Drafting Patent Counsel Engagement and Disengagement Letters Structuring Scope of Engagement, Confidentiality, Conflicts of Interest and Other Key Provisions Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. THURSDAY, JULY 27, 2017 Presenting a live 90-minute webinar with interactive Q&A Dr. Angela Foster, Ph.D., Esq., Principal, Law Office of Angela Foster, North Brunswick, N.J. Michael E. McCabe, Jr., Founder, McCabe Law, Potomac, Md. Dr. Andrew W. Williams, Ph.D., Esq., Partner, McDonnell Boehnen Hulbert & Berghoff, Chicago
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Drafting Patent Counsel Engagement
and Disengagement Letters Structuring Scope of Engagement, Confidentiality, Conflicts of Interest and Other Key Provisions
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
THURSDAY, JULY 27, 2017
Presenting a live 90-minute webinar with interactive Q&A
Dr. Angela Foster, Ph.D., Esq., Principal, Law Office of Angela Foster, North Brunswick, N.J.
Michael E. McCabe, Jr., Founder, McCabe Law, Potomac, Md.
Dr. Andrew W. Williams, Ph.D., Esq., Partner, McDonnell Boehnen Hulbert & Berghoff, Chicago
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FOR LIVE EVENT ONLY
ETHICAL CONSIDERATIONS
FOR PATENT COUNSEL
ENGAGEMENT AGREEMENTS
Strafford Webinar Series July 27, 2017
Michael E. McCabe, Jr.
McCabe Law LLC
www.IPethicsLaw.com
Engagement Considerations
• Are they necessary.
• Defining the client.
• Defining the scope.
• Defining the fee.
• Defining client’s and lawyer’s duties.
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Are Written Agreements
Required?
• Generally: No rule of ethics requires a written “Engagement Agreement.”
• ABA M.R. 1.5, PTO Rules, and most state rules say writing “preferable.”
• Notable exceptions:
– D.C., N.Y.: Written agreement for all new clients.
– All jurisdictions: Contingency fee representation must be in writing.
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Are Written Agreements
Required?
• No but . . . . Lawyers’ duty to:
– Promptly inform client of situation when client’s informed consent is needed.
– Consult about means for accomplishing client’s objectives.
– Explain matter to extent needed for client to make informed decision.
37 C.F.R 11.104; ABA M.R. 1.4
• Can be addressed in Engagement Agreement.
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Are Written Agreements
Required?
• “Informed consent” requires adequate disclosure of information, risks and alternatives.
• PTO ethics rules require “informed consent” to be “confirmed in writing”
– Conflict waivers – 37 CFR 11.107; 11.109
– Biz transactions w/clients – 37 CFR 11.108(a)
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Defining The Entity Client
Entity Client Questions
• When you represent the parent, do you represent its subsidiaries?
• When you represent a subsidiary, do you represent the parent?
• When you represent a subsidiary, do you represent other subsidiaries?
• What does “client” believe who is the client? What does lawyer believe?
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Defining Entity Client Matters
• Duties of loyalty and confidentiality to “clients”.
– Shall not take position adverse to present “client” even in unrelated matters.
• 37 C.F.R. 11.107(a); ABA Model Rule 1.7(a).
– Shall not represent a new client against a former “client” in a matter substantially related to former representation.
• 37 C.F.R. 11.109; ABA Model Rule 1.9.
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Engagement Agreement Tip:
Identify Entity Client
• Who Is Our “Client” Sample:
“By agreeing to take on the representation, the parties agree that the Firm’s client in this matter is limited solely to XYZ, Inc. The Firm does not represent any parent, subsidiary, subsidiary of subsidiary, joint venture, or other entities, divisions, or organizations within any of the foregoing.”
• Such provision at least can start dialogue.
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Entity vs. Constituent Client
Single Entity “Clients”
• When you represent the entity, do you represent just the entity?
• What about those in entity whom you may communicate with during representation?
– Officers
– Board members
– Employees
– Inventors
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Entity as Client
• A lawyer retained by an organization represents the organization acting through its “duly authorized constituents.”
– 37 CFR 11.113(a); ABA Model Rule 1.13(a).
• But that general rules does not automatically insulate lawyer from claim that individual believed they were “client.”
– E.g. Employed inventors.
