Jerry W. Gunn, et al., v. Vernon F. Minton

The Respondent, Vernon F. Minton ("Minton"), leased a software that he developed to the National Association of Securities Dealers, Inc. ("NASD") and NASDAQ Stock Market, Inc. ("NASDAQ") and later applied for and was granted a patent for the software. Subsequently, Respondent Minton filed a patent infringement lawsuit against NASD and NASDAQ, but the trial court dismissed the lawsuit due to the "on-sale bar" rule, codified in § 102(b) of the United States Patent Act. The rule invalidates patents that apply to inventions sold more than a year prior to the application date of the patent. Minton then filed a legal malpractice lawsuit against his attorneys, Petitioner Jerry W. Gunn, et al., who represented Minton in the patent infringement case and argued that if not for Gunn's failure to raise at trial the experimental use exception to the on-sale bar, he would have won the patent infringement lawsuit. The issue in this case concerns whether the federal courts should have exclusive jurisdiction over legal malpractice claims that arise from patent litigation. Gunn argues that the federal issue in the case is too insubstantial to be heard in federal court and, furthermore, that significant state interests and Congressional intent require that the case be heard in state court. Minton claims, however, that the federal issue is substantial and that based on the federal interests and Congressional intent, this case should be decided in federal court. The Supreme Court's decision will affect the efficiency and uniformity of this country's patent law and patent-related malpractice litigation. Such effects would impact the growth and development of the technology and science industries. 

Questions as Framed for the Court by the Parties 

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?

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Issue(s)

Do the federal courts have exclusive jurisdiction over a legal malpractice claim arising from patent infringement litigation? 

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Facts

Respondent, Vernon Minton, is an inventor who developed software that allows traders to do their jobs over a public telecom system. See Minton v. Gunn, 355 S.W.3d 634, 637 (Tex. 2011). Minton leased his software to R.M. Stark and Co., a New York corporation and member of the National Association of Securities Dealers, Inc. ("NASD"), in return for a monthly payment of a percentage of the latter’s gross revenue. Id. A year after signing the lease, Minton applied for a patent and was awarded it in 2000. Id.Respondent subsequently brought a patent infringement action against NASD and NASDAQ Stock Market, Inc. ("NASDAQ") in the United States District Court for the Eastern District of Texas. Id.NASD and NASDAQ moved for summary judgment using the “on-sale bar” rule stated in § 102(b) of the United States Patent Act; the on-sale bar rule holds a patent invalid if the invention covered by the patent is sold earlier than one year before the patent’s application date. Id. Minton unsuccessfully argued against the motion. Id.

Minton then obtained new counsel to argue an experimental use exception to the on-sale bar, and this exception states that the on-sale bar does not apply if an invention covered by the patent is sold primarily for experimental rather than commercial use. Minton, 355 S.W.3d at 638. Minton obtained new counsel who filed a motion for reconsideration of the case under the experimental use exception. Id.The federal district court judge denied the motion for reconsideration, so Minton appealed to the United States Court of Appeals for the Federal Circuit. Id. The Federal Circuit affirmed the district court’s denial of the motion for reconsideration and reasoned that Minton had failed to timely assert the experimental use exception during trial. Id. 

Minton then filed a legal malpractice suit in a Texas state court against his former attorneys, who represented him in the federal patent infringement lawsuit. Minton, 355 S.W.3d at 638.Minton argues that the Petitioner, including Jerry W. Gunn, Williams Squire & Wren, L.L.P., James E. Wren, Slusser & Frost, L.L.P., William C. Slusser, Slusser Wilson & Partridge, L.L.P., and Michael E. Wilson (collectively "Gunn"), acted negligently in not pleading and briefing the experimental use exception and thus caused Minton to lose his patent infringement suit and the opportunity to settle the case with NASD and NASDAQ. Id.Gunn argues that the causation element of the legal malpractice claim is not met because, at the time of the trial, the experimental use exception was not a factually or legally viable defense. Id.Therefore, it is not true that, but for Gunn’s failure to raise the experimental use exception, Minton would have won the patent infringement case. Id. 

