PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
INTERNAL MEMORANDUM
FROM: Catherine Bloom, Responsible Partner, intellectual Property Group (USPTO Reg. No. 58,412)
TO: Alan Ngo, Billing Partner, intellectual Property Group (USPTO Reg. No. 61,877); Christy Bauer, Lead Associate (USPTO Reg. No. 74,329); Peter Vassiliev, Working Associate (USPTO Reg. No. 79,514)
DATE: January 5, 2025
RE: Ethical Obligations of Calderwood & Harkness LLP During Dormancy of the Optiwave Semiconductor Corp. Patent Prosecution Docket (C&H Matter No. 1014-00005)
DISTRIBUTION: Internal Only — Do Not Forward to Client or Third Parties
I. Purpose and Summary
The purpose of this memorandum is to analyze Calderwood & Harkness LLP's ("C&H" or the "Firm") continuing professional and regulatory obligations to Optiwave Semiconductor Corp. ("OWS" or the "Client") with respect to monitoring and communicating upcoming patent prosecution deadlines during the current dormancy period. This analysis is undertaken notwithstanding — and indeed because of — the outstanding billing dispute between C&H and OWS, which totals $56,958.50, comprising $34,218.50 in unbilled work-in-progress ("WIP") and $22,740.00 in unpaid invoices under Invoice Nos. 2023-07-04187 and 2023-08-04187.
As the members of this engagement team are aware, the OWS patent prosecution docket has been effectively dormant since Harborview Partners ("Veltrano"), OWS's majority equity sponsor, imposed a company-wide budget freeze under Project Lighthouse, effective August 11, 2023. That freeze capped discretionary intellectual property spending at $25,000 per quarter — a figure far below C&H's pre-freeze average quarterly expenditure of approximately $87,400 on the OWS docket. The budget constraint rendered continued prosecution activity on most pending applications economically unfeasible without express client authorization on a case-by-case basis.
The last billable activity on the matter occurred on September 6, 2023, when Peter Vassiliev filed a two-month extension of time to respond to the outstanding Office Action in U.S. Application No. 17/672,204, at a cost of $640 in USPTO fees. The only intervening activity since that date was the filing of an emergency four-month extension of time for U.S. Application No. 17/814,057 on October 18, 2024, at a cost of $2,560 in USPTO fees, which was authorized under a narrow exception by Sandra Koh, OWS's IP Manager.
This memorandum is prompted by the convergence of several approaching statutory and regulatory deadlines — the earliest and most critical of which is the absolute final deadline of March 9, 2025 for responding to the Office Action in U.S. Application No. 17/672,204 (Sub-Family A, Application A1) — together with the unresolved accounts receivable situation discussed in Alan Ngo's internal memorandum dated November 1, 2024. I have prepared this analysis to ensure that all members of the engagement team understand the Firm's obligations and to establish a clear protocol for the period ahead.
Summary Conclusion: C&H has affirmative, non-delegable duties under both the California Rules of Professional Conduct and the USPTO Rules of Professional Conduct (37 C.F.R. Part 11) to continue notifying OWS of all impending statutory and regulatory deadlines, regardless of payment status. These duties persist in full force during the dormancy period. Any withdrawal from the representation must be preceded by adequate notice of all pending deadlines, and the Firm cannot simply allow deadlines to pass without providing clear and timely warnings to the Client. A billing dispute does not suspend, diminish, or condition the Firm's ethical obligations. The team must implement the notification and escalation protocol set forth in Section VII of this memorandum without delay.
II. Factual Background
A. The Engagement
C&H's engagement by OWS was formalized pursuant to an engagement letter executed on February 10, 2022, which was countersigned by Marcus Whitfield, General Counsel of Optiwave Semiconductor Corp. The matter was opened in the Firm's conflict-checking and billing systems on February 14, 2022, and was assigned C&H Matter No. 1014-00005. The engagement team has remained consistent since inception:
• Responsible Partner: Catherine Bloom (USPTO Reg. No. 58,412)
• Billing Partner: Alan Ngo (USPTO Reg. No. 61,877)
• Lead Associate: Christy Bauer (USPTO Reg. No. 74,329)
• Working Associate: Peter Vassiliev (USPTO Reg. No. 79,514)
The scope of the engagement, as defined in the engagement letter and subsequently expanded, encompasses the patent prosecution of a family of twelve (12) related U.S. and international patent applications covering OWS's next-generation silicon-photonics modulator architecture. The application family is organized into three sub-families:
• Sub-Family A — Core Modulator Architecture (Applications A1 through A5)
• Sub-Family B — Electrode Fabrication Process (Applications B1 through B4)
• Sub-Family C — Packaging & Thermal Management (Applications C1 through C3)
All applications in the portfolio ultimately claim priority, directly or indirectly, to U.S. Provisional Application No. 63/297,841, filed on January 10, 2022, by OWS's prior patent counsel, Kessler & Morin LLP. The transition of prosecution responsibility from Kessler & Morin to C&H was completed during the first quarter of 2022.
The original engagement letter encompassed Sub-Families A and B only. On June 1, 2023, the scope of the engagement was formally expanded, with the written agreement of Marcus Whitfield, to include the Sub-Family C applications (C1, C2, and C3), which cover OWS's proprietary flip-chip packaging methodology and associated thermal management solutions.
The fee arrangement under the engagement letter provides for billing at C&H's standard hourly rates, subject to a ten percent (10%) volume discount in recognition of the anticipated ongoing volume of prosecution work. The applicable rates, after discount, are as follows:
The engagement letter contains standard provisions regarding invoicing (monthly), payment terms (net 30 days), and the Firm's right to withdraw upon non-payment after reasonable notice.
