Gunn v. Minton (2013)

by McDonnell Boehnen Hulbert & Berghoff LLP
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Supreme Court Building #3A patent issue exerted its Circe-like effect on the Supreme Court again today in Gunn v. Minton, a decision overruling the Texas Supreme Court on the question of whether the existence of a patent issue in a legal malpractice action implicated Federal District Court jurisdiction under 28 U.S.C. § 1338(a) (also known as "arising under" jurisdiction).  And even when the Court is not reviewing Federal Circuit decisions directly, this case shows that it can take the occasion to overturn one or two of the appellate court's decisions along the way.

The matter below involved purported malpractice in the handling of a patent infringement lawsuit on behalf of Mr. Minton by lawyers Gunn et al.  The patent in suit was found invalid due to an "on-sale" bar under 35 U.S.C. § 102(b) that arose from a lease of the claimed invention ("a computer program and telecommunications network designed to facilitate securities trading") to a securities brokerage more than one year before the patent's earliest priority date.  In a motion for reconsideration of the District Court's invalidity determination, Mr. Minton raised ("for the first time," according to the Supreme Court's opinion) the assertion that the lease to the brokerage was part of on going testing of the invention and thus fell within the "experimental use" exception to public use and on-sale bars under § 102(b).  The District Court ruled that this attempt to avoid the on-sale bar had been waived by Mr. Minton; the Federal Circuit affirmed.

Mr. Minton responded to these reverses by suing his lawyers in Texas state court for malpractice, alleging that the experimental use exception should have been raised during the original trial and that his patent would not have been invalidated if the lawyers had done so.  His lawyers successfully defended this claim by contending the lease was not part of continuing testing of the invention, and thus that the experimental use exception did not apply.  On appeal, Mr. Minton argued that the Texas state court did not have jurisdiction because his claim "arose under" the Federal patent laws and that Federal district court thus had exclusive jurisdiction.  The Texas appellate court agreed and affirmed the trial court judgment in the lawyers' favor, but the Texas Supreme Court reversed.  The basis for the Texas Supreme Court's decision rested on two Federal Circuit decisions, Air Measurement Technologies, Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P., 504 F. 3d 1262 (2007), and Immunocept, LLC v. Fulbright & Jaworski, LLP, 504 F. 3d 1281 (2007), because "[a]djudication of Minton's claim in federal court was consistent with the appropriate balance between federal and state judicial responsibilities," and because "the federal government and patent litigants have an interest in the uniform application of patent law by courts well-versed in that subject matter."

The Supreme Court reversed, in a unanimous opinion written by Chief Justice Roberts.  The Chief Justice distinguished two ways in which a lawsuit can "arise under" Federal law:  either the cause of action is created by a Federal statute, citing American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260 (1916); or because the cause of action belongs to a "special and small category" of cases, the contours of which are not only "not a blank canvas" for the Court to use but one that "looks like [] Jackson Pollock got to [it] first."  However, the Chief was able to identify recent jurisprudence from the Court that attempted to bring order to these circumstances, Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U.S. 308, 314 (2005).  The Grable case set forth a four factor test for deciding that Federal jurisdiction was proper in cases where the cause of action arose under state law.  These are 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, and all four prongs must be satisfied.

In this case, the Court recognized that the first two prongs of the Grable test were satisfied.  Resolution of the federal patent question (specifically, whether the lease was entitled to the experimental use exception) was necessary to satisfy one of the requirements of a malpractice cause of action under Texas state law ("Under Texas law, a plaintiff alleging legal malpractice must establish four elements:  (1) that the defendant attorney owed the plaintiff a duty; (2) that the attorney breached that duty; (3) that the breach was the proximate cause of the plaintiff 's injury; and (4) that damages occurred.").  The federal issue, of whether the experimental use exception applied to the lease and thus immunized Mr. Minton from the on-sale bar, was "actually disputed" and thus satisfied the second prong.

The Court's opinion then states that "Minton's argument founders on Grable's next requirement," that the federal issue was "substantial."  The Texas Supreme Court erred in applying this prong because the standard is not whether the issue is substantial to the parties, according to Chief Justice Roberts ("that will always be true when the state claim 'necessarily raise[s]' a disputed federal issue, as Grable separately requires").  Rather, to satisfy this prong of the Grable test the federal issue must be of substantial importance to "the federal system as a whole."  This type of substantiality is illustrated in the Chief's opinion by the Grable case itself, which involved the proper procedure for IRS seizure and sale of property to satisfy delinquent taxes, and Smith v. Kansas City Title & Trust Co., 255 U.S. 180 (1921) (the "classic example" according to Grable) having to due with the question of whether a state bank could purchase bonds that plaintiffs contended the U.S. government had not constitutionally issued.

"Here, the federal issue carries no such significance," and the Court found that Minton failed to satisfy this prong of the Grable test.  The federal question is a "hypothetical" one in the malpractice context:  if Mr. Minton's lawyers had properly raised the experimental use exception would his patent have been invalidated?  Whether the state court finds in Mr. Minton's or his lawyers' favor on this question will not affect the "real world" effect of the failure to do so; Minton's patent will remain invalidated.  And "allowing state courts to resolve these cases [will not] undermine 'the development of a uniform body of [patent] law' per Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 162 (1989), because actual patent cases are tried exclusively in Federal district court and whatever decision the Texas state court may come to in this case will not have any bearing on Federal patent case law.  After all, the opinion notes, it is likely that the state courts will adapt their decisions to "pertinent federal precedents" because it is those precedents that would have been followed had Mr. Minton's attorneys raised the experimental use exception during the underlying patent litigation.  Even if some unique or novel patent law question arises within the "case within a case" needed to decide the malpractice question, "they will at some point be decided by a federal court in the context of an actual patent case, with review in the Federal Circuit" and thus ultimately be "resolved within the federal system."  Finally in this regard, the opinion voices skepticism regarding Mr. Minton's apprehension of a res judicata effect on future patent prosecution of related (continuation) application(s), finding no support for the proposition that state court decisions would have such an effect on the PTO.  Returning to an earlier theme, the opinion notes that any such preclusive effect would be limited to these (actually, this) parties and thus suffer the same infirmities noted above in failing to satisfy the third prong.

Mr. Minton's case fails to satisfy the fourth prong as well, having to do with "the appropriate 'balance of federal and state judicial responsibilities'" under Grable.  For malpractice cases, this balance is struck in favor of the states, who "have 'a special responsibility for maintaining standards among members of the licensed professions,'" citing Ohralik v. Ohio State Bar Assn., 436 U.S. 447, 460 (1978).

In closing, the opinion notes that the principle that Federal jurisdiction over patent matters has long be recognized to be exclusive but that "not [] all questions in which a patent may be the subject-matter of the controversy," citing New Marshall Engine Co. v. Marshall Engine Co., 223 U.S. 473, 478 (1912).  Because there is no "serious federal interest in claiming the advantages thought to be inherent in a federal forum," Texas state courts are not precluded by § 1338(a) from hearing Mr. Minton's malpractice complaint against his lawyers.

Thus, Mr. Minton has had his day in court and has lost his malpractice claim.  And two more Federal Circuit precedents have been overturned, sub silentio but no less finally, by the Court's decision on Wednesday.

Gunn v. Minton (2013)
Opinion by Chief Justice Roberts

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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