UPDATE: See Sadly, Invention Promotion Alive & Well
The United States Patent and Trademark Office has announced that it is adopting new rules relating to a variety of issues that impact who can engage in representation of clients before the PTO, both on the patent and the trademark side of the Office. These new rules, which will go into effect on September 15, 2008, will end the reign of terror brought to us by unscrupulous invention companies and other invention scams. Three cheers for the Patent Office!
The rule that strikes at the heart of the invention promotion companies is new Rule 11.5(b), which states:
Practice before the Office includes, but is not limited to, law-related service that comprehends any matter connected with the presentation to the Office or any of its officers or employees relating to a client’s rights, privileges, duties, or responsibilities under the laws or regulations administered by the Office for the grant of a patent or registration of a trademark, or for enrollment or disciplinary matters. Such presentations include preparing necessary documents in contemplation of filing the documents with the Office, corresponding and communicating with the Office, and representing a client through documents or at interviews, hearings, and meetings, as well as communicating with and advising a client concerning matters pending or contemplated to be presented before the Office. Nothing in this section proscribes a practitioner from employing or retaining non-practitioner assistants under the supervision of the practitioner to assist the practitioner in matters pending or contemplated to be presented before the Office.
If there is any doubt that this rule will prevent invention promotion companies from operating, the PTO closed all doubt with its published response to a comment on the proposed rules. Comment 9 essentially said that the new Rule 11.5 would make it impossible for invention promoters to help inventors obtain patents. The PTO response was, for all intents and purposes, a resounding GOOD! The text of Comment 9 and the PTO Response is below:
Comment 9: One comment urged that § 11.5 places unnecessary and improper restrictions on practitioners who may work with non-practitioner invention developers who communicate or consult with clients who may want to file documents with the Office. The comment said it is unreasonable and improper for the Office to interfere with the relationship between invention promoters and practitioners by restricting practitioners from working with non-practitioners, including invention promoters who may consult or communicate with clients regarding their inventions, so long as legal advice and the filing of patent applications, attending hearings, etc. remain the responsibility of the practitioner. The comment suggested changes to § 11.5 to eliminate the following ‘‘overly broad’’ language: law-related services ‘‘that comprehend any matter connected with the presentation to the Office,’’ the preparation of necessary documents ‘‘in contemplation of filing the documents’’ with the Office, and ‘‘communicating with * * * a client concerning matters pending or contemplated to be presented before the Office’’ in § 11.5(b); ‘‘consulting with * * * a client in contemplation of filing a patent application or other document with the office’’ in § 11.5(b)(1). The comment urged that a person who may have prospective business before the Office may want to utilize both lay and legal service providers in connection with his invention, including non-practitioners who merely assemble information to provide non-legal services at a much lower cost than practitioners would charge.
Response: The Office disagrees that § 11.5 places unnecessary and improper restrictions on practitioners who may work with non-practitioners who communicate or consult with clients. Nothing in the rule prevents a person having prospective business before the Office from utilizing both lay and legal service providers in connection with that person’s invention. Non-practitioners who assemble information to provide only non-legal services at a cost may continue to provide non-legal services. However, non-practitioners who, for example, provide law-related services ‘‘that comprehend any matter connected with the presentation to the Office’’ or prepare necessary documents, such as patent applications, ‘‘in contemplation of filing the documents’’ with the Office must be employed or retained by the practitioner and under the practitioner’s supervision. The suggestion to change the language of § 11.5 to enable non-practitioners to consult or communicate with clients regarding their inventions, and enable clients to obtain services at lower cost than practitioners can provide has not been adopted. Contrary to the comment, assembly of information is not always a non-legal service; for example, providing a list of patent references found in a search of the prior art is a non-legal service whereas transmitting information to the practitioner to use to describe the invention in a patent application is a legal service. The value of competent legal service and advice, including communications, consultations, and assembly of information for inventors can be significantly more valuable than its cost. Its value may be more significant for unsophisticated inventors who need expert evaluation of the merits or real prospects of legal protection for their invention. The Office ‘‘frequently finds itself challenged by so-called ‘invention promoters’ who exploit unsophisticated inventors, heap every invention with praise regardless of the merits or the real prospects of legal protection, and entice inventors into engagement agreements filled with hollow guarantees of patent protection and promises of royalty-bearing licenses that seldom yield anything of any significant value.’’ Bender v. Dudas, 490 F.3d 1361, 1363 (Fed Cir. 2007). A practitioner working with an unsupervised non-practitioner facilitates such practices. For example, in Bender, the Court found ‘‘[a]t no point did Gilden [a practitioner] consult with the inventors regarding the filing of a design patent application or the embellished drawings.’’ Id. at 1364. At a minimum, it is necessary that the practitioner representing the client not only consult with the client, but also that the consultation ‘‘otherwise advise that inventor on how best to proceed in his or her particular case.’’ Id. at 1365. Non-practitioners are not entitled to provide legal advice or otherwise practice law. To the extent practice of law includes a law-related service that comprehends any matter connected with the presentation to the Office, the preparation of necessary documents in contemplation of filing the documents with the Office, and communicating with * * * a client concerning matters pending or contemplated to be presented before the Office as in § 11.5(b), a practitioner authorized by relevant law must provide the legal services. For example, consultation with a client in contemplation of filing a patent application or other document with the Office as in § 11.5(b)(1) requires a registered practitioner to provide the services. A practitioner may not circumvent the Disciplinary Rules through the actions of another. See 37 CFR 10.23(b)(2). For example, a non-practitioner who is neither employed nor retained by the practitioner, or who is not under the supervision of the practitioner, may not assist the practitioner in matters pending or contemplated to be presented to the Office.
Unlike the claims and continuations rules, it seems completely clear that these rules will go into effect and are indeed well within the authority of the PTO to implement. In short, do not expect these rules to be challenged and do not expect any court to order the PTO to cease implementation. That just is not going to happen.
Many readers of IPWatchdog.com know that while I am one of the more vocal critics of invention promotion companies, I have had a long standing relationship with LegalZoom.com. LegalZoom.com was founded by Robert Shapiro (of OJ Simpson fame) and provides self help for inventors and for those who are seeking to obtain trademarks. Obviously, these new rules impact the way that LegalZoom.com does business. While LegalZoom.com is certainly not an invention promotion company or an invention scam, beginning September 15, 2008, the only way a non-practitioner, including LegalZoom.com, can provide any services relating to patent and trademark applications is through an attorney admitted to practice. While this was probably not the intent of those who drafted the rule, in an effort to once and for all end the $10 billion per year inventor scam perpetrated by invention scam companies, others will be caught up in this rule. I have spoken with LegalZoom.com and I am hopeful that a self-help option can be created that will stand scrutiny under new Rule 11.5(b). I do not believe the Patent Office intended to leave independent inventors in a lurch, so efforts are under way to sort things out in a way that makes sense and is in total and complete compliance with new Rule 11.5(b).
Join the Discussion
8 comments so far.
Robert BonnerMay 1, 2014 08:47 am
Hello I payed Davison Design of Pittsburgh $ 14,000.00 Dollars to Research an Design my Toilet Flusher. I now found out that my Idea already has been Pattent. The Patent date was 1991 and is Identical to mine. I had to call a Lawyer and now waiting. How can a Invention Co. That was sued for 26 million Dollars in 2006 still be in Business. I put Hundreds of Hours and Thousands of more dollars in Promoting my Flusher including Inpex Trade Show where I landed the Interest of a Corporate Co. after 9 months of dealing with this Companies Request of changes in Drawings and Cost of Tooling which Davison did not Provide. I was turned down after I was told there was alot of PRIOR ART WORK And after Confronting Davison I was Told there are alot of Toasters out there Too and does not mean you cant Patent One. What a Joke. I was Told they Had Bemis mnfg. Co. looking at my Product along with a back up Co. and that they would Package and Label my Product as these Co. would for Store shelfs NEVER happened . They made me a Prototype that was thrown together and Broke, I had to Design my own for the Trade Show and there Packaging/Labeling was a 5″x5″ card attached to Junk Proto Type. There are now 72 complaints against this Co. How are they still in Business ? Out of all the Complaints I beleive I am the only one with Duplicated art work and they Copied the Labeling off of another Style Flusher fron Canada. I dont whats going on with The Law firm Reveiwing my Contact (Still waiting) CAn You Help Me….GENE QUINN
JDMarch 3, 2010 05:29 pm
Gene QuinnMarch 3, 2010 04:15 pm
That is right. In most states a non-lawyer could not own a C-corp, LLC or any other entity wholly or as a shareholder if the company employes attorneys to provide legal services to third parties.
