Sanctions – Company sanctioned for its agent’s misconduct before USPTO

Where a patent representative engaged in misconduct before the Patent and Trademark Office, the agency did not err when it terminated the client’s application as a sanction.

Background

Diamond Art Club, or DAC, challenges the U.S. Patent and Trademark Office, or USPTO, administrative decision to impose sanctions onto plaintiff, including termination of its patent application, due to the misconduct of its patent representative. According to plaintiff, the USPTO’s decision is arbitrary and capricious under the
Administrative Procedure Act, or APA.

Defendants contend that the agency reached a proper decision on the basis of the administrative record and the legal precedent holding that principals are responsible for their agents’ actions. Both parties now seek summary judgment.

Responsibility

Courts routinely impose penalties onto legal parties for the actions or omissions of their attorneys, especially where “a party voluntarily chooses his attorney as his representative in the action.” Similarly, parties in proceedings before the USPTO bear responsibility for the consequences of their attorneys’ acts or omissions.

This case is no different. As the record demonstrates, plaintiff retained W&K and granted it with power of attorney. During its representation of plaintiff in the patent application process, W&K submitted Jie Yang’s false signatures in violation of the duty of candor and good faith and the duty of reasonable inquiry. On this record and the aforementioned legal precedent, the agency did not err in imputing W&K’s actions to plaintiff.

Plaintiff argues that the Supreme Court’s reasoning behind holding the plaintiff responsible for his lawyer’s actions was based, in part, on the “escape hatch” under Federal Rule 60(b). Per plaintiff, in this case, it “did not have the luxury of an ‘escape hatch.’” However, plaintiff’s argument misses the mark. The court’s discussion of Rule 60(b) and the “escape hatch” had nothing to do with whether a principal should be liable for acts of their agent. Instead, it focused on whether Rule 41(b) required the district to provide notice to the plaintiff prior to issuing a dismissal.

Moreover, plaintiff is not without alternate relief for its agent’s misconduct. Where an “attorney’s conduct falls substantially below what is reasonable under the circumstances, the client’s remedy is against the attorney in a suit for malpractice.”

Second, plaintiff argues that “extenuating circumstances” or actions adverse to a principal’s interests relieve a principal from the consequences of the agent’s actions. However, plaintiff’s relied-upon cases concern a markedly different context and facts: whether state prisoners seeking federal habeas relief could point to external factors with respect to their attorneys to show cause for a procedural default in state court.

Nor is the court persuaded by plaintiff’s arguments that it cannot be held responsible because W&K acted adversely to or intentionally deceived DAC. Indeed, W&K’s actions served to advance plaintiff’s patent application, and, therefore, W&K was acting in the applicant’s interests.

Further, plaintiff does not point to any facts in the record suggesting that W&K intentionally misled the patent applicant about the unauthorized signature. Indeed, the record itself is inconsistent as to whether plaintiff had any contact with Jie Yang. Accordingly, the court finds that the USPTO acted in accordance with the law when finding plaintiff responsible for the actions of its representative.

Sanctions

When imposing sanctions, the PTO considers a series of non-exhaustive factors. Here, the PTO determined that “documents containing false signatures [of Jie Yang] were submitted to the USPTO in thousands of applications,” as part of a “deliberate scheme, knowingly executed over a prolonged period of time.” In light of the PTO’s interest in “[p]rotecting the integrity of the U.S. patent system,” the agency concluded that it could not “rely on the truth or accuracy of information submitted” by W&K and accordingly terminated all affected patents.

Plaintiff does not contest these findings. Rather, plaintiff highlights a number of factors the agency did not consider. Further, per plaintiff, the agency’s decision to impose the same sanctions on thousands of other patent documents with Jie Yang’s unauthorized signature evinces the lack of rational connection between the facts and the agency’s outcome.

As to the former, the USPTO is not required to consider every factor; instead it is within its discretion to decide which factors are most relevant. As the court determined earlier, where W&K served as representative to DAC, DAC’s knowledge or intent are not material considerations.

Further, termination of the patent application, along with thousands of others affected by W&K’s misconduct, was reasonable considering W&K’s explicit deception and the need to protect the integrity of the patent system.

Plaintiff’s motion for summary judgment denied. Defendants’ motion for summary judgment granted.

Diamond Art Club LLC v. Stewart, Case No. 1:25-cv-00341, March 25, 2026. EDVA at Alexandria (Giles). VLW 026-3-148. 14 pp.

Full-Text Opinion

VLW 026-3-148
Virginia Lawyers Weekly