In Reversal, Supreme Court Says State Courts Can Hear Patent Malpractice Claims

In Reversal, Supreme Court Says State Courts Can Hear Patent Malpractice Claims

WASHINGTON, D.C. - (Mealey's) The Supreme Court of Texas erred in finding that an inventor and patent owner's claim of legal malpractice against his former counsel was subject to exclusive federal jurisdiction, the U.S. Supreme Court held Feb. 20 (Jerry W. Gunn, et al. v. Vernon F. Minton, No. 11-1118, U.S. Sup.).

(Decision available. Document #16-130304-004Z.)

According to Chief Justice John G. Roberts Jr., who delivered the decision for a unanimous court, under the inquiry established in Grable & Sons Metal Products Inc. v. Darue Engineering & Mfg. (545 U.S. 308, 314 [2005]) [enhanced version available to subscribers], "it is clear that" respondent Vernon F. Minton's legal malpractice claim "does not arise under federal patent law" as required by 28 U.S. Code Section 1338.

"Indeed, for the reasons we discuss, we are comforta­ble concluding that state legal malpractice claims based on underlying patent matters will rarely, if ever, arise under federal patent law for purposes of §1338(a). Although such cases may necessarily raise disputed questions of patent law, those cases are by their nature unlikely to have the sort of significance for the federal system neces­sary to establish jurisdiction," the court added.

Necessary, Disputed

Minton, an inventor and patent owner, alleged that petitioners Jerry W. Gunn, James E. Wren, William C. Slusser and Michael E. Wilson were negligent in their representation of him in an infringement action against the National Association of Securities Dealers Inc. (NASD) and the NASDAQ Stock Market Inc. The case, filed in 2002 in the U.S. District Court for the Eastern District of Texas, was rejected on summary judgment based on the on-sale bar, a decision the Federal Circuit U.S. Court of Appeals later affirmed.

According to Minton, the defendants failed to plead or brief an experimental use defense, an exception to the on-sale bar that would have allowed Minton's invention to be marketed or sold for testing purposes. The trial court sided with the attorneys, however, and rendered a take-nothing verdict. Minton appealed to the Second District Texas Court of Appeals, but in the interim the Federal Circuit decided Air Measurement Tech., Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P. (504 F.3d 1262 [Fed. Cir. 2007]) [enhanced version] and Immunocept, L.L.C. v. Fulbright & Jaworski, L.L.P. (504 F.3d 1281 [Fed. Cir. 2007]) [enhanced version], both of which counsel that federal courts have exclusive jurisdiction over all legal malpractice suits involving underlying patent matters. Accordingly, Minton moved to dismiss his appeal for lack of jurisdiction. A split appellate panel denied Minton's motion and affirmed the trial court's judgment.

Minton prevailed, however, at the Texas Supreme Court, which in a December 2011 decision found that Minton's claim was in fact subject to exclusive federal jurisdiction. Central to the ruling was a holding that the federal patent issue presented by Minton is a "necessary, disputed, and substantial" aspect of the lawsuit. The attorneys and their law firms filed a petition for writ of certiorari with the Supreme Court, which granted the request in October after holding three conferences on the case. Oral arguments were held in January.

Argument 'Founders'

Reversing, the high court first lamented the confusion surrounding "arising under" jurisdiction historically, for the "slim category" in which arising under jurisdiction has been found for state claims is not a "blank canvas," but instead "looks like one that Jackson Pollock got to first." Grable was decided "in an effort to bring some order to this unruly doctrine," according to the court, which pointed out that a Grable analysis requires courts to answer the question of whether a state law claim raises a stated federal issue, actually disputed and substantial, which a federal forum could entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities. Accordingly, pursuant to Grable, federal jurisdiction exists over a state law claim if the federal issue is necessarily raised, actually disputed, substantial and capable of resolution in federal court without disrupting the federal-state balance approved by Congress. Turning to the instant dispute, the Supreme Court found that it is the third factor where Minton's argument "founders" for "the federal issue in this case is not substantial in the relevant sense."

"In reaching the opposite conclusion, the Supreme Court of Texas focused on the importance of the issue to the plaintiff's case and to the parties before it. As our past cases show, however, it is not enough that the federal issue be signifi­cant to the particular parties in the immediate suit; that will always be true when the state claim 'necessarily raise[s]' a disputed federal issue, as Grable separately requires. The substantiality inquiry under Grable looks instead to the importance of the issue to the federal sys­tem as a whole," the high court said.

Merely Hypothetical

Minton is unable to demonstrate substantiality as was present in Grable, and in cases like Smith v. Kansas City Title & Trust Co. (255 U. S. 180 [1921]) [enhanced version], for "the federal issue carries no such significance." Citing the "backward-looking" nature of a legal malpractice claim, the Supreme Court noted that the questions are posed "in a merely hypothetical sense."

"If Minton's lawyers had raised a timely experi­mental-use argument, would the result in the patent infringement proceeding have been different? No matter how the state courts resolve that hypothetical 'case within a case,' it will not change the real-world result of the prior federal patent litigation. Minton's patent will remain invalid," it held.

Something More Needed

Finally, the court rejected concerns raised at oral argument that allowing state courts to resolve cases like Minton's will undermine the development of a uniform body of patent law and assertions that the greater familiarity of federal courts with patent law necessitates the adjudication of legal malpractice claims there. Although conceding that "it is true that a similar interest was among" those considered in Grable, the Supreme Court nonetheless held that "the possibility that a state court will incorrectly resolve a state claim is not, by itself, enough to trigger the federal courts' exclusive patent jurisdiction, even if the potential error finds its root in a misunderstanding of patent law."

"There is no doubt that resolution of a patent issue in the context of a state legal malpractice action can be vitally important to the particular parties in that case. But something more, demonstrating that the question is signif­icant to the federal system as a whole, is needed. That is missing here," the court added.

Minton is represented by Thomas M. Michel and Robley E. Sicard of Griffith, Jay & Michel in Fort Worth, Texas; Coyt Randal Johnston, Robert L. Tobey and Coyt Randal Johnston Jr. of Johnston Tobey in Dallas; Theodore F. Shiells of Shiells Law Firm in Dallas; Gregory W. Carr of Carr in Frisco, Texas; and Daniel R. Ortiz of Charlottesville, Va. The petitioners are represented by Jane Webre of Scott, Douglass & McConnico in Austin, Texas.

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