OED Cracks Down On Patent Practitioners Working With Invention Promoters

Michael E. McCabe, Jr.Communications, Competence, Conflicts of Interest, Patent Ethics, PTO Ethics Decisions, PTO Ethics Rules, USPTO Ethics Investigation, USPTO OED1 Comment

George Foreman pitches their services on late night television commercials.  A Google search for “how to sell my invention” turns up scores of them. Many individual inventors believe they have designed the next “better mouse trap” but typically have no clue how to monetize or market their invention. That is where invention marketing or promotion companies step in.

Generally speaking, an invention promotion firm provides services to inventors to help them develop or market their inventions.  Typically, these firms offer services such as evaluating the patentability of inventions, filing patent applications, assisting inventors with licensing, building prototypes, and marketing inventions.  Their services are marketed primarily to individual inventors through mass media.

Invention promotion companies, which have been around for decades, have a dubious pedigree.  Such companies have been the subject of litigation essentially claiming that they are fraudulent enterprises.  According to the Federal Trade Commission (FTC), inventors should be careful when doing business with invention promoters. In a post about invention promotion firms, the FTC warns that:

Unscrupulous promoters take advantage of an inventor’s enthusiasm for a new product or service. They not only urge inventors to patent their ideas or invention, but they also make false and exaggerated claims about the market potential of the invention.

In 1999, Congress enacted the American Inventors Protection Act, which attempted to give inventors certain rights when dealing with invention promoters. Before an invention promoter can enter into a contract with an inventor, it must disclose the following information about its business practices during the past five years:

  • how many inventions it has evaluated,
  • how many of those inventions got positive or negative evaluations,
  • its total number of customers,
  • how many of those customers received a net profit from the promoter’s services, and
  • how many of those customers have licensed their inventions due to the promoter’s service

A limitation of the American Inventors Protection Act is that it only applies when someone is providing “invention promotion services,” which the Act defines as “the procurement or attempted procurement for a customer of a firm, corporation, or other entity to develop and market products or services that include the invention of the customer.”  Thus, if an invention promoter simply does not procure or attempt to procure someone (such as a manufacturer) to develop and market the products or services invented by the inventor, they are not involved in “invention promotion services” and the Act does not apply to them.  This is a fairly easy work-around.  The invention developer, for example, can provide the inventor with the names of possible manufacturing partners.  As long as the invention promoter itself is not involved in procuring or attempting to procure someone else to develop and market the invention, the disclosure requirements of the Act are inapplicable.

Spotting The Scam Invention Company

On its website, the USPTO offers guidance to inventors on how to spot a potential invention marketing “scam.” Those “signs” include tv, radio and magazine ads; refusal to respond to questions in writing; advice to apply for a design patent; a promise to provide a patent search only but no patentability opinion; and salespersons who demand up-front payments–right away. According to the USPTO, the “hooks” that “lure” inventors into an invention promotor’s “web” typically include:

1. A “free” inventor’s kit;

2. A telephone request for money to evaluate the invention;

3. The evaluation leads to a request for more money to create a report;

4. The “report” says the invention is patentable and marketable; and

5. Now there is a need for more money to continue the process of getting a patent and marketing the invention.

The USPTO generally speaking has no jurisdiction over invention marketing companies. Thus, while the USPTO can publish warnings, it has no power to stop an invention promoter from engaging in what some might perceive to be fraudulent or misleading conduct.

Common Ethical Issues Raised By Working With Invention Promoters

There is nothing per se unethical about a patent attorney or patent agent providing legal services for individual inventors who engage the services of an invention marketing company.  One way the USPTO can at least indirectly regulate the conduct of invention promoters is by exercising their regulatory authority over patent attorneys and agents, creating a strong disincentive for such licensed practitioners to work with invention marketing firms.

The USPTO’s Office of Enrollment and Discipline has been particularly proactive in investigating patent attorneys and patent agents who work with or who provide services for or through an invention promoter.  Patent attorneys and agents who decide to work with invention promotion firms must be cognizant of the USPTO’s Rules of Professional Conduct to ensure that the manner in which they provide such services complies with their ethical responsibilities.

