The fallout from the Niro, Haller & Niro law firm’s doomed litigation on behalf of Intellect Wireless continues. For patent litigator David J. Mahalek, the most junior member of the Niro litigation team, the disciplinary shoe of the USPTO did not just drop–it kicked him in the teeth with an 18-month suspension of his law license.
Readers may recall that, several years ago, the Niro firm filed two infringement cases for Intellect Wireless. The cases did not end well. The patents were found unenforceable for inequitable conduct–a decision affirmed in 2013 by the Federal Circuit. Then in 2015, Mr. Mahalek and other Niro attorneys were sanctioned for unreasonable and vexatious litigation. The history of that very public litigation and the sanctions award received widespread media coverage. See here (Forbes), here (Law360) and here (IPWatchdog).
Then things got really bad. While the Intellect Wireless meltdown was in full swing, the USPTO’s Office of Enrollment and Discipline was just warming up. The first hint of that confidential process just became public when on January 27, 2017, the USPTO Director issued an Order suspending Mr. Mahalek from practice before the USPTO for 18 months. The suspension, which was the result of a settlement between Mr. Mahalek and the OED Director, was only recently made public and is posted here.
This is not the end of the professional discipline process. In due course, reciprocal discipline from Mr. Mahalek’s state and federal bars is likely to ensue.
Although the genesis of the USPTO disciplinary action began, for Mr. Mahalek, during litigation, the roots of the case go back into patent prosecution. Neither Mahalek nor the Niro firm was involved in the prosecution. Nevertheless, what they knew and learned about what occurred during prosecution, and what they did during the litigation notwithstanding that knowledge, eventually came back to haunt Mr. Mahalek.
The invention related to wireless portable communication devices that receive and display caller ID information. During prosecution, the inventor signed, and his counsel filed, a Rule 131 declaration to antedate references cited by the USPTO. The declaration originally stated that the inventor had actually reduced his invention to practice. After filing the declaration, the inventor told his patent attorney that he had not actually reduced the invention to practice. His patent attorney amended the declaration to omit the reference to actual reduction to practice, relying instead upon a constructive reduction to practice to antedate the reference. Despite this effort at amendment, there was still language in the amended declaration that referenced an actual reduction to practice. Moreover the inventor did not include in the written record of the USPTO a clear statement advising the examiner of the false or incorrect facts stated in the Rule 131 declaration. A family of patents eventually issued.
In 2009, attorneys from the Niro law firm filed a complaint on behalf of Intellect Wireless in the United States District Court for the Northern District of Illinois against HTC Corp., HITC America, Inc., and AT&T Mobility LLC (the “HTC litigation”). The complaint alleged the defendants infringed Henderson’s patents. Mr. Mahalek was the most junior level attorney at the Niro firm who was on the litigation team assigned to the case.
In 2010, a second lawsuit was filed by Intellect Wireless in the Northern District of Illinois (the “Sharp litigation”). The complaint alleged that Sharp infringed Henderson’s patents. Mr. Mahalek and others from the Niro firm represented the plaintiff.
The HTC Litigation
The complaint in the HTC litigation alleged that the inventor’s “prototype” for his invention, a wireless device, was part of the Smithsonian Institution’s permanent collection. The complaint also alleged that HTC infringed Henderson’s patents by “providing wireless portable communication devices that receive and display caller ID information, [and] non-facsimile pictures.”
On November 6, 2009, Mr. Henderson sent Mr. Mahalek and other Niro attorneys an email in which he admitted that the device he constructed of the inventions “did not operate” because it “did not actually receive caller id” or pictures as claimed in the patents.
On February 19, 2010, attorneys from the Niro firm advised HTC that “there was not an actual reduction to practice of the inventions of the” asserted patents “either before or after the constructive reduction to practice.” HTC subsequently filed a counterclaim alleging inequitable conduct in connection with Mr. Henderson’s Rule 131 declaration.
On February 25, 2011, Mr. Mahalek and the other Niro attorneys served HTC with interrogatory responses, wherein they asserted that there may been an actual reduction to practice earlier than the date of constructive reduction to practice as Mr. Henderson created a working prototype with functional electronics which he showed at the Winter Consumer Electronics Show in January 1994. Also on February 25, 2011, Mr. Mahalek sent an email to Mr. Henderson, explaining that, with respect to the claimed invention, “[ w]e’re not taking the position that it wasn’t an actual reduction to practice. We’re trying to be more circumspect than that and convey an impression that we’re unsure.”
Throughout the litigation in various papers, Mr. Mahalek and other Niro attorneys argued at various stages that the inventor’s statement that he had never actually reduced to practice his invention was not false or misleading.
In September 2012, the district court, after conducting a bench trial solely on inequitable conduct, found that the asserted patents were unenforceable due to inequitable conduct based on false statements in the Rule 131 declarations. In 2013, the Federal Circuit affirmed. Intellect Wireless v. HTC Corp., 732 F.3d 1339 (Fed. Cir. 2013).
The Sharp Litigation
In 2010, Mr. Mahalek and other Niro attorneys filed a complaint accusing Sharp, Hewlett-Packard, Palm and Dell (collectively “Sharp”) of infringing Henderson’s patents by “providing wireless portable communication devices that receive and display caller ID information, [and] non-facsimile pictures.”
As with the HTC litigation, the defendants in the Sharp litigation counterclaimed for inequitable conduct based on the allegedly false Rule 131 declaration. Mr. Mahalek and other attorneys from Niro filed an answer which denied that the asserted patents were obtained by false declarations.
