Moatz, Harry

From: MWesterman@...
Sent: Tuesday, February 10, 2004 1:44 PM
To: ethicsrules comments
Subject: ISC's Comments to 37 C.F.R. Part II, Subparts A, B & C

Dear Mr. Moatz: Attached please find ISC's comments to the Office's proposed rules to be codified at 37 C.F.R. Part II, Subparts A, B and C.

Very truly yours,
Nora H. Miller
Compliance Director
<<WORD Comments to PTO proposed rules Subparts A-C.doc»
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INVENTION CORPORATION
217 NINTH STREET PITTSBURGH, PA 15222-3506
PHONE (412) 288-1300 FAX# (412) 288-1354
February 10, 2004

VIA ELECTRONIC MAIL ADDRESSED TO: ethicsrules. comments@uspto.gov

Mail Stop OED-Ethics Rules
Attn: Harry I. Moatz
U.S. Patent and Trademark Office
P.O. Box 1450
Alexandria, VA 22313-1450

Re: Notice of Proposed Rulemaking
Changes to Representation of Others Before the
United States Patent and Trademark Office
68 Federal Register 69442 (December 12, 2003)

Dear Mr. Moatz:

Invention Submission Corporation ("ISC") wishes to submit the following comments to the changes proposed by the United States Patent and Trademark Office ("PTO") in the above referenced notice. These comments address proposed rules found in Subparts A, B, and C of Part 11. ISC's comments to the proposed rules located in Subpart D will be submitted at the later deadline which the Office has set for comments to those rules.
The Office has stated that its reason for changing its rules concerning representation before the Office is to conform those rules to the American Bar Association's Model Rules of Professional Conduct, thus providing practitioners with "consistent ethical standards." The Office has failed to do so, for the Office has made changes and additions to the Model Rules which frustrate that purpose and impose inconsistent standards. Specifically, the Office has included numerous ad hoc rules which differentiate the ethical standards applicable to those practitioners who have referral relationships with invention promoters. ISC believes that the Office incorrectly presumes that practitioners who have referral relationships with invention promoters are not as capable as other practitioners of understanding and abiding by the Model Rules of Professional Conduct.

The Office justifies these differing standards among practitioners based on its belief that past

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FTC investigations of invention promoters give it "reasonable cause to scrutinize" arrangements between practitioners and promoters. The proposed rules which are specifically addressed to practitioners who accept referrals from invention promoters are based on false generalizations and unfair assumptions about the invention promotion industry. The Office improperly assumes that all invention promoters give legal advice to inventors; that inventors and invention promoters necessarily have conflicting interests; that invention promoters necessarily interfere with the professional judgment of the practitioners to whom they refer inventors by insisting that they suggest and apply for specific types of patents; that all invention promoters fail to safeguard legal fees that inventors deliver to the promoters; and that generally all invention promoters are dishonest in the operation of their businesses.

While ISC acknowledges that there have been problems in the invention promotion industry, these concerns have been addressed by Congress with the Inventors' Rights Act of 1999. There is no reason for the Office to assume that the improper practices of some invention promoters are necessarily the practices of all invention promoters. The proposed rules' different treatment of practitioners who have referral relationships with invention promoters is unwarranted. Ethical rules of general applicability are sufficient to guide the conduct of these practitioners, and invention promoters' conduct is now also subject to federal regulation.

As will also be discussed fully in ISC's comments to Subpart D, the proposed rules evidence an improper attempt by the Office to regulate invention promoters, over whom the Office has no jurisdiction. When Congress enacted the Inventors' Rights Act of 1999, it specifically rejected a proposal that the Office be given the authority to regulate invention promoters. Nonetheless, the Office intends to usurp this power and regulate invention promoters under the guise of setting ethical standards for practitioners. The Office may not do indirectly that which it is prohibited from doing directly.

Although the Office has stated in its notice of proposed rulemaking that the proposed rules do not prohibit practitioners from "associating" with invention promoters nor prevent practitioners from having "an arrangement" with an invention promoter, 68 F.R. 69463, the rules themselves do not bear this out. The promoter-specific rules place such an onerous burden on practitioners who would have such an arrangement that fear of suspension or disbarment will likely cause these practitioners to forego the arrangement altogether.

