January 11, 2016 Articles

Fee-Shifting Decisions Can Trigger USPTO Ethics Investigations

The cost of Octane is that any court or media report of misconduct alerts the USPTO to a potential ethics violation

By Michael E. McCabe Jr.

On April 29, 2014, the Supreme Court issued landmark decisions in Highmark Inc. v. Allcare Health Management System, Inc., 134 S. Ct. 1744 (2014), and Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014). The Court's opinions fundamentally altered the patent litigation playing field by significantly easing the test for a prevailing party to obtain an award of attorney fees in a patent case under 35 U.S.C. § 285. Indeed, some commentators have observed, based on analysis of publicly available records, that the Court's rulings in Octane and Highmark have already resulted in a statistically significant increase both in the number of attorney fees motions filed in patent cases as well as in the rate of success by the party seeking to recover fees. See, e.g., Hannah Jiam, "Fee-Shifting and Octane: An Empirical Approach Toward Understanding 'Exceptional,'" 30 Berkeley Tech. L.J. (forthcoming 2015).

Although the Court's decisions in Octane and Highmark were predicated on "exceptional case" findings in patent litigation, the Court noted in dicta that the same "exceptional case" standard for attorney fees also applies, pursuant to 15 U.S.C. § 1117(a), in cases filed under the Lanham Act. See Octane, 134 S. Ct. at 1756. Indeed, at least two circuit courts have adopted the Octane standard in actions under the Lanham Act. See Georgia-Pacific Consumer Prods. LP v. Von Drehle Corp., 781 F.3d 710, 721 (4th Cir. 2015); Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303, 315 (3d Cir. 2014).

One of the effects of the Supreme Court's Octane decision that appears to have flown under the radar is whether it has had any impact on ethical discipline imposed on U.S. Patent and Trademark Office (USPTO) practitioner litigators who find themselves on the "losing side" of a fee-shifting decision. This issue is important because the conduct courts identify in describing a losing patent or trademark litigator's behavior can be easily linked with corresponding USPTO ethics rules. As more Octane decisions are published by the courts and publicized via online media and other sources, the Office of Enrollment and Discipline (OED) has taken it upon itself to conduct disciplinary investigations to determine whether the attorneys involved violated the USPTO's Rules of Professional Conduct.

The USPTO's Disciplinary Jurisdiction

Created in 1985 to administer the USPTO bar examination and investigate complaints of unethical conduct, the OED initially focused its resources and attention to admission issues. Disciplinary matters were rarely investigated and even more rarely pursued. The tide began to change after an audit by the inspector general (IG) in the late 1990s criticized the agency for not promptly investigating complaints for ethical misconduct. In the years since the IG's report, the OED has put increasingly more emphasis on attorney discipline.

The USPTO regulates the recognition and ethical conduct of patent attorneys, patent agents, trademark attorneys, and anyone else who practices before it. The OED is charged with administering the rules of admission to practice before the USPTO and ensuring that the conduct of both registered patent attorneys and agents, as well as nonregistered attorneys who practice before the office in trademark and other nonpatent matters, complies with the USPTO's ethics rules.

Attorneys who are registered by, or practice before, the USPTO in patent and trademark matters fall within the ethical jurisdiction of the USPTO and its administrative arm, the OED. See 37 C.F.R. § 11.19(a). Moreover, the USPTO can (and does) discipline attorneys for ethical misconduct having nothing to do with practicing before the office. The OED can, for example, discipline attorneys for personal misconduct. See, e.g., Ex parte Fortin, No. D2014-39 (USPTO Dir. Dec. 9, 2014) (suspending patent attorney for failing to pay child support); Ex parte Bohanek, No. D2014-30 (USPTO Dir. Aug. 19, 2014) (suspending patent attorney following conviction for solicitation). The USPTO also can discipline practitioners for unethical conduct arising from litigation. See, e.g., Ex parte Graham, No. D2013-09 (USPTO Dir. July 17, 2013) (ordering discipline based on misconduct before bankruptcy court); Ex parte Cipriani, No. D2012-20 (USPTO Dir. Apr. 11, 2013) (imposing reciprocal discipline arising from filing qui tam false marking lawsuit against client of former law firm).

The type of litigation misconduct that would ordinarily subject a patent or trademark litigator to an ethics investigation by the OED involves independently sanctionable offenses, such as discovery misconduct or a violation of Rule 11 of the Federal Rules of Civil Procedure. See, e.g., Ex parte Hicks, No. D2013-11 (USPTO Dir. Sept. 10, 2013) (basing discipline on sanctions imposed by district court for failing to comply with discovery orders during trademark litigation). Like its state bar counterparts, the USPTO has the power to impose a wide variety of sanctions, including anything from a written reprimand (public or private), to a suspension, to exclusion (the USPTO's term for "disbarment").