The following are the top five ethics issues that patent attorneys and agents must be particularly mindful of when they agree to provide patent-related services for clients who have contracted with an invention promoter.

DangerIssue No. 1 – Recognizing Who Is the Client 

Practitioners may believe that their “client” is the patent marketing company.  This is not correct.  When a practitioner is hired to provide patent-related services on behalf of a marketing company’s client, the practitioner’s client is the marketing company’s client, not the marketing company itself.

It is imperative that the practitioner recognizes from the outset that they are representing the “end client” (inventor), not the marketing company.  Even where the “end client” is referred to the attorney by the marketing company or paid by the marketing company, the attorney owes all of their ethical duties–including the duties of competence, communications,  confidentiality, loyalty, and independent professional judgment–to their inventor clients.

Recognizing the inventor as the client is fundamentally an issue that the attorney or agent must handle at the commencement of the representation.  This should include the attorney entering into a written engagement agreement with the client.  The written engagement agreement should set forth the identity of the client, the scope of the representation, the services that are to be provided, and how the attorney is to be paid.  Attorneys and agents need to make clear that the inventor is their client and that they do not take instructions from the invention promoter.

Issue No. 2 – Exercising Professional Independence 

In some invention company agreements, the invention company agrees to pay for the services of a patent attorney or patent agent on behalf of their inventor client and may also agree to pay the USPTO filing fees.  Of course, the invention company is rolling this cost into its overall contract price with the inventor, who is agreeing to pay for a bundle of services, which often includes legal fees or expenses relating to a patent search, patentability study, or patent application.  The invention company then contracts with a patent attorney or agent to provide specified legal services on behalf of the client, typically for a fixed fee.

When a third-party, such as an invention promoter, pays the fees to a practitioner on behalf of a client/inventor, this arrangement triggers 37 CFR Section 11.108(f), which provides that a patent practitioner may not be paid by someone other than the client unless three conditions are met:

  1. The client gives informed consent confirmed in writing;
  2. There is no interference with the practitioner’s independent professional judgment; and
  3. Information relating to the representation is kept confidential–even from the payor of the legal fees–unless of course the client consents to such disclosure.

Professional independence means just that–the practitioner must not permit the payor (in this case, the company paying for his or her legal services)–to direct or regulate the practitioner’s professional judgment.

Thus, for example, say a third-party marketing company engages a patent attorney or agent to file a design patent on behalf of the client.  If the attorney or agent simply goes along with this request and prepares and files a design application, it could be argued under the circumstances the practitioner was not exercising independence.  It may very well be that the client wants, is entitled to get, and should get, a design patent.

However, usually the decision on what type of patent application is appropriate under the circumstances is a client-specific matter that can only be determined after the practitioner confers with the client and gathers information about the client’s invention and the client’s objectives.  Normally as well, the onus will be on the practitioner to explain to the inventor/client the pros and cons of the different types of patent applications that are available.  This will help assure the practitioner ensures that the client is getting the “right” type of application–which may be or may not be the same type of application that the invention company is willing to pay for.

All of this disclosure should be made in writing at the start of the representation so that there is a clear paper trail if the relationship goes sour or the inventor later claims they did not understand the type of protection they were getting.

money fightIssue No. 3 – Disclosing How Much The Practitioner Is Getting Paid 

37 CFR Section 11.108(f)(1) requires in the third-party payment scenario that the client gives “informed consent.”  In the context of a third-party payment scenario, the USPTO has interpreted the informed consent rule to require the practitioner to disclose to the client/inventor exactly how much the practitioner is being paid by the invention company as well as the nature of the practitioner’s relationship with the invention company.

Notably, this disclosure requirement is not stated expressly in the USPTO’s rules.  Nevertheless, the USPTO has interpreted its rules to require the disclosure of the fee paid by a third party.  Indeed, in an appeal from a disciplinary case involving a practitioner who provided legal services for clients through an invention company, the Federal Circuit held that it was the practitioner’s duty of disclosure to the client the amount the practitioner was paid by the invention promoter/third-party payor; the court held such disclosure was a reasonable interpretation of the “informed consent” rule.  See Bender v. Dudas, 490 F.3d 1361 (Fed. Cir. 2007) (affirming USPTO’s holding that practitioner who was paid by third-party invention company obligated to disclose to client amount of payment as part of the “informed consent” requirement).

