Wednesday, 20 February 2013

US Supreme Court Rules That Patent Malpractice Claims “Rarely, If Ever” Meet Requirements For Federal Court Jurisdiction

Under U.S. law, federal courts have limited jurisdiction. Fortunately, one area of exclusive federal court jurisdiction is lawsuits that “arise under” a federal patent statute. 28 U.S.C. § 1338. Exactly when a plaintiff’s claim arises under the Patent Act is sometimes difficult to determine. Recently, several district courts have ruled that state law malpractice claims against lawyers based on their negligent handing of a patent prosecution file or patent litigation “arise under” federal patent law because an element of the plaintiff’s claim turns on a substantive issue of patent law. Namely: If the negligence has not occurred, would the matter have resulted in a favorable outcome?

That was the situation in Gunn v. Minton, Case. No. 11-1118, decided today by the U.S. Supreme Court. Minton was an inventor who sued the NASD and NASDQ for patent infringement. The district court granted summary judgment that Minton’s prototype violated the on-sale bar in 35 U.S.C. § 102(b), and thus the patent was invalid. Minton’s attorney failed to argue that the prototype was protected by the experimental use exception, and when he attempted to raise it after the fact the court ruled that the point had been waived. After he exhausted his appeals, Minton sued his attorney for malpractice in a Texas state court. Ultimately, the Texas Supreme Court ruled that the action must be filed in federal court, “because the success of Minton’s malpractice claim is reliant upon the viability of the experimental use exception as a defense to the on-sale bar.” Minton v. Gunn, 355 S.W.3d 634, 641–642 (Tex. 2011).

In a 9-0 ruling written by Chief Justice Roberts, the U.S. Supreme Court reversed, and ruled that the malpractice claim must be heard in a state court. The court noted that: 
[F]ederal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress. Where all four of these requirements are met, . . . jurisdiction is proper because there is a "serious federal interest in claiming the advantages thought to be inherent in a federal forum," which can be vindicated without disrupting Congress’s intended division of labor between state and federal courts. [Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U.S. 308, 313-14 (2005).]
Slip op. at 6. The Court concluded that Minton's malpractice claim failed to satisfy the third and fourth factors identified in Grable. First, the patent issue was not "substantial:" 
Here, the federal issue carries no such significance. Because of the backward-looking nature of a legal malpractice claim, the question is 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.
Slip op. at 10. In addition, requiring federal courts to adjudicate malpractice claims would disrupt the state-federal balance: 
The States, on the other hand, have “a special responsibility for maintaining standards among members of the licensed professions.” Their “interest . . . in regulating lawyers is especially great since lawyers are essential to the primary governmental function of administering justice, and have historically been officers of the courts.” We have no reason to suppose that Congress—in establishing exclusive federal jurisdiction over patent cases—meant to bar from state courts state legal malpractice claims simply because they require resolution of a hypothetical patent issue.
 Slip op. at 12 (citations omitted). Thus, the claim did not fall within the federal court’s jurisdiction. Although the decision addresses legal malpractice claims, the application of the Grable factors could affect federal jurisdiction over other claims that implicate patent law. For example, courts have extended federal jurisdiction under § 1338 to suits involving license disputes, commercial defamation claims, and the like. Jurisdiction may well not exist under under the Gunn analysis.  The full opinion is available HERE.

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