RISK MANAGEMENT AND ETHICAL
ISSUES IN IP PRACTICE
Presented by:
David Kramer, Esq.
Oswald Companies
Consequences of Poor Risk
Management/Ethics
• Legal malpractice claims
• Attorney discipline
• Disqualification of attorney/firm
• Fee disgorgement
Consequences of Poor Risk
Management/Ethics
• Out of pocket expenses and loss of time
due to litigation
• Loss of unhappy client(s)
• Loss of reputation
• Higher insurance costs
Legal Malpractice-IP Attorneys
• IP lawyers are among the most difficult
and expensive to insure
• Malpractice claims against IP attorneys
tend to be more severe and are more
complex because of the case within the
case.
Tales from the Crypt
• [insert video clip intro of Tales from the Crypt]
• Fish & Richardson-$30 million verdict for missing
a foreign patent filing
• Kirkland & Ellis is being sued for failure to
investigate and discover prior art leading to an
alleged loss of $18.75 million
• Seyfarth Shaw sued for flawed claim chart in
connection with snowboard bindings. Client
seeks $75 million in damages
Legal Malpractice-General Firm
• According to the recent ABA claims study,
98% of legal malpractice claims result in
total payments of less than $250,000
Legal Malpractice-IP Firm
• In 2006, the mean (average) total $ value
of IP claims paid by on behalf of law firms
over a 5 yr period was $1.3 million
Legal Malpractice-Claim Frequency
• Malpractice claims related to IP have
increased from 382 from 96-99 to 685
from 2004-07.
• The percentage of IP claims relative to
total claims increased from 1.04% to
1.69%
Source-ABA Profile of Malpractice Claims
Causes of IP Malpractice Claims
35%
30%
30%
25%
20%
17%
15%
12% 12%
10%
10%
8% 8%
5%
3%
0%
Conflict of Interest Failure to timely Substantive errors on Bad results in Patent Intentional Conduct, Malicious Failure to pay Lack of Knowledge-
file/abondon patent apps, license Litigation leading to Fee Fraud & Infringement Prosecution/Abuse of maintenance fees Discovery mistakes,
apps. agreements, trademarks dispute Process failure to find prior art,
bad advice/opinions
Malpractice Claims Conclusions
• IP related malpractice claims are
increasing in frequency and severity
• The costs associated with IP related
malpractice claims are very high
• Most IP related malpractice claims can be
avoided by employing more effective risk
management
4 Ways to Reduce Malpractice
Claims
• Strengthen intake process
• Improve conflict of interest procedures
• Bolster docketing
• More effectively manage outsourcing
Intake-Avoid the Client from Hell
• Shopper of legal services-Client has
used/consulted with several other lawyers
• Penny pincher-Will the client fuss about
fees regardless of the outcome?
• Mr. Great Expectations-Are the client’s
expectations realistic?
Source:Ill. Bar Journal, Vol.89, No.11
Intake-Engagement Letters
• An engagement letter should identify the
client. If the client is an entity, the letter
should specify that the entity’s
members/shareholders/partners are not
the clients.
• The engagement letter should specify
parties not represented such as
employees and inventors
Engagement Letters, Cont.
• [Insert Bolton-Aint no Sunshine
and picture of him]
Michael Bolton example
Intake-Engagement Letters, Cont.
• An engagement letter should specify the scope
of engagement and duration of engagement.
• An engagement letter should outline client
responsibilities such as timely payment of filing
fees, maintenance fees and annuities.
• The fee arrangement, including billing rates
should be outlined in the engagement letter
• Arbitration clauses can be effective, but
insurance policies may not allow for arbitration
without insurer consent
Intake-Non-Engagement and Dis-
Engagement Letters
• Prospective clients should be notified that they
are not clients and past conversations did not
constitute an attorney-client representation.
• Current clients should be advised in writing once
the firm has completed work on the matter(s)
outlined in the engagement letter.
• Note that some courts have held that continued
payment by an attorney of maintenance fees
and annuities means a current attorney/client
relationship exists
Conflicts-What is a conflict?
• A conflict of interest is a breach of the duty
of loyalty to a client.
• Conflict of interest considerations are
governed by the ABA Model Rules, the
PTO rules of practice, and state rules.
