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November 16, 2007

The Hanging Tree

Patent malpractice accusations are becoming more frequent as the value of patents has generally increased. With that, the costs associated with malpractice are also going up. Back in 1985, IP attorneys were but a shade over one-half percent of malpractice claims. The rate as of 1999 had breached the 1% mark. With USPTO prosecution proceedings becoming positively squirrelly, and thus more demanding upon prosecutors, a specter looms that the patent malpractice problem may worsen.

Todd Sharinn has felt the pointy end of malpractice accusation. He prosecuted patents for medical device startup company Quickie. The company principals were close friends. Then Sharinn was replaced as counsel. Years later, he and his former firm, Greenberg Traurig, were accused of malpractice, when a maintenance fee wasn't paid. Patent expiration occurred a year after their power of attorney had been revoked. Sharinn: "This is an example of sour grapes."

Sharinn reflects: "What used to be a gentle law of practice which involved close relationships between clients and practitioners has been exploited of late. As patents grow in value, if things do not go the way an inventor wants, they will take the approach to recoup money by suing, which is being handled by slip-and-fall guys by and large."

David Hricik at Mercer University School of Law said that while malpractice claims have been pretty stable, asserted damages per claim have burgeoned. Hricik speculates that "What plaintiffs' lawyers are doing with some success is combining a basic point of malpractice - negligently missing a deadline, for example - with a conflict of interest to turn what would be a basic 'oops' case into an act of malice."

Most malpractice suits settle out of court. But Fish & Richardson decided to fight an accusation by former client Kairos Scientific. The firm admitted that it had failed to timely file the foreign application, but considered the error not to have damaged the company. Kairos scored $30 million; Fish & Richardson lost on appeal. Natasha Roit, representing Kairos, tooted that the case is exemplary of how large law firms give less care to smaller clients. "What Fish & Richardson put my client through was unconscionable. Because of a calendaring error, the firm destroyed my client's invention in its entirety, and instead of stepping up to the plate, they put the entire resources of the firm towards crushing the little guy."

Missing the one-year deadline on foreign filings is a recurrent mistake, according to Roit. She received dozens of phone calls of missed deadlines while working the Karios case.

Hricik considers the PTO's new examination rules, stayed pending the outcome of the GlaxoSmithKline suit, as "malpractice in a box." The big bugaboo is having to characterize prior art. "Those characterizations will lead to additional claims of inequitable conduct against patent owners, and if proven, malpractice claims against the lawyers who prosecuted the patent. Also, such characterizations will increase the likelihood of estoppels arising as to claim scope, and clients, therefore, suing their lawyers for getting 'less' than they 'deserved.'"

Adopting a first-to-file regime may be something of a setup for inventors to assert that a patent attorney was negligent in delaying filing an application.

To date, malpractice insurance has been a protective umbrella, but premiums are going up, and coverage harder to get. Margaret Hepper, a law firm insurance broker for AON Affinity Insurance Services, observed that "with an increase in the severity of claims, insurers felt that they didn't understand the risks well enough, and rather than underwrite, they exited the market." Hepper notes that settlements and verdicts over $10 million are "not unusual anymore."

Boutique firms may be somewhat more at risk, given that many cater to small and startup companies, and individual inventors. Lacking deep pockets means a malpractice suit could be crippling. Timothy Maier of Maier and Maier: "We screen clients very carefully. Corporate clients don't tend to sue while smaller clients who work out of their garage and own one to five patents are ten times more likely to sue an attorney."

Besides careful client selection, their are other measures for mitigating malpractice risk. Hricik: "Lawyers are ethically prohibited from seeking indemnity or absolution from malpractice claims by their clients, but they can use arbitration clauses and other means to try to control the expense of a malpractice claim."

Personally, facing malpractice takes a toll, regardless of innocence; once burned, twice shy. Sharinn: "I really enjoyed being able to work with smaller inventors, to be able to help nurture them not only as a patent attorney, but also in building a business around their technology. This is something I used to enjoy, but I'm now leery to work with small clients, and I'm not alone in that sentiment."

Posted by Patent Hawk at November 16, 2007 12:45 PM | Prosecution

Comments

I heard about a case (outside the US) where a patent practitioner drafted someone's application pro bono; the inventor then turned around and filed an ethics complaint with the that country's PTO, asserting that the practitioner hadn't properly characterized the invention. The way I see it, if enough prosecution guys get sued, and insurance becomes unavailable, everyone will get out of the prosecution business (or we'll just start charging a lot more to cover our butts...)

Posted by: Amazed at November 17, 2007 10:40 AM