By Dennis Crouch
Gunn v. Minton (Supreme Court 2012)
Over the past few years we have seen an ongoing subject matter jurisdictional battle between state courts, regional federal circuit courts of appeal, and the Court of Appeals for the Federal Circuit. The issue as raised in various context is when a complaint stating a non-patent cause of action should be considered to "arise under" the patent laws so as to ensure that the case is heard by a federal district court and subsequently by the Court of Appeals for the Federal Circuit. These non-patent / patent cases can arise in a variety of disputes, including disputes over legal malpractice, contracts and licenses, employment disputes, bankruptcy, challenges to arbitrations, and antitrust disputes.
The issue in the present case is whether state courts in Texas properly have jurisdiction over legal malpractice claims against patent attorneys (or patent litigators). Legal malpractice is generally a state law tort claim, but the Federal Courts have jurisdiction over claims arising under the patent laws. Although there is Federal Circuit precedent on point, this case actually arises from a Texas state court dismissal of Mr. Minton's malpractice claim based upon the state court's interpretation of federal law.
Now, the Supreme Court has agreed offer its final view on the question of when the Federal Courts (and the Court of Appeals for the Federal Circuit) have jurisdiction here. Although nominally a patent case, the case could have much broader impact because it will essentially be interpreting the generic constitutional and statutory limitation of "arising under" jurisdiction.
Background on the Dispute: The case started several years ago when Mr. Vernon Minton developed a set of software that he leased to the Texas Int'l Stock Exchange (TISE). That lease to TISE occurred more than one year before he filed a provisional patent application on the invention embodied by the product. The USPTO granted Minton U.S. Patent No. 6,014,643. However, in a later lawsuit against NASDAQ, the patent was invalidated via the on-sale bar of 35 U.S.C. § 102(b) and that invalidity finding was upheld by the Federal Circuit on appeal. Minton v. Nat'l Ass'n of Sec. Dealers, Inc., 336 F.3d 1373 (Fed. Cir. 2003). In that decision, the Federal Circuit confirmed that the lease to TISE constituted a "sale" for 102(b). In a post-judgment motion, Minton asked the district court to consider whether the use by TISE was an experimental use. However, the district court refused to consider that issue because of its untimely introduction.
The present lawsuit arose when Minton sued his patent litigation counsel (who have now joined the Fulbright & Jaworski firm). The crux of the malpractice claim is that the litigation counsel failed to timely plead the experimental use question. Minton filed the lawsuit in Texas state court and lost on a pretrial motion based upon the trial court's judgment that Minton had failed to present "a scintilla of proof . . . to support his claims." That no-damages judgment was affirmed by the Texas court of appeals. However, the Supreme Court of Texas took an orthogonal view and held that Texas courts actually lacked subject matter jurisdiction over case. In particular, the Texas Supreme Court held that Minton's malpractice claim required resolution of a substantial question of patent law and therefore fell within the exclusive "arising under" jurisdiction of the federal courts and, eventually, the Court of Appeals for the Federal Circuit. This ruling gives Minton another shot at winning the case - this time in federal district court. The Texas court wrote:
This case arises out of patent infringement litigation. We consider whether federal courts possess exclusive subject-matter jurisdiction over state-based legal malpractice claims that require the application of federal patent law. The federal patent issue presented here is necessary, disputed, and substantial within the context of the overlying state legal malpractice lawsuit. 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. Accordingly, without reaching the merits of the legal malpractice claim, we reverse the court of appeals' judgment and dismiss this case.