The ultimate result of the Office's desired demise of referral relationships between invention promoters and practitioners will be increased legal fees for inventors. The Office has acknowledged that the establishment of a referral relationship with a promoter allows practitioners to significantly decrease the legal fees they charge their inventor-clients. The Office has also openly stated its hostility to the reduced fees enabled by referral arrangements, suggesting that these practitioners are not charging enough to offer competent services.

As ISC will discuss at length in its later comments to the proposed Rules of Professional Conduct, the Office's attempt to use its ethical rules to stifle the competition created by referral relationships and thereby increase practitioners' legal fees is in direct conflict with United States policy as established by the various antitrust laws. The Office is also frustrating a significant

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goal of the legal profession: to provide access to legal services to persons of low and moderate income. Attacking referral relationships will force these persons to pay much higher fees for the same services, or the prohibitive costs will deny them access to legal services altogether.

For all of these reasons, ISC will in its later comments to Subpart D suggest that the Office eliminate from its final rules all rules which provide special limitations on referral relationships between practitioners and invention promoters and all references to invention promoters.

ISC's following objections to proposed rules found in Subparts A, B, and C are based on its objections to those in Subpart D. Because the Office has extended the comment deadline to April 14, 2004 only as to proposed rules 11.100 through 11.900 (Subpart D), see 69 F.R. 4270, ISC at this time offers the following objections to several rules found in Subparts A, B, and C to ensure that these comments are timely.

Subpart A - General Provisions
§ 11.1 Definitions

The Office has included several definitions which improperly and unjustifiably single out invention promoters and the practitioners who have relationships with them for special treatment under the Rules of Professional Conduct. Because the rules of general applicability offer sufficient guidance for all practitioners, the special invention promoter rules are both redundant and demeaning to the practitioners who accept promoters' referrals. The Office should provide "consistent ethical standards" for all practitioners, and the promoter-specific rules should be eliminated from the final rules.

The Office has justified its special scrutiny of practitioner-promoter relationships by noting that other attorneys who have arrangements with nonlawyer legal service marketers are subject to this same scrutiny. 68 F.R. 69463. However, the ABA Model Rules do not include any special rules directed at attorney-marketer relationships, nor any definition of "marketers." The ABA apparently assumes that the standard rules are sufficient to guide the conduct of practitioners who represent clients through such arrangements.

The Office should follow the example set by the ABA Model Rules and provide only rules applicable to all practitioners, thus establishing the consistent legal standards that the Office set out to do.

"Invention promoter"

With the elimination of the rules that specifically mention invention promoters, there is no need for the Office to define the term "invention promoter." This definition should be deleted from the final rules.

"Differing interests" and "full disclosure"

The Office has included and defined the terms "differing interests" and "full disclosure" in § 11.1

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for application mainly in §§ 11.106-11.108, which deal with confidentiality of information and conflicts of interest.

The term "differing interests" is used throughout the rules and explanatory comments only when discussing practitioners who have relationships with invention promoters and never in any other context. As ISC will suggest in its later comments, the Office does not have a valid basis for its assumptions, evidenced by the use of the term throughout the Rules of Professional Conduct, that inventors and invention promoters necessarily have differing interests and that invention promoters adversely affect the professional judgment of the practitioners to whom they refer inventors.

The definition of "full disclosure," which incorporates the term "differing interests," is also targeted at invention promoters. The information that a practitioner is required to explain under the definition - the advantages of seeking "independent" legal advice, the disadvantages to the client of the arrangement, and the financial losses that may occur - precisely track the supposed risks that the Office believes exist when invention promoters have referral relationships with practitioners. The definition is not one of general applicability.

The terms "differing interests" and "full disclosure" are not found in the comparable ABA Model Rules. Rather, the Model Rules prohibit disclosure of client confidences and representation involving a conflict of interests unless the client gives "informed consent." See ABA Model Rules 1.6-18. "Informed consent" is defined as "the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct." See ABA Model Rule 1.0.

There is no reason for the Office to depart from the Model Rules in defining and describing the types of disclosures a practitioner should make when conflicts of interest are likely or when client confidences may be shared. Rather than providing novel definitions and requirements, the Office should adopt ABA Model Rules 1.6, 1.7, and 1.8 without modification. As such, the Office should delete the definitions of "differing interests" and "full disclosure" from its final rules, and instead include the definition of "informed consent" provided by ABA Model Rule 1.0.

"Legal service"

ISC also objects to the overly-broad definition of "legal service" provided in § 11.1. As this definition incorporates the definition of "practice before the Office" found in § 11.5, ISC's concerns with the definition of "legal services" are addressed below.

