SAN FRANCISCO — The fee-shifting walls keep closing in on famed Chicago patent litigation firm Niro Haller & Niro.

A Chicago federal judge has ruled that a Niro Haller client’s inequitable conduct before the U.S. Patent and Trademark Office made the company’s subsequent litigation with Dell Inc., Sharp Corp., Palm Inc. and Hewlett-Packard Co. an “exceptional case” worthy of a fee award under Section 285 of the Patent Act.

U.S. District Judge Rebecca Pallmeyer further ordered Niro Haller to produce internal communications with client Intellect Wireless to see if the firm took part in a “pattern of deceit” before the PTO, the courts and its litigation adversaries.

“If trial counsel was indeed made aware of the false declarations [to the PTO], Rule 11 sanctions may also be a possibility,” she wrote in a footnote to her fee award order in Intellect Wireless v. Sharp. She ordered the litigants to begin negotiating the amount of attorney fees to be paid.

Pallmeyer is the second Chicago federal judge in the last month to pierce the attorney-client privilege between Niro Haller, Intellect Wireless and company CEO Daniel Henderson. Dell and its codefendants want to know if Niro Haller was aware that Henderson knowingly filed a false declaration with the PTO to help obtain patents on picture phone and caller ID technology. With the backing of Raymond Niro Sr. and several other attorneys at his firm, Henderson’s company went on to negotiate licenses worth tens of millions of dollars from the likes of Samsung, Research in Motion, Apple and Kyocera.

But Henderson eventually admitted during trial with HTC Corp. that his inventions were never actually reduced to practice, contrary to assertions in his 2007 declaration. That led to a finding of inequitable conduct and the suspension of Henderson’s patent prosecutor, Robert Tendler.

In January, Tendler produced a stunning email showing that Henderson felt rushed into signing what he knew to be a false declaration, and instructing Tendler to contact the Niro Haller for a second opinion. The Niro Haller lawyers who worked on the case say no such conversation with Tendler ever took place, and they had no idea Henderson had doubts about his declaration.

The HTC case was held before a different judge, but Pallmeyer noted Friday that inequitable conduct has been called “the atomic bomb of patent law,” rendering patents unenforceable—and legal fees potentially recoverable—in any pending case where the patents are at issue.

“The bomb appears to have dropped here,” she wrote.

Although inequitable conduct doesn’t automatically trigger an exceptional-case finding, Henderson’s conduct went beyond mere misleading statements. “Plaintiff here made affirmative, false representations to the PTO,” she wrote.

Pallmeyer also noted that the Supreme Court recently extended more discretion to district courts to make exceptional-case findings, but said she would reach the same conclusion under either the new or the old standard.

The electronics companies further asked Pallmeyer to find that Henderson and Niro Haller engaged in litigation misconduct by touting a $5 million license with Motorola to other companies without revealing that they had agreed to refund Motorola’s license once other companies agreed to sign on.

Pallmeyer said she did not need to resolve the litigation misconduct issue, but said defendants’ concerns “appear to be valid,” and that the conduct “suggests a lack of good faith in the settlement negotiations.”

Dell, Palm, HP and Sharp moved to compel discovery from Niro Haller about communications with Henderson last week. Pallmeyer granted that motion Monday. That raises the possibility the companies could return to Pallmeyer later seeking Rule 11 sanctions.

“We are very pleased with the thorough and well-thought-out decision issued by Judge Pallmeyer,” said Sheppard Mullin Richter & Hampton partner Stephen Korniczky, lead attorney for HP and Palm before Pallmeyer, and for HTC before U.S. District Judge William Hart.

Winston & Strawn represented Dell and Bingham McCutchen and DLA Piper represented Sharp.

Chicago attorney Robert Cummins, who has been representing Niro Haller before Judge Hart, did not immediately respond to an email Monday afternoon. Henderson referred a request for comment to Niro Haller.

HTC continues to press its case for attorney fees and sanctions against both Henderson and Niro Haller before Hart.

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