A State Law Claim Alleging Legal Malpractice in the Handling of a Patent Case May be Brought in State Court

GUNN v. MINTON (Supreme Court of the United States, February 20, 2013)

The plaintiff, Vernon Minton, developed a computer program and telecommunications network designed to facilitate securities trading. About five years later he leased the system, known as TEXCEN, to a securities brokerage. A little over one year later he applied for a patent for an interactive securities trading system based substantially on TEXCEN. The U.S. Patent and Trademark Office issued the patent in January 2000. Patent in hand, he filed a patent infringement suit in Federal District Court against the National Association of Securities Dealers, Inc. (NASD) and NASDQ Stock Market, Inc. He was represented by Jerry Gunn and other petitioners. NASD and NASDQ filed motion for summary judgment on the ground that Minton’s patent was invalid under the “on sale” bar which provides that an inventor is not allowed to apply for a patent if the invention was on sale in the United States more than one year prior to the date of the application, and Minton had leased TEXCEN to Stark for more than one year prior to filing the patent application. Rejecting the argument that there were differences between TEXCEN and the patented system, the district court granted summary judgment and declared Minton’s patent invalid. Minton then filed for reconsideration of the motion, arguing for the first time that the lease agreement was part of on-going testing that fell within the “experimental use” exception to the on-sale bar. The district court denied the motion. Minton appealed to the U.S. Court of Appeals for the Federal District, which affirmed the district court’s holding and concluded that Minton’s experimental-use argument was waived.

Convinced that his lawyer’s failure to timely raise the experimental-use argument had cost him the lawsuit and the invalidation of thepatent, Minton brought this legal malpractice action in Texas state court. The defendant’s attorneys filed a motion for summary judgment arguing that the lease of the system was not for an experimental use and that Minton’s patent infringement claims would have failed even if the experimental use argument had been timely raised. The trial court agreed and granted summary judgment in favor of the attorneys.

On appeal, Minton raised the new argument that because his legal malpractice claim was based on an alleged error in a patent case, it “arises under” federal patent law for purposes of 28 U.S.C. §1338(a). He also argued that the Texas state court lacked subject matter jurisdiction to decide the case because under §1338(a), no state court shall have jurisdiction over any claim for relief arising under any act of congress relating to patents.” The Court of Appeals of Texas rejected Minton’s argument applying the test articulated in Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U.S. 308, 314 (2005), holding that the federal interests implicated in Minton’s state law claim were not sufficiently substantial to trigger §1338 “arising under” jurisdiction and affirmed the trial court. A divided Supreme Court of Texas reversed, concluding that Minton’s claim involved “a substantial federal issue” within the meaning of Grable because the success of Minton’s claim is reliant upon the viability of the experimental use exception as a defense to the on-sale bar. The United States Supreme Court granted certiorari to determine whether a state law claim alleging legal malpractice in the handling of a patent case must be brought in federal court.

The court began its analysis by looking at and applying the test set forth in Grable. Federal 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. The court stated that where all four requirements are met, jurisdiction is proper because there is a “serious federal interest inclaiming the advantages thought to be inherent in a federal forum.”

The court held that it is clear that Minton’s legal malpractice claim does not arise under federal patent law and the court stated that it is “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).” The court acknowledged that a resolution of a federal patent question is “necessary” to Minton’s case, because the causation element of the legal malpractice case will require a “case within a case” analysis of whether, had the argument of experimental use been made earlier, the outcome of the earlier patent litigation would have been different. The court further acknowledged that this federal issue is also “actually disputed” as it is the central point of the dispute.

The court then looked at the third requirement set forth in Grable and stated that the federal issue in this case is not substantial in the relevant sense as the substantiality inquiry under Grable looks instead to the importance of the issue to the federal system as a whole. The court stated that the federal issue carries no significance because of its backward-looking nature as the federal issue is merely posed in a hypothetical sense. “If Minton’s lawyers had raised a timely experimental use argument, would the result in the patent infringement proceeding been different?” The court stated that no matter how the state courts resolve that hypothetical, it will not change the real world result of the prior federal patent litigation which held that Minton’s patent is invalid. The court acknowledged that “[t]here 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 this case, demonstrating that the question is significant to the federal system as a whole, is needed. That is missing here.”

The court also determined that the fourth requirement of Grable which is concerned with the appropriate “balance of federal and state judicial responsibilities” had not been met. While here there is an absence of a substantial federal issue, the states have a “special responsibility for maintaining standards among members of the licensed professions.”

The court concluded that although the state court must answer a question of patent law to resolve Minton’s legal malpractice claim, the answer will have no broader effects; it will not stand as binding precedent for any future patent claims; it will not even affect the validity of Minton’s patent. Accordingly, there is no “serious federal interest in claiming the advantages thought to be inherent in a federal forum.”

Impact: This case is important as it reaffirms the importance of analyzing the four requirements set forth in Grable, and certainly makes clear that legal malpractice cases based on federal patent law will probably never satisfy the Grable requirements.