20Jun 2016

canstockphoto15202912Last week, the Supreme Court issued an opinion that significantly altered the legal landscape for proving willful infringement in patent cases. In Halo Electronics, Inc. v. Pulse Electronics, Inc., the Supreme Court rejected the Federal Circuit’s two-part Seagate test for awarding enhanced damages under 35 USC § 284, finding that both the substantive requirement for “objective recklessness” and the “clear and convincing” burden of proof were inconsistent with the intent of the statute.

Notably, the Court in Halo held the Seagate test for willful infringement “is unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts.”  The Court criticized the Seagate test in part because it requires a finding of objective recklessness in every case before district courts may award enhanced damages. Such a threshold requirement excludes “from discretionary punishment many of the most culpable offenders, such as the ‘wanton and malicious pirate’ who intentionally infringes another’s patent—with no doubts about its validity or any notion of a defense—for no purpose other than to steal the patentee’s business.”

The Court further criticized the Seagate test because it made “dispositive the ability of the infringer to muster a reasonable (even though unsuccessful) defense at the infringement trial. The existence of such a defense insulates the infringer from enhanced damages, even if he did not act on the basis of the defense or was even aware of it.” The Supreme Court rejected the ability of an accused infringer to escape enhanced damages “on the strength of his attorney’s ingenuity” and noted that culpability for willful infringement “is generally measured against the knowledge of the actor at the time of the challenged conduct.”

Ethical Issues Raised By Halo

There is no doubt that Court’s opinion in Halo may be a game-changer for parties involved in patent litigation.  While most commentators have to date focused on the substantive and procedural issues raised by Halo. it is important to note that the Supreme Court’s decision also imposes several significant ethical duties on attorneys who are presently litigating a patent case in which willfulness is an issue.  Whether representing the patent owner or the accused infringer, litigators must be mindful of the ethical issues raised by Halo as they proceed in ongoing and future patent infringement cases.

First, an attorney in litigation has an ethical duty to not  Continue reading

01Jun 2016

canstockphoto14357946A federal district judge has dismissed a trademark lawyer’s complaint alleging that the USPTO’s Office of Enrollment and Discipline’s (“OED’s) investigation of him violated his rights under the Fourth and Fifth Amendments of the U.S. Constitution.  The Court held that dismissal of his federal complaint was appropriate because the matters raised in the complaint are currently being adjudicated by the USPTO and the practitioner may raise his constitutional claims in federal court only after the Agency’s administrative process is concluded.  A copy of the Court Swyers Decision (1) is here.

By way of background, as we previously reported (here), trademark attorney Matthew H. Swyers filed suit in January 2016 seeking to enjoin the OED from investigating him for alleged ethics violations because the process employed in conducting the ethics investigation violates his rights under the Fourth and Fifth Amendments.  Matthew H. Swyers v. United States Patent and Trademark Office, et al., No. 16-cv-00015-LO-IDD (E.D. Va. Jan. 6, 2016).

Mr. Swyers’ complaint (here) challenged the OED’s process for obtaining information that it uses in determining whether a USPTO practitioner may have engaged in unethical conduct.  Pursuant to 37 CFR Section 11.22(f), the OED Director is authorized to “request information and evidence regarding possible grounds for discipline of a practitioner” by issuing what it refers to as “Requests for Information” (or “RFIs”). The USPTO’s regulations impose no numerical, temporal, or subject matter restriction on the RFIs themselves.

The complaint alleged that the OED overwhelmed Mr. Swyers by issuing multiple RFIs seeking information on as many as 15,000 trademark applications.  The complaint further alleged that “no avenue exists” in the USPTO to challenge OED’s RFIs based on breadth, privilege, vagueness, harassment, or relevance.

The USPTO moved to dismiss Mr. Swyers’ complaint for failure to pursue and exhaust administrative remedies.  The USPTO argued that its regulations afforded two levels of internal agency review–specifically, a petition to the OED Director followed by a petition to the USPTO Director–for any practitioner who seeks to challenge the propriety of an OED ethics investigation.  See 37 CFR Section 11.2(e).  According to the USPTO, Mr. Swyers failed to pursue the agency’s available remedies during the course of the investigation.

