United States: Supreme Court Rules That A State Court Has Jurisdiction Over A Legal Malpractice Claim Involving A Federal Patent Issue

The Supreme Court of the United States, in Gunn v. Minton, determined that a Texas state court had jurisdiction over a legal malpractice claim, even though resolving the claim required the state court to address an issue of federal patent law.

In a unanimous decision issued on February 20, 2013, the Supreme Court of the United States held that 28 U.S.C. ß 1338(a) did not deprive a state court of subject matter jurisdiction over a legal malpractice claim that required the resolution of an issue of federal patent law.† Under ß 1338(a), ď[n]o State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents.Ē† However, the Supreme Court concluded state legal malpractice claims will seldom, if ever, arise under federal patent law for the purposes of assessing jurisdiction under ß 1338(a).† According to the Supreme Court, such claims are unlikely to have sufficient significance to the federal system to give the federal courts exclusive jurisdiction.

Vernon Minton developed the Texas Computer Exchange Network (TEXCEN), a system designed for use in trading securities.† Minton leased TEXCEN in March 1995, and slightly more than a year later he applied for a patent claiming a securities trading system that was based on TEXCEN.† The U.S. Patent and Trademark Office issued the patent in January 2000, and Minton subsequently brought a patent infringement lawsuit in federal district court against the National Association of Securities Dealers, Inc. (NASD) and the NASDAQ Stock Market, Inc.† Minton was represented by Jerry Gunn and the other petitioners.† The federal district court granted summary judgment in favor of the NASD and NASDAQ, determining that the asserted patent was invalid under the on-sale bar of 35 U.S.C. ß 102(b) because of the lease executed in March 1995.† Subsequently, Minton filed a motion for reconsideration, arguing for the first time that the experimental-use exception to the on-sale bar applied because the lease was part of ongoing testing.† The district court denied Mintonís motion for reconsideration, ruling that Mintonís experimental-use argument was waived.† The U.S. Court of Appeals for the Federal Circuit affirmed.

Minton brought a lawsuit in Texas state court alleging that Gunn and the other petitioners committed legal malpractice.† According to Minton, the failure of his lawyers to raise the experimental-use argument in a timely manner caused him to lose his lawsuit against the NASD and NASDAQ and resulted in the invalidation of his patent.† Mintonís former lawyers contended that the experimental-use exception did not apply to Mintonís lease and thus that raising the experimental-use argument earlier would not have affected the outcome of Mintonís patent infringement case.† The trial court granted summary judgment in favor of Mintonís former lawyers, concluding that Minton had not put forth sufficient proof that the lease was for an experimental purpose.

On appeal, Minton argued for the first time that the state trial court did not have jurisdiction over his legal malpractice claim under 28 U.S.C. ß 1338(a), which prevents state courts from exercising jurisdiction over claims ďarising underĒ federal patent law.† According to Minton, the legal malpractice claim arose under federal patent law because it was based on an alleged error in a patent case.† Thus, Minton contended that the district courtís order should be vacated and the case dismissed, allowing Minton to assert his claim of legal malpractice in federal court.† A divided panel of the Court of Appeals of Texas rejected Mintonís jurisdictional argument and affirmed the judgment of the trial court on the merits.

Minton appealed again, and the Supreme Court of Texas reversed the judgment of the Texas Court of Appeals.† The Supreme Court of Texas concluded that the state trial court did not have jurisdiction over Mintonís malpractice claim, determining that Mintonís claim raised a substantial federal issue that should be resolved by a federal court.† Justice Guzman dissented and was joined by Justices Medina and Willett.

The Supreme Court of the United States reversed the judgment of Supreme Court of Texas, applying the test set out in Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308 (2005).† Under Grable, a state law claim arises under federal law when (1) the state law claim necessarily raises a federal issue (2) that is actually in dispute, (3) has substantial importance to the federal system as a whole and (4) can be resolved by a federal court without disturbing the balance between federal and state judicial responsibilities.

The Supreme Court acknowledged that the first two Grable factors were met.† To succeed in his malpractice claim under Texas law, Minton was required to prove that the outcome in his patent infringement case would have been different if his former lawyers had timely asserted his experimental-use argument.† Thus, addressing Mintonís malpractice claim required the resolution of an issue of federal patent lawówhether the experimental-use exception would have prevented the application of the on-sale bar.† This issue was at the center of the dispute in Mintonís legal malpractice action.

The Supreme Court, however, determined that the third Grable factor was not satisfied as the resolution of Mintonís malpractice claim did not implicate any significant federal interest.† The Supreme Court had previously found a substantial federal interest in cases involving Congressís power to issue bonds and the U.S. Governmentís ability to recover delinquent taxes by selling seized property.† In contrast, the federal patent question raised in Mintonís legal malpractice action was merely hypothetical: If Mintonís lawyers had raised the experimental-use argument in a timely fashion, would the outcome of his patent infringement lawsuit have been different?† Because Mintonís patent would remain invalid, regardless of the outcome of his malpractice lawsuit, the malpractice action would not affect the prior federal patent litigation.† Similarly, the resolution of Mintonís malpractice claim would not affect the development of a uniform body of patent law, given that federal courts addressing nonhypothetical patent issues would not be bound by the state courtís resolution of the hypothetical patent question.

The Supreme Court rejected Mintonís argument that the state courtís determination would improperly affect other patents through issue preclusion.† Minton highlighted that he had filed a continuation patent application related to the asserted patent and suggested that the patent examiner would be bound by the state courtís determinations.† The Supreme Court concluded that it was unclear whether a state court ruling would have the preclusive effect alleged.† However, even if the state courtís determination were to have a preclusive effect, the result would only impact the parties before the state court, which the Supreme Court determined was insufficient to establish arising under jurisdiction.† The federal issue must be significant to the federal system as a whole, not merely to the parties of a particular case.†

The Supreme Court also rejected Mintonís contention that federal courtsí expertise regarding patent law would make federal court the proper forum for resolving Mintonís legal malpractice claim.† According to the Supreme Court, the possibility that a state court could err in applying federal patent law, standing alone, is not enough to require that federal courts have exclusive jurisdiction over claims of legal malpractice.

Finally, the Supreme Court determined that the fourth Grable factor was not met.† As set out above, the Supreme Court determined that Mintonís malpractice claim did not implicate a substantial federal interest.† The Supreme Court, however, identified statesí great interest in regulating the conduct of lawyers practicing within the state.† Consequently, resolution of Mintonís malpractice claim in federal court would upset the balance between federal and state judicial responsibilities.

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