Patent Office Ethics Developments: Patent Agent Privilege and Duty of Disclosure

Seeking to end years of little clarity on two key ethical issues for practitioners, the Patent Office has proposed two new rules of practice. The first rule would allow parties to invoke privilege in inter partes proceedings to prevent the disclosure of communications between clients and non-attorney patent agents. The second rule would change the duty of disclosure to comport with the standard set forth in the Therasense case. Based on the comments from the public, it appears likely that the Office will adopt the patent-agent privilege rule but go back for another round of changes to the duty of disclosure rule.

Patent Agent Privilege

On October 18, 2016, the Patent Trial and Appeal Board (“PTAB”) issued a Federal Register Notice proposing a rule that would protect against disclosure of communications between patent agents (or foreign patent practitioners) and their clients to the same extent as the protection against disclosure of communications between U.S. attorneys and clients.[1] The privilege would apply in connection with discovery in certain Patent Office proceedings, namely inter partes review, post-grant review, the transitional program for covered business method patents, and derivation proceedings.[2] There is no clear rule on the issue currently, and PTAB administrative law judges make discovery decisions on a case-by-case basis. The rule, which has received widespread approval among commentators, would make Patent Office practice consistent with recent Federal circuit case law, but conflicts with a recent state court decision.

The proposal for the rule came after the Patent Office held a roundtable in February 2015 to discuss privilege issues generally. Numerous government agencies, intellectual property organizations, companies and individuals participated in the roundtable.[3] Nineteen parties also submitted comments afterward.[4] The strong consensus was that a privilege on communications between a client and a patent agent or foreign practitioner should be adopted, but there were various proposals for how to do so.[5] Suggested approaches included Federal legislation, a multilateral treaty, and the adoption of a rule by the Patent Office.[6] Notably, the last of the options was criticized for potentially not being able to bind courts, which has since come to a head.[7]

In March 2016, before the Patent Office acted on the roundtable recommendations, the Federal Circuit held in In re Queen’s University that communications between a client and a non-attorney patent agent that relate to Patent Office proceedings are privileged from discovery in Federal courts.[8] In earlier cases, district courts had taken a variety of approaches ranging from fully recognizing such a privilege, to finding that privilege applies only when the patent agent is supervised by a licensed attorney, to rejecting the privilege entirely.[9] Following the line of cases rejecting such a privilege, the district court had compelled the production of documents after finding that communications between Queen’s University employees and their non-attorney patent agents were not subject to the attorney-client privilege and no separate patent agent privilege existed.[10] The Federal Circuit reversed that determination based on a petition for mandamus.[11]

The Federal Circuit first considered which law to apply, its own or the law of the regional circuit in which the case was being heard. The issue of choice of law has special importance in the area of privilege, because Federal Rule of Evidence 501 provides that “in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.”[12] However, in determining whether specific materials are discoverable, the Federal Circuit applies its own law if the materials relate to an issue of substantive patent law.[13] Here, the Court found that a patentee’s communications with its patent agent regarding prosecution of the patent are potentially relevant to substantive issues including claim construction, validity, and inequitable conduct.[14] Thus, the Court applied its own law, rather than any specific state’s law.[15]

In determining whether a patent agent privilege exists under Rule 501, the Court started with the Rule’s indication that the common law – “in light of [a court’s] reason and experience” – governs a claim of privilege.[16] In doing so, the Rule did not intend to freeze the law of privilege as of any given time, but rather intended to allow courts “to continue the evolutionary development of testimonial privileges.”[17] The Federal Circuit found that the circumstances – including the unique roles of patent agents, congressional recognition of their authority to act, the Supreme Court’s characterization of their activities as the practice of law, and current realities of patent litigation – counseled that the law had evolved to the point where it should recognize a patent-agent privilege independent of any involvement by a lawyer.[18]

As the Supreme Court held over fifty years ago, patent agents have a unique role in American law.[19] They are not members of any state bar (and therefore are not attorneys), but are authorized to practice before the Patent Office. As the Sperry Court found, that practice is not mere law-like activity, it is actually the congressionally-authorized practice of law itself.[20] In Queen’s University, the Federal Circuit applied that holding and found that it would support the adoption of a privilege to allow communications between any patent practitioner (agent or attorney) to the same degree. As the Federal Circuit stated,

