IP lawyer: When good patent lawyers behave badly

In today’s high-stakes IP economy, even innocent mistakes by outside patent counsel can have disastrous consequences. Patent practice is rife with potential pitfalls and attorney negligence can put a company’s most valuable intellectual property in jeopardy. A recent study by the American Bar Association (ABA) revealed a nearly fourfold increase in the percentage of attorney malpractice claims involving IP-related matters. While the study showed a drop in the overall number of attorney malpractice claims resolved without payment, the number of serious claims settled with payments over $1 million rose dramatically.

The risks of attorney malpractice are not dictated by the size or sophistication of the law firm involved. The ABA’s 2016 study indicates that firms with 100 or more attorneys saw the largest increase in claims. So-called ‘big law’ consolidation and increased attorney mobility have substantially increased malpractice risks. A separate study of leading insurers to law firms indicates that a majority of insurers saw an increase in malpractice claims arising from attorney moves between firms.

Given this increased risk, those tasked with managing prosecution, licensing and enforcement of patent portfolios are increasingly called upon to assess the impact of patent attorney malpractice and ethical lapses. Not all attorney mistakes constitute malpractice. It is important for those managing IP assets to understand their rights and remedies when facing potential attorney malpractice.

The elements of a legal malpractice claim are straightforward:

• a duty owed by the attorney;
• breach of that duty;
• injury caused by the breach; and
• actual loss or damages.

The simplicity of these elements belies the complexity of establishing a claim for attorney malpractice – especially in the IP arena.

Attorney errors giving rise to malpractice claims often arise from common fact patterns.

Missed deadlines and errors in filing

The most frequent errors giving rise to attorney malpractice claims are mistakes relating to the preparation, filing and transmission of documents. The ABA’s study found that nearly one-third of all attorney malpractice claims arise from such errors. These are particularly common in the field of patent prosecution, where practitioners face a wide variety of technical requirements and deadlines. For example, a California appellate court recently upheld an award of nearly $30 million for an attorney’s failure to meet a Patent Cooperation Treaty filing deadline.

Conflicts of interest

Conflicts of interest are another leading cause of legal malpractice claims. These most often arise when a lawyer or law firm represents other clients with competing legal interests. Prosecuting patents for a client’s competitors may not constitute malpractice, but an actionable conflict may exist when a patent lawyer’s representation of one client causes him or her to pull punches in the prosecution of another client’s patents. For example, in order to gain allowance of one client’s patent application, a lawyer may choose to narrowly characterise another client’s issued patent. Alternatively, a lawyer or law firm may commit malpractice by simultaneously representing two clients in an interference or derivation proceeding seeking to patent the same invention.

Litigating a lawyer’s own mistakes

An actionable conflict of interest may also arise where a lawyer’s own self-interest is at stake. For example, a lawyer who was involved in pre-suit licence negotiations may be precluded from representing a client in a dispute involving those same negotiations. Where an attorney has a personal stake in the outcome of a dispute, that interest may directly conflict with the interests of his or her client.

Damages: a case within the case

In attorney malpractice cases, a claimant must demonstrate that the lawyer’s error caused actual loss. This can be particularly challenging in patent and other IP-related claims. In many patent lawyer malpractice claims, the claimant must demonstrate that but for the lawyer’s malpractice, the claimant would have acquired valid and enforceable patent rights which would have resulted in measurable economic gain. This burden is often referred to as the ‘case within the case’, and is particularly challenging where an error prevents the acquisition of any patent rights or prevents an inventor from commercialising its invention.

Even in the best of circumstances, a claimant in a malpractice action may be required to demonstrate both the validity and the value of its invention. This may require the same proof as is required in a claim for patent infringement – and often demands counsel with a sophisticated knowledge of how to demonstrate the incremental value of a patented invention.

Most innovators never suffer loss as a result of attorney error; and the vast majority of patent counsel represent their clients diligently without ever committing an error that causes their clients harm. However, when attorney mistakes cause the loss of valuable patent rights, chief IP officers and others managing IP rights must carefully assess their clients’ rights and remedies.