The 5-3 Texas Supreme Court decision follows the lead set by the Court of Appeals for the Federal Circuit in Air Measurement Tech., Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P., 504 F.3d 1262 (Fed. Cir. 2007) and Immunocept, L.L.C. v. Fulbright & Jaworski, L.L.P., 504 F.3d 1281 (Fed. Cir. 2007). In those cases the Federal Circuit gave a broad interpretation to arising under jurisdiction based upon the court's congressionally mandated goal of national uniformity in the patent system. Both the Akin Gump and the Fulbright Jaworski cases were decided on the same day by the same panel and both penned by then Chief Judge Paul Michel. (Judges Lourie and Rader joined). Although the Texas court did not treat the Federal Circuit decisions as binding precedent, the Court chose to adopt the logic of those decisions. The dissent argued that the State of Texas has a strong interest in (and a regulatory scheme in place for) ensuring that Texas attorneys maintain a high level of quality and that federalism concerns suggest that many of these cases should be adjudged at the state court level. In a non-patent case, the Supreme Court approved of this more nuanced analysis of arising under jurisdiction in the case of Grable & Sons Metal Products, Inc. v. Darue Eng'g & Mfg., 545 U.S. 308 (2005). In 2012, the Federal Circuit has decided at least three other jurisdictional disputes over attorney malpractice. In each case, Judge O'Malley argued against federal circuit jurisdiction based upon her reading of Grable. See Landmark Screens, LLC v. Morgan Lewis & Bockius, LLP (Fed. Cir. 2012)(O'Malley, J., concurring); Byrne v. Wood, Herron & Evans, LLP (Fed. Cir. 2012)(O'Malley, J., joined by Wallach, J., dissenting from denial of the petition for en banc rehearing); and USPPS, Ltd. v. Avery Dennison Corp. (Fed. Cir. 2012)(O'Malley, J., joined by Mayer, J., concurring).
Question Presented: The attorneys challenging federal jurisdiction raised the following questions:
Did the Federal Circuit depart from the standard this Court articulated in Grable & Sons Metal Products, Inc. v. Darue Eng'g & Mfg., 545 U.S. 308 (2005), for "arising under" jurisdiction of the federal courts under 28 U.S.C. § 1338, when it held that state law legal malpractice claims against trial lawyers for their handling of underlying patent matters come within the exclusive jurisdiction of the federal courts? Because the Federal Circuit has exclusive jurisdiction over appeals involving patents, are state courts and federal courts strictly following the Federal Circuit's mistaken standard, thereby magnifying its jurisdictional error and sweeping broad swaths of state law claims - which involve no actual patents and have no impact on actual patent rights - into the federal courts?
In his responsive brief, Minton reframed the question as follows:
Minton filed a legal malpractice claim against the Attorneys arising from a patent infringement lawsuit. Do federal courts have exclusive "arising under" jurisdiction where the sole substantive issue is the application of a patent law doctrine which is an essential element of Minton's malpractice claim?
Underlying Law: As suggested by both questions presented, the underlying law on federal court jurisdiction over patent cases begins with the federal statute – 28 U.S.C. § 1338(a).
The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases.
28 U.S.C. § 1338(a). There are two key phrases here. First, federal jurisdiction only exists when the civil action is considered to be "arising under [an] Act of Congress relating to patents." Second, if federal circuit exists then it is exclusive of state jurisdiction.
Not a Constitutional Question: The statutory "arising under" language is intended to reflect the parallel language found in Article III, Section 2 of the U.S. Constitution that limits federal judicial power to cases "arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority…" However, the two sources have been interpreted somewhat differently. The constitutional "arising under" limits have been broadly interpreted to allow courts to hear cases even when the federal claim is only raised in a defense or counterclaim. See Osborn v. Bank of the United States, 22 U.S. 738 (1824). On the other hand, the "arising under" language in sections 1338 and 1331 have been more narrowly interpreted under the well pleaded complaint rule. In his 2004 article on Holmes Group, Professor Cotropia writes:
The phrase "arising under" originated from Article III of the Constitution, defining the jurisdiction of the federal court system. The Supreme Court interpreted this phrase, as it appears in Article III, to extend the constitutional grant of federal judiciary power to every case where federal law potentially forms an ingredient of a claim. Article III allowed "[t]he mere existence of a latent federal 'ingredient' that might in theory be dispositive of the outcome of a case . . . to bring the entire case, including ancillary nonfederal issues, within the jurisdiction of the federal courts." An implementing statute is needed, however, for lower federal courts to exercise the powers conferred by Article III. With such an implementing statute, lower federal courts could enjoy some or all of the constitutional "arising under" grant of jurisdiction.
