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Swyers v. United States Patent and Trademark Office

United States District Court, E.D. Virginia, Alexandria Division

May 7, 2016



          LIAM O'GRADY, District Judge.

         Matthew Swyers filed this action to enjoin the United States Patent and Trademark Office ("PTO") from pursuing disciplinary proceedings against him stemming from the Office of Enrollment and Discipline's ("OED") purportedly unconstitutional investigation into his patent practice. In addition to injunctive relief, Swyers seeks damages from three individual PTO employees pursuant to Bivens. [1] During the pendency of the complaint, the PTO initiated a formal disciplinary proceeding against Swyers that is now pending before an administrative law judge.

         The PTO moves to dismiss the complaint on the ground that the statutory scheme put in place by Congress precludes judicial review of Swyers' claims at this stage or, alternatively, for failure to state a claim. (Dkt. No. 14). The individual defendants have separately moved to dismiss for failure to state a Bivens cause of action or, alternatively, on the basis of qualified immunity. (Dkt. No. 17). The motions are fully briefed, and the Court heard argument on May 6, 2016. For substantially the same reasons identified in the defendants' briefing, the Court will grant the motions and dismiss the complaint.

         I. BACKGROUND

         This section first sets out the relevant statutory and regulatory framework and then turns to the facts as alleged in the complaint.

         A. PTO Disciplinary Investigations and Proceedings

         Congress vested the PTO with "broad authority to govern the conduct of proceedings before it and to govern the recognition and conduct of attorneys." Lacavera v. Dudas, 441 F.3d 1380, 1383 (Fed. Cir. 2006); see also Kroll v. Finnerty, 242 F.3d 1359, 1364 (Fed. Cir. 2001); Halvonik v. Dudas, 398 F.Supp.2d 115, 121 n.12 (D.D.C. 2005) (describing the power as "plenary"). Among other things, 35 U.S.C. § 2 provides that the PTO may establish regulations "govern[ing] the recognition and conduct of agents, attorneys, or other persons representing applicants or other parties before the Office, and may require them, before being recognized as representatives of applicants or other persons, to show that they are of good moral character and reputation and are possessed of the necessary qualifications to render to applicants or other persons valuable service, advice, and assistance in the presentation or prosecution of their applications or other business before the Office." Id. § 2(b)(2)(D). Section 32, titled "Suspension or Exclusion from Practice, " provides that "[t]he Director may, after notice and opportunity for a hearing, suspend or exclude, either generally or in any particular case, from further practice before the [PTO], any person, agent, or attorney shown to be incompetent or disreputable, or guilty of gross misconduct, or who does not comply with the regulations established under section 2(b)(2)(D)." Id. § 32. A grieving practitioner may seek review in this Court.

         Pursuant to this authority, the PTO promulgated rules of professional conduct and subjects attorneys to discipline for failure to comply. See 37 C.F.R. §§ 10.20-112 (Code of Professional Responsibility); id. §§ 11.101-901 (Rules of Professional Conduct). The PTO's disciplinary process proceeds in two phases: the investigation of possible grounds for discipline and the institution of formal disciplinary proceedings. See id. §§ 11.2, 11.19-11.60. Disciplinary investigations are the province of the Office of Enrollment and Discipline and its Director. Id. §§ 11.2(b)(3), 11.22(a). "An investigation may be initiated when the OED Director receives a grievance, information or evidence from any source suggesting possible grounds for discipline." Id. § 11.22(a). When an investigation is initiated, the Director must provide the practitioner written notice. Id. § 11.22(e).

         The OED conducts investigations by issuing requests for information and evidence (a "RFI") to either "(i) [t]he grievant, (ii) [t]he practitioner, or (iii) [a]ny person who may reasonably be expected to provide information and evidence needed in connection with the grievance or investigation." Id. § 11.22(f)(1). The Director may also "request information and evidence... from a non-grieving client" if one of two conditions is met. Either the practitioner consents to the contact or a member of the Committee on Discipline-an independent panel[2]- finds "that good cause exists to believe that the possible ground for discipline alleged has occurred with respect to non-grieving clients." Id. § 11.22(f)(2).

         PTO rules require practitioners to respond to "lawful demand[s] or requests] for information from an admissions or disciplinary authority, " except to the extent that doing so would "require disclosure of information otherwise protected by [privilege]." Id. § 11.801(b). A practitioner who "knowingly fail[s] to respond" may be subject to discipline. Id.