B. The Budget Freeze and Dormancy
On August 11, 2023, Harborview Partners — which holds a 72% equity interest in OWS, having acquired the company in 2019 in a leveraged buyout transaction valued at $310 million enterprise value — imposed a comprehensive budget freeze across all of its portfolio companies under the internal designation "Project Lighthouse." The freeze was a response to a sector-wide revenue downturn affecting the semiconductor industry generally, and silicon-photonics companies in particular. OWS's fiscal year 2023 revenue declined to approximately $47.3 million, down from $68.1 million in fiscal year 2022, representing a year-over-year decline of approximately 30.5%.
Under the Project Lighthouse directives, all discretionary intellectual property spending — including outside patent prosecution counsel fees — was capped at $25,000 per quarter per portfolio company. C&H's pre-freeze average quarterly spend on the OWS docket had been approximately $87,400, meaning the cap fell short of the existing run rate by approximately $62,400 per quarter, or roughly 71%. This effectively precluded any substantive prosecution activity beyond the most minimal and urgent filings.
Sandra Koh, OWS's IP Manager, communicated the budget freeze to C&H by telephone on August 14, 2023, and followed up with a written email on August 16, 2023. Marcus Whitfield confirmed the freeze in a telephone call with Catherine Bloom on August 22, 2023, during which he indicated that Veltrano's intention was for the freeze to remain in place "until market conditions improve," with no definite end date.
In response, C&H took the following steps to formalize the dormancy:
1. On September 12, 2023, C&H instructed Trident intellectual Property Services, LLC ("Trident IPS"), the Firm's docketing and foreign filing coordination vendor, through its account manager Lisa Cheng, to hold all non-critical filings across the OWS docket but to continue deadline monitoring and alerting without interruption.
2. On September 15, 2023, C&H issued a formal dormancy acknowledgment letter to Marcus Whitfield, confirming C&H's understanding of the budget constraints, outlining the applications that would remain on hold, and noting C&H's continuing obligation to monitor deadlines and notify OWS of impending actions. The letter requested that OWS confirm its understanding that the dormancy could result in missed deadlines if C&H was not timely authorized to act.
3. On September 20, 2023, C&H issued hold notices to Nakashima & Togawa (through Kenji Nakashima, partner), the Firm's foreign associate in Japan, regarding the JPO applications B4 (JP 2024-542197) and C3 (JP 2024-542305), instructing N&T to suspend all non-mandatory filings pending further instructions.
4. On November 30, 2023, C&H queried Breitenfeld & Vogt (through Dr. Matthias Vogt, partner), the Firm's foreign associate in Germany handling EPO matters, regarding the status of the Extended European Search Report ("EESR") for EP Application No. 23 741 682.3 (B3) and any approaching deadlines.
The dormancy has persisted for approximately seventeen months as of the date of this memorandum. No indication has been received from OWS or Veltrano that the Project Lighthouse budget cap will be lifted or modified in the near term.
C. Outstanding Accounts Receivable
As of the date the dormancy commenced, C&H carried $34,218.50 in unbilled work-in-progress on the OWS matter, representing time entries from July and August 2023 that had not yet been invoiced due to the internal billing cycle.
In addition, two invoices remain unpaid:
• Invoice No. 2023-07-04187 — dated July 31, 2023 — covering services rendered in July 2023
• Invoice No. 2023-08-04187 — dated August 31, 2023 — covering services rendered in August 2023
These two invoices total $22,740.00. Multiple payment reminders have been sent. Sandra Koh acknowledged receipt of the reminders in a brief email dated February 12, 2024, stating that "payment is being processed through Veltrano's revised AP procedures" but providing no specific timeline. No payment has been received.
The total outstanding balance — combining unbilled WIP and unpaid invoices — is therefore $56,958.50.
Alan Ngo prepared an internal memorandum dated November 1, 2024, addressed to Catherine Bloom and the Firm's General Counsel, analyzing the accounts receivable status and collection strategy options for the OWS matter. That memorandum raised the question of C&H's ethical posture in light of the outstanding balance and the dormancy, and specifically asked whether the Firm's continuing obligation to monitor and communicate deadlines could be curtailed or conditioned on resolution of the billing dispute. This memorandum addresses that question directly.
D. Critical Imminent Deadlines
The ethical analysis that follows is driven by five tiers of upcoming prosecution deadlines, each of which carries significant consequences for OWS's intellectual property portfolio and broader business interests. I summarize each below in order of urgency:
1. March 9, 2025 — Application A1 (U.S. App. No. 17/672,204) — Office Action Response
This is the absolute final deadline for responding to the outstanding non-final Office Action in the foundational U.S. application for OWS's core modulator architecture. Peter Vassiliev purchased a two-month extension of time on September 6, 2023 (at a cost of $640), and all available extensions under 37 C.F.R. § 1.136(a) have been consumed. No further extensions are available. If no response is filed by March 9, 2025, Application A1 will be deemed abandoned, and OWS will permanently lose the ability to obtain patent protection for the tapered impedance-matching design-around claim scope embodied in this application.