Whether those communications are directed to an attorney or his or her legally equivalent patent agent should be of no moment. Indeed, if we hold otherwise, we frustrate the very purpose of Congress’s design: namely, to afford clients the freedom to choose between an attorney and a patent agent for representation before the Patent Office.[21]

Of course, because a patent agent is licensed to practice only before the Patent Office, the scope of the patent agent privilege is limited to communications in furtherance of, or reasonably necessary and incident to, patent prosecution tasks.[22] Other communications, such as opinions on infringement or the validity of another party’s patents, are not subject to a patent-agent privilege.[23]

However, in August 2016, a Texas appellate court decided the Federal Circuit’s Queen’s University decision on patent-agent privilege would not apply in Texas state court proceedings.[24] Unlike Rule 501 of the Federal Rules of Evidence, the Texas Rules of Evidence do not allow courts to recognize new discovery privileges.[25] The Texas court then found that the Queen’s University decision was not binding because the Federal Circuit was applying its own law in a patent case, where federal patent law provided the rules for decision.[26] In contrast, the Silver case involved an alleged breach of contract and was governed by Texas state law. The Court therefore did not recognize any privilege and required the documents to be produced.[27] Interestingly, one of the judges dissented based on somewhat different reasoning from the Queen’s University decision. Specifically, he relied on the Sperry finding that patent agents were practicing law to determine that patent agents would qualify as “lawyers” under Texas privilege law because they were “person[s] authorized . . . to practice law in any state or nation” under Rule 503 of the Texas Rules of Evidence.[28] He therefore suggested that patent agent communications could be subject to the existing attorney-client privilege, rather than be a new privilege unto itself.

Against this background, the Patent Trial and Appeal Board proposed a new rule (which would be 37 CFR § 42.57) that would essentially apply the attorney-client privilege to patent prosecution-related communications between any patent practitioner and his or her client:

(a) Privileged communications. A communication between a client and a domestic or foreign patent practitioner that is reasonably necessary or incident to the scope of the patent practitioner’s authority shall receive the same protections of privilege as if that communication were between a client and an attorney authorized to practice in the United States, including all limitations and exceptions.

(b) Definitions. The term ‘‘domestic patent practitioner’’ means a person who is registered by the United States Patent and Trademark Office to practice before the agency under section 11.6. ‘‘Foreign patent practitioner’’ means a person who is authorized to provide legal advice on patent matters in a foreign jurisdiction, provided that the jurisdiction establishes professional qualifications and the practitioner satisfies them, and regardless of whether that jurisdiction provides privilege or an equivalent under its laws.[29]

Two key points appear in the proposed rule. First, like the Federal Circuit’s Queen’s University decision, the proposed rule limits the subject matter of protected communications. Here, it is worded as communications “reasonably necessary or incident to the scope of the patent practitioner’s authority.” For a domestic practitioner, that would be limited to patent prosecution-related matters; for a foreign practitioner, it could be broader or narrower. Second, the privilege attaches to communications “regardless of whether that jurisdiction provides privilege or an equivalent under its laws.” For some countries, such as civil law countries that do not allow extensive discovery in litigation, privilege would attach even though the practitioner’s domestic courts have not considered the issue of privilege. For other countries, most notably Canada, the privilege would attach even though it is not recognized for patent agents in the home country itself.

As would be expected with the broad support for such a rule at the 2015 roundtable, the comments for the proposed rule were positive. In fact, the Intellectual Property Owners Association (IPO), the American Intellectual Property Association (AIPLA), and the Fédération Internationale des Conseils en Propriété Intelectuelle (FICPI) all recommended adoption without change.[30] Thus, it would appear that the Patent Office is headed toward the adoption of a patent-agent privilege.

Amending the Duty of Disclosure

On October 28, 2016, fast on the heels of the notice of the proposed rule for the patent-agent privilege, the Patent Office proposed a revision to the duty of disclosure to conform to the litigation standard for a finding of inequitable conduct.[31] The long-awaited proposal seeks to bring the Office’s regulations in line with the Federal Circuit’s 2011 en banc decision in Therasense, Inc. v. Becton, Dickinson & Co.[32] Unlike the patent-agent privilege rule, however, the proposed rule drew numerous concerned comments.[33] The Patent Office is likely to consider those comments and seek further input.