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Engagement Agreement Tip:
Remove “Constituents”
• Who Is Our “Client” Sample:
“By agreeing to take on the representation, the parties agree that the Firm’s client in this matter is limited solely to XYZ, Inc. The Firm does not represent any officer, director, employee, agent, attorney, inventor, co-inventor, or any other person associated with or acting on behalf of XYZ, Inc.”
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Inventor Clients
Multiple Inventors
• Joint representation raises possibility that relationship may unfold into a conflict of interest.
– E.g. Claims change, inventor drops off.
• Lawyer representing multiple parties cannot put interests of one above the other.
• Must communicate with both.
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Engagement Agreement Tip:
Multiple Inventors
“Although the interests of both of you in this matter are generally consistent, you both acknowledge that you recognize and understand that differences may exist or become evident during the course of our representation. Notwithstanding these possibilities, the two of you have determined that it is in your individual and mutual interests to have a single law firm represent you jointly in connection with this matter.”
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Engagement Agreement Tip:
Multiple Inventors (cont’d)
“Accordingly, this confirms the agreement of [Client A] and [Client B] that we may represent you jointly in connection with the above-described matter. This will also confirm that the two of you have each agreed to waive any conflict of interest arising out of, and that you will not object to, our representation of each other in the matter described herein.”
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Engagement Agreement Tip:
Multiple Inventors (cont’d)
• Consider potentially conflicting “instructions” and practical issues of communicating with multiple persons.
• One possible solution:
“Firm will communicate directly with Client A, and Clients A and B agree that Client A is their agent. Firm authorized to rely on Client A as speaking for and on behalf of Clients A and B jointly.”
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Defining Scope in Engagement
• Patenting normally involves multiple discrete transactions that can extend over many years and can implicate rights in many countries.
• Defining the scope of the representation is essential to limiting uncertainty.
• Three types of scope limits: – Action-based
– Temporal-based
– Geographic-based
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Defining Action Limits
• Action limits in Engagement considerations:
– Is representation solely for filing application?
– Prosecution included?
– Limiting number of O/A responses?
– Appeals?
– Continuations, CIPs, divisionals?
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Defining Temporal Limits
• A “perpetual” patent client is one who maintains a belief in current client status long after patent issues.
• Consider express end of representation language when patent issues.
• Identify who is responsible for docketing/ paying maintenance fees. – Reminders may cause belief in “current client”
status.
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Defining Geographic Limits
• Since patent rights may be filed in many countries, ought to consider if Firm is agreeing to take on obligation of:
– Advising client of foreign rights.
– Taking action to help client acquire foreign rights.
• Consider Limiting geographic scope of engagement solely to U.S. unless otherwise agreed in writing.
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Communicating Fees and
Expenses
• Arguably most important point of an Engagement Agreement.
• “The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation.” – 37 CFR 11.105(b); ABA M.R. 1.5(b).
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Reasonable Fees
• Factors include:
– Time, labor, skill involved;
– Will it preclude other employment;
– Customary fees;
– Results obtained;
– Experience, reputation and ability of practitioner;
– Whether fee is fixed or contingent.
37 CFR 11.105(a); ABA M.R. 1.5(a).
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Fee Considerations for Patent
Matters
• Intertwined with scope of engagement.
• Ethical issues arise when there is insufficient communication:
– Firm offers “fixed fee” services but not clear about whether includes PTO fees.
– Firm offers “fixed fee” but not clear if “fixed” includes post-filing services, O/A responses.
– Whether “ancillary” services included in “fixed” or a la carte.
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Defining Lawyer’s Duties
• Part of defined scope of engagement.
• Duty to communicate important information.
• Inform client about its duties under Rule 1.56.
• Diligent representation. Consider time frames for prosecution-related activities, costs for extensions of time.
• Consult with client about taking action before taking such action.
• Exercise independent professional judgment.
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Defining Client’s Duties
• Rule 1.56 compliance.
• Provide complete and accurate information to the Firm.
• Cooperate with the Firm.
• Timely respond to Firm requests.
• Advise Firm about important developments coming to the client’s attention.
◦ NDA serves the purpose of protecting a party’s confidential business and financial information by placing a contractual duty on the other party not to use or disclose that information.