The state court judge found in favor of Gunn by granting Gunn’s motions for summary judgment and dismissal; the judge stated that there was no evidence suggesting that use of Minton’s software under the lease was an experimental use. Minton, 355 S.W.3d at 638.While Minton appealed his case to a Texas state appellate court, the federal courts ruled in two cases that legal malpractice claims with a substantive patent-related issue have federal jurisdiction. Id. at 639. Minton filed a motion in the state appellate court to dismiss his appeal for lack of subject-matter jurisdiction, but the court denied the motion and affirmed the trial court’s judgment. Id. The Texas Supreme Court subsequently ruled that Minton’s lawsuit has a substantive patent-related issue and falls exclusively within federal jurisdiction. Id. After this ruling, Minton filed his legal malpractice lawsuit in federal district court. See Petition for Writ of Certiorari at 5. Pursuant to 28 U.S.C. § 1257(a), Gunn filed a writ of certiorari to the Supreme Court on March 9, 2012, and the Court granted the writ on October 5, 2012. Docket Files for Jerry W. Gunn, et al. v. Vernon F. Minton.

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Discussion

Petitioner Gunn argues that the patent-related legal malpractice claims should not fall under the exclusive jurisdiction of federal courts because state interests outweigh federal interests in resolving malpractice cases. See Brief for Petitioner, Jerry W. Gunn; Williams Squires & Wren, L.L.P.; Slussler & Frost, L.L.P.; William C. Slusser; Slusser Wilson & Partridge, L.L.P.; and Michael E. Wilson at 15. Moreover, using state courts for such malpractice cases would be more efficient and less prejudicial than litigating in the federal judiciary. See id.Respondent Minton argues that federal courts should have exclusive jurisdiction of patent-related malpractice lawsuits because the federal government has a substantial interest in promoting the development of technology and science industries through ensuring uniformity of the country’s patent law. See Brief for Respondent, Vernon F. Minton at 20. This uniformity can be achieved through case law in the form of courts’ written opinions, which are published more frequently than state court opinions. See id. 

THE LACK OF FEDERAL INTEREST AND ELIMINATING INSTITUTIONALIZED BIAS IN FEDERAL COURTS

Petitioner’s supporters argue that the regulation of attorneys is a significant state interest that should be handled by state courts. See Brief for American Intellectual Property Law Association in Support of Petitioners at 46. These supporters argue that there is only marginal federal interest in hearing lawsuits that concern hypothetical patent infringement cases. Id.Proponents of Gunn’s claims believe that a bright-line rule, or categorical legal standard, is needed in the area of legal malpractice relating to patent law, and a holding that sends such malpractice claims to state court will serve to provide that rule and the clarification needed in the ever-growing field of patent malpractice issues. Id.at 49. Furthermore, allowing state courts to decide legal practice claims relating to patent litigation will help eliminate bias that institutionalized courts, such as federal ones, may develop in their extensive experience with such lawsuits. Id.Also, Petitioner’s proponents assert that malpractice cases do not involve much legal substance that would bring about a significant change or advancement of federal patent law; thus, the disputes are better left to state courts to adjudicate. Id. at 23.

Supporters of Minton argue that there is a significant federal interest in giving federal courts exclusive jurisdiction of patent-related legal malpractice cases because such exclusive jurisdiction will allow the government to strengthen the national patent system and, in effect, foster technological growth and development. See Brief for Los Alamos National Security, LLC; the Regents of the University of California; UChicago Argonne, LLC; the Alliance for Sustainable Energy, Llc; Battelle Memorial Institute; Sandia Corporation; Ut-Battelle, LLC; and Lawrence Livermore National Security, LLC (“LANS et al.”) in Support of Respondent at 11. Minton’s supporters further argue that federal courts are no more biased than state courts and that without exclusive federal jurisdiction of patent-related malpractice claims, patent attorneys will face endless possibilities of getting sued and thus will be hesitant to apply for patents for inventors. See Brief for Wood, Herron & Evans, L.L.P. in Support of Respondent at 18. These supporters believe that if patent attorneys are insecure and uncertain about the extent of liabilities in doing their jobs, legal services will become more expensive and more difficult to retain. See id.These ramifications would not only cause turmoil and distress to the legal industry but also to the technology and science sectors, and such consequences are not in the federal interest. See id.

INEFFICIENCY AND UNIFORMITY

Proponents of Gunn’s position argue that a ruling in favor of exclusive federal jurisdiction of patent-related legal malpractice claims would cause inefficiency in such cases because lawyers will spend an inordinate amount of time simply litigating about the issue of where to hold litigation. Brief for Law Professors in Support of Petitioners at 19. In other words, these proponents think that granting federal courts exclusive jurisdiction of patent-related malpractice claims would cause excessive delays and costs in the resolution of lawsuits and would undermine notions of justice and fairness. See id. at 17. Also, federal courts do not have as much expertise in deciding patent-related cases as Respondent and his supporters suggest because only a small percentage of cases filed in district courts involve patents. Id.at 24. Furthermore, these proponents believe that allowing too many cases into federal jurisdiction would disrupt the balance sought by Congress in enacting laws that permit only certain subject matters to be submitted to federal courts. Id.at 19.  