In Therasense, the Federal Circuit sought to raise the bar for finding inequitable conduct to “reduce the number of inequitable conduct cases before the courts and . . . cure the problem of overdisclosure of marginally relevant prior art to the PTO.”[34] A finding of inequitable conduct generally requires that material art be withheld with an intent to deceive the Patent Office.[35] With regard to the materiality prong of the test, the Federal Circuit indicated that generally only “but-for” materiality would support a finding of inequitable conduct.[36] Specifically, the court stated that “in assessing the materiality of a withheld reference, the court must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference[,] . . . apply[ing] the preponderance of the evidence standard and giv[ing] claims their broadest reasonable construction.”[37] In addition to the general rule for materiality, the Federal Circuit indicated that prong of the test could be satisfied by affirmative acts of “egregious misconduct,” even if the acts would not have necessarily prevented the issuance of the patent.[38] While the Federal Circuit did not provide clear guidance on how to determine whether acts would be considered egregious misconduct, it did give some examples: submission of a false affidavit would qualify, but mere nondisclosure of prior art would not.[39]

The Patent Office first reacted to the Therasense decision in 2011, proposing a rule consistent with the holding and seeking public comment.[40] The comments identified numerous concerns with the 2011 proposed rule.[41] The Office therefore went back to the drawing board and spent five more years coming up with new proposed rules.

In light of those comments, the October 2016 proposed rule includes two separate rules, one for patent prosecution (37 CFR § 1.56) and one for Patent Trial and Appeal Board Proceedings (37 CFR § 1.555). The proposed rules are as follows:

§ 1.56 Duty to disclose information material to patentability.

(a) A patent by its very nature is affected with a public interest. The public interest is best served, and the most effective patent examination occurs when, at the time an application is being examined, the Office is aware of and evaluates the teachings of all information material to patentability. Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability under the but-for materiality standard as defined in paragraph (b) of this section. The duty to disclose information exists with respect to each pending claim until the claim is cancelled or withdrawn from consideration or the application becomes abandoned. Information material to the patentability of a claim that is cancelled or withdrawn from consideration need not be submitted if the information is not material to the patentability of any claim remaining under consideration in the application. There is no duty to submit information which is not material to the patentability of any existing claim. The duty to disclose all information known to be material to patentability is deemed to be satisfied if all information known to be material to patentability of any claim issued in a patent was cited by the Office or submitted to the Office in the manner prescribed by §§ 1.97(b) through (d) and 1.98. However, no patent will be granted on an application in connection with which affirmative egregious misconduct was engaged in, fraud on the Office was practiced or attempted, or the duty of disclosure was violated through bad faith or intentional misconduct. The Office encourages applicants to carefully examine:

(1) Prior art cited in search reports of a foreign patent office in a counterpart application, and

(2) The closest information over which individuals associated with the filing or prosecution of a patent application believe any pending claim patentably defines, to make sure that any material information contained therein is disclosed to the Office.

(b) Information is but-for material to patentability if the Office would not allow a claim if the Office were aware of the information, applying the preponderance of the evidence standard and giving the claim its broadest reasonable construction consistent with the specification.

§ 1.555 Information material to patentability in ex parte reexamination and inter partes reexamination proceedings.