Time to File an OED Ethics Complaint

In 2011, Congress amended the Patent Act to provide a specific statute of limitations for USPTO disciplinary proceedings. Congress sought a more "flexible" approach that includes a longer (10-year) "occurrence" rule but also requires faster action when the misconduct forming the basis of a complaint "reasonably could have been discovered." In particular, if the OED director receives information suggesting possible grounds for discipline, he or she may institute an ethics investigation. After receiving written notice from any source suggesting possible grounds for discipline of a specified practitioner, the OED director has one year to file a formal disciplinary complaint. To date, no published decision has issued that provides any judicial gloss on the USPTO's statute of limitations.

In many cases of USPTO professional discipline, the time for the OED director to file a complaint is governed by the one-year statute of limitations. The reason this is so is because the USPTO provides a very broad definition for how misconduct is "made known" to the OED director. For example, pursuant to 37 C.F.R. § 11.22(a), the OED director may initiate an investigation regarding possible grounds for discipline whenever he or she "receives a grievance, information or evidence from any source suggesting possible grounds for discipline." A "grievance, information or evidence" is not simply limited to client or third-party complaints expressly made to the OED (although such complaints frequently form the basis of an OED investigation).

Common sources of non-client-originated "grievances" include published decisions in patent and trademark journals, blogs, and daily publications such as Law360. This is important because the USPTO staff attorneys typically monitor (or are informed by other USPTO employees) about significant, or newsworthy, decisions from federal and state courts that suggest a patent or trademark attorney engaged in ethical misconduct. Those actions may involve conduct that could implicate one or more rules of ethics. For example, an article about a district court decision finding that a practitioner committed inequitable conduct, or was sanctioned under Rule 11, or was disqualified due to a conflict of interest, may constitute a "grievance" that triggers the USPTO's one-year statute of limitations.

Octane and the New Exceptional Case Paradigm

In Octane, the Court made it easier for prevailing parties in patent cases to recover attorney fees based on a finding that the case is "exceptional" under 35 U.S.C. § 285. In Octane, the Court ruled that an "exceptional" case is "simply one that stands out from others with respect to the substantive strength of a party's litigating position . . . or the unreasonable manner in which the case was litigated." 134 S. Ct. at 1756. The Court refused to define a "precise rule or formula for making these determinations," relying instead on lower courts to exercise equitable discretion. The Court identified a nonexclusive list of factors that could support an exceptional case finding. Those factors include frivolousness, motivation, objective unreasonableness, and "the need in particular circumstances to advance considerations of compensation and deterrence." Octane, 134 S. Ct. at 1756 n.6.

The one-year statute of limitations, coupled with the Supreme Court's Octane standard, have been game changers at the OED. As a result of the former, the OED must be particularly aggressive and move quickly when it receives a written "grievance." Such vigilance is unprecedented among state and federal disciplinary authorities. Indeed, most state bar counsels are perfectly content to wait passively until someone files a complaint; they are not in the habit of looking for trouble. Not so at the OED. It is believed that the USPTO's one-year statute of limitations for instituting a disciplinary complaint is the fastest of any state or federal disciplinary authority in the country.

And as a result of Octane, many news articles have been published in the mainstream intellectual property (IP) media arising from patent or trademark litigation fee-shifting awards. Not surprisingly, a growing number of those articles have been based on exceptional case findings and awards of attorney fees under the Octane standard. Many of the fee-shifting articles are highlighted by colorful headlines using attention-grabbing words drawn from court decisions or motions for fees under Octane. Those headlines catch the attention of the ever-vigilant attorneys working at the OED who are trained to act on such news reports and investigate further into whether the conduct that gave rise to the fee award also may have violated one or more of the USPTO's ethics rules.

Some of the more popular "bad words" that have been known to capture the attention of the OED director and his staff when published to describe an IP litigator's conduct include "frivolous," "willful," "baseless," "unreasonable," "reckless," "extremely weak," "should have known," "nonsensical," "inappropriate," "unprofessional," "vexatious," and "harassing." Many of these adjectives appear in post-Octane section 285 exceptional case decisions, although plainly these terms can be used to describe many types of alleged litigation misbehavior. The more "bad words" in the publication or court decision, the more likely it is that the OED will open an investigation into whether the litigators involved in the case violated any of the USPTO's disciplinary rules.