The thought process is this… in order to ensure that the client’s best interest is taken into account lawyers must be free to provide legal services without any check, balance or input of a non-lawyer. Essentially this is talked about within the legal community as having the “ethical ball and chain.” Anyone who has the same ethical ball and chain can partner together or be co-owners in a company. Without the same ethical requirements and obligations most states do not allow partnering or ownership of an entity that provides legal services. Basically those that regulate attorneys, namely the Supreme Courts of the various States, want to make sure that a business motive is not driving the representation decisions.
I know this sounds peculiar given that firms and attorneys operate as a business, and at least on some level do concern themselves with business matters and making money. We don’t do this for free after all. Having said that, there are times when an attorney would be forced to represent a client whether or not they are getting paid, and in these contexts you are ethically required to vigorously do everything you can to represent the client. You cannot ethically work less hard because there is no money coming in. If you do you are violating the ethics rules, which may seem minor enough, but as a general rule whenever there is an ethical violation you can expect claims of malpractice. They frequently go hand in hand.
The situation I am describing does happen, and more often then most attorneys would like to admit due to their own lack of business savvy. For example, you cannot leave a client hanging in a lurch and refuse services because they have not paid. As a general rule if you are not getting paid you need to promptly get out of representing the client and not wait until there is a cloud (or deadline) hanging over the client’s head to leverage continued representation to get payment. If you wait to long, it gets too close to a deadline, trial or response date (in the patent context) you have to move forward with representation because the Judge (or the USPTO) will not let you out. Over the last couple years it has gotten easier to get out of cases for patent attorneys and agents, but there are still ethical obligations.
There will be some kind of revolution in the document prep service industry eventually. Many, if not most, in my opinion are clearly engaging in activities that are the practice of law. The authorities, however, are not taking action. As is frequently the case when there is a violation and government inaction plaintiff’s attorneys are first to the table, hence LegalZoom getting sued in a class action. Look for more of this to happen and eventually the authorities to take notice. Also look for major liability to be placed at the feet of these companies, particularly in the patent field where an invention can be worth millions or billions. Errors create enormous liability and many patent attorneys and patent firms have gone out of business as a result of mistakes. I can’t believe it will be long for these types of errors to wind up surfacing.
I also think that moving forward the States will need to recognize the changing legal field and that those who offer certain services can and should be able to work cooperatively with attorneys. The safest model is to provide streamline tools and service to attorneys who outsource some clerical or administrative responsibilities.
I hope this helps.
Thanks for reading.
JDMarch 3, 2010 04:09 pm
Ok, I just found this:
“A lawyer man not practice in a legal corporation if a nonlawyer has an interest in the corporation as a shareholder, officer, or director. However, a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration. Also, a lawyer may not participate in such a practice if her professional judgment is subject to the direction or control of a nonlawyer.”
-Rules of Professional Conduct, 5.4(d)
I see. But it seems to be an “internal” control imposed by the BAR on the practicing lawyer, rather than a government applied law on the business owner. That clears up my confusion. I couldn’t fathom how the government could legally restrict a corporation in that fashion.
JDMarch 3, 2010 03:59 pm
Understood. Thanks for the reply.
Just to clarify though, you are implying that a non-lawyer can’t own a C-corporation that employs attorneys to provide legal services to third parties?
I say implying because you were writing in the context of partnerships.
In such a case, the attorneys would get a salary, and not be partners. The profits would be owned by the corporate entity. The CEO/owner(s)/non-practioners would be paid a salary from the profits that would be calculated from all activities of the corporation.
Its strange that a corporation can employ doctors and engineers, for example, but not lawyers to provide services to the public. I understand, but its strange to me nonetheless. Perhaps it has to do with agency law conflicting with the nature of a corporation. However, many lawyers are incorporated, and thereby they create a separate corporate entity anyway and, therefore, the same would be conflict.
I wonder how such document preparation services still function. A very successful one, by all accounts, is tmexpress.com. (I am in no way affiliated, I promise) They only refer out to attorneys if and when there is a research similarity for their clients mark, but only then. Otherwise, their website seems to imply that there is no attorney supervising the searches or preparing documents.
Anyway, I’ll keep up with your website from here on out. Keep up the good work.
And again, thanks for the reply.