One day after the district court in the HTC litigation issued its decision finding the Henderson patents unenforceable, the district court in the Sharp litigation dismissed the action without prejudice.
The Sanctions Motions
After the Federal Circuit’s 2013 ruling affirming the district court’s inequitable conduct decision, the defendants in the respective HTC and Sharp litigations moved for sanctions against Mr. Mahalek and other Niro attorneys
In 2015, the district court in the HTC litigation issued an Opinion and Order awarding HTC’s attorneys’ fees and granting an adverse inference that Mr. Mahalek and other attorneys at the Niro firm knew that the inventor had not actually reduced his invention to practice but continued to deny in pleadings and other pretrial proceedings the assertion that Henderson’s Rule 131 declaration was false. The court held that Mr. Mahalek and other attorneys at the Niro firm were liable under 28 U.S.C. § 1927 for unreasonable and vexatious multiplication of proceedings in the HTC litigation.
In the Sharp litigation, the district court also granted the Sharp defendants’ motion for attorneys’ fees. The district court made the following key findings:
a) Mr. Mahalek and the other Niro attorneys knew no later than November 6, 2009, that Mr. Henderson’s declarations contained multiple false statements, including that there was a “working prototype”;
b) After reviewing the November 6, 2009 email, Mr. Mahalek knew or reasonably should have known that Mr. Henderson’s statements in the declarations were not consistent with an actual reduction to practice;
c) HTC’s counsel alerted Mr. Mahalek and the other Niro attorneys of the false declarations on September 23, 2010; that was one month before the complaint was filed in the Sharp litigation;
d) Mr. Mahalek and the other Niro attorneys failed to reconcile the November 6, 2009 email they received with the Rule 131 declarations before filing the Sharp litigation, which was “objectively unreasonable and vexatious”;
e) Mr. Mahalek and the other Niro attorneys failed to withdraw the infringement claims;
f) Mr. Mahalek and the other Niro attorneys chose to file an amended complaint that repeated misleading allegations about the prototype in the Smithsonian, and to pursue infringement claims on a patent they knew or should have known was unenforceable due to “the filing of an affirmatively false affidavit”;
g) The amended complaint “unnecessarily multiplied these proceedings by requiring each defendant to submit an additional answer”;
h) The answers to the counterclaims continued to repeat the false assertions that Mr. Henderson had developed a “functional” or “working” prototype, and Mr. Mahalek and others at Niro knew that Mr. Henderson did not actually reduce to practice the invention “because the only independent claim in the ‘862 patent requires ‘automatically passing said caller-identification information’ and ‘receiving caller-identification information … at said portable communication device,”‘ which are features that Mr. Henderson device did not have, as he told the Niro attorney in his November 6, 2009 email.
The Ethics Investigation and USPTO Discipline
The OED investigated Mr. Mahalek arising from the conduct at issue in the HTC and Sharp litigations. Although such investigations are confidential, it is believed that other attorneys at the Niro firm have been or are presently being either investigated or are the subject of a disciplinary adjudication before the USPTO.
Mr. Mahalek settled with the OED Director. The settlement agreement, which was accepted by the USPTO Director, found that Mr. Mahalek’s conduct in the HTC and Sharp litigations violated multiple USPTO ethics rules.
Many practitioners are surprised to learn that the USPTO’s ethics rules apply to conduct outside of the USPTO. In fact, the USPTO’s disciplinary rules proscribe conduct involving making false representations to a tribunal, engaging in fraudulent, misleading or dishonest conduct, and engaging in conduct prejudicial to the administration of justice. In the settlement agreement, Mr. Mahalek agreed that his conduct inter alia violated five ethics rules:
37 C.F.R. § 10.23(a) – disreputable or gross misconduct;
37 C.F.R.,§ 10.23(b)(4) – conduct involving fraud, dishonesty, deceit or misrepresentation;
37 C.F.R. § 10.23(b)(5) – conduct prejudicial to the administration of justice;
37 C.F.R. § 10.85(a)(2) – knowingly advancing a claim or defense that is unwarranted under existing law; and
37 C.F.R. § 10.85(a)(3) – concealing or knowingly failing to disclose information that the practitioner is required by law to reveal.
Notably, the USPTO found that Mr. Mahalek was responsible for these ethics violations notwithstanding the fact that he was the most junior attorney on the litigation team and that he relied on the knowledge and expertise of senior partners in lawyers.
This case should serve as a reminder to all litigators that the USPTO can, and will, exercise its disciplinary jurisdiction over practitioner misconduct that occurs outside of the USPTO. Moreover, the USPTO can and does investigate misconduct arising in litigation. Sanctions entered by a district court can thus lead to very harsh consequences on the attorney discipline side. In this particular case, the level of punishment–an 18 month suspension–is reflective of the OED’s view that this particular form of misconduct is particularly egregious and warrants significant discipline.
Because of secrecy rules, we do not know what lies in store for the other Niro attorneys. Rest assured, things are brewing at the USPTO. If the Mahalek case is any indication, however, it would not be a surprise if other team members were to receive similar disciplinary sanctions from the USPTO.
Indeed, the scary part is that while an 18-month suspension is quite substantial, Mr. Mahalek may have gotten a “good deal” from the USPTO, perhaps because of his junior level at the Niro firm. Other former Niro firm members who were senior to Mr. Mahalek and who worked on the litigation may not be so fortunate.