In addition, the USPTO argued the case was not ripe for judicial review because shortly after Mr. Swyers’ complaint was filed in federal court, the OED ended its ethics investigation and filed an administrative disciplinary complaint against him pursuant to 37 CFR Section 11.34.  The administrative complaint, which alleges violations of various USPTO rules of ethics arising from Mr. Swyers’ trademark practice, has since been assigned to an ALJ for an administrative hearing.  Any party that is unhappy with the outcome of that hearing may seek review by filing an appeal with the USPTO Director.  Finally, once the USPTO Director issues a final Agency decision, an aggrieved practitioner may file a petition for review in the U.S. District Court for the Eastern District of Virginia.

The Agency argued that in light of its filing of the administrative disciplinary complaint, Mr. Swyers’ federal court complaint was premature because he could still raise his constitutional challenges during the course of the proceedings before the ALJ.

On May 27, the district court (Judge Liam O’Grady) issued a memorandum opinion granting the motion to dismiss.  The Court’s decision essentially agreed with the Government’s arguments.

The Court held that Continue reading

27May 2016

canstockphoto13069501“Baby why you hurt me leave me and desert me?” — Foolish (2002) Ashanti

A California attorney sued his former law partner for allegedly stealing trade secrets and fraudulent billing practices, in violation of a contract detailing the disbanding of the attorneys’ prior partnership.

In a complaint filed in U.S. District Court for the Northern District of California on May 24, 2016, IP attorney Zurvan Mahamedi alleges that his former law partner, patent attorney William Paradice, misappropriated confidential information and client files, in violation of the recently enacted Defend Trade Secrets Act, which provides a federal cause of action for trade secret misappropriation.  See Zurvan Mahamedi and Mahamedi IP Law LLP v. William Paradice and Paradice & Li, LLP, No. 5:16-cv-02805-HRL (N.D. Cal. May 24, 2016).  Click here for a copy of the District Court Complaint. This lawsuit appears to be one of the first filed under the new federal trade secrets law.

Allegations

The complaint alleges Mahamedi and Paradice were the sole partners in the law firm Mahamedi Paradice LLP (“the Old Firm”). In April 2016, Paradice withdrew from the Old Firm in order to start a new law firm, Paradice & Li LLP (the “Paradice Firm”). Mahamedi and Paradice allegedly entered into a Partnership Separation Agreement (“PSA”) on April 22, 2016. Part of the PSA allegedly addressed the division of clients and how Paradice’s client files would be transferred to the Paradice Firm. According to the complaint, Paradice was allowed to take only those files “which relate to clients that have provided written consent to transfer their files” to the Paradice Firm.

The complaint further alleges that some of the Old Firm’s files were maintained on a computer system (the “Mahamedi Database”), which operated on a server located at the premises of the Old Firm. The Mahamedi Database allegedly contained “Plaintiffs’ confidential and proprietary information concerning billings, proprietary legal research and strategy materials, and client contacts.”  The complaint alleges Paradice exceeded his authority under the PSA by accessing and copying the entire Mahamedi Database, and further that Paradice intends to use the Old Firm’s trade secrets “to compete with Mahamedi, to tarnish Mahamedi’s reputation, to disseminate the Trade Secret information for improper use, and/or to contact Mahamedi’s clients and/or solicit business.”

The complaint also alleges a scheme by Paradice to defraud Mahamedi and the Old Firm by Paradice allegedly cancelling invoices from the Old Firm, and agreeing with those clients to re-issue these invoices through his new firm, the Paradice Firm. The complaint avers that revenues from these cancelled invoices rightfully belong to the Old Firm.

canstockphoto1448873The complaint accuses Paradice of misappropriation of trade secrets under the Defend Trade Secrets Act of 2016 (DTSA), 18 U.S.C. § 1836(b)(1), which was signed into law on May 11, 2016, as well violating the California  Uniform Trade Secrets Act.  The complaint also alleges that Paradice’s use of his former firm’s computers to obtain trade secrets violated the Computer Fraud and Abuse Act.  The complaint further alleges various state law causes of action arising from the breakup, including breach of fiduciary duty, fraud, conversion and breach of contract.

The complaint seeks preliminary and permanent injunctive relief, compensatory damages and punitive damages. A response to the complaint has yet to be filed.

Ethical Traps From Law Firm Break Ups

Law firm breakups can raise ethical issues. Indeed, there have been several ABA, state, and local bar association ethics opinions addressing Continue reading

26May 2016

Truth and Lie signFinding federal government attorneys from the Department of Justice engaged in a “calculated plan of unethical conduct”, a federal judge in Texas has ordered hundreds of the agency’s lawyers to receive formal ethics training as a sanction for lying about the status of more than 100,000 migrants.  See Texas v. United States, Civ. No. B-14-254 (S.D. Tex. May 19, 2016) (click here for the Texas Court’s Order).