The consequences of abandonment are severe and far-reaching. Application A1 contains the broadest claims directed to OWS's proprietary modulator architecture, and these claims were specifically drafted to provide design-around protection against Pinnacle Optics, Inc.'s blocking patents — U.S. Patent Nos. 10,823,417 and 11,105,662. Loss of A1 would leave OWS exposed to Pinnacle Optics' infringement assertions without the defensive portfolio coverage that OWS's licensing and product-development strategy presupposes. Additionally, abandonment of A1 could trigger a default under Section 5.15 of OWS's $55 million Credit Facility with Meridian National Bank, which contains intellectual property maintenance covenants requiring OWS to prosecute and maintain its core patent portfolio. Finally, the Graystone Valuation Advisors report dated April 28, 2023 valued OWS's pending patent application portfolio at $12.2 million, of which A1 represents a substantial portion; abandonment would destroy a significant share of that assessed value.
2. April 21, 2025 — Application B1 (U.S. App. No. 17/814,057) — Restriction Requirement Response
The deadline for responding to the Restriction Requirement issued by the USPTO in Application B1 falls on April 21, 2025. The four-month extension of time was purchased on October 18, 2024, at a cost of $2,560, authorized by Sandra Koh under a narrow exception to the budget freeze. Additional extensions may be available under 37 C.F.R. § 1.136(a), but any further extension would incur escalating fees and compress the overall prosecution timeline. A response to a Restriction Requirement is typically a less burdensome task than a substantive Office Action response, but it requires client input regarding which invention grouping to elect for initial examination.
3. May 17, 2025 — Application B3 (EP 23 741 682.3) — EPO EESR Response
The deadline for responding to the Extended European Search Report in the EPO regional-phase application B3 is May 17, 2025. Under the European Patent Convention ("EPC"), failure to respond to the EESR within the prescribed period results in deemed withdrawal of the application — an outcome that, unlike USPTO abandonment, cannot typically be reversed through petition. The response must be coordinated with C&H's foreign associate, Breitenfeld & Vogt, and will require both C&H supervision and B&V's preparation and filing of amended claims and arguments before the EPO.
4. July 9, 2025 — Applications A4 (PCT/US2023/010584) and A5 (PCT/US2023/010612) — National-Phase Entry Deadline
The 30-month deadline for entering the national phase from the PCT international applications A4 and A5 is July 9, 2025 (calculated from the January 10, 2022 priority date of U.S. Provisional App. No. 63/297,841). This deadline requires OWS to make affirmative jurisdictional decisions — specifically, which countries beyond the European Patent Office and the Japan Patent Office (where national/regional phase entries have already been effected for other family members) OWS wishes to pursue. Potential additional jurisdictions include South Korea (KIPO), China (CNIPA), and others. This is a decision deadline as much as it is a filing deadline, and must be communicated to the Client as such, with sufficient lead time for OWS to evaluate its commercial interests in each jurisdiction.
5. January 9, 2026 — Applications B4 (JP 2024-542197) and C3 (JP 2024-542305) — JPO Examination Request Deadline
Under Japanese patent law, an examination request must be filed within three years of the international filing date. The deadline for B4 and C3 is January 9, 2026. While this deadline is the furthest out of the five tiers, failure to file an examination request by this date will result in the applications being deemed withdrawn at the JPO. Nakashima & Togawa was placed on hold per C&H's September 20, 2023 notice and must be informed of any change in the Client's posture.
C&H has already taken steps to notify the Client of the most pressing deadlines. A letter was sent to Sandra Koh on December 2, 2024, specifically addressing the A1 deadline of March 9, 2025. An escalation letter was sent to Marcus Whitfield on January 8, 2025 (i.e., three days after the date of this memorandum, but prepared concurrently), addressing both the A1 and B1 deadlines and requesting urgent authorization or instructions. As of the date of this memorandum, no substantive response to the December 2 letter has been received.
III. Legal Analysis — California Rules of Professional Conduct
Calderwood & Harkness LLP is organized and headquartered in the State of California, and all members of this engagement team are members of the State Bar of California. The California Rules of Professional Conduct therefore govern C&H's professional obligations to OWS. The following analysis addresses the three rules most directly implicated by the dormancy situation.
A. Rule 1.3 — Diligence
Rule 1.3 of the California Rules of Professional Conduct provides:
"A lawyer shall not intentionally, repeatedly, or with reckless disregard fail to act with reasonable diligence in representing a client."
The attorney-client relationship between C&H and OWS has not been formally terminated. No withdrawal letter has been sent. No substitution of counsel has been executed. C&H remains the attorney of record on all twelve pending patent applications, including the six applications pending before the USPTO and the PCT, EPO, and JPO applications in which C&H is identified as the correspondent or agent of record. So long as C&H remains counsel of record — whether actively prosecuting applications or in a posture of dormancy — the diligence obligation persists in full.
The budget freeze imposed by Veltrano does not suspend the duty of diligence. It merely constrains the scope of affirmative prosecution work that the Client has authorized C&H to perform. The duty of diligence is not coextensive with the scope of authorized billable work; rather, it encompasses all actions reasonably necessary to protect the Client's interests within the scope of the representation, including the monitoring of deadlines and the communication of risks even when no affirmative prosecution work has been directed.
C&H's minimum diligence obligation during the dormancy period includes, at a minimum:
(a) Continued monitoring of all statutory and regulatory deadlines across the twelve-application docket;
(b) Timely notification to the Client of each approaching deadline and the consequences of inaction;
(c) Ensuring that the Client has received and understood the Firm's notifications;
(d) Documenting the Client's instructions (or absence of instructions) in the matter file; and
(e) Taking such other steps as are reasonably necessary to prevent the Client from suffering irreversible harm through inadvertence or lack of information.
