On May 26, 2021, the USPTO clarified its position that U.S. “practitioners”—who, by definition, include only United States-barred attorneys and USPTO registered patent attorneys and agents—may form partnerships and co-own law firms with non-U.S. attorneys without violating the USPTO’s Rules of Professional Conduct. The USPTO guidance was included in the agency’s Final Rulemaking, the purpose of which was to improve “clarity in existing regulations” governing the conduct of patent practitioners who are subject to investigation by the Office of Enrollment and Discipline.
This may not sound like news. After all, international law firms are ubiquitous, and USPTO “practitioners” have been partners or shareholders in such organizations without any published objection from the Office of Enrollment and Discipline, which is charged with policing the IP bar for alleged violations of the agency’s rules of professional conduct.
But the clarification is news because the USPTO’s ethics rules literally prohibit U.S. “practitioners” from partnering with or co-owning a law firm with any “non-practitioner.” Several commentators pointed out this problem to the USPTO and urged the agency to use its latest efforts at ethics rulemaking to clarify the agency’s intent not to prohibit such relationships.
The USPTO, unfortunately, refused to amend its rules to address this issue. The Office stated that such a change was outside of the “scope” of the proposed rules.
At least we got second prize: the USPTO confirmed that it did not intend to restrict the ability of U.S. intellectual property attorneys from forming partnerships with or otherwise co-owning a law firm with foreign attorneys. Thus, while not amending its rules, the agency has made it clear that it has no qualms, ethically speaking, with USPTO “practitioners” practicing with foreign attorneys.
The USPTO’s ethics rules prohibit a “practitioner” from forming a partnership with a “non-practitioner” when any part of the business of the partnership involves the practice of law. 37 CFR 11.504.
Ethics rules prohibiting non-attorney ownership of law firms and other organizations that provide legal services to the public are intended to protect the lawyer’s independence and not interfere with their exercise of their professional judgment. Additionally, the ethics rules generally prohibit, with several narrow exceptions, lawyers from sharing legal fees or profits with non-lawyers.
The rules are intended to avoid undue influence on the lawyer’s independence. Attorney regulators, including the USPTO, are concerned that a lawyer may be unduly influenced by non-lawyer co-owners or partners recommending a course of action for a client that may not be in the client’s best legal interest.
The ethical rules requiring lawyer independence from the influence of non-lawyers are not unique to patent and trademark law or practice at the USPTO. On the contrary, the ABA Model Rules of Professional Conduct, versions of which have been adopted by all 50 states, include multiple rules that, taken together, significantly curtail the types of business relationships a lawyer may form with a non-lawyer, including generally prohibiting non-lawyers from owning a law firm or sharing in a law firm’s profits.
The USPTO’s Treatment of “Practitioners”
Although state laws generally prohibit a non-attorney from independently providing legal services to a member of the public, patent agents have long been entitled to practice patent law. In Sperry v. Florida, the Supreme Court held that Florida’s unauthorized practice of law rule, which prohibits a non-Florida bar member from establishing an office in the state for providing legal services, was preempted by federal law—at least when the individual has limited his or her practice to patent law before the USPTO.
Foreign Lawyers Not “Practitioners” Under USPTO Rules
Where do foreign lawyers fit into the U.S. regulatory scheme? Most U.S. state jurisdictions’ ethics rules expressly recognize that a U.S. lawyer may form a partnership with a lawyer licensed outside of the United States. ABA Model Rule 5.4(b), for example, states “A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.” International law firms—including most of the largest law firms in the country—could not exist in their present forms if membership or partnership were limited by national licensing schemes. The very purpose of an international law firm is to provide cross-country legal services and requires lawyers licensed in different jurisdictions around the globe.
While most ethics rules refer to “lawyers” or “attorneys,” the Office uses the term “practitioners.” A “practitioner” is not necessarily a lawyer. A “practitioner” includes not only U.S. licensed attorneys but also anyone who is registered to practice before the Office in patent matters. 37 CFR 11.1. Thus, a non-lawyer patent agent is a “practitioner” according to the USPTO. And, as a “practitioner,” the non-lawyer patent agent “practitioner” is treated in the USPTO’s ethics rules in much the same way as the ABA Model Rules treat “lawyers” or “attorneys.”
But here is the USPTO-unique ethics issue: the USPTO ethics rules prohibit “practitioners” from forming corporations or partnerships with “non-practitioners” when any part of their business involves the practice of law for the public. The USPTO rules do not define “non-practitioners.” A “practitioner” is defined generally as including only U.S. licensed lawyers or USPTO registered patent attorneys or agents. While not a defined term, a “non-practitioner” would appear to be anyone who is not a U.S. lawyer or U.S. patent attorney or agent. A foreign attorney is not a “practitioner” under the USPTO’s ethics rules.
Because the USPTO rules prohibit partnerships with non-practitioners, the USPTO rules seemingly prohibit a U.S. licensed legal professional (attorney or patent agent) from being a shareholder or partner in a law firm in which a foreign attorney is a shareholder, member or partner. This is because the USPTO ethics rules prohibit associations between “practitioners” and “non-practitioners”–without excepting foreign attorneys from the scope of “non-practitioners.”
Proposed Changes to Ethics Rules
As ethics lawyers at McCabe & Ali, LLP, we believed that the USPTO’s restriction on “practitioners” not being permitted to form partnerships with foreign lawyers (“non-practitioners”) was problematic and made no practical sense, considering the purpose of the rule restricting non-lawyer ownership is to avoid non-lawyers from unduly influencing the independent judgment of lawyers. Foreign attorney are lawyers even if they are not “practitioners” as defined by the Office.
But the USPTO’s literal definition of “practitioner” would seem to prohibit such common inter-law firm relationships, in which law firms routinely have U.S. and non-U.S. lawyers as partners, shareholders or owners of law firms.
In response to the USPTO’s 2020 Notice of Proposed Rulemaking, McCabe & Ali, LLP expressed their concern about what appeared to us to be a mistake; we believed the USPTO could not really have intended to restrict such foreign-domestic law associations. The ABA IP Section and the AIPLA also commented on the same issue.
All who commented on this particular issue recommended that the USPTO modify its definition of “practitioner” or otherwise amend the language of its ethics rules to make clear that U.S. “practitioners” were not prohibited from partnering or otherwise affiliating with non-U.S. lawyers.
USPTO Clarifies It Does Not Prohibit U.S.-Foreign Attorney Partnerships
On May 26, 2021, the USPTO issued its Final Rule regarding its proposed rulemaking. The Office tacitly agreed with our understanding of the meaning of the rules, including our interpretation of “practitioner.”
The USPTO, however, refused to change the definition of “practitioner” which could have instantly clarified the Office’s position. The Office stated in its final rulemaking that amending a single definition of “practitioner” was “beyond the scope” of its proposed rulemaking.
Although the Office has refused to expressly modify its rules, the USPTO sought to assuage the comments:
OED recognizes that registered patent lawyers may form partnerships or other entities to practice law in which foreign lawyers are partners or owners, provided that the foreign lawyers are members of a recognized legal profession in the jurisdiction in which they are licensed and the arrangement complies with the law of the jurisdiction where the firm practices.
Thus, no rule change. And yet, a significant clarification.
The USPTO’s comments should put to rest any lingering question over whether U.S. attorneys may lawfully partner with foreign lawyers without violating the USPTO’s ethics rules.