(a) A patent by its very nature is affected with a public interest. The public interest is best served, and the most effective reexamination occurs when, at the time a reexamination proceeding is being conducted, the Office is aware of and evaluates the teachings of all information material to patentability in a reexamination proceeding. Each individual associated with the patent owner in a reexamination proceeding has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability in a reexamination proceeding under the but-for materiality standard as defined in paragraph (b) of this section. The individuals who have a duty to disclose to the Office all information known to them to be material to patentability in a reexamination proceeding are the patent owner, each attorney or agent who represents the patent owner, and every other individual who is substantively involved on behalf of the patent owner in a reexamination proceeding. The duty to disclose the information exists with respect to each claim pending in the reexamination proceeding until the claim is cancelled. Information material to the patentability of a cancelled claim need not be submitted if the information is not material to patentability of any claim remaining under consideration in the reexamination proceeding. The duty to disclose all information known to be material to patentability in a reexamination proceeding is deemed to be satisfied if all information known to be material to patentability of any claim in the patent after issuance of the reexamination certificate was cited by the Office or submitted to the Office in an information disclosure statement. However, the duties of candor, good faith, and disclosure have not been complied with if affirmative egregious misconduct was engaged in, any fraud on the Office was practiced or attempted, or the duty of disclosure was violated through bad faith or intentional misconduct by, or on behalf of, the patent owner in the reexamination proceeding. Any information disclosure statement must be filed with the items listed in § 1.98(a) as applied to individuals associated with the patent owner in a reexamination proceeding and should be filed within two months of the date of the order for reexamination or as soon thereafter as possible.

(b) Information is but-for material to patentability if, for any matter proper for consideration in reexamination, the Office would not find a claim patentable if the Office were aware of the information, applying the preponderance of the evidence standard and giving the claim its broadest reasonable construction consistent with the specification.

Unlike the patent-agent privilege rule, the comments on the duty of disclosure proposed rule uniformly suggested changes. Some of the proposed changes were relatively minor, but some of them suggested scrapping the proposed rule and starting from a blank slate.

One preliminary concern in many of the comments was whether the Patent Office should even seek to conform its ethical rules to the Federal Circuit’s inequitable conduct standard. Commenters as varied as James Toupin, former general counsel of the Office; Robert Armitage,[42] former general counsel for Eli Lilly; and the Electronic Freedom Foundation raised such a concern.[43] Professor David Hricik questioned whether the Therasense decision would survive in the future, should the Supreme Court review the standard.[44] On the other hand, the Intellectual Property Owners Association (IPO), American Intellectual Property Law Association (AIPLA), and National Association of Patent Practitioners (NAPP) favored conforming the rules to the Therasense standard.[45]

Next, many commenters expressed a concern whether the amended rules would, as intended, have the effect of conforming the Patent Office’s disclosure rules to the Federal Circuit’s inequitable conduct standard. As numerous commenters pointed out, the proposed rules require the disclosure of prior art that is material to pending claims, given the broadest reasonable construction of the claims. But courts do not use the broadest reasonable construction, they seek the correct (and therefore narrower) construction. As a result, the Pharmaceutical Research and Manufacturers of America (PhRMA), Professor Hricik, George Spencer, and the EFF questioned whether patent practitioners would actually change their behavior in light of the proposed rules.[46]

Many parties believed that even if the goals and effects of the proposed rule were appropriate, changes were needed. Professor Hricik suggested limiting the responsible parties in § 1.555 to those that would be responsible under § 1.56 to avoid ambiguity.[47] IPO, AIPLA, and NAPP suggested that the proposed rule might be amended to exempt information that Examiners should be required to search.[48] NAPP also suggested that the duty of disclosure should terminate upon the payment of an issue fee, when an Information Disclosure Statement cannot be filed without reopening prosecution (or filing a request for continued examination).

Finally, the Biotechnology Innovation Organization (BIO) questioned whether a duty of disclosure was needed at all. Given all of the questions about whether the change in the rules would affect patent prosecution practice, the existing ability to punish false statements under other legal provisions, and the availability of new invalidation mechanisms under the America Invents Act, many BIO members thought that it would make more sense to defer disclosure questions to the Courts, enforcing the obligation of candor under the Therasense decision itself.[49]

Given all of the concerns about the proposed rule among stakeholders in the patent prosecution process, it would be surprising if the Patent Office adopted the proposed duty of disclosure rules without further amendment. Thus, we can look forward to the Patent Office’s response and further changes.

[1] Rule Recognizing Privileged Communications Between Clients and Patent Practitioners at the Patent Trial and Appeal Board, 81 Fed. Reg. 71653 (proposed Oct. 18, 2016) (to be codified at 37 C.F.R. pt. 42.57).

[2] Id. at 71654.

[3] Roundtable on Domestic and International Issues Related to Privileged Communications Between Patent Practitioners and Their Clients, USPTO.GOV, https://www.uspto.gov/learning-and-resources/ip-policy/roundtable-domestic-and-international-issues-related-privileged.