Failure to alert OWS of the March 9, 2025 absolute deadline for Application A1, for example, could constitute a reckless disregard of the duty of diligence within the meaning of Rule 1.3, given the irreversible consequences of abandonment. The application cannot be revived by petition once abandoned for failure to respond to a non-final Office Action after all extensions have been exhausted, and the commercial consequences — including exposure to Pinnacle Optics' blocking patents, potential breach of the Meridian Credit Facility covenants, and destruction of portfolio value — are severe and well-documented. A practitioner who was aware of these consequences and failed to warn the Client could not credibly claim to have acted with reasonable diligence.
Critically, the fact that OWS owes C&H $56,958.50 does not diminish this obligation. A lawyer's duty of diligence is not contingent on current payment. The California Rules draw no distinction between paying and non-paying clients with respect to the standard of care owed. While non-payment may give rise to a right of permissive withdrawal (discussed in Section III.C below), it does not authorize the attorney to reduce the quality or timeliness of the representation while the relationship remains in effect.
B. Rule 1.4 — Communication
Rule 1.4 of the California Rules of Professional Conduct provides, in relevant part:
(a) A lawyer shall:
(1) promptly inform the client of any decision or circumstance with respect to which disclosure or the client's informed consent is required by these rules or the State Bar Act;
(2) reasonably consult with the client about the means by which the client's objectives are to be accomplished;
(3) keep the client reasonably informed about significant developments relating to the representation, including actions taken by the lawyer on the client's behalf and actions the lawyer intends to take on the client's behalf; and
(4) promptly comply with the client's reasonable requests for information and copies of significant documents when necessary to keep the client reasonably informed about the representation.
(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.
The approaching deadlines identified in Section II.D are unquestionably "significant developments relating to the representation" within the meaning of Rule 1.4(a)(3). Each missed deadline may result in the irrevocable loss of patent rights — rights that carry direct and quantifiable commercial consequences for OWS. Specifically:
• Loss of design-around protection against Pinnacle Optics: Abandonment of A1 would eliminate the tapered impedance-matching claim scope that provides defensive coverage against Pinnacle Optics' U.S. Patent Nos. 10,823,417 and 11,105,662, fundamentally altering OWS's competitive and litigation posture in the silicon-photonics market.
• Potential default under Meridian National Bank Credit Facility: Section 5.15 of OWS's $55 million Credit Facility with Meridian National Bank imposes affirmative covenants requiring OWS to prosecute and maintain its core patent applications. Abandonment of one or more foundational applications could constitute a breach of these covenants, potentially triggering acceleration of the outstanding indebtedness.
• Destruction of portfolio value: Graystone Valuation Advisors' report dated April 28, 2023 assessed the pending patent application portfolio at $12.2 million. Abandonment of key applications would directly reduce this assessed value, with implications for OWS's balance sheet, Veltrano's investment thesis, and any future financing or exit transactions.
Given these stakes, C&H's obligation under Rule 1.4 is to communicate clearly, specifically, and in writing regarding each approaching deadline. Each communication must include, at a minimum:
(i) The exact date of the deadline;
(ii) Whether extensions of time remain available (and if so, at what cost — noting that for A1, no further extensions are available);
(iii) The specific consequence of missing the deadline (e.g., abandonment, deemed withdrawal, permanent loss of national-phase entry rights);
(iv) The estimated cost to the Client of taking the protective action necessary to preserve its rights (including both C&H's fees and any government filing fees or foreign associate fees); and
(v) A clear and unambiguous request for the Client's authorization to act, or alternatively, the Client's informed decision not to act.
These communications must be directed to the appropriate Client contacts. Under the engagement letter, Sandra Koh (IP Manager) is the designated day-to-day contact for prosecution matters, and Marcus Whitfield (General Counsel) is the senior Client contact with authority to approve expenditures and provide strategic direction. However, where communications to Ms. Koh and Mr. Whitfield go unanswered, the significance of the deadlines may warrant escalation to more senior decision-makers, including Dr. Rajan Menon (CEO) and Daniel Everhart (CFO), and potentially to Christine Paulsen (Operating Partner, Veltrano Capital Partners), to the extent that such communication is authorized or appropriate under the circumstances.
The dormancy does not relieve C&H of the duty to communicate. To the contrary, dormancy heightens the communication obligation because the Client may have lost track of the prosecution timeline during the extended period of inactivity. Where sixteen or seventeen months have passed without substantive prosecution activity, it is entirely foreseeable that the Client's internal personnel may not be actively monitoring patent deadlines, particularly given the organizational disruption that typically accompanies the kind of revenue decline and budget austerity that OWS has experienced. C&H, as the counsel of record with access to the docketing system and deadline calendar, is in the best position — and indeed the only position — to ensure that the Client is aware of what is at stake.
C. Rule 1.16 — Declining or Terminating Representation
Rule 1.16 of the California Rules of Professional Conduct addresses the circumstances under which a lawyer must or may withdraw from representation, and the duties that attach upon termination. The relevant subsections provide:
(a) Except as stated in paragraph (b), a lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if:
(1) the lawyer knows or reasonably should know that the client is bringing an action, conducting a defense, asserting a position in litigation, or taking an appeal, without probable cause and for the purpose of harassing or maliciously injuring any person;
(2) the lawyer knows or reasonably should know that the representation will result in violation of these rules or of the State Bar Act; or
(3) the lawyer's mental or physical condition renders it unreasonably difficult to carry out the representation effectively.
(b) Except as stated in paragraph (c), a lawyer may withdraw from representing a client if:
(1) the client insists upon presenting a claim or defense in litigation that is not warranted under existing law and cannot be supported by good faith argument for an extension, modification, or reversal of existing law;
...
