In an order dated October 8, 2014, the US district court in Brooklyn has rendered a judgment of about $7 million against a Virginia patent law firm. The award is tied to an allegation that the firm failed to pursue US patent rights for a client despite undertaking to do so.
There was a box that could have been checked on a patent office form, that might well have kept this lawsuit from happening had it been checked.
You can see a summary judgment order dated November 29, 2011 and the damages order dated October 8, 2014.
Here is what seems to have happened. A startup company called Protostorm invented something. This was back in about 2000.
Somehow Protostorm hired a Kathy Worthington, who was not admitted to practice before the USPTO, to advise them on patent matters. Worthington brought in the Arlington, Virginia firm of Antonelli, Terry, Stout & Kraus, LLP.
A US provisional patent application got filed on June 27, 2000, starting the usual one-year period for filing a US non-provisional patent application and/or non-US patent filings.
A second US provisional patent application got filed, apparently prepared by Worthington.
The time came for filing a non-provisional patent application and a Dale Hogue (formerly of counsel to the Antonelli firm) got retained to prepare a PCT application. According to a retainer letter, Hogue would prepare the PCT application and the Antonelli firm would do the actual filing of the PCT application with the patent office.
In those days a PCT applicant had to affirmatively pick the country or countries where patent protection would be sought through the PCT application. The usual way to do this was by checking boxes on a page of the PCT request form. When the PCT application got filed, the boxes got checked for every listed country except Mongolia, Zimbabwe, and the United States.
As will become clear, had only the filer checked the “United States” box in the PCT request form, this lawsuit might well never have arisen.
This is the place in the story where the judge, deciding the summary judgment motion, uses a section heading saying this:
Things Fall Apart
You can see this at page 10 of the summary judgment opinion linked above.
One thing that happened is Worthington ceased work saying her bill had not been paid. At about the same time it seems the Antonelli firm likewise ceased work due to an unpaid bill. A few months after that, in about January of 2002, Protostorm ceased operations and closed its office.
And so things stood until 2006 when Google released its Gmail service. One of the principals of Protostorm, a Peter Faulisi, reached the view that Gmail infringed the Protostorm “patent”. (Protostorm did not actually have any patents, and was instead merely the owner of two expired provisional patent applications and a long-abandoned PCT application in which the 30-month period had long since come and gone with no entries into the national phase.) It seems Faulisi was unable to locate Hogue and could not get the Antonelli firm to return his phone calls.
What eventually happened, as mentioned above, is that a trial took place and a $7M award ordered against the Antonelli firm with other smaller awards against other defendants.
There are a variety of learning opportunities for patent attorneys in this sequence of events.
The importance of making clear who is the client. As of the time of the summary judgment decision, the court decided that there was a genuine question of fact whether the Antonelli firm was retained to pursue only Protostorm’s rights or also Fausili’s rights as an inventor. It seems that substantial litigation resources were later devoted to this question. Had only the Antonelli firm made things clear in a retainer agreement that its only client was Protostorm, this issue would likely have been precluded.
The importance of checking boxes correctly. One of the big problems was that after the one-year period had passed (from the filing of the first provisional patent application), there was nothing pending in the USPTO. One way to fix this would have been to file an ordinary US non-provisional patent application before the end of the one-year period. Another way would have been the simple checking of a single box on a single form, namely the box in the PCT request designating the US.
In 2004 a rules change in the PCT system made it that anyone who files a PCT application is deemed to have designated every country. The only boxes to check were boxes for actively not designating a particular country. Thus a filer that did not check any boxes was deemed to have designated the US. So this particular mistake of failing to designate a country is much harder to make in the years that have passed since 2004.
The importance of making clear what is going on if a pending patent application is to go abandoned. The summary judgment opinion describes that after the PCT application was filed, some procedural defect would have to be corrected. Filing a Power of Attorney, and numbering the pages in Arabic numerals, something like that. It seems that nothing was ever done about this. And then the 30 months came and went with no entry into the national phase in any country. And the problem that (a) the box for designating the US had not gotten checked and (b) no regular US non-provisional application got filed never got addressed.
The opinion recounts the unhappy sequence of events that followed the filing of the PCT application. Finger pointing all around. The Antonelli firm says they did a good job of telling their client (clients?) that the PCT application would go abandoned unless the Power of Attorney got signed (and maybe the bill got paid?). The plaintiffs of course say that when five years passed and Google released Gmail, they were shocked – shocked! – to learn that they did not have a “patent” for use in suing Google.
The importance of termination letters. The lawsuit got filed in 2008, and then rattled around in the courthouse until 2011 (when the above-mentioned summary judgment decision happened) and 2014 (when the above-mentioned damages award happened). The case is not over. There will now be wrangling about prejudgment interest, for example.
Had only a termination letter been sent back when the work stopped, this might have changed the statute of limitations situation. The opinion discusses how the lack of any termination letter left open the possibility that the plaintiffs might have thought the attorney-client relationship was still going on in 2007, despite the various communications in 2001 about the possible abandonment of the PCT application.
The damage award. The damage award came from a jury trial. I wasn’t present at the trial and have not read a transcript of the trial (indeed at this point perhaps the trial proceedings have not yet been transcribed). I imagine the jury was asked to figure out something like whether Gmail really infringes the claims of the patent that supposedly would have been granted (in the US?) and if so, how much money the long-inactive company Protostorm would supposedly have netted after spending lots of money suing Google. So maybe the jury considered what prior art an examiner would have found had the US been designated … and somehow concluded that indeed a patent would have issued … and worked out the wording of the claim or claims that would have been allowed in that issued patent … and worked out that the Gmail product would have infringed those claims … and worked out what the damages would have been … and then worked out how much litigation money would have been required to obtain those damages … and then subtracted one number from the other … and arrived at the seven million dollars.
What a lot of work that jury did!
This is a pretty shocking case, given that the jury not only had to find that absent the malpractice the patent application would have issued, but also that the patent was worth $7M. And all this without the attorneys being paid.
Some good lessons here. Another one: communicate clearly about deadlines, in writing. Repeatedly.