Gene QuinnMarch 3, 2010 03:27 pm
There are indeed rules that say a non-practitioner cannot own a law firm. There are ethical rules and laws in every state that require only those admitted to practice as attorneys before the State Supreme Court can engage in the practice of law and offer legal advice. There are also rules in almost every state that prohibit lawyers from splitting fees with non-lawyers. What this means is that a lawyer cannot partner with a non-lawyer and split fees. So it would be impossible for a non-lawyer to be a partner or owner in a business (i.e., firm) engaged in the practice of law or offering legal advice. This is true because any profits left over from a law firm would be as the result of attorneys fees. Such profits could only be split with those who are also attorneys.
In some states I believe there has been some movement on this rule, at least with respect to allied professions, such as CPAs who can work with and even partner with attorneys. This is, however, the extreme minority view.
To answer your questions, the trouble is the ownership and the right to profits or a share of profits derived from legal work. You can be employed by a firm to do marketing and business administration, and as a part of your compensation you can have benefits, including retirement benefits, but you cannot be an owner or shareholder.
For better or for worse, tried and true business principles cannot be applied to the practice of law.
JDMarch 3, 2010 01:54 pm
Good article. But I’m a bit confused.
Private management and ownership of business, of any type, is legal. That is, if I am an MBA (or not), I can open a medical clinic and hire doctors. I can open a dentists office and hire DDS employees. This is done every day. Theoretically, I can own a law firm and hire attorneys.
I don’t have to be a practitioner for any of this, but just own the means of production and the business license. When it comes down to it, marketing expertise, a space to do business and capital/cash flow are the only means of production needed for almost any business. Owner expertise / practioner status in the business, while it would help to keep your employees happy and your business successful, technically wouldn’t be necessary for ownership or success. Non-practioner ownership is a fundamental cornerstone of the capitalist business model.
Is this rule saying that this non-practioner owned business model is prohibited when it comes to IP legal services? I can’t own a business with paralegal and attorney employees/contractors to process trademarks/patents?
What if I am a paralegal/owner that contracts/hires attorneys to provide supervision?
What if I am completely hands off, except for the marketing and business administration?
It seems as if there are some basic conflicts, lack of depth, or unclear intent within this rule.
robertplattbellDecember 1, 2008 10:29 pm
Great Article. Having testified against an Attorney who worked with an invention broker, I understand the meaning of the new Rule.
The problem with the invention broker relationship (in general) is that the invention broker acts as a middle-man between the Attorney and the Client, and as a result, the client is not choosing their own attorney or getting unfiltered advice from the attorney (not that it makes much difference, the attorney generally says whatever the invention broker tells them to say or writes for them in many cases).
Kudos to your for disclosing your relationship to LegalZOOM. I have mixed feelings about legalZOOM. On the one hand, I admire their “empower the people” approach to the law – by attempting (at least) to demystify the legal process and allow individuals access to their own legal system.
That being said, applying for a Patent is not as simple as applying for a name change or an uncontested divorce. Drafting claims is a nightmarish process to the uninitiated, and I see no easy way to make this something that the lay person could tackle.
I’ve had some legalZOOM cases cross my desk – from desperate clients who used the legalZOOM “forms” and now were being rejected and wanted me to “fix” their home-made applications.
I’ve found that taking such “parachute” cases is a nightmare, so I routinely turn them down. In most cases, the home-made Patent applicant can’t be saved, anyway.
I guess perhaps that is one good legalZOOM might be doing. Joe PRO SE has an invention that probably isn’t patentable anyway. He files using legalZOOM, messes it all up, gets rejected and ends up abandoning the case. A lot cheaper than the $20,000 an invention broker would charge.
But perhaps LegalZOOM should stay out of the patent business and concentrate on legal issues that really ARE just a matter of filling out forms.
One other thing – these invention brokers are SURVIVORS, so don’t count them as out of business just yet. One company had over 3,000 design patents pending when it was shut down – charging $10,000 apiece to the clients for their “services”. Do the math – that’s $30 MILLION a year. You and I are in the wrong business!
The larger companies easily take in $100 MILLION a year or more. Do you think they are going to walk away because of some silly RULE? They will ride some worn-out Patent Attorney like a cheap pony, and when he gets caught by OED, they’ll dump him and find some other fool to file their papers for them.
Or, like one firm I ran into, they will just do the bogus “reports” (want your Census SIC code? That’s $500!) and “marketing” and then refer the patent side to some patsy attorney who goes along with the deal.
They will survive, you can count on that.
Again, good article.