(4) the client by other conduct renders it unreasonably difficult for the lawyer to carry out the representation effectively;
(5) the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer's services, including an obligation to pay fees or expenses as required by an agreement with the lawyer;
...
(d) A lawyer shall not terminate a representation until the lawyer has taken reasonable steps to avoid reasonably foreseeable prejudice to the rights of the client, including giving the client sufficient notice to permit the client to retain other legal counsel, complying with applicable laws and rules, and complying with paragraph (e).
(e) Upon the termination of a representation:
(1) Subject to any applicable protective order, non-disclosure agreement, statute, or regulation, the lawyer promptly shall release to the client, at the request of the client, all client materials and property. "Client materials and property" includes correspondence, pleadings, deposition transcripts, exhibits, physical evidence, expert reports, and other items reasonably necessary to the client's representation, whether the client has paid for them or not.
Analysis of Permissive Withdrawal Grounds:
The $56,958.50 in outstanding accounts receivable — comprising both unbilled WIP and two unpaid invoices that have been outstanding for over sixteen months — may constitute a basis for permissive withdrawal under Rule 1.16(b)(5), which permits withdrawal where "the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer's services, including an obligation to pay fees." The threshold question is whether OWS's failure to pay constitutes a "substantial" failure. Given that the outstanding balance represents approximately 16% of the total fees billed during the engagement and has been outstanding for an extended period without any concrete payment timeline, a reasonable argument can be made that the failure is substantial.
Additionally, Rule 1.16(b)(4) — which permits withdrawal where "the client by other conduct renders it unreasonably difficult for the lawyer to carry out the representation effectively" — could potentially be invoked if OWS (or Veltrano, acting through OWS) directs C&H to allow critical patent applications to lapse without any evaluation of the consequences, or if the Client persistently fails to respond to communications regarding approaching absolute deadlines.
Constraints on Withdrawal:
Even if permissive withdrawal grounds exist, Rule 1.16(d) imposes significant constraints on the manner and timing of any withdrawal. The rule requires that the lawyer "take reasonable steps to avoid reasonably foreseeable prejudice to the rights of the client." In the patent prosecution context, this mandate has specific and demanding implications:
(i) Comprehensive deadline notice: C&H must provide the Client with a complete list of all pending deadlines across the twelve-application docket, including the specific date of each deadline, the jurisdiction, the nature of the required action, and the consequences of inaction.
(ii) Sufficient advance notice: The Client must be given sufficient advance notice before any absolute or near-absolute deadline to allow it to retain successor patent counsel who can take over the prosecution. This is not a trivial undertaking. For Application A1, for example, preparing a substantive response to the outstanding Office Action is estimated to require 40 to 55 attorney-hours and would cost $22,000 to $30,000 even at competitive market rates. Successor counsel would need time to review the prosecution history, understand the claim strategy, evaluate the prior art, and draft the response — a process that realistically requires several weeks at a minimum.
(iii) Orderly file transfer: C&H must cooperate in the transfer of the prosecution files, including all correspondence, prior art references, inventor declarations, prosecution history files, and internal work product that constitutes "client materials and property" under Rule 1.16(e)(1).
For Application A1, with its absolute March 9, 2025 deadline, any withdrawal by C&H in the immediate future would be highly problematic. Withdrawing on the eve of an absolute deadline — even if motivated by the Client's non-payment — would likely be viewed by the State Bar as a violation of Rule 1.16(d), because the withdrawal would foreseeably prejudice the Client's rights by depriving it of the ability to engage replacement counsel in time to prepare and file a response. The State Bar has consistently taken the position that a lawyer's obligation to protect the client's interests upon withdrawal is not diminished by the client's failure to pay.
Practical Recommendation:
If the engagement team concludes that withdrawal from the OWS representation is necessary — a conclusion that may become appropriate if the accounts receivable situation remains unresolved and the Client continues to provide no authorization for prosecution work — withdrawal should not be pursued until after the most critical deadlines have either been addressed or the Client has been given adequate and documented opportunity to engage successor counsel. At a minimum, withdrawal should not be effectuated before the A1 deadline of March 9, 2025 has passed, and ideally not before the B1 deadline of April 21, 2025 has been resolved.
If the accounts receivable remains unresolved beyond that point, the team should plan for a withdrawal effective date no earlier than May 2025, but only after ensuring that all foreseeable deadlines through the withdrawal effective date — and for a reasonable period thereafter — have been communicated to the Client with adequate lead time. The B3 (EPO) deadline of May 17, 2025, and the A4/A5 (national-phase entry) deadline of July 9, 2025, must be addressed in any withdrawal communications. The withdrawal planning process is discussed further in Section VII.D below.
IV. Legal Analysis — USPTO Rules of Practice
In addition to the California Rules of Professional Conduct, all four members of the C&H engagement team are registered patent attorneys before the United States Patent and Trademark Office and are therefore bound by the USPTO Rules of Professional Conduct set forth in 37 C.F.R. Part 11. These rules incorporate standards substantially analogous to the ABA Model Rules of Professional Conduct, and in many cases mirror the California Rules discussed above. However, the USPTO rules carry independent disciplinary authority: violations are adjudicated by the USPTO's Office of Enrollment and Discipline ("OED"), and sanctions can include suspension or exclusion from practice before the USPTO — a consequence separate from and in addition to any State Bar discipline.
