IP Law Firm Pushes Back Against Lawsuit Alleging It Fraudulently Procured Confidential Inventions

Michael E. McCabe, Jr.Confidentiality, District Court Litigation, Duty to Non-ClientLeave a Comment

boxer punchbackIntellectual property law firm Kilpatrick Townsend is fighting back against accusations in a recent complaint accusing the firm and its client, Omnicell, Inc., of conspiring to fraudulently obtain confidential information about a third-party’s inventions and then using that information to acquire patents for Omnicell naming only an Omnicell employee as the inventor. MV Circuit Design, Inc. v. Omnicell, Inc., et al., No. 1:14-cv-02028-DAP (Sept. 12, 2014 N.D. Ohio).

Misappropriation of Confidential IP 

This action arises from a business relationship between MV Circuit Design, Inc. and Rioux Vision Inc. relating to the development of technology used in a medication-dispensing device called the “RIO Cart.” The complaint avers that beginning in 2001, MV worked with Rioux to develop the RIO Cart and design various components of the device, including hardware, software, and firmware. This joint work allegedly lasted over six years. MV allegedly understood that it had exclusive ownership rights over all intellectual property it developed.

The complaint alleges Rioux, without MV’s knowledge, secretly filed patent applications claiming its employee was the sole inventor of the medication-dispensing cart. In particular, the complaint alleges that,

 Unknown to MV Circuit, Rioux Vision filed a provisional patent application related to the RIO Cart on February 11, 2006, U.S. Provisional Application No. 60/772,416 (“the ’416 Application”), falsely claiming that its employee, Ray Reckelhoff, was the sole inventor. Mr. Reckelhoff held only a vocational school education and had only about six years work experience before joining Rioux Vision. Accordingly, although Mr. Reckelhoff contributed to the RIO Cart, he relied heavily on his co-inventors at MV Circuit.

The ’416 Application, which was not publicly available, provided that the patent was for: [A] cart [that] includes a computer with wireless network access and a monitor, a power system having a battery pack to provide power to the computer and monitor, a cassette drawer system having one or more cassette drawers for holding medications, and a security system. … [An] important feature is the cassette drawer system. … Still another important feature is the use of software to control access.

MV Circuit invented or co-invented many aspects of the cart described in the ’416 Application, including the cassette drawer system controller, the battery-monitoring controller, and all software incorporated in the cart.

omnicellIn 2007, Omnicell, Inc. acquired Rioux. The complaint alleges that Omnicell and its patent counsel, the Kilpatrick firm, devised a scheme “to conceal Rioux Vision’s theft of MV Circuit’s intellectual property, deceive MV Circuit, and induce MV Circuit to disclose its intellectual property.”

Alleged Fraud By IP Firm

The complaint alleges that Kilpatrick Townsend, which represented Omnicell as its “regular patent counsel,” intentionally misled and deceived MV “in order to induce MV Circuit to disclose its intellectual property to the law firm and to mislead MV Circuit into believing that neither Rioux Vision nor Omnicell had filed patent applications based on MV Circuit’s inventions.” The complaint alleges that, in January 2008, the Kilpatrick firm made the following false statements:

1. Kilpatrick “concurred” with Omnicell’s false and misleading statement to MV that Mr. Daley (a Kilpatrick attorney) “is not our regular patent counsel” when, in fact, the Kilpatrick firm was Omnicell’s regular patent counsel.

2. Kilpatrick “concurred” with Omnicell’s false and misleading statement to MV that Mr. Daley “would not be involved in developing any patent applications on behalf of Omnicell with respect to any technologies similar to those that are disclosed to him by MV Circuit” when, in fact, the Kilpatrick firm was prosecuting Omnicell’s patent application related to the technology in the RIO Cart and was actively working on additional patent applications based on identical technology to that which MV Circuit had disclosed to Mr. Daley.

3.  Kilpatrick “concurred” with Omnicell’s false and misleading statement to MV that Mr. Daley would not share with Omnicell the underlying technological descriptions that MV would disclose to him when, in fact, the Kilpatrick firm was prosecuting a patent application that included the same technology that MV disclosed to Mr. Daley.

4.  Mr. Daley of Kilpatrick “concurred” with Omnicell’s statement that MV should disclose its intellectual property to the Kilpatrick law firm so it could assess the patentability and value of MV Circuit’s technology. This, allegedly, was a ruse to obtain access to otherwise confidential invention information.

Kilpatrick townsendThe complaint alleges MV disclosed its confidential intellectual property to Mr. Daley without knowing that the Kilpatrick firm was in fact Omnicell’s regular patent counsel and that partners from the same office as Mr. Daley were working on Omnicell’s patent applications related to the RIO Cart. The complaint alleges that in 2013, MV “discovered” that the Kilpatrick firm drafted and prosecuted patents for Omnicell relating to the RIO Cart technology.

The complaint asserts five causes of action against the Kilpatrick law firm: fraudulent concealment; negligent misrepresentation; fraud; conspiracy between Kilpatrick and Omnicell; and aiding and abetting torts by Omnicell and Rioux. The complaint seeks, among other remedies and claims, unspecified money damages and a declaratory judgment and change of inventorship of several U.S. patents and international patent applications to include MV inventors.

The Kilpatrick’s Firm’s Motion to Dismiss

On November 14, 2014, the Kilpatrick firm filed a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). According to the Kilpatrick’s firm’s motion, the claims against it arise out of “a single January 23, 2008 email from Omnicell to MV. The email states:

Hello Mark,

It was a pleasure to speak with you and your father, Pete, yesterday.

