Money can buy many things. When a lawyer and client have a dispute, such as a client’s claim for legal malpractice, money often can buy “peace.” And when clients and their lawyers settle such a dispute, it is common for the parties to agree by contract to dismiss—or refrain from filing—a civil complaint.
But a lawyer’s ability to buy peace from a complaining client has ethical boundaries. In a recent USPTO disciplinary decision, a patent attorney was excluded for, among other things, paying a client to refrain from filing an ethics grievance. See In re Michael I. Kroll, Proc. No. D2016-23 (USPTO Dir. Dec. 11, 2017) (copy of Kroll decision here).
The First Patent Application
According to the USPTO’s decision, in 2005, an inventor contacted patent attorney Michael Kroll for an opinion on patentability for his invention, an automotive windshield sun visor made of static-cling material. Mr. Kroll advised his client that “he could definitely get a patent,” and Mr. Kroll offered the client a full money back guarantee if he failed to obtain the client a patent. The client accepted the terms and paid Mr. Kroll $10,000 to prepare and file a patent application.
The patent application was rejected based on prior art. To overcome the rejection, Mr. Kroll added an “attachment guide” limitation to the claims, which evidently would aid in attaching the device to the windshield of the vehicle. With this narrowing amendment, the Office allowed the application and, in 2007, issued a patent.
Notably, according to the decision, Mr. Kroll failed to advise the client about the additional limitation and evidently assured the client that the patent would prevent others from producing a static-cling sun shade. Relying on his attorney’s representation, the inventor invested $30,000 to make and market his automotive sun visor invention.
In 2008, the client noted a third party was selling a similar product to his automotive sun visor. The client wanted Mr. Kroll to send a cease-and-desist letter. Mr, Kroll advised the client that his patent did not cover the static cling material itself, and thus, there was no infringement.
The Second Patent Application
In 2009, the same client asked Mr. Kroll if a device similar to that of his issued patent, but with the addition of perforations to provide shade while allowing visibility, was patentable. In response, Mr. Kroll provided a positive opinion on patentability and another “full money back guarantee” if he failed to obtain a patent. Mr. Kroll failed to advise the client that the 2007 patent disclosed a perforated window shade and that this prior publication presented a significant obstacle to obtaining broad patent protection.
The inventor paid Mr. Kroll $11,000 to prepare and file a patent application on the perforated shade invention. The inventor’s invention evidently had perforations with parallel walls. During the patent drafting process, however, Mr. Kroll, without the inventor’s knowledge or consent, changed the drawings so that the perforations included diverging/angled walls, rather than parallel perforated walls.
The Office rejected the application as anticipated by the inventor’s 2007 patent. However, after adding limitations to include the diverging/angled perforations reflected in the drawings, the Office issued a Notice of Allowance.
While reviewing the Notice of Allowance, the client realized—apparently for the first time—that his invention had been changed to include the diverging/angled perforations. The inventor concluded that the device as claimed was “commercially useless” and, therefore, he refused to pay the issue fee. The application subsequently went abandoned.
Client Threatens to File Ethical Grievances
In 2012, the client expressed concern about the attorney’s addition of an attachment guide feature to the 2007 patent. The client was disturbed that the patent, as issued with the amended claims, could not be used to stop others from making a static-cling sun shade unless such shade also included the attachment guide feature that Mr. Kroll had added during prosecution.
The inventor told Mr. Kroll that he wanted his money back for the first application, and he stated that he was “considering filing an ethical grievance” regarding Mr. Kroll’s representation in connection with the 2007 patent.
Mr. Kroll offered to refund the client one-half of the fees paid. After some negotiations, the inventor and Mr. Kroll agreed that the inventor would not file an ethics grievance regarding the attorney’s handling of the 2007 patent, in exchange for Mr. Kroll paying the inventor a $6,000 refund.
The client drafted a document memorializing the terms of the agreement. The document stated that upon satisfaction of the payment terms, the client would “tear up any and all paperwork prepared to file any [ethical] complaints.” The attorney signed the agreement, and subsequently paid the $6,000 refund to the client in accordance with the terms of the client’s agreement.