§ 11.2 - Director of the Office of Enrollment and Discipline

Section 11.2(b) grants the Office's OED Director the power to initiate investigations of possible violations of the Rules of Professional Conduct when information or a complaint comes to the Director's attention, and to initiate disciplinary proceedings under § 11.32..

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ISC's objections to the Director's investigation and enforcement powers are discussed below in its comments to Subpart C.

Subpart B - Recognition to Practice Before the USPTO § 11.5(b) - Practice Before the Office

Section 11.5(b) provides an unnecessarily-broad definition of what constitutes "practice before the Office." The term is defined to include all law-related services involved in presenting a matter to the Office, such as communicating with clients concerning matters contemplated to be presented before the Office. This term is incorporated in the definition of "legal service" found in § 11.1, which defines that term as "any service that may lawfully be performed by a practitioner for any person having immediate, prospective, or pending business before the Office."

The breadth of these definitions is astounding. "Any service that may lawfully be performed by a practitioner" includes innumerable services which do not constitute the practice of law. 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 nonlawyers who merely assemble information to provide nonlegal services at a much lower cost than practitioners would charge. However, based on the Office's definitions, only practitioners may provide these services.

It is the breadth of this definition upon which the office relies in its conclusion that practitioners who have referral relationships with invention promoters are in danger of aiding the unauthorized practice of law, which is prohibited by § 505(c) of Subpart D.

The Office has acknowledged that referral relationships produce lower legal fees. The Office has concluded, however, that lower fees are a bad thing, and has therefore proposed measures that would ensure that high fees are protected. By defining "practice before the office" and "legal service" so broadly as to include services that are merely law-related, and then threatening disciplinary action against practitioners who aid others in the unauthorized practice of law ("UPL"), the Office is attempting to prevent practitioners from accepting referrals from invention promoters.

The anticompetitive effect caused by an overbroad definition of the practice of law has been acknowledged by various courts as well as by the Federal Trade Commission, the Department of Justice, and the American Bar Association's Antitrust section.

For example, in Surety Title Insurance Agency, Inc. v. Virginia State Bar, 431 F. Supp. 297 (E.D. Va. 1977) vacated on other grounds, 571 F.2d 205 (4t' Cir. 1978), the plaintiff company wished to sell title insurance directly to consumers and eliminate attorneys from the transaction, thus offering the consumers a greater range of services at a lower cost. The defendant issued

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advisory opinions which indicated that selling title insurance directly to consumers without having an attorney involved in the transaction constituted the unauthorized practice of law. Because of this opinion, almost all attorneys refused to prepare deeds for consumers who purchased title insurance directly from the plaintiff company. The court found it difficult to imagine "a more classic illustration of a group boycott." The court held that the group boycott caused by the ethical opinion had the anticompetitive effect of attempting to create a monopoly, and thus violated antitrust law.

The Federal Trade Commission, Department of Justice, and the ABA Section of Antitrust Law expressed this same view when the American Bar Association proposed a similarly-broad definition of the practice of law. These commentators argued that the definition was so broad as to encompass a number of services which can be competently provided by nonlawyers, such as real estate closing services, estate planning services, and tax preparation services. Defining the provision of these services as UPL would (1) force consumers to hire a lawyer, (2) increase the price of lawyers' services by eliminating lay competition, and (3) deny consumers the right to choose a provider who offers a combination of services that better meets their individual needs. See FTC and DOJ Comments on the ABA Proposed Model Definition of the Practice of Law.

These same concerns are raised by the Office's definitions. By defining "practice before the Office" and "legal services" so broadly as to include any services that a practitioner can lawfully perform, the proposed rules will increase legal fees for inventors by prohibiting nonlawyers from assembling information, which they can do at a lower cost than practitioners, and by eliminating the referral relationships, which produce lower legal fees based on volume.

The Office should modify these definitions to make it clear that "legal services" and "practice before the Office" include not "any service that may lawfully be performed by a practitioner," but rather services that may only be lawfully performed by a practitioner. The Office should not attempt to outlaw the invention promotion industry by defining some of its services as "legal services."

As discussed below, the overbroad definition of "practice before the Office" is also implicated in the Office's improper attempt to regulate invention promoters, over whom it has no jurisdiction.