Christopher Cotropia, Counterclaims, the Well-Pleaded Complaint, and Federal Jurisdiction, 33 Hofstra L. Rev. 1 (Fall 2004); See also Donald L. Doernberg, There's No Reason for It; It's Just Our Policy: Why the Well-Pleaded Complaint Rule Sabotages the Purposes of Federal Question Jurisdiction, 38 Hastings L.J. 597 (1987).Because the Constitutional limitation has been so broadly interpreted, all of the practical discussion is focused on the meaning of "arising under" as it is found in the statutory context.
In Grable (following a long line of precedent), the Supreme Court confirmed that – under the statute – a case may "arise under" federal law even when the cause of action is purely a non-federal state-law claim. However, when the cause of action is not based on a federal claim, Grable requires (1) a substantial underlying contested federal issue and (2) that federal jurisdiction over the case "be consistent with congressional judgment about the sound division of labor between state and federal courts." Grable interpreted the "arising under" language of 28 U.S.C. § 1331 rather than the patent jurisdictional statute of section 1338. However, in Christianson v. Colt Industries Operating Corp., 486 U.S. 800 (1988), the Supreme Court recognized that those two statutes should be interpreted in parallel.
Is Patent Law Different?: Although I wrote above that the case has non-patent implications, patent law presents some particulars that might not exist in other areas of law. These involve the particular exclusive jurisdictional statute for patent law. Thus, although state courts have jurisdiction to also decide most federal claims, they cannot decide patent claims. In addition, Congress has spoken regarding its desire for uniformity in the application of the patent laws. These stated federal interests could be sufficient to explain a difference between federal jurisdiction over patent law malpractice claims and not over say trademark law malpractice claims. The malpractice is a relatively minor question compared with jurisdiction over contract claims that involve patent rights (such as a patent license or sale). It would be a big deal if the Supreme Court opened the door to greater federal jurisdiction over these claims. As I explain in the next paragraph, I think it is unlikely that this case would be a vehicle for expanding federal jurisdiction and instead will more likely be a vehicle for contracting federal jurisdiction – at least when compared with the holdings in Akin Gump and Fulbright jurisdictional decisions discussed above.
Grable is the Supreme Court's most recent pronouncement on this issue and that case the court tempered federal arising under jurisdiction by requiring courts to be mindful of the appropriate balance of power between state and federal courts. Despite Grable, both the Federal Circuit and now the Texas Supreme Court have continued to maintain broad jurisdictional reach over these malpractice cases. In these cases, the minority dissenting viewpoint has argued for less expansive jurisdiction. In this setup, the Supreme Court is more likely to resolve the conflict between these ranges than it is to identify a result to the extreme. In addition, in the years since Grable, there has been a continued focus and recognition of legitimizing State's rights. This notion of the importance of State's rights places an additional thumb the scale of reduced federal jurisdiction over these types of cases.
AIA Expands Arising Under Jurisdiction: Although not applicable for this case, the Leahy-Smith America Invents Act (AIA) has altered federal court jurisdiction in a way that overrules the Supreme Court decision in Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826 (2002). In that case, the Supreme Court interpreted the applied the well pleaded complaint rule to the Federal Circuit appellate jurisdiction statute (28 U.S.C. § 1295) in holding that patent issues raised only in counterclaims do not "arise under" the patent law in a way that creates Federal Circuit jurisdiction. The AIA amends the statute to clarify that Federal Circuit jurisdiction includes cases where the patent issue is first raised in a compulsory counterclaim. In addition, the new law indicates that "No State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents" and also provides a right of removal from state court if either party raises a claim for relief "arising under any Act of Congress relating to patents."