         PTO regulations contain a mechanism by which any "dissatisfied" party may challenge "any action or notice of any employee of the [OED] during or at the conclusion of a disciplinary investigation." Id. § 11.2(e). In full, that section provides:

(e) Petition to USPTO Director in disciplinary matters. A party dissatisfied with any action or notice of any employee of the Office of Enrollment and Discipline during or at the conclusion of a disciplinary investigation shall seek review of the action or notice upon petition to the OED Director. A petition from any action or notice of the staff reporting to the OED Director shall be taken to the OED Director. A party dissatisfied with the OED Director's final decision shall seek review of the final decision upon petition to the USPTO Director to invoke the supervisory authority of the USPTO Director in appropriate circumstances in disciplinary matters. Any petition under this paragraph must contain a statement of the facts involved and the point or points to be reviewed and the action requested. Briefs or memoranda, if any, in support of the petition must accompany the petition. Where facts are to be proven, the proof in the form of affidavits or declarations (and exhibits, if any) must accompany the petition. The OED Director may be directed by the USPTO Director to file a reply to the petition to the USPTO Director, supplying a copy to the petitioner. An oral hearing on petition taken to the USPTO Director will not be granted except when considered necessary by the USPTO Director. The filing of a petition under this paragraph will not stay an investigation, disciplinary proceeding, or other proceedings. Any petition under this part not filed within thirty days of the mailing date of the action or notice from which relief is requested may be dismissed as untimely. Any request for reconsideration of the decision of the OED Director or the USPTO Director may be dismissed as untimely if not filed within thirty days after the date of said decision. Only a decision of the USPTO Director regarding denial of a petition constitutes a final decision for the purpose of judicial review.


         The PTO's regulations governing disciplinary investigations were not always so extensive. In 2004, the lack of procedural safeguards within PTO investigations resulted in a rebuke by the Fourth Circuit. See Goldstein v. Moatz, 364 F.3d 204 (4th Cir. 2004). In Goldstein, a practitioner sued several PTO employees for damages and declaratory relief arising out of "the violation of his constitutional rights to free speech and due process through issuance of the RFIs." Id. at 210. In denying the individual defendants absolute immunity, the court reasoned that "[t]he importance of denying absolute immunity... is underscored by the utter lack of procedural safeguards protecting Goldstein's rights and his clients' secrets." Id. at 217. At that time, the regulations contained no mechanism through which a practitioner could challenge an RFI, absent the PTO formally initiating disciplinary proceedings. Thus, the Fourth Circuit noted that Goldstein "had no option but to answer the RFIs because failure to comply would itself constitute a violation of the disciplinary rules." Id.

         In the wake of Goldstein, the PTO made some changes.[3] The section of the Code addressing investigations now explicitly provides authorization to the OED Director to issue RFIs. See 37 C.F.R. § 11.22(f). Before that, the authorization was contained somewhat ambiguously elsewhere. See Goldstein, 364 F.3d at 217-18. Section 11.2(e) was added, giving all parties the ability to petition for relief from an RFI through administrative channels and ultimately to an Article III court. Thus, a practitioner "can [now] challenge the RFIs as unduly burdensome or as protected by attorney-client privilege or attorney work-product privilege, " as the Goldstein court envisioned. Id. at 218. Finally, as noted above, a practitioner can only be subject to discipline for failing to response to "a lawful demand or request for information" and discipline cannot stem from refusal to disclose information otherwise protected by privilege. 37 C.F.R. § 11.801(b) (emphasis added).

         If the OED Director believes an investigation has uncovered grounds for discipline, he may institute disciplinary proceedings only if the Committee on Discipline makes a finding of probable cause. Id. §§ 11.22(b), 11.32. If probable cause is found, the OED Director may file a complaint. Id. § 11.32. The practitioner, who may be represented by counsel, then has thirty days to file an answer. Id. §§ 11.36, 11.40. From that point, the proceedings bear many of the same hallmarks as traditional litigation. See id. § 11.43 (Motions); § 11.44 (Hearings); § 11.45 (Amendment of Pleadings); § 11.50 (Evidence); § 11.51 (Depositions); § 11.52 (Discovery). An independent hearing officer presides over the proceedings, id. § 11.39, and the OED Director must prove violations by clear and convincing evidence. Id. § 11.49.

         Within nine months, the hearing officer must issue an initial decision with findings of fact, conclusions of law, and if a violation is found, an appropriate sanction. Id. §§ 11.39(d), 11.54(a). A practitioner may appeal an adverse ruling to the PTO Director. Id. § 11.55. The Director may conduct a de novo review and either affirm, reverse, or modify the initial decision, or, alternatively, remand for further proceedings. Id. § 11.56(a). Both the practitioner and the OED Director have an opportunity to move the PTO Director for reconsideration. Id. § 11.56(c). Review of the PTO Director's final decision "may be had... by a petition filed in accordance with 35 U.S.C. 32." Id. § 11.57.

