State Courts May Exercise Jurisdiction in Legal Malpractice Actions Arising Out of Patent Litigation

by Christopher J. Conrad, Esq.*

Key Points:

  • Federal district courts do not have exclusive jurisdiction of legal malpractice actions arising out of patent infringement claims previously litigated in federal court.
  • Even though state courts necessarily will be required to apply and interpret federal law in order to decide the "case within a case," state courts may also exercise jurisdiction because no "serious federal interest" is implicated in such actions.

 

In Gunn v. Minton, 568 U.S. ___ (2013), the United States Supreme Court considered whether a federal district court has exclusive jurisdiction to hear a legal malpractice claim arising out of a patent infringement action previously litigated in federal court. Its answer: No.

In the early 1990s, Vernon Minton developed a computer program and telecommunications network designed to facilitate securities trading. In March 1995, Minton leased the system, known as TEXCEN, to a securities brokerage. Approximately a year later, Minton applied for a patent for an interactive securities trading system that was based substantially on TEXCEN. The Patent and Trademark Office issued the patent in January 2000. Minton thereafter filed a patent infringement suit in federal district court against the National Association of Securities Dealers, Inc. (NASD) and the NASDAQ Stock Market, Inc. Minton was represented in the patent litigation by Jerry Gunn and other attorneys with whom he was affiliated.

NASD and NASDAQ moved for summary judgment on the ground that Minton's patent was invalid under the "on-sale" bar, 35 U.S.C. §102(b), because the invention was on-sale in the United States more than one year prior to the patent application. The district court granted summary judgment and declared Minton's patent to be invalid. Minton sought reconsideration, arguing for the first time that his lease agreement with the brokerage was part of ongoing testing of TEXCEN and, thus, fell within the "experimental use" exception to the on-sale bar. The district court denied reconsideration, and Minton appealed to the U.S. Court of Appeals for the Federal Court, which affirmed and concluded the district court appropriately held Minton's experimental use argument had been waived.

Minton then filed suit in Texas state court against Gunn and his other attorneys, alleging that the failure to raise the experimental use argument earlier in the patent litigation was malpractice that directly resulted in the loss of the litigation and the invalidation of his patent. Minton's former lawyers successfully defended the malpractice claim, convincing the trial court that Minton's lease to the brokerage was not for experimental use and, thus, that the infringement action would have failed even if the argument had been timely raised.

On appeal, Minton asserted for the first time that, because his legal malpractice claim involved an alleged error in a patent case, it "arises under" federal patent law for purposes of 28 U.S.C. §1338(a). Minton, therefore, argued that the Texas state court lacked subject matter jurisdiction and that he should be permitted to start his malpractice action over in federal court. A divided panel of the Court of Appeals of Texas rejected Minton's argument, but the Supreme Court of Texas reversed, concluding that Minton's claim involved "a substantial federal issue" because the success of Minton's malpractice claim was reliant upon application of federal patent law. Gunn petitioned for review to the U.S. Supreme Court, which granted certiorari, reversed and remanded to the Supreme Court of Texas for further proceedings.

In a unanimous decision delivered by Chief Justice Roberts, the U.S. Supreme Court reasoned that Minton's legal malpractice claim did not arise under federal patent law and 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 found that, although such cases may necessarily raise disputed questions of federal law, "those cases are by their nature unlikely to have the sort of significance for the federal system necessary to establish jurisdiction." Notably, the Court reasoned that, because of the backward-looking nature of legal malpractice claims, the critical question of Minton's dispute was posed in a merely hypothetical sense, i.e., if Minton's lawyers had raised a timely experimental-use argument, would the result in the patent infringement action have been any different? The Court found that "[n]o matter how the state courts resolve the hypothetical 'case within a case,' it will not change the real-world result of the prior federal patent litigation. Minton's patent will remain invalid."

Ultimately, the Court concluded that, although the Texas state courts must answer a question of patent law to resolve Minton's legal malpractice claim, their answer "[w]ould have no broader effects" and would not stand as precedent in future federal patent litigation. Indeed, the Court noted that the outcome of the malpractice claim would not even affect the validity of Minton's patent. Thus, the Court held there was no "serious federal interest" for a federal court to preside over during the malpractice action and, accordingly, §1338(a) did not deprive the state courts of subject matter jurisdiction.

Although Gunn involved the specific issue of subject matter jurisdiction in federal patent litigation under 28 U.S.C. §1338, certainly the Supreme Court's reasoning can and likely will apply more broadly to future legal malpractice claims arising out of prior litigation involving any question of federal law. Under 28 U.S.C. §1331, federal courts are vested with original jurisdiction of all civil actions arising under the Constitution, laws or treaties of the United States. Based on Gunn, however, §1331 would not appear to confer jurisdiction exclusively in federal court of a malpractice claim that results from legal representation in a previously litigated federal matter, regardless of the specific basis for that claim. Rather, because of the hypothetical "case within a case" nature of a typical legal malpractice action, even if a state court is required to resolve questions of federal law to decide whether malpractice was committed, this probably would not involve a "serious federal interest" so as to require that the matter be heard in federal court. As the Court in Gunn noted, the outcome of the malpractice action in most cases will not change the "real world" result of the prior federal litigation. Therefore, it is reasonable to believe that a plaintiff in a legal malpractice action in such circumstances might appropriately elect to bring the claim in state court, even if the underlying matter involved federal law.

Interestingly, however, the Court in Gunn did not answer whether a plaintiff may bring a legal malpractice claim in federal court if the underlying representation involved a federal question. A plaintiff who might prefer to litigate the malpractice claim in federal court, arguably, still may do so by invoking §1331. As well, a defendant in a malpractice action filed in state court may have a basis to remove the matter to federal court under 28 U.S.C. §1441 if the prior action involved a question of federal law. Conversely, a defendant in such a malpractice action filed in federal court, who would rather litigate the claim in state court, could possibly be able to invoke Gunn as a basis for remand under §1447(c) by arguing that the federal court does not have exclusive jurisdiction to hear the matter because no "serious federal interest" is implicated.

*Christopher is a shareholder in our Harrisburg, Pennsylvania, office. He can be reached at 717-651-3531 or cjconrad@mdwcg.com.

Defense Digest, Vol. 19, No. 2, June 2013