In a scathing 28-page opinion, U.S. District Judge Andrew S. Hanen found that Justice Department lawyers knowingly made multiple misrepresentations of fact to the court and opposing counsel in the course of a lawsuit filed by Texas and 25 other states challenging the Obama administration’s immigration policy.  Judge Hanen wrote that DOJ’s lawyers breached “the most basic ethical tenets” and that, “The misconduct in this case was intentional, serious and material.  In fact, it is hard to imagine a more serious, more calculated plan of unethical conduct.”

“Clearly,there seems to be a lack of knowledge  about or adherence to the duties of professional responsibility in the halls of the Justice Department.”

Background

By way of background, in 2012, the Obama administration implemented the Deferred Action for Childhood Arrivals (DACA) program.  The DACA gave immigrants who came to the United States as children, went to school, and did not commit any serious crimes the chance to apply for two-year “lawful presence” rights to be free of deportation and obtain work permits.  In 2014, the program was modified to extend the DACA deferred-deportation period to three years and to expand protection under the Deferred Action for Parents of Americans and Lawful Permanent Residents (DAPA).  Both programs were the result of a November 2014 Department of Homeland Security (DHS) directive.

In 2014, twenty-six states sued to enjoin the entire DHS directive, including the expanded DACA. Initially, the plaintiff states requested a hearing on their motion be held before December 31, 2014. The plaintiffs and the court agreed to a later hearing date after receiving reassurances by DOJ and DHS attorneys that the Government would not begin accepting requests for deferred action until February 18, 2015.  On February 16, 2015, the district court issued an order enjoining the Government from implementing “any and all aspects” of the DACA until “further order of this Court, the Fifth Circuit Court of Appeals or the United States Supreme Court.”  The case is now pending before the Supreme Court.  The only issue left for the district court was, therefore, the sanctions to impose for the Government attorneys’ violations of their ethical duties.

canstockphoto13744259 (1)The Misrepresentations 

Judge Hanen explained that, contrary to the federal government’s representations to the court and the opposing parties, since late-November 2014 (and thus well before the alleged February 18, 2015 start date), DOJ’s lawyers were well aware of the fact that the Department of Homeland Security had already granted or approved over 100,000 DACA applications.  Judge Hanen found that the Justice Department lawyers “knew the true facts and misrepresented those facts to the citizens of the 26 Plaintiff States, their lawyers and this Court on multiple occasions.”

The court further found that the number of applications processed–whether it was 1 person or 100,000 people–to be irrelevant.  The court explained that the “magnitude does not change a lawyer’s ethical obligations.  The duties of a Government lawyer, and in fact of any lawyer, are threefold: (1) tell the truth; (2) do not mislead the Court; and (3) do not allow the Court to be misled.”  See ABA Model Rule 3.3 cmts. 2 & 3.  The court held that the Government’s lawyers “failed on all three fronts.” Continue reading

08May 2016

man with razorOn May 5, 2016, a Massachusetts state court dismissed Gillette’s claims for breach of fiduciary duty against its former in-house IP counsel who left Gillette and went to work for a competitor, where he used allegedly privileged information gained during his prior employment and helped his new employer analyze and avoid infringement of Gillette’s patents—including patents over which he oversaw prosecution. The court held that Gillette’s amended complaint failed to state claims for breach of fiduciary duty as a matter of law.  Consequently, the court dismissed with prejudice Gillette’s claims against its former in-house attorney.   See The Gillette Co. v. Provost, No. 1584CV00149-BLS2 (Mass. Super. Ct. May 5, 2016) (order granting motion to dismiss). This is the second significant decision from a Massachusetts state court regarding patent ethics and conflicts of interest in the last six months; the first was the Supreme Judicial Court’s decision in Maling v. Finnegan Henderson, discussed in our posts here, here and here.

Factual Background

For 17 years, Chester Cekala worked as an in-house patent attorney for Gillette.  Mr. Cekala left Gillette in 2006.  In 2012, Mr. Cekala joined ShaveLogic, Inc. where he began working on patent matters.

In 2015, Gillette sued ShaveLogic and four former Gillette employees who had gone to work for ShaveLogic. The original complaint alleged that the defendants took Gillette’s confidential information and misappropriated its trade secrets for the benefit of ShaveLogic.

