In Wild Opinion, Chief Judge Connolly Refers IP-Edge Affiliated Attorneys for Disciplinary Action

Several attorneys associated with patent monetization firm IP Edge are being referred to their state disciplinary bars, the Texas Supreme Court’s Unauthorized Practice of Law Committee, the U.S. Patent and Trademark Office (USPTO) and the Department of Justice for their conduct in directing several individuals, including a fried chicken restaurant owner and a surgical assistant, to undertake liabilities associated with patent litigation in U.S. district court without disclosing the interests of IP Edge, which stood to gain 90% of the gross recovery from the asserted patents.

This was the upshot of a memorandum opinion issued on November 27 by Chief Judge Colm Connolly of the U.S. District Court for the District of Delaware, who first suspected that several seemingly unrelated patent cases in his court were being directed by third parties more than a year ago. Connolly’s Monday order, and a memorandum opinion issued by the judge last November, detail a seemingly outrageous scheme that he deemed appropriate for referral to disciplinary authorities.

IP Edge Siloed Counsel of Record from LLC Owners While Conducting Lawsuits

Nimitz Technologies, Mellaconic IP and Lamplight Licensing are LLCs that filed patent infringement lawsuits in the U.S. District of Delaware against defendant news publishers and IT companies including BuzzFeed, Bloomberg and ABB. Those patents had been purchased by IP Edge from French sovereign-owned tech fund France Brevets, and then rapidly assigned to LLCs that had been created at the direction of attorneys at IP Edge. During the summer of 2022, a series of failures by the plaintiff LLCs to comply with Connolly’s standing order on third-party litigation funding arrangements led Connolly to realize that each of the asserted patents were linked to IP Edge through assignment documents filed at the USPTO.

Concerned with the accuracy of the plaintiff LLCs’ court filings, Connolly ordered an evidentiary hearing last November. In more than one case, this hearing was ordered before counsel of record in district court had contacted the LLC owners they were representing without involvement from IP Edge’s attorneys. As Connolly’s recent order on disciplinary action notes, “[i]t is readily apparent from the emails and texts produced… that IP Edge strove to maintain a separation between the nominal owners of the plaintiff LLCs and the lawyers who filed cases on behalf of those LLCs.”

An office manager at IP Edge served as the point of communication for several individuals who placed their own signatures on LLC incorporation and patent assignment filings. Those individuals also entered into consulting services agreements with Mavexar, an IP Edge affiliate, by which Mavexar would provide “non-legal services,” including “assisting… in monetizing” patents in return for a percentage of the “gross recovery” and “net proceeds.” While the consulting services agreement presented in court to Connolly did not disclose Mavexar’s percentage share of the net proceeds, testimony in court established that IP Edge gained at least 90% of the plaintiff LLC’s recovery. In exchange for 10% or less of the recovery proceeds, the individuals listed as the LLC owners accepted all the liability of the patent infringement cases in district court.

‘You Don’t Know What ‘Liability’ Means?’

In the case of Mellaconic IP’s owner, who operates a food truck and a “fried chicken joint,” that liability was referenced while testifying on the witness stand. One exchange between that individual and Connolly is as follows:

“Q. Did you take on any liability as a result of assuming ownership of the patents?

A. What do you mean by ‘liability?’

Q. Well, so you don’t know?

A. What’s that?

Q. You don’t know what ‘liability’ means?

A. I mean, I have a general idea, but…”

In a footnote, Connolly added that Mellaconic IP’s owner “trailed off and was silent for a notable, indeed awkward, period… It was clear from the substance of [his] testimony and his facial expressions and body language that he was not familiar with the word ‘liability.’” This is despite the word “liability” appearing throughout documents signed by Mellaconic IP’s owner at Mavexar’s direction.

At another point of the hearing, Mellaconic IP’s owner failed to identify his counsel of record, despite counsel being “in his sight line, about 20 feet away at counsel’s table.”

The owner of Lamplight Licensing did not attend the evidentiary hearing ordered by Connolly. Text messages produced to the court afterward indicated that Lamplight’s owner, who works as a surgical assistant, couldn’t travel because “her boss had three surgeries scheduled for that week.” At the hearing, counsel representing Lamplight told Connolly that he had filed three infringement suits in Lamplight’s name before his first communication with Lamplight’s owner. That attorney was also unable to produce his fee agreement with Lamplight despite a court order to do so.

Unauthorized Practice of Law Carries Criminal Penalties Under Texas Law

The liability assumed by the LLC owners has three forms, Connolly acknowledged. He explained that the LLCs could be liable for paying attorney’s fees to prevailing parties in exceptional cases under 35 U.S.C. § 285. They could also be liable for monetary sanctions ordered by the court under Federal Rule of Civil Procedure 11. Further, provisions of the consulting agreements with Mavexar would reimburse Mavexar for costs or expenses advanced to pursue litigation.

Documents produced to the court showed that IP Edge directors Papool Chaudhari, Duy Tran and Gautham Bodepudi each acted as lawyers for the plaintiff LLCs filing the infringement suits, acting in an undisclosed manner despite their financial interest in the cases. Connolly referred their actions to the Texas Supreme Court’s Unauthorized Practice of Law Committee for the unauthorized practice of law, which carries criminal penalties under Texas law. “The reality is that counsel’s de facto clients were IP Edge and Mavexar,” said Connolly.

Given that IP Edge is the de facto owner of the patents asserted in these cases, Connolly also referred their representations to the USPTO. Connolly also referred the matters to the DOJ to determine whether federal law violations were committed by any real parties in interest, including France Brevets, and noted that counsel of record will also be held accountable for failing to properly inform their LLC clients about legal decisions and treating them as “mere inventory.”

Chief Judge Connolly issued two standing orders on initial disclosures in patent litigation cases in 2022 that have been the subject of much controversy. They require up front disclosures from companies in patent cases assigned to Connolly of 1) “the name of every owner, member, and partner of the party, proceeding up the chain of ownership until the name of every individual and corporation with a direct or indirect interest in the party has been identified”; and 2) the identity of any third-party litigation funders.

Pazuniakis told Bloomberg Law that “plaintiffs’ counsel followed the law, and had not done anything wrong or unethical or unprofessional. Thus, we are not concerned, but are thankful, that the issues are being transferred to neutral bodies for consideration.”

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Author: iqoncept