If the invention company refuses to permit the attorney or agent to disclose the amount they are being paid to the client/inventor, then the practitioner is not able to obtain the requisite informed consent.  In such cases, the absence of informed consent may require either that: (1) the practitioner refuse the representation; or (2) the practitioner and the client agree to a direct-payment relationship, bypassing the invention company middleman.

canstockphoto12671539Issue No. 4 – Communicating with the Client

A practitioner is ethically obligated to communicate with the client.  As set forth in 37 CFR Section 11.102(a) and 11.104, the duty of communication applies even when the practitioner is being paid by an invention company.

As discussed above regarding the duty to exercise independent professional judgment, the practitioner should speak with his or her client about their invention and their patent protection aims.  The practitioner should communicate whether the type of patent protection that the client has sought (presumably pursuant to their contractual agreement with the invention promoter) is adequate, such as in the case of a design patent vs. a utility patent application.  Furthermore, the practitioner should confer with the client to ensure that the client is reasonably informed about the pros and cons of the type of patent protection sought by the client.

It is particularly dangerous for the practitioner not to communicate directly with the client about these matters.  It may be difficult for a practitioner to provide competent and diligent representation when they are not communicating directly with the inventor/applicant.  Thus, the USPTO wants practitioners to “cut out the middleman” and act towards the client just as they would (and should) if their fee was not being paid by a third party but was being paid directly by the client.

It is also advisable that such communications be reduced to writing.  If there ever comes a time when a dispute arises with the inventor client, the practitioner needs to be able to demonstrate that they acted consistent with their ethical obligations.  Informal oral disclosures made years earlier are subject to failed memories.  Documents, on the other hand, last “forever” and in any case evidence in the form of documents, including emails, letters, and the like provided during the course of the representation, will be considered much more persuasive in any subsequent dispute between the client and the practitioner.

Issue No. 5 – Ensuring the Client Knows When the Representation Ends

Finally, it is imperative that the practitioner and the client know when the practitioner’s services end.  It is often the case that the client and the invention promotion firm have agreed that the lawyer will provide some level of service–say the filing of a provisional or utility patent application.  But what happens after filing?  When does the representation end?  Has that been disclosed to the client so there is no ambiguity when an Office Action issues or other post-filing documents need to be filed as to who is responsible?

It is imperative that the practitioner set this out in writing, again preferably at the commencement of the engagement in a signed agreement with the client.  This will help to avoid misunderstandings with the inventor/client regarding what they believed the attorney or agent was required to do.

If there is no writing and an application goes abandoned without the client’s consent or knowledge, the practitioner may be left in a very uncomfortable position of not having supportive documents.  In a credibility contest between a solo inventor and a practitioner, the OED tends to put the onus on the practitioner to demonstrate that they communicated important facts with their clients, and the absence of documented proof of such communications may be construed as evidence against the practitioner that such communications never occurred.

Conclusion

There is nothing unethical about patent practitioners representing individual inventors who contract with invention promoters. Practitioners who engage in such representations, however, need to be mindful that invention promoters are heavily scrutinized.  If the Office of Enrollment and Discipline cannot take action against the invention promoter directly, they may do so indirectly by going after the patent attorney or patent agent.   In effect, what the OED wants is for the attorney or agent to act just as if the invention company did not exist.

Practitioners should be aware that they are stepping into a regulatory minefield when they provide services with or through an invention promoter. Additional care and attention are needed to ensure that such practitioners who work with invention promoters do not inadvertently end up on the receiving end of an OED ethics investigation or USPTO disciplinary complaint.

One Comment on “OED Cracks Down On Patent Practitioners Working With Invention Promoters”

  1. Pingback: Top Seven Ethics Risks When Patent Practitioners Work With Invention Marketing Companies | IPethics & INsights

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