Stephen A. Kennedy Intellectual Property Law Blog on Lawyers.com

While
“legal malpractice claims traditionally fall under the domain of state courts,”
the Texas Supreme Court recently held that those claims may fall within the
exclusive jurisdiction of the federal courts when an underlying patent issue
“is necessary, disputed, and substantial.” 
Minton v. Gunn, 2011 WL 6276121
(Tex. Dec. 16, 2011).  Moreover, the
impact of these rulings may extend beyond the realm of legal malpractice as the
same analysis can be applied to other claims such as breach of fiduciary duty
and breach of the UCC warranty against infringement.

Minton
v. Gunn

The
issue in Minton was whether “federal
courts possess exclusive subject-matter jurisdiction over state-based legal
malpractice claims that require the application of federal patent law.”  This state court case followed a federal suit
filed by Minton alleging patent infringement. 
The defendant in the federal suit moved for summary judgment on grounds
that Minton’s patent was invalid under the “on-sale bar” rule.  Under that rule, a patent is invalid when the
claimed invention is sold more than a year prior to the patent application
date.  The federal district court granted
the defendants’ motion for summary judgment and declared the patent
invalid.  Minton then retained new
counsel to file a motion to reconsider based on the experimental use exception
to the on-sale bar rule.  The district
court denied the motion to reconsider and the Federal Circuit affirmed.

After
losing his federal infringement suit, Minton sued his original attorneys in
state court alleging that they committed malpractice by not raising the
experimental use exception.  Minton
claimed that the attorneys’ negligence had cost him the opportunity to win his
infringement suit or alternatively had cost him a potential settlement of his
$100,000,000.00+ claim.  The attorney’s
moved for summary judgment alleging that the experimental exception was neither
a legally nor a factually viable defense and, therefore, Minton could not win
his malpractice claim.  The state
district court granted the motion and Minton appealed.

While
the appeal was pending, the Federal Circuit Court of Appeals decided two cases
involving Texas state law attorney malpractice claims.  Air
Measurement Technologies, Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P.,
504 F.3d 1262 (Fed. Cir. 207) and Immunocept, LLC v. Fulbright & Jaworski, LLP,
504 F.3d 1281 (Fed. Cir. 2007).  In both
cases, the court found that the state law claims arose under the federal Patent
Act and, therefore, were subject to exclusive federal jurisdiction.  Based on these decisions, Minton moved to
dismiss his appeal.  The Fort Worth Court
of Appeals declined to follow the federal decisions, denied the motion to
dismiss, and affirmed the judgment.  The
Texas Supreme Court granted Minton’s petition for review.

Before
considering the merits of the appeal, the Supreme Court considered whether the
claim arose under a federal statute and, therefore, whether the federal courts
had exclusive jurisdiction to hear the malpractice claim.  The Court applied a four part test in
determining that the federal courts had exclusive jurisdiction over Minton’s
malpractice claim.

[F]ederal question jurisdiction
exists where (1) resolving a federal issue in necessary to the resolution of
the state-law claim; (2) the federal issue is actually disputed; (3) the
federal issue is substantial; and (4) federal jurisdiction will not disturb the
balance of federal and state judicial responsibilities.

Minton,
slip opinion page 9, quoting Singh v.
Duane Morris LLP, 538 F.3d 334, 338 (5^th Cir. 2008).  The Supreme Court found that Minton’s claim
fit within this analytical framework and dismissed the case.

Other
Patent-Related State Law Claims subject to Federal Jurisdiction

Legal
malpractice claims are not the only patent-related state law claims that may
end up in federal court.  A federal
district court in Pennsylvania found that a claim for breach of the UCC
warranty against patent infringement was properly in federal court and the
Fifth Circuit came to a similar conclusion in a case involving fraud and breach
of fiduciary duty.

84 Lumber Co. purchased hand-held laser devices to use in its bar
code scanning system.  After settling a
patent infringement suit related to these devices, 84 Lumber filed a state
court suit alleging that the sellers of the devices had breached the UCC
warranty that goods delivered by a “merchant … shall be delivered
free of the rightful claim of any third person by way of infringement or the
like.”  See e.g., Tex. Bus. & Com
Code § 2.312(c).  The defendants removed the suit to federal court.  Arguing that its claim arose solely under
state contract law, 84 Lumber moved for a remand.

In 84 Lumber Co. v. MRK
Technologies, Ltd., 145 F.Supp.2d 675 (W.D. Pa. 2001), the Court reasoned
that a plaintiff in a UCC infringement warranty case had to “show (1)
the defendants were
merchants regularly dealing in goods of the kind;
(2) that the goods were delivered; and (3) that the goods were not delivered
free of the rightful claim of infringement of any
third-party.”  Focusing on the
third element, the court found that since 84 Lumber’s claim could not “be
resolved without also deciding a substantial issue of federal patent law,
namely, that there was an adequate basis for [the patent owner’s] assertion
that defendants’ products infringed his patents” that federal jurisdiction was
proper.

USPPS, Ltd. v. Avery Dennison Corp,
647 F.3d 274 (5th Cir. 2011), is a fraud and fiduciary duty case that arose
from the efforts of USPPS and its founder, Beasley, to obtain a patent.  After filing his application with the United
States Patent and Trademark Office, Beasley negotiated a licensing and
manufacturing contract with Avery and gave Avery’s counsel a power of attorney
to prosecute the patent on his behalf.  Acting
under this power of attorney, Avery’s counsel abandoned Beasley’s original
application and submitted a second application pursuing additional claims.  After the second patent application was
denied, Beasley, and later USPPS, sued Avery and its counsel contending that
the law firm’s representation of Avery created a conflict of interest with its
representation of Beasley and USPPS in the patent prosecution process.

The
district court dismissed Beasley’s suit for lack of standing because he had
transferred all of his intellectual property rights to USPPS and dismissed
USPPS’s subsequent suit as being time barred. 
On appeal from the second judgment, the Fifth Circuit requested
additional briefing on the issue of federal jurisdiction.  Finding that USPPS
could not prevail on its fraud and breach of fiduciary duty claims without proving
the patentability of the invention, the Fifth Circuit held that the claims were
subject to federal jurisdiction.

Appellate
Jurisdiction Over Minton-type cases

The
various cases that found federal jurisdiction for patent-related state law
cases like Minton, 84 Lumber, and USPPS are based on 12 U.S.C. § 1338,
which gives federal district courts original and exclusive jurisdiction of
civil actions “arising under any Act of Congress relating to patents ….”

In
USPPS, the Fifth Circuit took the
next logical step in deciding that appeals in such Minton–type cases are properly directed to the Federal Circuit
Court of Appeals.  “Under 28 U.S.C. §
1295(a), the Federal Circuit has exclusive of an appeal where the district
court’s jurisdiction was based, in whole or in part, on 28 U.S.C. § 1338.”