Tips for Avoiding IP Malpractice Claims

By: Ethan Horwitz, Carlton Fields

Malpractice cases are on the rise—and the amounts in issue are rising significantly as well. A recent survey of legal malpractice cases found that after “several years of stability,” the number of new malpractice claims was on the rise.¹ That survey also showed an “alarming increase in claim severity” with clients “much more willing to point fingers at lawyers.”²

OBVIOUSLY, THE BEST WAY TO AVOID MALPRACTICE CLAIMS is to win the underlying matter and win far in excess of the client’s expectations, yet that is not always doable. But there are many other steps that can be taken to reduce the risk and severity of malpractice claims.

There is significant literature regarding the ethical obligations and best practices that will help win a malpractice suit. But the real object is to avoid litigation altogether. In addition to the legal and ethical requirements, these are some practical steps that can be helpful in avoiding a claim or reducing the value of a claim.

Those steps can be generally categorized into three areas, which are somewhat overlapping:

• Intake—how a client is brought into the firm
• Management—how a client and its matters are managed
• Communication—how a client is kept informed and involved in decisions

Intake

How the attorney-client relationship is established—or not established—can have a significant effect on a later suit. While there is always the desire to land the client or matter, sometimes there are danger signs that warn you that a client should be turned down. Or sometimes the client needs to be told things that may not be helpful in the quest for the work.

Clearing the Client

Is this a client you really want? If there is a history of dissatisfaction with counsel—for example, if you are the third counsel on a case—that is a danger sign. Look into the client and see if there are any other danger signs. You should look into the client’s history of litigation, their history of switching counsel, and their reputation in the industry.

Financial Clearance

The details of the billing arrangement should be spelled out so the client has an understanding of what the bills will be and how they need to be paid. Even if it is too early to prepare a proper budget, it is important that the client understand the general scope of the fees involved; a client who is used to patent application fees needs to be on notice that litigation has a very different budget. Similarly, a foreign client may not be aware that the cost of U.S. litigation is significantly higher than what it may have experienced abroad. Investigation into a client’s ability to pay may avoid a client’s later malpractice suit to avoid paying a large fee it cannot afford. Taking on a client with questionable financial ability without resolving the finances up front is dangerous.

Emotional Conflict Check

Clearing the client also obviously includes a conflict check. But to avoid problems, the conflict check should comprise more than the required conflict under the ethical rules; it should include a check for conflicts that will raise the emotions of a client. For example, in some states, you may be permitted to be ethically adverse to a sister company of a client. Despite the fact that it may not be improper, a client who discovers for the first time after losing a case that a sister company of the other side was a significant client of the firm may be more likely to bring a claim. Also imagine how it will later look to a jury when, in a malpractice case, you are accused of committing the malpractice to benefit the sister company of the opponent, especially if that sister company is a long-term major client of the firm. That is not to say you must decline the new client in those cases, just that you should deal with this issue at the beginning of the representation through full disclosure and through internal policies such as avoiding having any one attorney work for both clients.

Who Is the Client?

In many cases, it is clear who the client is; it needs to be stated, so it is not an issue. However, there are cases in which the matter is funded by others or where investors are relying on the matter or when the founder of the company looks at the company as his company based on his invention even though he has sold the majority of shares to others. Any time there is the possibility of confusion on this issue, it is better that it be specifically stated and explained who is and, just as important, who is not the client.

Scope of the Representation

Determining and specifying the scope of the representation can be critical. A client needs to know what you will—and will not—be doing for them. For example, an attorney undertaking representation of a client in a suit may want to point out that there may be insurance available but also point out that the scope of the representation does or does not include advice on that issue. A client also needs to know the limitations of what is being done. For example, if a search is being done to ensure a machine is free from a claim of infringement, a client should understand what exactly is being cleared—for example, that it is the function of the machine that is being cleared, not the metal of which it is made or the lubricant it uses.

Management

Now that you have the matter, how the matter is managed can also have a profound effect on whether a malpractice case is brought and the severity of the case if brought.

Financial Management

As soon as practical, a budget should be given to the client. Obviously the earlier the budget is given, the more of a chance that there may be unknown factors affecting the ultimate cost. But those factors can be listed and explained. Also, as the case progresses, the work will change, and the budget may need to be updated. In addition, control should be exercised to stay within the budget, and to point out to the client—in advance— when and why the budget will be exceeded. Even if, based on conversations, there is a clear understanding between you and the client regarding the finances of a case, a budget and budget updates will enable you to remind and reinforce the financial aspects of the case so that later confusion or sticker shock is avoided. A client who instructs you to spend whatever is required in a bet-the-company infringement case may forget those instructions when the case is lost and final payment is due.