A. 37 C.F.R. § 11.103 — Diligence
Section 11.103 of Title 37 of the Code of Federal Regulations provides:
"A practitioner shall act with reasonable diligence and promptness in representing a client before the Office."
This provision is the USPTO analog to California Rule 1.3. It applies to all four registered practitioners on the engagement team: Catherine Bloom (Reg. No. 58,412), Alan Ngo (Reg. No. 61,877), Christy Bauer (Reg. No. 74,329), and Peter Vassiliev (Reg. No. 79,514). The duty of diligence under § 11.103 applies specifically to the pending U.S. applications — A1 (17/672,204), A2, A3, B1 (17/814,057), B2, and C1 — which are the six applications currently before the USPTO in which C&H practitioners are identified as the attorneys of record. The duty also extends to the PCT international applications A4 (PCT/US2023/010584) and A5 (PCT/US2023/010612), which were filed with the USPTO acting as the Receiving Office.
Allowing a client's patent application to go abandoned due to a missed deadline, without having provided prior warning to the client, constitutes a paradigmatic violation of § 11.103. The OED has historically taken a firm position on this point. In multiple published disciplinary decisions, the OED has found that a registered practitioner's failure to notify a client of a pending prosecution deadline — even when the client's fees are in arrears — constitutes a breach of the duty of diligence that warrants disciplinary action. The rationale is straightforward: the registered practitioner, as the attorney of record, is the party to whom the USPTO directs official communications, and the practitioner therefore has unique access to deadline information that the client cannot independently obtain or monitor without specialized systems and expertise.
The duty under § 11.103 is not conditioned on payment. A practitioner who has received no fees from a client for over a year remains bound by the duty of diligence with respect to all pending matters in which the practitioner is the attorney of record. The appropriate remedy for non-payment is withdrawal from the representation — not neglect of the representation.
B. 37 C.F.R. § 11.104 — Communication
Section 11.104 provides:
"(a) A practitioner shall:
(1) promptly inform the client of any decision or circumstance with respect to which the client's informed consent is required;
(2) reasonably consult with the client about the means by which the client's objectives are to be accomplished;
(3) keep the client reasonably informed about the status of the matter; [and]
(4) promptly comply with reasonable requests for information."
The approaching deadlines — especially A1 (March 9, 2025) and B1 (April 21, 2025) — must be communicated to the Client regardless of the dormancy status of the docket. These are not routine administrative matters; they are significant developments that carry the potential for irreversible loss of the Client's intellectual property rights.
C&H has complied with the communication obligation to date through the December 2, 2024 letter to Sandra Koh regarding A1 and the January 8, 2025 escalation letter to Marcus Whitfield regarding A1 and B1. However, compliance with § 11.104 is not satisfied by the mere sending of one or two letters. The duty encompasses not merely dispatching notice but ensuring that the Client has actually been informed and understands the consequences. Where initial communications go unanswered — as appears to be the case here, since no substantive response has been received to the December 2 letter — the obligation to follow up and escalate persists.
In practical terms, this means that if Sandra Koh and Marcus Whitfield do not respond to the Firm's communications within a reasonable period, C&H must escalate its notifications — to more senior members of OWS's management, such as Dr. Rajan Menon (CEO) or Daniel Everhart (CFO), and potentially by alternative means of communication (e.g., telephone calls in addition to written correspondence, or certified mail in addition to email). The goal is to ensure that someone within the Client organization with decision-making authority has actually received and processed the information necessary to make an informed decision.
C. 37 C.F.R. § 11.116 — Declining or Terminating Representation Before the USPTO
Section 11.116 is the USPTO analog to California Rule 1.16 and governs the circumstances under which a registered practitioner may or must withdraw from representing a client before the USPTO. The provision parallels the California rule in most material respects, including the requirement that withdrawal be accomplished in a manner that avoids prejudice to the client's interests.
In the context of patent prosecution, withdrawal from representation in pending USPTO matters requires specific procedural steps. For prosecution matters (as distinct from contested proceedings before the Patent Trial and Appeal Board), the practitioner must file a withdrawal of power of attorney or the client must file a revocation of the existing power of attorney and appointment of successor counsel. Upon withdrawal, the practitioner is obligated to:
(i) Notify the client of all pending deadlines in the affected applications;
(ii) Provide the client with copies of all papers, correspondence, and prosecution history files; and
(iii) Allow adequate time for the client to appoint successor counsel or to proceed pro se.
C&H cannot file a withdrawal of power of attorney in any pending application — whether before the USPTO, EPO, JPO, or any other patent office — without first ensuring that the Client has been fully apprised of all upcoming deadlines and has been given reasonable opportunity to appoint successor counsel or pro se representatives. A withdrawal that leaves the Client without representation in the face of imminent deadlines would violate § 11.116 and could give rise to OED disciplinary proceedings.
The procedural requirements for withdrawal before the USPTO are distinct from — and in addition to — the obligations under the California Rules. Compliance with one set of rules does not excuse non-compliance with the other. Any withdrawal plan must therefore satisfy both frameworks simultaneously.
V. Intersection of Billing Dispute and Ethical Duties
This memorandum would be incomplete without directly addressing the tension that underlies the engagement team's current deliberations: C&H has $56,958.50 in outstanding accounts receivable; the Client's budget constraints prevent authorization of new prosecution work; and continued deadline monitoring and notification requires attorney time and attention that may not be compensated. It is entirely understandable that members of the team may question whether it is reasonable for the Firm to continue investing uncompensated time in a dormant engagement for a non-paying client.