[4] Id.

[5] See id.

[6] See id., comments of AIPLA (treaty or legislation), AIPPI (court decision or treaty), CIPA (treaty), John Cross (USPTO rules or legislation), IPO (USPTO rules, legislation, or treaty), IPIC (legislation).

[7]See, e.g.,https://www.regulations.gov/document?D=PTO-P-2016-0029-0015 (comments of John T. Cross); see also https://www.regulations.gov/document?D=PTO-P-2016-0029-0011 (regulation would violate New Jersey ethical rules).

[8] In re Queen’s University at Kingston, 820 F.3d 1287, 1301 (Fed. Cir. 2016).

[9] See id. at 1292 n.1 (collecting cases).

[10] Queen’s University at Kingston v. Samsung Electronics Co., Ltd., 14-cv-00053-JRG-RSP, Dkt. Entry 134, 140, 149, 179.

[11] In re Queen’s University, 820 F.3d at 1292.

[12] Fed. R. Evid. 501.

[13] In re Queen’s University, 820 F.3d at 1290.

[14] Id. at 1291.

[15] Id.

[16] Fed. R. Evid. 501.

[17] In re Queen’s University, 820 F.3d at 1294 (quoting Jaffee v. Redmond, 518 U.S. 1, 8–9 (1996) (internal quotation marks omitted).

[18] Id. at 1295.

[19] Sperry v. Florida ex rel. Florida Bar, 373 U.S. 379, 381 (1963).

[20] Id. at 383–85.

[21] Queen’s University, 820 F.3d at 1298.

[22] Id. at 1301.

[23] Id. at 1301–02. Judge Reyna forcefully dissented from the Court’s decision. He contested both the need for such a privilege and the evidentiary basis upon which the Court relied. Id. at 1302.

[24] In re Silver, No. 05-16-00774-CV, 2016 WL 4386004 (Tex. Ct. App. Aug. 17, 2016).

[25] Id. at *1.

[26] Id. at *2.

[27] Id.

[28] Id. at *4.

[29] Rule Recognizing Privileged Communications Between Clients and Patent Practitioners at the Patent Trial and Appeal Board, 81 Fed. Reg. 71653, 71657 (proposed Oct. 18, 2016) (to be codified at 37 C.F.R. pt. 42.57).

[30] See https://www.regulations.gov/docketBrowser?rpp=25&po=0&dct=PS&D=PTO-P-2016-0029&refD=PTO-P-2016-0029-0001.

[31] Revision of the Duty To Disclose Information in Patent Applications and Reexamination Proceedings, 81 Fed. Reg. 74987, 74996 (proposed Oct. 28, 2016) (to be codified at 37 C.F.R. pt. 1).

[32] Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011).

[33] Comments on the Revision of the Duty To Disclose Information in Patent Applications and Reexamination Proceedings, USPTO.GOV, https://www.uspto.gov/patent/laws-and-regulations/comments-public/comments-revision-duty-disclose-information-patent.

[34] Therasense, 649 F.3d at 1291.

[35] Id. at 1290.

[36] Id. at 1291.

[37] Id.

[38] Id. at 1292.

[39] Id. at 1292–93.

[40] Revision of the Materiality to Patentability Standard for the Duty To Disclose Information in Patent Applications, 76 Fed. Reg. 43631, 43634 (proposed July 21, 2011).

[41] Comments on Revision of the Materiality to Patentability Standard for the Duty To Disclose Information in Patent Applications, USPTO.GOV, https://www.uspto.gov/patent/laws-and-regulations/comments-public/comments-revision-materiality-patentability-standard.

[42] Mr. Armitage suggested that the Patent Office consider starting afresh on any duty of disclosure, rather than tinkering with the existing rules.

[43] Comments on the Revision of the Duty To Disclose Information in Patent Applications and Reexamination Proceedings, USPTO.GOV https://www.uspto.gov/patent/laws-and-regulations/comments-public/comments-revision-duty-disclose-information-patent.

[44] Id.

[45] Id.

[46] Id.

[47] Id.

[48] Id.

[49] Id.