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Nisus Corp. v. Perma-Chink Sys., Inc.

Thursday, August 16, 2007

Nos. 06-1592, 07-1142, Federal Circuit (Rader, Bryson, Linn)

[A]bsent a court’s invocation of its authority to punish persons before it for misconduct, actions by the court . . . do not give nonparties the right to appeal either from the ultimate judgment in the case or from the particular court statement or finding that they find objectionable.

by Lawrence M. Sung, Ph.D.

Editor’s Note: The following was largely excerpted from the court’s opinion and is re-printed here with the permission of Lawrence Sung and the law firm of Nixon Peabody LLP.

On August 13, 2007, the Federal Circuit dismissed the appeal of Michael Teschner, a patent attorney involved in the prosecution of the application resulting in U.S. Patent No. 6,426,095, which related to boron compositions for treating trees, that the district court held unenforceable due to inequitable conduct. After the district court entered judgment for Perma-Chink, the parties settled and disclaimed any interest in appealing from the judgment. The Federal Circuit stated:

Ordinarily, nonparties may not appeal from judgments or other actions of a district court. That is true even if the nonparty asserts that the judgment, or some action taken by the court in reaching the judgment, has an adverse effect on him. [C]ritical comments by a court may adversely affect a third party’s reputation. But the fact that a statement made by a court may have incidental effects on the reputations of nonparties does not convert the court’s statement into a decision from which anyone who is criticized by the court may pursue an appeal.

[A] court’s order that criticizes an attorney and that is intended to be "a formal judicial action" in a disciplinary proceeding is an appealable decision, but that other kinds of judicial criticisms of lawyers’ actions are not reviewable. [A] formal reprimand constitutes a final decision in a collateral proceeding, from which the sanctioned attorney may appeal; [however, not] every statement criticizing an attorney or suggesting that the attorney has failed to comply with some legal or ethical norm amounts to a sanction sufficient to constitute a final decision in a collateral proceeding...

In the absence of some type of formal judicial action directed at Mr. Teschner, such as an explicit reprimand or the issuance of some mandatory directive, a court’s criticism of an attorney is simply commentary made in the course of an action to which the attorney is, legally speaking, a stranger. To allow appeals by attorneys, or others concerned about their professional or public reputations, merely because a court criticized them or characterized their conduct in an unfavorable way would invite an appeal by any nonparty who feels aggrieved by some critical statement made by the court in an opinion or from the bench. Treating such critical comments by a court as final decisions in collateral proceedings would not only stretch the concept of collateral proceedings into unrecognizable form, but would potentially result in a multiplicity of appeals from attorneys, witnesses, and others whose conduct may have been relevant to the court’s disposition of the case but who were not parties to the underlying dispute. Nor would it be appropriate to limit such appeals to attorneys, while forbidding others from appealing from critical court comments, as such a limitation would smack of special treatment for members of the bar and would be difficult to justify as a matter of principle. [A]bsent a court’s invocation of its authority to punish persons before it for misconduct, actions by the court such as making adverse findings as to the credibility of a witness or including critical language in a court opinion regarding the conduct of a third party do not give nonparties the right to appeal either from the ultimate judgment in the case or from the particular court statement or finding that they find objectionable.

In the present case, the district court did not exercise its power to sanction Mr. Teschner. The court’s comments about Mr. Teschner were simply subsidiary findings made in support of the court’s ultimate findings and legal conclusion that Nisus’s patent was unenforceable. At no point did the district court purport to affect the legal rights or obligations of Mr. Teschner. Without the exercise of the sanctioning power, a finding of inequitable conduct is insufficient to confer appellate jurisdiction over an appeal by the aggrieved attorney.

[T]he dismissal of a nonparty’s appeal from derogatory comments by a court does not leave the nonparty without a remedy. To the extent that an individual is harmed by the mere existence of a statement in an opinion, that individual "is free to petition for a writ of mandamus, and request that offending commentary be expunged from the public record." Moreover, to the extent that Mr. Teschner is concerned about the collateral effects of the court’s findings in the underlying case, we note that for the very reason that he was a stranger to the proceedings before the district court in this case, he has not had a full and fair opportunity to respond to the court’s characterizations of his conduct. Particularly in this case, in which Mr. Teschner vigorously contests the findings against him, and in which there appears to be some force to his argument on the merits, we would expect that he would be accorded an opportunity to make his case before any sanctions were imposed on him based on the comments made by the district court.

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