Updates from the USPTO and OED: Patent Issues (Part III): Communication and Foreign Agents6/30/2022
 Part III of this series will address the USPTO Rules of Professional Conduct related to communication, and discuss how third-party interactions with Invention Assistance Companies (“IAC”) are relevant to relationships with foreign agents/liaisons.
Parts I and II of this series have focused on updates at the USPTO and OED relating to issues that arise when the practitioner is being paid by someone other than the client. As a quick recap, in recent years the USPTO and OED have been stepping up enforcement of the USPTO’s Rules of Professional Conduct, particularly with regard to rules involving interactions between practitioners, clients and third parties. To assist in highlighting these rules I (as well as the OED) have focused on interactions involving IAC’s, particularly where the IAC directly pays the practitioner on behalf of an inventor/applicant. If you missed Part I it can be read here, and Part II can be read here. One of the critical rules of practitioner ethical responsibility is to always provide informed, prompt, and understandable communications to the client. As discussed in Parts I and II of this series, the lapse of this ethical responsibility in In Re Mikhailova (D2017-18) was not only a problem in and of itself, it also exacerbated other existing problems (for a reminder on the facts presented in In Re Mikhailova, see Part I here) USPTO RPC § 11.104 (Communication), recites as follows: (a) A practitioner shall: (1) Promptly inform the client of any decision or circumstance with respect to which the client's informed consent is required by the USPTO Rules of Professional Conduct; (2) Reasonably consult with the client about the means by which the client's objectives are to be accomplished; (3) Keep the client reasonably informed about the status of the matter; (4) Promptly comply with reasonable requests for information from the client; and (5) Consult with the client about any relevant limitation on the practitioner's conduct when the practitioner knows that the client expects assistance not permitted by the USPTO Rules of Professional Conduct or other law. (b) A practitioner shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation. As discussed previously, because Dr. Mikhailova was following instructions from WPM (the IAC) to not speak to or have any direct contact with her clients, she was unable to: keep her clients informed about actions that needed to be taken on their cases; discuss what actions should or should not be taken; discuss what types of patents should be filed (utility v. design); directly receive requests from the clients for assistance. Most importantly Dr. Mikhailova never had discussions with the clients to discuss what the clients ultimately wanted out of the representation. Without consistent, direct, and informed communications between the client and the practitioner the relationship is doomed to failure. Practitioners should be keenly aware of their duty to provide prompt informed communications to their client on all USPTO matters. Relying on an intermediary, while not per se wrong, can quickly become problematic for the practitioner’s ethical responsibilities, particularly where the intermediary has a commercial interest in the representation. A silver lining to this story was that WPM was ultimately shut down by the Federal Trade Commission to protect the public. Factual allegations and the FTC’s extensive list of violations are detailed in the preliminary injunction, which can be found here. Hopefully most practitioner will not find themselves in the position of the agents or attorneys that have fallen prey to companies like WPM, nevertheless the USPTO rules and ethical obligations should be considered in every client relationship. Particularly when working with foreign counsel on U.S. filed foreign originated cases. Notably towards the end of In Re Mikhailova the OED stated: Regarding communications with clients, the USPTO Director is aware that a practitioner may communicate with someone other than the client in cases where there is a bona fide corporate liaison or a foreign agent who conveys instructions to the practitioner. In such an arrangement, the practitioner may rely upon instructions of the corporate liaison or the foreign agent as to the action to be taken in a proceeding before the Office so long as the practitioner is aware that the client has consented to have instructions conveyed through the liaison or agent. Accordingly, nothing in this notice should be construed as contradictory to the discussion entitled “Practitioner's Responsibility to Avoid Prejudice to the Rights of a Client/Patent Applicant” set forth in Official Gazette Notice published at 1086 OG 457 (Jan. 12,1988) or the discussion entitled “Responsibilities of Practitioners Representing and Clients in Proceeding Before The Patent and Trademark Office” set forth in Official Gazette Consolidated Notice published at 1421 OG 2690 (Dec. 29, 2015). Nevertheless, this notice is to be read as providing additional, specific guidance to practitioners under circumstances where a non-practitioner third party refers inventors to registered practitioners to provide the patent legal services purchased by inventors from the third party. (See In Re Mikhailova, at 10-11 (emphasis added)). While the OED has not revoked any of the 1988 or 2015 guidance providing instructions to practitioners with regard to interactions with third party non-practitioners, it did state that the guidance in In Re Mikhailova should be read “as providing additional, specific guidance to practitioners under circumstances where a non-practitioner third party refers inventors to registered practitioners to provide the patent legal services purchased by inventors from the third party.” The 1988 guidance