Do all patent-related malpractice suits belong in federal court?

October 9, 2012

The relationship between the U.S. Supreme Court and the Federal Circuit Court of Appeals reminds me of a parent with a recalcitrant teenager. Faced with, say, confusion over patent eligibility — the legal equivalent of a messy room — the Supreme Court tells the Federal Circuit that it won’t tolerate such slovenliness. The appeals court mutters, “You’re not the boss of me,” and slams its door, leaving those empty yet still greasy pizza boxes exactly where they were.

In a case it agreed to hear on Friday, the high court will once again have the chance to discipline the Federal Circuit, this time on the question of federal-court jurisdiction over state-law legal malpractice claims involving patents. The case, Gunn v. Minton, gives the Supreme Court a chance to decide whether the Federal Circuit — in deciding that federal court is the appropriate forum for legal malpractice suits arising from patent cases — misinterpreted the test for federal jurisdiction that the Supreme Court established in its 2005 decision in Grable & Sons v. Darue Engineering.

The background of Gunn v. Minton is a bit twisty, but here’s a condensed version. Minton is a former broker and inventor who developed software that permits investors to trade over a public telecom system. In 1995, he licensed the software to a Nasdaq brokerage before receiving Nasdaq approval for it — and before patenting his technology. More than a year later, Minton applied for a patent, which he was awarded in 2000. He then filed a $100 million infringement suit against Nasdaq. Minton’s case was tossed under the Patent Act’s “on-sale bar,” which holds that a patent is invalid when the invention it covers was sold more than a year before the inventor filed a patent application. Minton subsequently sued the lawyers who represented him in the Nasdaq case, claiming that they committed malpractice when they failed to raise arguments that the on-sale bar doesn’t invalidate his claim because he sold the software for experimental use.

Minton brought the malpractice case in Texas state court. The trial judge dismissed it, finding no evidence that Minton licensed his software on an experimental basis. Minton appealed to the state appellate court in Fort Worth. While that appeal was under way, the Federal Circuit ruled in two cases — Air Measurement v. Akin Gump and Immunocept v. Fulbright — that when a state-law malpractice case arises from a substantive issue of patent law, federal courts have jurisdiction.

Based on that precedent, Minton asked the state appeals court to dismiss his case for lack of subject matter jurisdiction, which would allow him to refile his claims in federal court. The state appeals court refused and instead affirmed the lower court’s finding that Minton had no case. But when Minton appealed to the Texas Supreme Court, the majority of a divided court held that Minton was right: Under the U.S. Supreme Court’s Grable test, as interpreted by the Federal Circuit in Air Measurement and Immunocept, Minton’s malpractice case belonged in federal court.

“The federal patent issue presented here is necessary, disputed, and substantial within the context of the overlying state legal malpractice lawsuit,” the Texas Supreme Court majority said in a 5-to-3 decision in December 2011. “Additionally, the patent issue may be determined without creating a jurisdictional imbalance between state and federal courts. We conclude that exclusive federal jurisdiction exists in this case.” (After that ruling, Minton refiled his malpractice suit in federal court in Tyler, Texas.)

Minton’s former lawyers, represented by Jane Webre of Scott, Douglass & McConnico, filed a petition for Supreme Court review, arguing that the Federal Circuit had claimed jurisdiction over an improperly large swath of cases with embedded patent issues, without sufficient regard for state interests. “The Federal Circuit’s overbroad determination of federal court jurisdiction has far-reaching consequences for the balance between state and federal courts’ jurisdiction over legal malpractice cases, which are — and have always been — a creature of state law and involve important standards of attorney conduct,” Webre wrote, asserting that the appeals court’s interpretation of embedded federal questions could lead other federal courts to usurp state jurisdiction. She conceded that the Supreme Court has twice refused to address the disparity between its ruling in Grable and the Federal Circuit’s interpretation of that ruling in Air Measurement and Immunocept, but said those refusals only showed that this remains “an important and recurring problem.”

“The Federal Circuit’s construct of ‘arising under jurisdiction’ — which the Texas Supreme Court followed in our case — inappropriately sweeps all manner of state law cases into federal court,” Webre told me in an email comment. “Fundamentally, it upsets the balance between state and federal courts, which is something that the [Supreme Court] has carefully defended in its ‘arising under’ cases.”

Minton’s appellate counsel, Thomas Michel of Griffith, Jay & Michel, countered in his opposition to the petition for certiorari that the Texas Supreme Court had properly weighed the Grable factors when it determined federal-court jurisdiction. He also argued that the cert petition posited a “sky is falling” impact from the Federal Circuit’s jurisdictional holding when no such hysteria is warranted. “[Minton’s former] attorneys have no support for such an argument,” Michel wrote. “There is no empirical data to support their argument that the decisions in Air Measurement and Immunocept have opened the floodgates to allow all sorts of embedded federal question cases into federal courts.”

“The Federal Circuit applied the correct analysis in interpreting Grable,” Michel told me Monday. “The Texas Supreme Court did as well.”

Nevertheless, with its cert grant, the Supreme Court has once again elected to play parent to the Federal Circuit, deciding whether the appeals court is busting curfew.

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