"Bad Words" Can Evidence Ethical Misconduct

Many USPTO's ethics rules are written such that they would easily "link" to litigation misconduct. This is especially true if the conduct is described in a court decision using one of the above-mentioned "bad words."

By way of example, depending on the type of conduct in question, the following USPTO disciplinary rules may be implicated by a post-Octane fee-shifting award:

  • Competence, 37 C.F.R. § 11.101;
  • Meritorious claims and contentions, 37 C.F.R. § 11.301;
  • Knowingly making a false statement of fact or law to a tribunal, 37 C.F.R. § 11.303(a)(1);
  • Knowingly failing to disclose to the tribunal controlling adverse legal authority, 37 C.F.R. § 11.303(a)(2);
  • Knowingly offering false evidence to the tribunal, 37 C.F.R. § 11.303(a)(3);
  • Unlawfully obstructing another party's access to evidence, 37 C.F.R. § 11.304(a);
  • Knowingly disobeying an obligation under the rules of the tribunal, 37 C.F.R. § 11.304(c);
  • Making a frivolous discovery request or failing to make a reasonably diligent effort to comply with a proper discovery request, 37 C.F.R. § 11.304(d);
  • Knowingly making a false statement of material fact or law to a third party, 37 C.F.R. § 11.401(a);
  • Engaging in conduct involving dishonesty, misrepresentation, or deceit, 37 C.F.R. § 11.804(c);
  • Engaging in conduct "prejudicial to the administration of justice," 37 C.F.R. § 11.804(d); and
  • Engaging in conduct adversely reflecting on the practitioner's fitness to practice before the USPTO, 37 C.F.R. § 11.804(i).

USPTO Disciplinary Investigation Steps

When the OED receives "bad news" or other written information suggesting possible grounds for discipline, the first step it takes is to determine whether any of the attorneys on the receiving end are subject to the USPTO's disciplinary jurisdiction. The office will check to see if any of the litigators involved are registered practitioners. The office also will look into its trademark database to determine whether any of the litigation counsel are practicing before the USPTO in nonpatent matters, such as handling trademark applications.

Assuming it has jurisdiction over the practitioner, the next step is for the OED director to screen the information to determine if it presents "possible" grounds for discipline. The screen does not present a high bar. If the source of the "bad news" is a court decision, the OED director generally presumes the "correctness" of the court's findings of fact and conclusions of law—even if the decision is interlocutory or on appeal. Litigation misconduct often implicates a number of USPTO disciplinary rules, including, as described above, rules proscribing conduct "prejudicial to the administration of justice," conduct reflecting adversely on a practitioner's fitness to practice, and conduct that evidences a lack of candor to the tribunal or opposing party.

If the information qualifies as a "grievance," the OED promptly commences an ethics investigation to determine if a disciplinary rule was violated. In light of the one-year statute of limitations, this does not provide the OED with much time to decide whether the conduct was sufficiently egregious to warrant filing charges, prepare a disciplinary complaint, obtain agency approval for filing the complaint, and then file the complaint with a USPTO hearing officer.


The old school of marketing says that any press is good press—as long as they spell the name right. For most, being mentioned in the media is beneficial because the subject of the article gets "free" publicity. But with IP practitioners subject to the USPTO's disciplinary jurisdiction, "bad news" may bring more bad news in the form of a formal ethics investigation. Patent and trademark litigators who have committed litigation misconduct or have been the subject of an Octane fee-shifting decision may thus have good reason to believe that "any" news is bad news.

It is often sufficient punishment for an attorney to have his or her name highlighted in the online media as having "done bad." It should come as no surprise that attorneys who have spent years of their lives building a good reputation may be more than a bit upset to see their name dragged through the press under such negative light. But when the OED commences an investigation and sends its calling card based on that very same press and alleged underlying litigation misconduct, the stakes can become much higher. Discipline is personal. And depending on the severity of the alleged misconduct, an attorney's right to practice his or her craft may be placed in jeopardy.

OED ethics investigations are often time-consuming, distracting, and stressful. Ethics cases involving alleged IP litigation misconduct also can be fact-intensive and complex. They can also raise difficult questions for the litigator under investigation, including whether to advise his or her client about the investigation, whether to divulge privileged communications to the OED, and how to handle responsive information that is designated confidential under a protective order.

Whenever "bad news" hits the wires, IP litigation counsel and their firms should be prepared to receive an inquiry from the OED. Those IP litigation practitioners who act fast, even before receiving an OED request for information, may be able to implement defensive strategies to minimize the risks associated with OED discipline.

Keywords: litigation, intellectual property, patents, fee-shifting, exceptional cases, USPTO, OED, ethics rules, misconduct, Octane Fitness

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