provides language that can be inserted in a declaration, oath or power of attorney to allow the U.S. practitioner to accept instructions from a foreign agent or liaison, the language is provided below: The undersigned hereby authorizes the U.S. attorney or agent named herein to accept and follow instructions from as to any action to be taken in the Patent and Trademark Office regarding this application without direct communication between the U.S. attorney or agent and the undersigned. In the event of a change in the persons from whom instructions may be taken, the U.S. attorney or agent named herein will be so notified by the undersigned. It has been common in U.S. practice to rely on language similar to the above. Often, this language, and the oath/declaration or power of attorney is the only written agreement between the practitioner and the foreign client, and all other agreements are directly with the foreign agent/liaison. The instructions from In Re Mikhailova suggest that while the above language may be helpful towards defining the client-practitioner relationship, it likely is not sufficient. With the above lessons in mind the practitioner should always be aware that the client is the inventor or applicant, not the foreign agent/liaison. The practitioner should have an engagement letter (or at least some form of written agreement) directly with the inventor/applicant that spells out the duties and obligations the practitioner would have with a U.S. client (who the client is, scope of work, fees and costs, termination of representation, etc..). If the foreign agent/liaison is going to be relaying instructions to U.S. counsel this should be explicitly stated in the engagement letter. Additionally, while the foreign agent/liaison may charge the client for their services, it must be a separate charge and not part of, or a percentage of the U.S. legal fees, otherwise this would be sharing fees with a non-practitioner. As with the IAC, the foreign agent/liaison can directly pay the U.S. practitioner, but this arrangement must be detailed in the engagement letter and there can be no fee-splitting (see Part II for a more detailed explanation on what constitutes fee-splitting). Care and attention should be paid to all third-party relationships be they with Invention Assistance Companies, foreign associate, foreign liaisons, or even domestic referrals (more on this in Part IV). Your client is always the inventor/applicant and you should be aware of your ethical duties and obligations to the client. Part IV of this series will address additional aspects of USPTO Rules of Professional Conduct related to referrals and reciprocal discipline. If you have any questions about patents, trademarks, or professional responsibility, please contact me at [email protected] or visit my website at www.chiaraiplaw.com  Part II of my series focusing on updates at the USPTO and OED will discuss the USPTO Rules of Professional Conduct (“USPTO RPC”) that relate to conflict of interest when the practitioner is being paid by someone other than the client. As a quick recap, in recent years the USPTO and OED have been stepping up enforcement of the USPTO’s Rules of Professional Conduct, particularly with regard to rules involving interactions between practitioners, clients and third parties. To assist in highlighting these rules I (as well as the OED) have focused on interactions involving Invention Assistance Companies (“IAC”), particularly where the IAC directly pays the practitioner on behalf of an inventor/applicant. If you missed Part I it can be read here.
As discussed in Part I, the non-practitioner rules (37 C.F.R. § 11.504(a)&(b)) require IAC’s to either refer clients to patent attorneys or patent agents (“practitioners”), and/or to contract with the practitioner on behalf of their clients. It is not per se illegal or unethical for third parties to pay fees for inventor/applicants, however, there are specific rules that must be followed for the relationship to comply with the USPTO RPC. Conflict of Interest Rules for Payment by a Third Party According to 37 C.F.R. § 11.108(f): A practitioner shall not accept compensation for representing a client from one other than the client unless: (1) The client gives informed consent; (2) There is no interference with the practitioner’s independence of professional judgment or with the client-practitioner relationship; and (3) Information relating to representation of a client is protected as required by § 11.106. [confidentiality] Possibly the most important question a practitioner must answer when determining the ethical obligations associated with the conflict of interest rules is “who is the client.” To be clear, in the third-party relationship with the IAC, the client is always the inventor/applicant. The IAC is not the client. The practitioner’s ethical obligations of competence, communications, loyalty, independent professional judgment, and confidentiality are to the inventor/applicant, not the IAC. The “informed consent” (37 C.F.R. § 11.108(f)(1)) should be in writing and signed by the client and the patent practitioner. Remember, that the client will always be the inventor and not the IAC. Regardless of the existence of an agreement between the practitioner and the IAC there should be a separate written agreement (preferably an engagement letter) directly between the inventor and practitioner setting forth who is the client, what the scope of the representation will be, how much the practitioner will charge for any services, when the representation ends (i.e., after filing, after prosecution, after payment of maintenance fees, etc.