The answer, however, is clear. Both the California Rules of Professional Conduct and the USPTO Rules of Professional Conduct are unequivocal: a billing dispute does not suspend the lawyer's ethical obligations. So long as the attorney-client relationship remains in effect, the duties of diligence and communication apply in full, without regard to the payment status of the engagement. The existence of unpaid invoices may provide grounds for permissive withdrawal — as discussed in Section III.C above — but it does not authorize a reduction in the standard of care during the period in which the representation continues.
Several specific points warrant emphasis:
First, even if C&H were to file for permissive withdrawal under California Rule 1.16(b)(5) based on OWS's failure to pay, the withdrawal itself requires protective actions — comprehensive deadline notification, orderly file transfer, adequate advance notice — that will necessarily consume attorney time. There is no path to exiting this engagement that does not involve some additional uncompensated work. The ethical rules simply do not permit a "clean break" in which the Firm walks away without taking steps to protect the Client.
Second, C&H may not condition its deadline warnings on resolution of the billing dispute. Communicating to the Client, in effect, that "we will tell you about your upcoming deadlines once you pay your outstanding invoices" would constitute an impermissible leveraging of critical information to which the Client is entitled. Deadline information is not the Firm's property; it is information that the Client needs to protect its own intellectual property rights. Withholding it — or making it contingent on payment — could be viewed as an impermissible form of retaining lien that prejudices the Client's interests, in violation of Rule 1.16(d) and (e).
Third, C&H may not demand payment as a prerequisite to providing deadline notifications or cooperating in the Client's efforts to preserve its patent rights. While the Firm has every right to pursue collection through normal commercial channels — including follow-up invoices, demand letters, and ultimately litigation or arbitration if necessary — those collection efforts must be conducted on a separate track from the Firm's ethical obligations. The two should not be intermingled, and the Client should never be left with the impression that its access to critical deadline information depends on its payment of outstanding fees.
The Firm should continue to pursue collection of the $56,958.50 through appropriate commercial channels, consistent with the conclusions and recommendations set forth in Alan Ngo's November 1, 2024 internal memorandum. Those collection efforts should be documented separately from the Firm's deadline notification and prosecution management activities, and should be handled by Firm personnel (potentially including the Firm's billing department or outside collection counsel) who are not directly responsible for the ethical notification obligations discussed in this memorandum.
VI. Specific Obligations for Each Imminent Deadline
The following section sets forth the Firm's specific obligations with respect to each of the five tiers of imminent deadlines identified in Section II.D. For each deadline, I provide an assessment of the urgency, the consequences of inaction, the Firm's communication obligations, and the estimated cost of protective action.
A. U.S. App. No. 17/672,204 (Application A1) — March 9, 2025
Urgency: CRITICAL — ABSOLUTE DEADLINE — NO EXTENSIONS AVAILABLE
This is the single most critical obligation facing the engagement team. The March 9, 2025 deadline is absolute: all extensions of time under 37 C.F.R. § 1.136(a) have been consumed, and no mechanism exists for further extension. If a substantive response to the outstanding non-final Office Action is not filed by that date, Application A1 will be deemed abandoned under 35 U.S.C. § 133.
The consequences of abandonment have been set forth in detail in Section II.D.1 above and are worth reiterating here:
• Loss of the tapered impedance-matching design-around claims that form the centerpiece of OWS's defensive IP strategy against Pinnacle Optics' blocking patents (U.S. Patent Nos. 10,823,417 and 11,105,662);
• Potential breach of Section 5.15 of the Meridian National Bank $55 million Credit Facility, which requires OWS to prosecute and maintain its core patent portfolio;
• Destruction of a substantial portion of the $12.2 million in pending-application portfolio value assessed by Graystone Valuation Advisors in its April 28, 2023 report; and
• Elimination of the foundational U.S. application for Sub-Family A, which could impair the prosecution and enforcement of the remaining Sub-Family A applications (A2, A3, A4, A5).
C&H's Obligations:
C&H must ensure that OWS's decision-makers have been clearly and unequivocally warned of this deadline and its consequences. The December 2, 2024 letter to Sandra Koh and the January 8, 2025 escalation letter to Marcus Whitfield were appropriate first steps, but they may not be sufficient. If no substantive response is received from Ms. Koh or Mr. Whitfield within fourteen (14) calendar days of the January 8 letter (i.e., by January 22, 2025), further escalation is required. Specifically:
• Catherine Bloom should communicate directly with Dr. Rajan Menon (CEO of OWS) and/or Daniel Everhart (CFO of OWS), by both email and certified mail, to ensure that the urgency of the situation is understood at the highest levels of the Client's management.
• If no response is received from OWS management, Catherine Bloom should consider whether it is appropriate and permissible to communicate directly with Christine Paulsen (Operating Partner, Veltrano Capital Partners). Veltrano is not the Client, and C&H does not have a direct attorney-client relationship with Veltrano. However, as OWS's 72% equity sponsor and the entity that imposed the budget freeze, Veltrano has a direct financial interest in the outcome and may be the entity best positioned to authorize expenditure. Any communication with Veltrano should be preceded by a good-faith effort to obtain Marcus Whitfield's consent, or should be undertaken only if the engagement letter or other authorization permits such communication, and should be limited to the factual situation (approaching deadline, consequences, need for client authorization) without disclosing privileged legal analysis.
• All escalation attempts must be documented in the matter file with contemporaneous notes reflecting the date, time, method of communication, and substance of each communication or attempted communication.