Proponents of Minton’s position argue that legal malpractice suits litigated in federal courts often end up in the Federal Reporter, a national publication of case law, and serves greater precedent value that would, in turn, decrease inefficiencies in the legal system. See Brief for Ronald E. Mallen in Support of Petitioners at 17. Even unpublished decisions of federal district courts can be cited as persuasive authority. Id.Very few state court opinions are published either officially or unofficially. Id.Moreover, these proponents argue that giving federal courts exclusive jurisdiction over patent-related malpractice claims will ensure a more uniform set of patent laws within the country in the context of state malpractice proceedings, and the benefits of such uniformity outweigh any imbalances between state and federal judiciaries. SeeBrief for LANS et al. at 11. 

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Analysis

Under 28 U.S.C. § 1338, the federal courts have original jurisdiction over any civil action involving patents. 28 U.S.C. § 1338 (2012). Legal malpractice claims however, are generally a matter of state law.  See Brief for Petitioner, Jerry W. Gunn; Williams Squires & Wren, L.L.P.; Slussler & Frost, L.L.P.; William C. Slusser; Slusser Wilson & Partridge, L.L.P.; and Michael E. Wilson (“Gunn”) at 15. In 2005, the Supreme Court decided Grable & Sons Metal Products Inc. v. Darue Engineering and Manufacturing (“Grable”) and held that to determine if the federal courts have jurisdiction over federal issues that underlie state-law claims a court must decide whether the “state-law claim necessarily raised a stated federal issue, actually disputed and substantial, which a federal forum could entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.” See Grable, 545 U.S. 308, 314 (2005). Petitioner Gunn argues that based on Grable and decisions by the Federal Circuit applying Grable, Respondent Minton’s state law legal malpractice claim that arose from a case concerning patent law does not come within the exclusive jurisdiction of the federal courts. See Brief for Petitioner at 33.  Minton contends, however, that under Grable’s standard his claim does fall within the exclusive jurisdiction of the federal courts and is of substantial federal interest.  See Brief for Respondent, Vernon F. Minton at 19-20.  

THE SUBSTANTIALITY REQUIREMENT IN THE GRABLE STANDARD 

Gunn argues that the Federal Circuit merged Grable's substantiality requirement and necessity requirement into one requirement in order to find that federal courts have exclusive jurisdiction over legal malpractice claims arising from a case concerning patent law.  See Brief for Petitioner at 33. Specifically, Gunn contends that the Federal Circuit did not correctly apply Grable, but instead created a new standard under which the federal courts have jurisdiction so long as there is a federal law issue that needs to be decided, whether or not the issue is substantial.  See id. at 33-34.  Consequently, Gunn asserts that the Federal Circuit’s approach to Grable would give federal courts exclusive jurisdiction over almost all state law malpractice claims that depend on a federal issue.  See id. at 36.  According to Gunn, Minton’s legal malpractice claims do not rest on substantial issues of federal law and thus under the Grable test, Minton’s claim should be decided in state court. See id. at 45.  

Minton contends, however, that the federal issue is substantial because the issue is a necessary component of Minton's malpractice claim. See Brief for Respondent at 22. To support this assertion, Minton argues that the outcome of his legal malpractice claim depends on a resolution of patent law, which is a central federal issue in the case. See id. at 23-24. In other words, the only way that Minton can succeed on his malpractice claim is if a court finds that Gunn negligently failed to argue the experimental use exception in his patent infringement claim. See id. at 24, 27.  Furthermore, Minton notes that a federal agency, the United States Patent and Trademark Office, has an interest in this case being heard in federal court, adding to the substantiality of Minton's claim. See id. at 25.  Moreover, Minton asserts that the decision in this case depends on the resolution of a precedential question of federal law. See id. at 26. Minton maintains that relying on the Grable standard, and not a bright-line rule, is the correct way to decide this case. See id. at 49-50.