… ), and how the practitioner will be paid, especially if the payment will come from the IAC. While 37 C.F.R. § 11.108(f)(1) does not explicitly state the need to detail and breakdown the fees and services, the Federal Circuit in Bender v. Dudas 490 F.3d 1361 (Fed. Cir. 2007) has made it explicit that informed consent obligates a patent practitioner to provide these details in writing to the client. The next portion of the third-party payee conflict of interest rule, 37 C.F.R. § 11.108(f)(2), requires that the acceptance of the payment does not cause “interference with the practitioner’s independence of professional judgment or with the client-practitioner relationship.” This rule does not create any new obligations, but reminds the practitioner of their duty to the client. An example of how this rule can be violated was demonstrated in In Re Mikhailova (D2017-18) when the Invention Assistance Company instructed the patent practitioner to file design patents for the inventors (for details on In Re Mikhailova see Part I). Whether the client wants or needs a design patent, in contrast to a utility patent or no patent at all, is a decision that must be made by the client based on information and discussions with the patent practitioner. The decision cannot be left to the IAC, and for the practitioner to not understand this distinction and rely on the instructions from the IAC is a violation 37 C.F.R. § 11.108(f)(2). As discussed in Part I of this series, the commercial interests of the IAC (e.g., cheap, fast and profitable) should not be a factor in the practitioner’s representation of the client. Delegating decisions related to the representation of the client to the IAC, intentionally or unintentionally, creates a conflict of interest. An additional concern arises when the practitioner is receiving numerous referrals from a single IAC or third party. In this situation, the practitioner must additionally provide written information detailing the extent of the relationship with the IAC (or third party), fully explain the relationship to the client, and allow the client to make an informed decision before agreeing to be represented. Practitioners should always be conscious that the practitioner’s relationship with a third party (referring multiple clients) could eventually result in an unwaivable conflict. The above scenario, which actually exists in many factual recitations in OED opinions, is how practitioners (often solo practitioners with a poor understanding of the USPTO RPC) run afoul of the Conflict of Interest Rule. They do not understand who is the client and to whom they owe their ethical obligations. If the IAC is sending a practitioner 20-30 patent applications a month and telling the practitioner to file them “as is” the practitioner is almost certainly violating their ethical duties to the inventor. Practitioners erroneously view this business model as one in which the IAC is the “boss” who is providing large amounts of work, and the only necessity is to keep each project separated by docket number. Unfortunately, this is a gross violation of USPTO Rules of Professional Conduct. Each client must be treated separately, with an independent conflict of interest search, a separate engagement letter, direct communication between the practitioner and the client to determine the needs and goals of the client, and all communications, including the engagement letter must be maintained confidential. Confidentially is the last portion of the third-party payee conflict rule (37 C.F.R. § 11.108(f)(3)). Practitioners have an ethical duty not to affirmatively disclose information related to the representation of the client (37 C.F.R. § 11.106). The fact that the client is also engaged with a third party in the filing of a patent application does not revoke the need or the obligation of confidentiality. The client may allow the third party to have access to certain communications between the client and the practitioners, however, this must be done with informed consent and in writing. Further, the practitioner must make it clear to the client that granting a third-party access to the practitioner-client communication may (and probably will) destroy confidentially. Assuming all of the obligations and duties required by Rule 108(f) have been fulfilled, the practitioner must still understand the distinction between fee-splitting and payment by a third party. No legal fees may be split between a practitioner and any non-practitioner. The Invention Assistance Company can receive fees for their services from the client, but the fees paid by the client to the IAC cannot be one lump sum for the IAC and the practitioner that is later divided by the IAC. The fees paid to the IAC must have explicit details about what portions are going to the IAC for its non-legal services, what portions are going to the practitioner for their legal services, and what portions are going to the USPTO for filing fees. 100% of the legal fees must go to the practitioner. The IAC cannot take a percentage or a portion of the legal fees as payment for arranging the relationship. Moreover, if the payments made to the IAC occur before the practitioner is engaged (as often happens), the practitioner has an obligation to obtain copies of those documents to ensure that all legal and non-legal services have been separated. Lack of knowledge on the practitioner’s part with regard to fee-splitting (such as where payments were made to the IAC before the practitioner’s engagement) is not a defense. Part III of this series will address additional aspects of USPTO Rules of Professional Conduct related to communication, referrals, and reciprocal discipline. Additionally, I will discuss how the third-party interactions with IAC’s are relevant to relationships with foreign associates and particularly foreign originated applications. If you have any questions about patents, trademarks, and practitioner professional responsibility, please contact me at [email protected] or visit my website at www.chiaraiplaw.com |
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