If the Client Authorizes the Response:
If OWS ultimately authorizes C&H to prepare and file a response to the Office Action, C&H must be prepared to execute on an expedited timeline. The estimated effort to prepare a substantive response is 40 to 55 attorney-hours, with an estimated cost of $22,000 to $30,000 at the Firm's discounted rates, plus any applicable USPTO fees. Given the compressed timeline (approximately nine weeks from the date of this memorandum), Christy Bauer and Peter Vassiliev should begin preliminary review of the prosecution history and prior art to the extent feasible, so that the team can mobilize quickly upon receipt of client authorization.
If the Client Does Not Authorize the Response:
If OWS affirmatively declines to authorize the response, or if OWS fails to respond to C&H's communications and the deadline passes, C&H must document:
(i) Every communication sent to the Client regarding this deadline, including the date, method, and content of each communication;
(ii) Every response (or non-response) received from the Client;
(iii) The Client's affirmative decision to allow the application to go abandoned, if such a decision is communicated; or alternatively, the Client's failure to provide any instructions despite C&H's repeated and escalating attempts to obtain them; and
(iv) C&H's assessment that the Firm discharged its ethical obligations to notify the Client and provide an opportunity to act.
This documentation is essential for the Firm's protection in the event of a subsequent malpractice claim or disciplinary complaint.
B. U.S. App. No. 17/814,057 (Application B1) — April 21, 2025
Urgency: HIGH — EXTENSION PURCHASED; ADDITIONAL EXTENSIONS POTENTIALLY AVAILABLE BUT NOT GUARANTEED
The four-month extension of time for this Restriction Requirement response was purchased on October 18, 2024, at a cost of $2,560 in USPTO fees, and was authorized by Sandra Koh under a narrow exception to the budget freeze. Additional extensions under 37 C.F.R. § 1.136(a) may be available, but the fees escalate with each additional month, and the total extension period cannot exceed six months from the original deadline. The Client must be warned of the April 21, 2025 deadline in the same communications addressing the A1 deadline.
Responding to a Restriction Requirement is a significantly less burdensome task than a full Office Action response, but it requires the Client's input regarding which invention grouping to elect for initial examination. The estimated effort is 8 to 12 attorney-hours, with an estimated cost of $4,500 to $6,750 at the Firm's discounted rates. No additional USPTO fee is required for the response itself.
C. EP 23 741 682.3 (Application B3) — May 17, 2025
Urgency: HIGH — DEEMED WITHDRAWAL RISK UNDER EPC RULES
The deadline for responding to the Extended European Search Report in Application B3 falls on May 17, 2025. Under the European Patent Convention, failure to respond within the prescribed period results in deemed withdrawal of the application. Unlike U.S. abandonment, deemed withdrawal under the EPC is generally not reversible, and reinstatement options are extremely limited.
C&H's obligation with respect to this deadline extends to coordinating with the Firm's foreign associate, Breitenfeld & Vogt (Dr. Matthias Vogt), who has direct responsibility for filings before the EPO. C&H must either:
(a) Instruct Breitenfeld & Vogt to prepare and file the response upon receipt of Client authorization, in which case C&H must supervise the response and coordinate the substantive strategy; or
(b) Notify the Client that it must itself instruct Breitenfeld & Vogt directly if C&H is no longer authorized to act, and provide the Client with B&V's contact information and a summary of the applicable deadline and requirements.
The estimated cost of a response to the EESR, including C&H's supervisory fees, B&V's foreign associate fees, and EPO official fees, is approximately $15,000 to $22,000. This estimate should be communicated to the Client in the deadline notification.
D. PCT National-Phase Entries (Applications A4 & A5) — July 9, 2025
Urgency: MODERATE — DECISION DEADLINE REQUIRING STRATEGIC INPUT
The 30-month deadline for national-phase entry from PCT Applications A4 (PCT/US2023/010584) and A5 (PCT/US2023/010612) is July 9, 2025. This deadline is distinct from the others in that it requires not merely a filing but a strategic decision by the Client regarding which jurisdictions to enter. National-phase entries have already been effected for certain family members in Europe (EPO) and Japan (JPO), but the Client must determine whether to pursue national-phase entry for A4 and A5 in additional jurisdictions, potentially including South Korea (KIPO), China (CNIPA), and others.
C&H must communicate this deadline to the Client as a decision deadline — not merely a filing deadline — with sufficient lead time for the Client to evaluate its commercial interests in each potential jurisdiction, obtain cost estimates, and make an informed selection. The cost of national-phase entry varies significantly by jurisdiction but typically ranges from $3,000 to $10,000 per jurisdiction (including foreign associate fees, translation costs, and official fees).
E. JPO Examination Requests (Applications B4 & C3) — January 9, 2026
Urgency: LOWER — BUT MUST BE INCLUDED IN COMPREHENSIVE DEADLINE COMMUNICATIONS
The deadline for filing examination requests for JP Applications B4 (JP 2024-542197) and C3 (JP 2024-542305) is January 9, 2026 — approximately twelve months from the date of this memorandum. While this deadline carries the lowest immediate urgency of the five tiers, it must nevertheless be included in the Firm's comprehensive deadline communications to the Client. Failure to file an examination request by the deadline will result in the applications being deemed withdrawn at the JPO, with no possibility of reinstatement.
Nakashima & Togawa, C&H's foreign associate in Japan, remains on hold pursuant to C&H's September 20, 2023 notice. Nakashima & Togawa must be informed of any change in the Client's status or instructions, and must be included in any withdrawal or file-transfer planning if C&H ultimately withdraws from the representation.
VII. Recommended Protocol Going Forward