The following year, after the client had become aware of the issues that arose with his second patent application, the client again demanded a refund and again threatened to file a disciplinary complaint. In response, Mr. Kroll offered to settle with a refund if the client would refrain from filing an ethics grievance. Ultimately Mr. Kroll orally agreed that he would pay the inventor back another $6,000. The client’s wife memorialized the terms of the agreement. However, Mr. Kroll never signed the agreement that the client’s wife had sent to him, and no refund was ever paid to the client regarding the second application.
Inventor Files Grievance/PTO Files Ethics Complaint
In 2015, the inventor filed a grievance against Mr. Kroll with the Office of Enrollment and Discipline. After an investigation, the OED Director filed an ethics complaint against Mr. Kroll. The ethics complaint alleged multiple violations of the USPTO ethics rules.
The complaint alleged that Mr. Kroll engaged in conduct that involved dishonesty or deceit by making changes to the client’s patent applications without the client’s knowledge or consent. In addition, the complaint alleged that Mr. Kroll engaged in conduct prejudicial to the administration of justice by offering to pay money to his client (and, in the case of the 2007 patent, actually paying money to the client) in exchange for the client refraining from filing an ethics grievance.
After a hearing on the matter, an administrative law judge issued an initial decision finding that Mr. Kroll had violated the ethics rules as charged, and he recommended that Mr. Kroll be excluded from practice before the USPTO. In part, the recommendation for this severe of a sanction was due to the fact that Mr. Kroll had a history of prior discipline with the USPTO—including three (3) previously-issued suspensions.
USPTO Finds Settlement Agreements Unethical
On December 11, 2017, the USPTO Director issued an opinion affirming the ALJ’s initial decision and ordering Mr. Kroll excluded from practice before the USPTO.
In relevant part, the USPTO Director found that Mr. Kroll had engaged in conduct prejudicial to the administration of justice, in violation of the PTO Code and PTO Rules, when he conditioned a refund of fees on the client’s promise not to file a disciplinary complaint.
This evidently was a case of first impression at the USPTO, for the Director did not cite any prior USPTO disciplinary decisions in support of this portion of his ruling. Notably, the USPTO Director relied upon the opinions in disciplinary matters from several states, which generally stand for the proposition that an agreement by counsel to a release which discourages the client from filing an ethics complaint, is unethical.
Beware of “Prejudicial to Administration of Justice” Rule
The USPTO Director’s decision in Kroll presents some important teaching points.
For starters, it may seem counterintuitive for a lawyer to be unable to pay a client to “settle” a disciplinary grievance. After all, attorneys and clients settle disputes all of the time, so why not settle grievances the same way? Such, however, is not the rule.
In addition, you should be mindful that in the USPTO (and in most jurisdictions), there is no specific rule that expressly prohibits a settlement that requires a client to withdraw an existing disciplinary complaint or refrain from filing such a complaint. Given the absence of such an express rule, one might argue that silence (the absence of a specific rule) must mean that the proposed conduct is permissible.
Which leads to probably the most important observation: the ethics rule prohibiting conduct “prejudicial to administration of justice” has been stretched by the State Bars as well as the USPTO so broadly so as to encompass all sorts of general conduct. In this regard, the “prejudicial to the administration of justice” rule could be viewed by some as being a trap for the unwary. One might legitimately raise concern that a general “catch-all” rule, such as the rule proscribing conduct “prejudicial to the administration of justice,” may be overused by Bar Counsel and fails to provide attorneys and agents who are subject to this rule with sufficient notice regarding what the rule proscribes.
That said, practitioners of the USPTO now are on notice that the Office interprets “prejudicial to the administration of justice” to prohibit buying off clients to prevent them from filing ethics complaints. As the Director found:
it is unethical for a practitioner to buy the silence of a dissatisfied or unhappy client. It is contrary to the purposes of the attorney disciplinary system and is prejudicial to the administration of justice.
Finally, the result in Kroll could have been different if the settlement agreement were structured differently. Here, however, the problem was that the express (and, evidently, only) quid pro quo was that the lawyer was agreeing to pay money expressly and solely in exchange for the client’s promise not to file a disciplinary grievance. Thus, there could be no legitimate argument raised in Kroll regarding what the attorney really was paying for.