In 2016, Gillette filed an amended complaint adding Mr. Cekala as an additional defendant.  According to Gillette’s amended complaint, Mr. Cekala had access to privileged communications and information relating to Gillette’s patents and technologies and developed “detailed knowledge” about Gillette’s patents and related licensing agreements.  ShaveLogic allegedly hired Mr. Cekala to provide freedom to operate opinions regarding Gillette patents—including patents whose prosecution he allegedly oversaw—and to identify potential voids in Gillette’s patent portfolios.

GilletteThe amended complaint further alleged that ShaveLogic competes with Gillette in the market for wet shaving products and that Mr. Cekala’s knowledge of Gillette’s intellectual property portfolio and patent strategy gives ShaveLogic a “competitive edge in the market.”  Mr. Cekala’s work for ShaveLogic, according to the amended complaint, is substantially related to the legal services he performed while working as counsel for Gillette. The amended complaint alleged Mr. Cekala breached his ethical and fiduciary duties to Gillette, as its former counsel, and that all of the defendants conspired to cause Mr. Cekala to breach his fiduciary duty to Gillette.

Procedural History

Gillette moved for a preliminary injunction to prevent Mr. Cekala, from providing any legal advice regarding Gillette’s patents, not only with respect to patent validity but also on infringement and scope of Gillette’s patents. Although Cekala’s non-compete agreement with Gillette had long expired, Gillette contended that Cekala’s legal advice inevitably disclosed Gillette’s trade secrets to its competitor given his experience with the company.

The Massachusetts court rejected Gillette’s position.  The court noted that “if the court were to accept Gillette’s logic, Cekala would be effectively prevented from working in any legal position for a competitor in the shaving industry even though his non-competition agreement expired years ago.”

On February 22, 2016, Mr. Cekala moved to dismiss the claims alleged against him in the amended complaint for failure to state a claim.  On May 5, 2016, the court granted Mr. Cekala’s motion with prejudice. Continue reading

26Apr 2016

canstockphoto24062764You will learn about life when you play The Game of Life” – original TV jingle for “The Game of Life”

Plaintiffs, alleged owners of the IP rights to the “The Game of Life”, want to end up on Millionaire Estates.  Defendants, including the toy company that has been making and selling “The Game” for decades, are trying to keep themselves out of the Poor Farm.  All of them are lawyered up and “spinning the wheel” of federal district court IP litigation.  See Markham Concepts, Inc. v. Hasbro, Inc., Case No. 1:15-cv-419-S-PAS (D.R.I. Oct. 2, 2015).

Just like real life (and frankly The Game of Life itself), the litigation, which has been pending for seven months, recently spawned an unexpected turn.  No, it was not the birth of twins or an income tax bill, as might occur in the Game.  Instead, defendants have moved to disqualify plaintiff’s IP counsel, the law firm of Greenberg Traurig, for an alleged concurrent client conflict of interest.

At issue in this case is whether a law firm which knows that it is about to become adverse to a current client, and which requested and was denied a waiver of the conflict from its client, can then withdraw from representing the client and promptly represent a party adverse to its “former” client.  In ethics parlance, a “withdrawal” under these circumstances is sometimes referred to as a “hot potato drop.”  Also at issue is whether a purported advanced waiver of conflicts, which states that a client will not “unreasonably” withhold its consent to a future conflict, is enforceable, and even if it is enforceable, whether the law firm under the facts of this matter “unreasonably” withheld its consent to the waiver.

The Lawsuit

This action arises from a complaint filed in October 2015 by Lorraine Markham and her company, Markham Concepts in federal district court in Rhode Island.  According to the complaint, Ms. Markham’s husband, Bill Markham, was the “creator, designer, developer, inventor, author and owner of the rights” to the iconic board game “The Game of Life”  The “Game” was allegedly invented by Mr. Markham in 1959 and has since sold over 30 million copies.  The complaint seeks among other things to establish ownership of the intellectual property rights in the Game, terminate all copyright grants related to the Game, and to obtain royalties allegedly owed for breaches of contract relating to the Game.

The main defendant is Hasbro, Inc., which the complaint alleges is the successor-in-interest to Milton Bradley Company’s rights and obligations concerning the Game.  Other defendants are family members of, and entities associated with, the late Art Linkletter, including an entity formed by Linkletter to promote various games known as “Link.”  Art Linkletter was an early endorser of and spokesman for Milton Bradley, and his picture appeared on “The Game’s” $100,000 bills.

The complaint alleges that  Continue reading