the expert witness expense entailed in such an exercise.

The Davis case dismissal outcome is not an isolated example of what happens to patent legal malpractice cases that are long on alleged errors in patent prosecution activities, but come up short on describing and analyzing what patent claims could and should have issued but for those patent prosecution errors.

The Federal Circuit favors the use of special jury verdicts to alleviate such criticisms. Special verdicts can focus jury attention on the facts that may or may not support key patent findings such as those relating to infringement under the doctrine of equivalents, obviousness or other invalidity determinations, and damage and reasonable royalty calculations.

Whether special verdicts achieve “better” overall results than general verdicts, however, is a debatable proposition in light of social science research into how juries think and reason.

The underlying record in a recent Federal Circuit decision, Therasense v. Becton Dickinson and Co. (pdf), provides a good working example for evaluating jury comprehension issues when both jury notes and a special verdict are utilized at trial.

Case Background and Result. The Therasense case involves an ’890 patent directed to electrochemical sensors for measuring glucose levels in blood. The plaintiff alleged that BD Test Strips manufactured and sold by the defendants infringed two claims of the subject patent.

After a trial taking place over four weeks, the jury returned a special verdict (pdf) finding infringement pursuant to the doctrine of equivalents, but in response to the very next special jury verdict question found that the ’890 patent was invalid based on anticipation or obviousness grounds.

The bulk of the Federal Circuit’s decision focuses on the jury’s answer to the following special verdict question: ” Have defendants proven by clear and convincing evidence that Claims 11 and 12 of the ’890 patent are invalid by reason of anticipation or obviousness. Yes  √   No ___.”

More after the jump.

The Federal Circuit affirmed the judgment of invalidity based on the jury’s answer to this question. While it found an error in the district court’s “anticipation” jury instruction, the Federal Circuit concluded that the evidence would support an obviousness determination as a matter of law. Since that ground is sufficient for invalidity purposes, an error in the anticipation jury instruction was deemed harmless.

Case Significance. The Therasense case represents, in many ways, a typical hard-fought, professionally-litigated patent lawsuit.

The record reflects a continuing predilection in patent litigation for the preparation of lengthy jury instructions and use of a special verdict form that contains bare-bones, high-level questions answering the ultimate patent issues in dispute. This is all the more noteworthy because the Northern District of California Local Rules offer a detailed special verdict form that’s been available to patent practitioners since November 2007.

Use of jury notes is a fairly new phenomenon and reflects a reform in action intended to increase jury participation and cognition.

The Jury Notes. Jury notes (pdf) from the Therasense case furnish us with an illuminating window into how jurors struggle with esoteric patent concepts far removed from their everyday activities.

For example, one juror asks, “What is the function of a ‘court construction’? Is it a way to focus or limit the conversation?”

Another inquires, “There has been made mention of a ‘one year rule’ in patent law. Could you please clarify that? Thank you.”

One juror wonders, “Should we consider the shipping of the PQID product to the Netherlands in deciding whether PQID had been reduced to practice?”

These inquiries show how patent law terminology is processed in the minds of the uninitiated. On the plus side, the jury is clearly trying to make sense out of strange patent lingo. And one can hardly expect jurors to become insta-experts in patent law during the course of trial.

As one legal commentator states, the “jury is the only decision making body in the world selected specifically for its lack of expertise in the subject matter.” Longhofer, Jury Techniques in Complex Civil Litigation, 32 U.Mich. J.L. Reform 335, 337 (1999).

Other jury notes are more banal, but equally important. They demonstrate the importance of speaking to and understanding your true audience, to wit, “Please have your younger lawyers speak more slowly.”  The juror complains that the lawyers were speaking “at the speed of sound/light ” and that she or he “hardly understood the defendants and questions!”

Detailed Jury Instructions. Like most patent cases where a jury is empanelled, the bulk of the parties’ and court’s attention in the Therasense case was focused on the language of the jury instructions themselves.  Unfortunately, the expense of wordsmithing and fine-tuning jury instructions may not be justified by social science research.

That research suggests: ”A general characterization of juror’s cognitive performance during trials is that they are good at remembering and understanding the facts of a case but are poor at remembering, understanding and applying the relevant laws. * * * Study after study has shown that jurors do not understand the law they are given, often performing at no better than chance level on objective tests of comprehension.” Ellsworth, et al., Juror Comprehension and Public Policy: Perceived Problems and Proposed Solutions, 6 Psychology, Public Policy and Law788, 795-6 (Sept. 2000)(citations omitted).

In hindsight, the Therasense jury may have performed better than average. The jury notes at least demonstrate that they are trying to discuss the anticipation issues with specific reference to certain lines from the jury instructions. In fact, they raise the very issue that ultimately led the Federal Circuit to hold that the anticipation jury instruction was in error.

The Therasense jury notes thus offer tangible, anecdotal evidence that jury notes do marginally improve jury comprehension in patent cases.

The Special Verdict. While labeled as special verdict form, the Therasense verdict form consists of five questions and two special interrogatories (pertaining to doctrine of equivalence determinations).

The special verdict form employs binary logic (i.e., yes or no questions). It requires serial findings.  In other words, that questions be answered in a certain order, or what it known to social science researchers as “path-dependency.”

Because the jury is not asked to come to conclusions with respect to sub-issues that are pertinent to an obviousness determination, had the defendants lost on that invalidity issue, it would have been difficult for them to overturn the jury’s verdict given the deferential standard of review for overturning jury findings on appeal (as discussed in the previous post).

Overall, the generality of the special verdict questions—especially in relationship to much more detailed jury instructions—likely means that the Therasense jury’s special verdict is much more akin to a general verdict.

A general verdict—even though the reasoning leading to it is opaque—efficiently sums the jurors’ impressions about who should win and who should lose in a case. In that regard, the general verdict operates at the level where juries perform most effectively as a collective.

“It appears that jury deliberations typically do not analyze the evidence by following an element-by-element approach. Rather, jurors use the evidence present at trial to generate and test a variety of hypotheses or “stories” to explain the evidence, then select the most credible story, and determine the ultimate facts in accordance with that story, provided they are sufficiently convinces of its truth.” Lombardero, Do Special Verdicts Improve the Structure of Jury Decision-Making?, 36 Jurimetrics J. 275, 284 (Spring 1996)

Because of the central importance of special verdicts in patent litigation, upcoming entries planned for the PPPL Reporter will continue to explore the use of special verdicts and their effectiveness in reaching just and fair results in cases tried to a jury. One forthcoming topic will be the novel incorporation of “fuzzy logic” interrogatories into special verdicts and the use of “fuzzy logic” polling questionnaires as an aid to facilitate jury deliberations in patent cases.