◦ Attorneys are bound by the ethical rules and requirements of the profession not to disclose the confidential information shared with us by a client.
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◦ A lawyer does not need to sign a confidentiality agreement with a client.
◦ A lawyer’s confidentiality obligations are much more stringent that those in the typical NDA.
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◦ Potential of drafting language that is in conflict with state bar ethic rules.
◦ Attorneys should not put themselves in a situation where they are bound by contractual obligations to their client that potentially alter the existing ethical obligations they already have under the law.
◦ The duty of confidentiality is at the essence of the attorney-client relationship.
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◦ Verbally explain:
Under the [State] Rules of Professional Conduct, lawyers are prohibited from revealing information related to the representation of a client.
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A lawyer shall not reveal information relating to the
representation of a client unless the client gives informed
consent, the disclosure is impliedly authorized in order to
carry out the representation or the disclosure is permitted by
paragraph (b).
Confidential information is to remain confidential throughout
he representation and thereafter, even after the death of the
client.
Exceptions to the Rule vary state to state.
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When an attorney accepts payment for legal fees from a third-party, the third-party payor is not a client by virtue of paying the attorney’s fee.
Attorney may want to add language in the agreement that in the event of a third-party payor, the client is responsible for the agreed payments recited in this agreement unless otherwise modified by the parties.
Attorney should consult state-specific ethics rules for guidance.
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A lawyer shall not accept compensation for representing a
client from one other than the client unless:
◦ The client consents after consultation;
◦ There is no interference with the lawyer’s independence of professional
judgment or with the client –lawyer relationship; and
◦ Information relating to representation of a client is protected as required
by Rule 1.6.
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The conditions of Rule 1.8(f) should be read together with the
general conflicts of 1.7(b), which provides:
◦ A lawyer shall not represent a client if the representation of the client
may be materially limited … by the lawyer’s own interests.
◦ Examples:
Defense under a reservation of rights;
defense of alternative claims one with coverage and one without coverage;
defense of claims in excess of the policy limits; and
Defense of multiple insured.
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Also known as “Hold Harmless Clause”.
An indemnity clause may be: ◦ limited to indemnification or
◦ include the obligation to “defend” and/or “hold harmless.”
43
The purpose of an indemnification clause is to
allocate risk between the indemnifying party and
the indemnified party.
First, determine why your client wants an indemnification clause.
44
If a law firm is asked to include an indemnification
clause say “no”.
Consult with your malpractice insurer.
Negotiate with the client such that the
indemnification clause creates no greater obligation
than the coverage provided in your professional
liability insurance.
45
Indemnification clauses could undermine the law
firm’s malpractice insurance.
Malpractice insurance policies usually cover the law
firm only against malpractice claims.
Such policies exclude breach of contract claims from coverage.
Indemnification is a contract.
46
If the firm grants the client’s request for an
indemnification clause, the client could find, when
some error or omission by the firm or its agents
harms the client months or years later, that the
indemnification clause renders unavailable the
insurance money that otherwise could have made it
whole.
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Exclude any liability for errors or omissions by subcontractors or other third parties.
Exclude liability for events the law firm could not have reasonably prevented.
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If the client insists on an indemnification clause try limiting the terms of the indemnification clause.
limit the indemnification obligation to circumstances where the law firm already would be liable at common law.
limit the law firm’s indemnification obligation to a monetary amount lower than the deductible on the law firm’s insurance policies.
limit the indemnification obligation to particular enumerated circumstances.
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◦ The indemnification obligation does not apply to
the extent its enforcement would limit the
availability of the law firm’s insurance coverage.
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Law Firm warrants that its work will be done by
competent attorneys within the appropriate specialty
and experience, and that it will indemnify and hold
Client harmless for any damages arising from any error
or claim of error in the Work
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Client expects law firms to be aware of the potential risks of disclosing material non‐public, proprietary, or confidential information and to have the necessary procedures and safeguards in place to ensure that such disclosure does not occur.
If a breach of data privacy or data security occurs due to the Firm’s fault or negligence and Client incurs liability or cost or suffers damage as a result, the Firm must indemnify Client for such liability, cost, or damage.
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State Specific Requirements:
◦ At least 7 states require lawyers to disclose their
professional liability insurance status directly to clients.