BALANCING STATE AND FEDERAL INTERESTS  

Gunn asserts that the Federal Circuit did not correctly balance state and federal interests when it reached the conclusion that the federal courts have exclusive jurisdiction over legal malpractice claims arising from patent law litigation. See Brief for Petitioner at 38.  Gunn claims that not only did the Federal Circuit overstate the federal interest but also that it did not fully consider the state interests that existed. See id. at 38-45. In terms of the federal interests, Gunn argues that the Federal Circuit stated that the federal interest in this type of case is in adjudicating patent issues.  See id. at 38-39. Gunn believes that the Federal Circuit stated the issue too broadly because the issue that a court would actually be deciding in a legal malpractice case is hypothetical patent infringement, not actual patent infringement. See id.at 39.  Specifically, the decision that a state court makes on a patent law issue in a legal malpractice suit would not be especially persuasive precedent for an actual patent issue in federal court. See id. at 39.  On the state interest, Gunn argues that the Federal Circuit disregarded important state interests that arise from legal malpractice cases, especially the state interest in controlling the behavior of lawyers within the particular state. See id. at 41-45. 

Conversely, Minton contends that having his claim heard in state court would not upset the balance between federal and state interests. See Brief for Respondent at 27. Minton claims that there is a substantial federal interest in hearing this case because of the importance of having a uniform interpretation of federal patent laws.  See id. at 27-28. Minton also asserts that only federal district court judges have expertise to decide patent law issues because only federal judges hear patent law cases, furthering the need for this case to be heard in federal court. See id. at 31.  Furthermore, Minton claims that the federal patent issue in this case preempts state law, signifying the strength of the federal interest in the federal courts hearing Minton's claim. See id. at 33.  In response to Gunn's claim that the patent issue is only hypothetical, Minton argues that a state court's ruling in this case would indeed affect other patent law cases and applications. Id. at 33-36. Moreover, Minton argues that there is no evidence that a decision in his favor would bring too many cases with underlying federal questions into federal courts, especially because legal malpractice cases are only a small segment of all cases heard in federal court. See id. at 39-46. Finally, according to Minton, the state interest in hearing legal malpractice claims would not be harmed by giving exclusive jurisdiction to federal courts in this case.  See id. at 46. Specifically, Minton claims that states are concerned with ethical violations and not with substantive decisions about patent law.  See id. at 46-47. 

IMPACT OF CONGRESSIONAL INTENT 

Gunn claims that Congressional action concerning the Federal Circuit and jurisdiction over patent issues does not affect his argument that Minton's claim should be heard in state court. Brief for Petitioner at 55.  First, Gunn analyzes the Federal Courts Improvement Act of 1982, which created the Federal Circuit to promote uniformity in patent law because Congress was concerned about forum shoppingId. at 55-56.  Gunn argues that Congress' intent was to give the Federal Circuit exclusive jurisdiction based on 28 U.S.C. § 1338 and not all cases that involved a patent law issue.  See id. at 56.  Second, Gunn discusses the Leahy-Smith America Invents Act of 2011 and asserts that the Act only broadened federal jurisdiction to include patent counterclaims.  See id. at 57-58. Overall, Gunn argues that Congress did not alter the district court's "arising under" jurisdiction as it appears in 28 U.S.C. § 1338 to include claims like Minton's.  See id. at 55.

Minton asserts, however, that Congress did intend to give federal courts exclusive jurisdiction over his claim. See Brief for Respondent at 28.  Minton contends that Congress specifically created the Federal Circuit to hear all appeals in patent cases at the federal level because of Congress' concerns about forum shopping, expenses, uniformity, and efficiency. See id. at 28-29.  Moreover, Minton notes that Congress purposefully created a federal cause of action for patent infringement, again signifying that the federal courts have exclusive jurisdiction over legal malpractice claims arising from patent litigation. See id. at 32-33. Finally, Minton emphasizes that the Leahy-Smith American Invents Act of 2011  proves that Congress wants only the federal courts to hear patent law issues. See id. at 48.

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Conclusion

The Supreme Court’s decision in this case will determine whether legal malpractice claims with underlying patent law issues will be heard in federal or state court.  Petitioner Gunn argues that this case should be heard in state court because the federal issue is insubstantial and the state interest in hearing a legal malpractice claim is high. Respondent Minton asserts, however, that the federal courts should have exclusive jurisdiction over this case because the federal issue is substantial and federal interests necessitate that this case is heard in federal court. The Court's decision will affect the efficiency and uniformity of U.S. patent law and patent-related malpractice litigation, and such impacts will have consequences for the technology and science industries. 

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