Patent Attorney was excluded from practice for ethics violations. Cases of Interest >  IP >  Patent

S. Michael Bender v. Jon W. Dudas

S. Michael Bender v. Jon W. Dudas, 490 F.3d 1361 (Fed. Cir. 2007)

American Inventors Corporation (AIC), an invention promoter, contracted with over 1,000 unsuspecting inventors. AIC would tell every client that their invention was excellent, perform a patent search, and offer AIC’s services to procure a patent and promote the invention to manufacturers. A form contract outlining a flat fee and/or percentage of royalty income was signed as consideration for AIC’s services with a money back guarantee of patentability. The contracts did not specify the type of patent which would be obtained on the invention or explain the differences between a design and a utility patent. AIC then hired an attorney, Leon Gilden, to draft and prosecute only design patent applications, even though many of the inventors expressed the desire to seek utility patents. Additionally, Gilden had draftsmen add decorative ornamentation, not created by the inventor, to the invention drawings to ensure design patentability and avoid the money back guarantee. Throughout the process, AIC emphatically discouraged direct contact between Gilden and the inventors. USPTO ultimately disciplined Gilden with suspension for ethics violations.
After the suspension of Gilden’s license, AIC contracted with S. Michael Bender, patent attorney, to continue the prosecution of the design patents. However, Bender simply removed the decorative ornamentation and continued with the prosecution of design patents. Engagement letters were sent to the inventors. However, Bender failed to disclose the differences between design and utility patents. Furthermore, Bender did not inquire into the type of patent desired by the inventor. Bender also did not disclose the details his financial relationship to AIC, nor did he receive consent from the inventors for the arrangement. The letters to each of the inventors were essentially identical.
The USPTO received information regarding Bender and began an inquiry. During the inquiry the USPTO sent Bender several Requests for Information (RFI) asking questions regarding his practice and conduct. Bender’s responses to the specific questions were evasive and unresponsive. Ethics charges were filed against Bender.

Procedural History:
An administrative complaint and notice, dated June 20, 2000, charged Bender with ten counts of violations of USPTO rules. The charges were tried before an administrative law judge who found Bender in violation of numerous rules and determined that exclusion from practice was warranted. After reviewing the order, the USPTO general counsel affirmed of the rulings and affirmed the exclusion as a proper sanction. Bender requested reconsideration but the request was denied.
Bender filed a petition in the U.S. District Court for the District of Columbia challenging the decision. Both sides filed for summary judgment, and the district court found no genuine issues of material fact, denied Bender’s motion, and granted summary judgment for the government. Bender then appealed to the U.S. Court of Appeals for the Federal Circuit. The district court ruling was affirmed.

A. Does substantial evidence support the USPTO findings that Bender violated various disciplinary rules?
B. Can the USPTO under 35 USC 2(b)(2)(D) establish regulations governing communications between an attorney and his client when the communications are not “before the USPTO” as limited by the statute?
C. Was the USPTO’s use of Request for Information forms during its investigation a constitutional procedural due process violation because of a lack of formal safeguards?
D. Was the USPTO correct and within its authority to determine that exclusion from practice was appropriate?

The USPTO has statutory authority to suspend or exclude “from further practice before the Patent and Trademark Office, any person, agent, or attorney shown to be incompetent or disreputable, or guilty of gross misconduct, or who does not comply with the regulations established under section 2(b)(2)(D) of this title.” 35 U.S.C. § 32. The USPTO has the authority to establish regulations governing the conduct of attorneys practicing before the USPTO. Id. § 2(b)(2)(D). The agency's choice of sanction is held unlawful only if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706. The underlying factual findings used to support such a sanction are reviewed for substantial evidence. Lipman v. Dickinson, 174 F.3d 1363, 1367 (Fed.Cir.1999). The appealate court will review the district court's decision on summary judgment without deference, reapplying on appeal the same standards applicable to the district court. Lacavera v. Dudas, 441 F.3d 1380 (Fed.Cir.2006). The USPTO considers “(1) the public interest; (2) the seriousness of the violation of the Disciplinary Rule; (3) the deterrent effects deemed necessary; (4) the integrity of the legal profession; and (5) any extenuating circumstances,” to decide punishment. 37 C.F.R. § 10.154(b). When the legislative delegation to an agency on a particular question is implicit rather than explicit, a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency. Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S.837 (1984). “When governmental action does not partake of an adjudication, as for example, when a general fact-finding investigation is being conducted, it is not necessary that the full panoply of judicial procedures be used.” Hannah v. Larche, 363 U.S. 420, 442 (1960) “…Such procedures would unduly stifle the agency in its gathering of facts. Id.

Reasoning and Holdings:
A. There was substantial evidence to support the USPTO when it found that Bender violated the disciplinary rules. The court outlined the following violations:
1. The court determined that the new clients should have been more fully informed of their rights and given a choice in the type of patent application to file. The evidence showed that many of Bender's clients did not know the difference between a design patent and a utility patent and that some of his clients had actually wanted utility patents. Evidence also showed that Bender was aware of his client’s desires, but he prosecuted the applications as design patents anyway. The court found that Bender's engagement letters to the new clients were inadequate responses to the confusion created by the previous Gilden violations.
2. The court determined that Bender neglected to inform clients about final rejections to their applications until the three-month response window had expired. The court held that this undisputed failure denied Bender’s clients an opportunity to avoid paying extension fees.
3. The court determined that Bender's contractual relationship with AIC created a conflict of interest and that Bender had attempted to withhold the nature of the relationship from the USPTO during the investigation. The court believed that the relationship amounted to compensation by a third party without full disclosure and consent. Furthermore, the court determined that Bender failed to adequately respond to questions by the USPTO. The court reasoned that the questions were specific and directed toward his relationship with AIC and the disclosure of the relationship to his clients. The court found that his responses to the questions hindered the USPTO investigation.

B. The USPTO can regulate communications between a registered attorney and his client under the statute. The enabling statutes were found to be broadly worded and include all service and advice in the prosecution of patent applications. The court deferred to the USPTO's interpretation of the phrase “before the Office” as reasonable and allowed the USPTO to govern the communications between an attorney and their client in connection with patent prosecutions.

C. The court held that Bender’s procedural due process rights were not violated. The court ruled that the USPTO investigation was non-adjudicative, fact-finding in nature, and happened prior to the formal proceedings. The Request for Information forms, the court reasoned, worked not only to assist USPTO in gathering facts, but also to give practitioners an opportunity to explain conduct and avoid disciplinary proceedings.

D. The court held that the USPTO did not abuse its discretion when it excluded Bender from practice. The record showed that Bender repeatedly insisted throughout the proceedings that he had not violated ethics rules. The court found it reasonable for the USPTO to believe Bender had not demonstrated sufficient remorse to recognize the impropriety of his behavior. The court found that it was reasonable for the USPTO to believe Bender had not learned from the experience and would therefore continue the behavior if allowed to practice. The court allowed the exclusion to stand believing under these circumstances that exclusion was not arbitrary and capricious, an abuse of discretion, or unlawful.

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