Subpart C - Investigations and Disciplinary Proceedings §§ 11.19-11.62

The Office, through the proposed rules found in Subpart C, would make practitioners subject to the disciplinary jurisdiction of the Office, would provide that violation of the imperative promoter-specific rules constitutes grounds for discipline, and would allow the Director to enforce these rules through disbarment, suspension, reprimand, or probation.

As summarized above, and as will be more fully detailed in ISC's later comments to Subpart D of Part 11, ISC objects to the Office's promulgation of ethical rules which set special and unique standards for practitioners who accept referrals from invention promoters. Because ISC objects

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to the proposed Rules of Professional Conduct, ISC objects to the proposed rules found in Subpart C to the extent that these sections provide the Office with the authority to enforce these improper rules and prohibit capable practitioners from providing low-cost legal services to inventors by establishing referral relationships with invention promoters.

Investigatory Powers - §§ 11.2,11.22

Of concern are the rules which would give the Office of Enrollment and Discipline ("OED") broad investigatory powers before formal disciplinary proceedings are commenced. Sections 11.2 and 11.22 allow the OED Director to contact any persons whom the OED believes may have information about a practitioner under investigation for possible violation of the Rules of Professional Conduct, including noncomplaining clients of that practitioner, without any prior notice to the practitioner.

As the special rules regulating the conduct of practitioner who accept referrals from invention promoters demonstrate, the Office apparently believes that all invention promoters and practitioners who have arrangements with them are dishonest and there is therefore cause to question the conduct of a practitioner based merely on the acceptance of such a referral. The OED, under section 11.2(b)(4) and 11.22(a) of the proposed rules, has broad authority to initiate investigations of these practitioners even in the absence of a complaint. Section 11.220) then grants the OED the power to contact noncomplaining clients of the practitioner to inform them of the investigation without notice to the practitioner or any probable cause requirement.

The investigatory powers granted to the OED under the proposed rules are thus overbroad and subject to abuse. Without any procedural safeguards, the OED may unreasonably attempt to sour the relationship between a practitioner and noncomplaining clients by initiating an investigation based merely on the OED's knowledge that the practitioner accepted a referral from a promoter and then warning all of the practitioner's clients that he is subject to an ethical investigation. The Office should draft these sections more carefully to protect practitioners from unfounded investigations and unreasonable interference with their relationships with their clients.

Attempt to Regulate Invention Promoters ... "Before the Office"

As will also be discussed more fully in ISC's comments to the rules in Subpart D, it is apparent that the Office is attempting to use its Rules of Professional Conduct to regulate invention promoters. The Office does not have jurisdiction to regulate invention promoters, and its attempt to do so under the guise of regulating the ethical conduct of practitioners is no less an unlawful exercise of power.

The Office has the authority to establish regulations governing the recognition and conduct of practitioners and others "before the Office." See 35 U.S.C. § 2(b)(2)(D). The Office is attempting to extend the scope of that authority by adopting a definition of "before the Office" that is so broad as to include any activity related to invention services performed for an inventor who may contemplate seeking a patent.

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Although the Office purports only to enforce its Rules of Professional Conduct against practitioners, it is clear that the goal of the rules is to regulate the conduct of the invention promoters who refer clients to these practitioners rather than the conduct of practitioners themselves.

If Congress wanted the Office to have the authority to regulate invention promoters, it would have done so by delegating that power to the Office. Instead, Congress rejected that proposal, enacted its own substantive regulations of invention promoters, and granted the Office only the power to publish complaints about invention promoters together with the responses of the invention promoters. Congress' refusal to delegate regulatory authority to the Office and its decision to impose specific requirements with the Inventors' Rights Act demonstrate that the Office's rules which regulate the conduct of invention promoters are outside the scope of the authority delegated to it by Congress. See FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000), in which the Supreme Court found that the FDA did not have the jurisdiction to regulate tobacco products because Congress had considered granting the FDA this authority but rejected the proposals and Congress had itself enacted statutes which regulated the tobacco industry.

Because the Office has disregarded the limits of its authority by proposing these rules, ISC objects to the statement of jurisdiction found in Subpart C of Part 11 to the extent that it suggests that the USPTO Rules of Professional Conduct, as proposed, are a valid exercise of the Office's authority or that the Office has jurisdiction to enforce the ultra vires rules.

ISC appreciates the opportunity to comment on the Office's proposed changes to Subparts A, B, and C of 37 C.F.R. Part 11, and looks forward to submitting its comments to Subpart D.

Very truly yours,

Nora H. Miller
Compliance Director