• Conflict issues are trickier for IP firms
because of complex subject matter issues
Conflicts-Prosecution
• Narrowing the scope of disclosure in a
client’s application because of another
client
• Using one client’s information to prosecute
another client’s patent[no cases]
• Arguing for a narrower reading of another
client’s patent in an office action[no cases]
Conflicts-Opinion Practice
• Courts have held that it is unethical for a
lawyer to opine about the validity or
infringement of another client’s patent
even if the lawyer had no involvement with
the other client’s patent
• Firms should consider including patent #s
and inventor names for patents that are
the subject of an opinion into conflicts
database.
Conflicts-Litigation
• Clear that an attorney cannot sue a
current client, even in an unrelated matter.
• Clear that an attorney cannot negotiate
against a current client, even in an
unrelated matter.
• Clear that there is no adversity merely due
to work for a client having an adverse
business impact on another client
Conflicts-Litigation, Cont.
• A potential conflict may arise even if there
is no present adversity.
• G.D. Searle & Co. v. Pennie & Edmonds
• Rembrandt Technologies , LP. v.
Comcast-Alleged infringement against
Comcast relating to industry standards.
Client, Time Warner, also followed such
standards.
Conflict Claim Scenarios
• Prosecuting Litigator
• Merger/Acquisition/Laterals-In an era of
increased movement among attorneys, it is
important that firm’s evaluate conflicts prior
to the merger, acquisition, etc.
• Waiver of future conflict-Courts have held that
a firm can ask a client for and receive a future
waiver allowing the firm to represent competitors
in matters adverse to the client.
Conflict Risk Management
• All firms should spot conflicts by checking the
client database and surveying all firm attorneys
prior to accepting the engagement.
• Conflict notices should be specific and should
state the client name, affiliated parties, scope of
engagement and adverse parties. ie We have been
asked to represent Acme Corp., the principals of which are Joe,
John and Peter in a litigation involving the trademark “Acme” against
Acme Health, the principals of which are Sally, Sue and Joan.
Docketing
• 42% of IP claims relate to failure to timely
file an application or pay a maintenance
fee
• Firms should implement true dual
docketing
• Reminders should be sent out to the
responsible attorney prior to filing date
Maintenance Fees & Annuities
• What is the benefit of paying maintenance fees
for clients?
• If you must pay them, consider:
- Using a third party service to assist in
maintenance fee docketing and administration.
- Ceasing responsibility for payment and/or
reminders about maintenance fees for clients for
which active work has ceased.
- Advancing fees on a client’s behalf in the
event that the client has not rendered guidance
about the payment of specific maintenance fees.
Maintenance Fees & Annuities
• Berman suggestion:
Client understands and agrees that ___________
firm will advance fees on clients behalf. These
fees will Include __________________ (patent
annuities, trademarks licensing, maintainence
fees, other specified). Client further understands
and agrees that a percentage of that fee will be
added to clients Invoice the month before that
fee will be paid.
Maintenance Fees & Annuities,
Cont.
• Outsourcing firms (CPA, CPI, etc.)
• Vicarious liability issues?
• Current client for conflict purposes?
Foreign Associates
• How well do you know your foreign
associates?
• Indemnification?
• Consider a separate engagement between
client and foreign associates
General Malpractice Avoidance
Tips
• Suing clients for fees-Avoid if possible.
Wait for SOL.
• Serving on boards
• Supervision of branch offices
Buying Legal Malpractice
Insurance
• Legal malpractice insurance costs for IP
firms are typically 3 or more times higher
than such costs for general practice firms.
• IP firms typically buy higher limits.
Average limits (per AIPLA) are:
Solo-just under $1 million
11-30 attorneys-approx. $4 million
31-100 attorneys-approx. $16 million
Buying Legal Malpractice
Insurance Cont.
• The average deductible each claim in
2006:
-Approx. $10k for firms under 10 attnys
-Approximately $55k for firms of 11-30
-Approx. $200k for firms of 31-100
Buying Legal Malpractice
Insurance, Cont.
• The most prevalent writers of lawyers’
professional liability insurance in 2006 per
AIPLA were:
- CNA-25%
- Lloyds of London-18%
- ALAS-14%