“What Patent Attorneys Should Know About New Ethics Rules”
Law360 05/10/13 Carl R. Schwartz
The United States Patent and Trademark Office has recently promulgated a final rule establishing a new set of ethics rules for patent prosecution practitioners. The rules became effective May 3, 2013.
The rules are largely based on a version of the American Bar Association's model ethics rules, and thus attorney practitioners will typically already be quite familiar with most of the requirements of the rules. However, the rules also cover patent agents, and many patent agents will not have studied ABA model ethics rules before. Also, in some cases the PTO rules differ somewhat from typical state ethics rules and/or the ABA model rules. In many cases, the PTO has adopted changes particularly to account for requirements specific to practice before the PTO.
For example, the PTO rules include sections that specifically require practitioners to meet the duty of candor and disclosure (See, for example, 37 C.F.R. §11.303(e) 37 and C.F.R. §11.106(c)). The PTO rules also expand the ABA rule definition of "tribunal" to include practice before the PTO (see 37 C.F.R. §11.1), and therefore expand a number of rules that are typically intended for inter partes procedures to include ex parte prosecution. While the ABA model rules and state law ethics rules require attorneys to disclose adverse controlling authority to a court even if there is an argument for distinguishing it, for example, the PTO ethics rules expand this requirement to include ex parte prosecution. (See also 37 C.F.R. §11.303(a)(2).) The term "fraud" has also been defined to include conduct that involves a misrepresentation of material fact, or as a purposeful omission or failure to state a material fact, and which has been made with the intent to deceive. (See 37 C.F.R. §11.1.) The PTO rules therefore are consistent with the existing duty of disclosure, and also with established inequitable conduct standards.
Similarly, the rules also enable practitioners to disclose confidential client information, not just to prevent a crime or fraud, but also to prevent a client from engaging in inequitable conduct that is reasonably certain to result in substantial injury to the financial interests or property of another when using the practitioner’s services, and to prevent or mitigate such injury. (See, for example, 37 C.F. R. §11.106(b)(2) and (3).) There is an inherent tension between the duty to keep client confidences and the duty to avoid inequitable conduct, and the ethical rules have been structured to provide procedures for protecting the practitioner if the client seeks to interfere with the practitioner meeting the duty to avoid inequitable conduct by disclosing confidential client information.
The PTO rules also include provisions that are specifically directed to registered patent practitioners, including both patent agents and patent attorneys. The rules, for example, expand the requirement for competence found in the ABA model rules to include not just legal, but scientific and technical knowledge reasonably necessary for the representation (37 C.F. R. §11.101).
While the ABA rules and similar state laws typically allow attorneys to advance court costs and litigation fees only on a contingency basis, or when the client is indigent, the PTO rules are more flexible, particularly allowing practitioners to pay fees when failure to do so will result in an abandonment. Practitioners can also advance costs and expenses provided the client remains ultimately liable (37 C.F.R. §11.108(e)(3) and (4)).
The PTO ethics rules also adopt a number of common ABA ethics rules that are important for intellectual property practitioners. For example, the new PTO rules incorporate the ABA model rule prohibitions against making material false statements to third parties (37 C.F. R. §11.401). While this is not particularly surprising, and while there are circumstances where even false statements are not deemed problematic (e.g., blustering during a settlement negotiation that "my client will never accept that low an offer"), there are circumstances that intellectual property practitioners regularly face where the rule should be considered.
One such circumstance is in the context of pre-text investigation. For example, in order to evaluate a potential trademark usage when searching if a mark is available, one may want to check when a particular company started business. It is one thing to inquire from a telephone receptionist how long a company has been in business (where the recipient assumes the inquiry is by a potential customer wanting to make sure that the company is not a fly by night company). It is another to directly falsely tell the receptionist that the inquiry is being made for that reason, when it is not.
State law ethical rules have also traditionally governed the process of an attorney being compensated for referring work to another attorney. In a somewhat less formal way, U.S. law firms sometimes have relationships with foreign attorneys whereby each sends the other work. The new PTO ethics rules are worth being studied by firms who have such relationships. For example, where work is being sent to another firm on the condition that return work is sent, there may be some disclosure requirements (e.g., the client has to be told). See 37 C.F.R. §11.702(4).
Many practitioners will be relieved to know that a number of requirements that had been considered in the proposed rule were not adopted. For example, the PTO has not imposed a continuing legal education requirement on practitioners. Patent agents will therefore not be under any obligation to take CLE classes (apart from generalized obligations to remain competent), and attorney practitioners will just have to meet state law CLE requirements.
The patent office has also decided not to implement a proposed annual fee for patent practitioners to maintain their registrations. While the patent office had progressed fairly far along in trying to implement this, the idea was placed on the back burner when it became likely that the patent office would have very substantial other sources of revenue that would become available to it under patent reform.
Further, while the patent office encourages participation in pro bono type activity, the patent office has decided not to impose its own additional set of requirements in this area. There has always been some tension with respect to how a concept like pro bono (originally derived out of helping the poor) can have meaningful applicability to an area of law primarily designed around trying to create monopolies for businesses. Many patent attorneys have had to satisfy their mandatory pro bono obligations by providing legal services outside of the intellectual property field (e.g., by assisting the poor in presenting Social Security disability claims). Since patent agents can't practice law outside of the patent prosecution field, imposing a pro bono requirement on them would have been problematic.
Finally, it should be noted that because the rules are newly adopted, there aren't yet definitive PTO rulings regarding how they will be interpreted. On the other hand, because they are so closely based on the model ABA rules, and the PTO indicated an intent to try to create uniformity with those rules to a large extent, the interpretive resources that are available in connection with the model rules should be of assistance here as well. Thus, for the most part, it is expected that these new rules are unlikely to be disruptive to the patent bar.
Originally published in Law360, May 10, 2013