◦ Oregon is the only state that requires lawyers to carry
malpractice coverage.
◦ The ABA model rule requires that a lawyer disclose whether
the lawyer is currently covered by professional liability
insurance to the highest court of that jurisdiction. :
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Oregon
Lawyers in private practice must carry professional liability insurance in the amount of $300,00 per claim and $300,000 aggregate insurance coverage through the Oregon Professional Liability Fund. and
if, at any time, a lawyer's malpractice insurance drops below either of those amounts or a lawyer's malpractice insurance coverage is terminated.
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Pennsylvania
Require that the client be informed in writing if a lawyer does not have malpractice insurance of at least $100,000 per occurrence and $300,000 in the aggregate per year and
if, at any time, a lawyer's malpractice insurance drops below either of those amounts or a lawyer's malpractice insurance coverage is terminated.
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Ohio
Ohio does not require lawyers to purchase professional
liability, however, the lawyer must notify the client in writing
if their professional liability coverage is less than $100,000 per
occurrence or $300,00 in the aggregate.
The Ohio rule requires that the lawyer send written notice to
the client with an acknowledgment that the client is asked to
sign and return.
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Disclosure Sample
In accordance with Pennsylvania Rule Professional Conduct
1.4(c), you are advised that I do not have malpractice
insurance coverage of at least $100,000 per occurrence and
$300,000 in the aggregate per year.
In Ohio rule requires that the lawyer send written notice to the
client with an acknowledgment that the client is asked to sign
and return.
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Omission & Errors Provision
The Firm maintains errors and omissions insurance coverage applicable to the services to be rendered to the Client.
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Safeguard Clauses
The Client should be offered the opportunity to consult with counsel before signing the retainer agreement:
◦ The Client agrees and affirms that the Firm has not
represented the Client in negotiating this agreement, nor has the Firm induced the Client to enter into this Agreement.
◦ The Client affirms that it had the opportunity to receive the advice of independent counsel in negotiating this Agreement and that it has not relied on legal advice from the Firm in deciding to enter into this Agreement.
◦ The Client also agrees and affirms that the Firm has made no representations or promises regarding the likelihood of obtaining patents.
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Most states allow attorneys to include a provision that requires the binding arbitration of malpractice claims and fee disputes provided that certain conditions are met.
The ABA Model Rules provides it is permissible to include an arbitration clause provided the client has been fully apprised of the advantages and disadvantages of arbitration and has given consent to the inclusion of the arbitration provision. Formal Ethics Opinion 02-425.
The arbitration provision cannot limit the liability to what the attorney would otherwise be exposed unless the client is independently represented in making the agreement.
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Attorney should review his or her insurance policy and discuss this issue with the insurer to avoid mistakenly invalidating malpractice coverage.
Best practice to obtain the insurer’s written consent before deciding to include an arbitration clause that covers malpractice claims in a retainer agreement.
Attorney should check stat-specific rules and decisions before deciding to include an arbitration clause in a retainer agreement.
The arbitration provision must explicitly disclose the nature of the claims covered by the arbitration clause.
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We do not anticipate having any disagreements
with Client regarding this Agreement, however, if
any disputes arise, the Client should provide
notice to the Firm immediately.
If the Firm is unable to resolve a dispute between
the Firm and the Client, the Firm and the Client
herein agree to submit the matter to arbitration
before the American Arbitration Association.
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Any controversy or claim arising out of or
relating to this contract, or breach thereof,
including any dispute relating to patent validity or
infringement, shall be settled by arbitration
administered by the American Arbitration
Association and judgment of the award rendered
by the arbitrator(s) maybe entered in any court
having jurisdiction thereof.
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Any dispute between the parties regarding any
payments made or due under this Agreement will
be settled by arbitration in accordance with the
JAMS Arbitration Rules and Procedures.
The parties are not obligated to settle any other
dispute that may arise under this Agreement by
arbitration.
Either party may request arbitration.
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◦ A lawyer does not need to add confidentiality language in its engagement agreement or sign confidentiality agreement with the client.
◦ A lawyer should not include an indemnification clause in its engagement agreement nor sign one without first consulting its insurance provider.
◦ Do not add any language that could potentially undermine your insurance policy.
◦ In all states in which it is required to do so, include a statement about the firm’s insurance coverage.