Stay Current

As a matter progresses, things change. In litigation, a new event may occur that changes the nature of the case. Or, in the course of interviewing an inventor, the invention may in fact be two separate inventions, and the client may want applications for both. With any change, it may be helpful to update the paperwork. For example, a new retainer letter may be helpful for the additional invention to ensure the client understands it is not within the original scope of work or in the original estimate. In other situations, a new case analysis may be helpful, or the old budget may be updated. The issue is not whether in your state you must formally advise the client of the updates; the issue is making sure the client can see exactly what changes are occurring and how they will affect the work and the budget.

Communication

A key to a client’s satisfaction is information, and this can only be given to the client through communications.

Report on Status

It is critical that a client be kept aware of the case status and the decisions that are being made about the progress of the case. While some decisions need not be discussed with a client—the day of a deposition unless the client will attend—there are many important and even critical decisions that a client should at least be aware of and even given the opportunity to participate in. For some, the decision is obvious, but it always helps to discuss the issues with the client so the client is kept up to date. Even lower-level decisions should be discussed with the client so the client is aware of where the case is going and is not surprised. A client who says “just deal with the case and tell me when it is over” can be a dangerous client. A client is far less likely to be litigious if along the way they are made fully aware of the issues and the decisions made.

Decision-Making

It is rare for an IP client not to be able to comprehend even the most intricate issues in an IP matter—if those issues are properly explained. In many cases, alternative ways of proceeding have competing benefits and detriments; many of the benefits and detriments are practical as well as legal. For example, if the patent in an infringement action is pulled into a post-grant procedure and only some of the claims are allowed by the examiner, there are alternatives available. Most common are the alternatives of accepting the examiner’s decision and getting the patent reissued with limited claims, or filing an appeal. If a speedy resolution of the infringement case and an injunction are critical, the client may wish to forgo the appeal with its resulting delay, even if the rejected claims would have a better chance for success in the infringement case. On the other hand, if the case is all about damages, then the time required for an appeal may not be such a critical factor. An informed client making the decision and aware, for example, that it is reducing the chances for success in return for speed is less likely to litigate malpractice when the consequences of that decision are not good.

Disagreements

Most clients in IP matters are intelligent and may have different ideas of how a case should be handled. Look at that as a benefit, not a problem; some of the best ideas come from someone who looks at the issues differently. If there is a disagreement, talk it through; don’t just say trust me, even if you can get away with it. Often you can explain why you are correct—and sometimes the client may even show you why they are correct. For example, in a patent case, a client who knows the technology may have good ideas on how to distinguish prior art. In a trademark case, the client may understand how consumers behave in its industry in a way that helps in a confusion argument. But in any event, if disagreements are aired and resolved, a client will understand why steps were taken and will be vested in the process.

Mistakes

Even the best of attorneys may sometimes make a mistake; hopefully those mistakes are insignificant and curable. But in any event, they should not be hidden from the client. This is the time the client can be shown that you are acting in their best interest even if it does not put you in the best light. This is also the time to get someone else in the firm involved—someone who is not vested in showing why what was done was not really a mistake. Lastly, the atmosphere in the firm should encourage junior attorneys to come forward to the responsible lawyer with any mistakes; they should not be trying to hide their mistakes from the boss. It is much better that the responsible lawyer explain the mistake to the client and try to fix it rather than have an inexperienced attorney handle that process on his or her own.

Conclusion

In this litigious age, there may be no way to avoid malpractice cases even if you do everything right. Many of these steps are not legally or ethically required, but implementing these steps can go a long way to reducing such cases and reducing the severity of any recovery.

Ethan Horwitz is a shareholder at Carlton Fields, where he litigates and advises clients in the full range of intellectual property matters in the United States and internationally. He has been prosecuting and litigating patents and trademarks for more than 40 years and was named by Law 360 as a “Trial Ace.” He is the co-author of the three-volume Horwitz on Patent Litigation and the 13-volume Patent Office Rules and Practice, and the author of the five-volume Horwitz on World Trademark Law, published by LexisNexis.

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1. The survey also found that the severity of legal malpractice claims persisting with most insurers seeing payouts of over $150 million for an individual claim. Ames & Gough LPLI 2019 Claims Survey. 2. Ames & Gough News Release, May 30, 2019.