         Section 32 provides that "[t]he United States District Court for the Eastern District of Virginia, under such conditions and upon such proceedings as it by its rules determines, may review the action of the Director upon the petition of the person so refused recognition or so suspended or excluded." 35 U.S.C. § 32. In turn, this Court has promulgated a local rule addressing its jurisdiction over these petitions:

A person refused recognition to practice or suspended or excluded from practice before the United States Patent and Trademark Office ("USPTO") may seek judicial review of such action by filing in the Alexandria Division of this Court a petition against the Under Secretary of Commerce of Intellectual Property and Director of the USPTO ("Director") within 30 days after the date of the order recording the Director's action. Service of the petition shall be effected in accordance with Fed.R.Civ.P. 4(i)(2). Within 60 days after service of the summons and petition on the U.S. Attorney, the Director shall respond to the petition and file a certified copy of the record and proceedings before the USPTO, which shall constitute the sole basis for the Court's review. The Court may, in its discretion, require briefing and argument prior to making a decision on the petition.

         E.D. Va. Local Rule 83.5.

         B. Allegations in the Complaint[4]

         Matthew Swyers is a practicing patent attorney and founder of The Trademark Company, PLLC, "a Virginia law firm whose practice is dedicated exclusively to the representation of clients in the protection of their federal trademark and copyright rights." Compl. ¶ 13. The Trademark Company aims to "provide[] access to thousands of persons who would not normally be able to afford to protect their intellectual[] property under standard law firm pricing structures." Id. ¶ 14. On an annual basis, the firm "handles thousands" of matters. Id . \ 15. From the time of its founding in 2003 to date, The Trademark Company has represented more than 20, 000 clients. Id. ¶ 16. As of 2015, the Company had employed Swyers and fourteen other employees, none of whom were attorneys. Id. ¶49.

         In 2014, the OED initiated an investigation into Swyers' practice before the PTO.[5] Id. ¶18. Over the course of a year, the OED sent Swyers five RFIs, in what Swyers believes was "an unwarranted, oppressive, and unconstitutional investigation... impacting his ability to practice law, robbing him of thousands of hours of professional time in attempts to respond to the OED requests for information, and costing hundreds of thousands of dollars in legal fees." Id. ¶ 36. Because the gravamen of Swyers' complaint is the OED's method of investigation, it is necessary to go into some detail.

         Swyers received the first RFI in August 2014 from defendant Leonardo Villarreal Alejandro, an OED staff attorney. Id. ¶¶ 19, 37; Defs.' Ex. 1. It contained eight inquiries directed at three trademark applications filed by Swyers. Compl. ¶ 37; Defs.' Ex. 1 at 2. The letter also identified six PTO rules "under possible consideration in th[e] investigation, " and further warned that

It is a violation of the USPTO Rules of Professional Conduct to fail to cooperate with OED in an investigation of any matter before it, or to knowingly fail to respond to a request from OED. See 37 C.F.R. § 11.801(b). In addition, if you do not respond to this request for information, the Committee on Discipline may draw an adverse inference in making a determination under 37 C.F.R. § 11.23.

         Compl. ¶19; Defs. Ex. 1 at 3. The letter requested a response within thirty days.

         Swyers provided the requested information in October. Compl. 21, 37. "Almost immediately, the OED's investigation broadened into an inquiry into virtually every trademark matter ever handled by Swyers." Id. ¶ 22. OED staff attorneys began contacting Swyers' clients by letter and telephone regarding their trademark applications.[6] Id. ¶ 23. In December 2014, Mr. Villarreal Alejandro sent a letter to Swyers' clients without his knowledge or consent that requested "assistance in connection with a review of [their] trademark application." Id. The letters asked for a written response regarding whether the client had actually provided marks to The Trademark Company. Id. 25, 27. The letters did not state that the OED was investigating Swyers or that the purpose of the letter was to gather evidence for that investigation. Id. ¶ 24. They also did not advise the clients of their rights with regard to answering the RFI, suggest that they contact a lawyer before answering, or mention attorney-client privilege. Id. 25-26.

         On at least one occasion, OED staff called one of Swyers' clients and inquired about a trademark application. Id. ¶28. Upon information and belief, OED staff "assured the client that they did not need to worry because the caller was not an attorney, and expressly advised the client that they need not speak with Swyers before answering questions, again without advising the client regarding the existence of the attorney-client relationship or about the potential waiver of such privilege." Id.

         Clients began contacting Swyers and informing him of the OED contacts. On December 16, 2014, Swyers, by counsel, "spoke to the individual defendants" and asked that they stop contacting clients and also provide a complete list of clients contacted. Id. ¶ 29. Although defendant Ronald Jaiks said a list would be provided, it never was. Id.

         On December 19, Mr. Villareal Alejandro issued a second RFI. Id. ¶38; Pl.'s Ex. A. The RFI explained that part of the OED's inquiry "concerns... compliance with USPTO electronic signature rules." Pl.'s Ex. A at 14. The RFI identified approximately 500 trademark applications, see id. at 2-14, and requested that for each submission filed in each of the 500 applications Swyers identify whether he personally entered his signature or whether he had another person do so; identify each submission filed electronically for which he did not personally enter the signature; explain for each document that was not personally signed why he did not do so; and identify all other submissions filed electronically with the PTO for which Swyers did not personally enter his signature. Id. at 14-15. Swyers contends that the last request ...

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