I would like to summarize the approach that we discussed in order to confirm that we have the same understanding. I have identified patent counsel with the Townsend and Townsend and Crew law firm to whom you can disclose information relating to the IP that you believe relates to the Rioux Vision carts. This counsel would review this information and possibly discuss it further with you and/or your people. The purpose of this review and discussion is to enable him to provide to Omnicell his assessment relating to the patentability of these features as well as the overall value of the technology behind these features. He would not share with Omnicell the underlying technological descriptions that you would disclose to him, but would provide the assessment mentioned above. For your information, although this counsel is solely Omnicell’s counsel not the counsel of MV Circuit, this individual is not our regular patent counsel and would not be involved in developing any patent applications on behalf of Omnicell with respect to any technologies similar to those that are disclosed to him by MV Circuit. Omnicell remains free to develop rights with respect to any similar technologies through patents or otherwise.

Omnicell would be responsible for the legal fees generated by this counsel in providing the assessments mentioned above. MV Circuit, Inc. would remain responsible for the time and resources expended by its people in providing the information to Omnicell’s counsel.

If I have captured the understanding correctly, please let me know by responding to this email and I will provide the name and contact information for the patent counsel.

The Kilpatrick firm’s motion to dismiss asserts MV’s claims fail as a matter of law for multiple reasons:

First, the claim for “aiding and abetting” is not recognized under Ohio law.

Second, the claims are barred by the applicable Ohio statute of limitations.

Third, the purported misstatements by the Kilpatrick law firm are unfounded because: (1) no allegedly false or misleading statement was made by any Kilpatrick attorney; (2) simply receiving a copy of an email from Omnicell is not the making of a false statement by Kilpatrick; (3) Kilpatrick owed a duty of loyalty and confidentiality to Omnicell; and (4) the fact that a patent application had been filed previously by Omnicell was public information.

Fourth, the motion asserts the absence of any duty owed by the Kilpatrick firm to disclose to non-client MV “the true nature of the law firm’s work for Omnicell” or the “existence of the pending patent applications.” The motion states, “this lone allegation is insufficient as a matter of law for the claim to survive dismissal because it does not allege anything about the relationship between Kilpatrick and MV—much less allege some kind of special relationship—that would give rise to a duty to ‘correct’ true statements made by Omnicell.”

Fifth, the motion argues that the Kilpatrick firm is not liable as a matter of law under the “attorney immunity doctrine.” While not all jurisdictions recognize this rule, under Ohio law, it “is well settled that ‘an attorney is immune from liability to third parties arising from his performance as an attorney in good faith on behalf of, and with the knowledge of his client, unless such third person is in privity with the client or the attorney acts maliciously.’” Lemkin v. Hahn, Loeser & Parks, No. 2:10-cv-665, 2012 WL 1058951, at *6 (S.D. Ohio Mar. 28, 2012) (granting defendant law firm summary judgment on plaintiff’s negligent misrepresentation that, inter alia, plaintiff should not be a named inventor on a patent application). The rationale for this doctrine is that “the obligation of an attorney is to direct his attention to the needs of the client, not to the needs of a third party not in privity with the client.” Simon v. Zipperstein, 512 N.E.2d 636, 638 (Ohio 1987).

Attorney’s Ethical Duties to Third Parties

Under certain situations attorneys owe ethical duties to persons other than their clients. Moreover, the breach of an ethical duty to a third party could be grounds for attorney discipline.

Under Model Rule of Professional Conduct 4.1, for example, a lawyer owes a duty not to make false statements to third parties. In particular, counsel shall not knowingly: (a) make a false statement of material fact or law to a third person; or (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Model Rule 1.6.  USPTO Rule of Professional Conduct 37 C.F.R. 11.401 is substantively identical to Model Rule 4.1

The complaint against Kilpatrick fails to allege that any specific Kilpatrick attorney made “a false statement of material fact.” As the motion to dismiss explains, any putative “representation” of fact was made by Omnicell, not Kilpatrick. Under Model Rule 4.1(a) and USPTO Rule 11.401(a), no “duty to speak” exists under the circumstances.

A duty to speak can arise when the conditions of Model Rule 4.1(b) are satisfied. This rule, however, includes two substantial exceptions: (1) disclosure to the third party must be “necessary to avoid assisting in a criminal or fraudulent act by a client”; and (2) disclosure is not prohibited by Model Rule 1.6(a).

The duty to speak in Model Rule 4.1(b) does not appear to be implicated by the facts alleged on the face of the complaint. First, the complaint fails to allege that the attorney who was communicating with MV knew of any “criminal or fraudulent act” by Omnicell. For this reason alone, no duty to speak exists.  Second, even if the attorney who was counsel for Kilpatrick was aware of possible fraudulent conduct by his client, he or she may have been prohibited from disclosure by Rule 1.6(a), which states, “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).”

Under Rule 1.6(b), a lawyer “may” – but is not required–to disclose a client’s confidences in certain limited situations.  It is not at all clear from the pleadings that any attorney from Kilpatrick violated any duty under Rule 4.1(b) and, on the contrary, the attorneys may have been required not to disclose the information allegedly withheld from MV.

At this stage, the only publicly available facts are the bald allegations of the complaint and the arguments raised and facts alleged in support of the motions to dismiss. If the complaint makes it past the Rule 12 motions, discovery may lead in a different direction.

In addition to Kilpatrick’s motion, both Omnicell and Rioux have filed a combined motion to dismiss. MV’s oppositions to the defendants’ respective Rule 12 motions are due by December 17, 2014.

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