When Inventors Become Co-clients: Best Practices for Inventor Communications in Prosecuting Patent Applications
Patent practitioners need to exercise due care when communicating with inventors in the patent drafting process in order to fulfill their professional and ethical obligations to their clients. Inventors provide the technical understanding that is important for explaining the relevant technology and their invention. However, an inventor who is an employee of a company is typically not a patent practitioner’s actual client; the company itself is the client. Being aware of this important distinction is necessary for preserving both confidentiality and applicability of the attorney-client privilege to internal company communications and correspondence with the patent practitioner, as well as mitigating possible risks regarding later disputes between inventors and clients. A recent federal district court case[1] [PS1] illustrates such dangers and the difficult balancing role performed by outside patent counsel.
Inventor Nicole Richards entered into an agreement with Thomas Kallish to develop an environmentally friendly biodegradable diaper product. Both Richards and Kallish were subsequently listed as co-inventors on several patent applications assigned to a company formed by Kallish called Everyone’s Earth. One such patent application was subsequently granted as U.S. Patent No. 10,709,806 (“the 806 Patent”). The 806 Patent claims an improved disposable absorbent article and a disposable diaper that may include materials with several advantageous biodegradable properties, such as being able to degrade with and without the presence of oxygen (e.g., in a landfill). The business relationship between Richards and Kallish deteriorated. Inventor Richards ultimately sued Kallish and Everyone’s Earth seeking to be listed as the sole inventor and owner of the 806 Patent which she had previously assigned to Everyone’s Earth.
During the course of fact discovery in the litigation, a dispute arose over Richards’ request for disclosure of various communications between the company and the patent attorney engaged by Everyone’s Earth to prepare and prosecute the 806 Patent. Richards asserted that she had a right to compelled disclosure of all patent-related attorney-client privileged communications because she had an implied attorney-client relationship with outside patent counsel. According to Richards, under the implied attorney-client relationship, she would be a joint client along with the Everyone’s Earth regarding the 806 Patent. As joint clients, the attorney-client privilege would not shield attorney-client privileged communications from compelled disclosure in the context of litigation between Richards and Everyone’s Earth.
Everyone’s Earth disagreed that Richards was a co-client of its engaged outside patent counsel, and argued that the attorney-client privilege only belonged to Everyone’s Earth as the sole client of the prosecuting patent attorney. The district court agreed.
Applying New York substantive law regarding attorney-client relationships, the court analyzed the following factors to determine whether an attorney-client relationship exists between an attorney and another party: (1) whether a fee arrangement was entered into or a fee paid; (2) whether a written contract or retainer agreement exists indicating that the attorney accepted representation; (3) whether there was an informal relationship in which the attorney performed legal services gratuitously; (4) whether the attorney actually represented the client in one aspect of the matter (e.g., a deposition); (5) whether the attorney excluded the individual from some aspect of the representation to protect another client's interest; and (6) whether the purported client believes that the attorney was representing him and whether this belief was reasonable. Factors (1) and (2) indicate the existence of a formal client relationship, while factors (3) and (4) may be evidence of an implied attorney-client relationship.
Other states, including Texas, also recognize implied attorney-client relationships. In Texas, courts do not use a specific multifactor test similar to the New York test, but determine whether an attorney-client relationship is implied based on an objective standard. This objective standard involves consideration of what the parties said and did to support an agreement to form an attorney-client relationship. However, evidence supporting an attorney-client under the New York test would likely also provide evidence of such a relationship in Texas and many other jurisdictions as well.
Using the New York multifactor test, the district court determined that no attorney-client relationship existed between outside patent counsel for the 806 Patent and Inventor Richards. Regarding factors (1) and (2), Richards had no fee arrangements or retainer agreements with patent counsel or paid any fee directly to outside patent counsel. Indeed, only Everyone’s Earth and Kallish provided evidence of such a fee arrangement with outside patent counsel. As to factors (3) and (4), the court also found no evidence that patent counsel performed any legal services gratuitously or actually represented Richards in the USPTO. More specifically, the court ruled that the submission of confidential information about her inventions to the patent attorneys as well as signing several related patent documents, such as power of attorney documents, did not establish that patent counsel had an informal relationship with Richards. With respect to these patent-related activities, Richards merely acted as the agent of Everyone’s Earth, according to the district court.
As to factor (5), Kallish and Everyone’s Earth excluded Richards from several communications with patent counsel including billing and other business matters. Finally, under factor (6), the court was not persuaded that Richards’ belief that she had an attorney-client relationship with outside patent counsel was reasonable, given the circumstances of her purported business arrangement with Kallish, her assignment of the patents to Everyone’s Earth, and her lack of any separate engagement agreement with patent counsel. Accordingly, the court held that no attorney-client relationship existed between patent counsel and Richards.
[PS2] The Richards v. Kallish decision provides many important lessons for patent agents and patent attorneys. First, providing legal services without first obtaining a signed formal engagement letter may potentially give rise to inventors being determined by courts to be co-clients at a later date, after the relationship between such inventors and their former employers have ended in dispute. (The rules of law practice of some states preclude a lawyer from rendering legal services without first obtaining a signed engagement agreement when the total amount expected to be invoiced for the matter exceeds some typically small amount, e.g., $5,000.) Likewise, patent counsel should be careful regarding what information they disclose to inventors who are merely employees of client companies. For example, providing billing and other fee data to a non-client inventor can support the existence of an implied attorney-client relationship. Additionally, even if an inventor is found to be a non-client and even where all of the communications with outside patent counsel are privileged, the non-client inventor may use any communications she actually received from outside patent counsel in a later dispute with the client, regardless of the privileged status of such communications. Thus, patent practitioners should avoid disclosing any information not essential to preparing and prosecuting the patent application, such as the potential value of the patent to the company for licensing revenue, or any other subject matter not directly concerning the patent application.
It is also important to reiterate that where an inventor and a company employing that inventor become co-clients of outside patent counsel, no communications amongst them may be protected from compelled disclosure to each other by the attorney-client privilege under U.S. law. Should the inventor and the company later become adversaries, outside patent counsel may also have a legal conflict of interest preventing the attorney from representing either party. Accordingly, this case further demonstrates the importance of being careful and diligent regarding what information is disclosed to non-client inventors.
