Unanimous Supreme Court Narrows “Arising Under Patent Laws” Jurisdiction

March 04, 2013

The United States Supreme Court continued its trend of departing from Federal Circuit precedent identifying special rules for patent cases in a holding that aligns patent law with the law in other areas. First, the Supreme Court addressed injunctions in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) holding that the traditional test for granting injunctions applied to patent cases. Then, the Supreme Court addressed declaratory judgment jurisdiction in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), rejecting the Federal Circuit’s special “reasonable apprehension of imminent suit” standard for standing in patent declaratory judgment actions as precluding suit by a patent licensee in good standing. Now the Supreme Court’s February 20 decision in Gunn v. Minton has again rejected the Federal Circuit’s notion that litigation involving patents is an area where special rules apply. Gunn holds, unanimously, and contrary to Federal Circuit precedent, that legal malpractice cases asserting mishandling of patent litigation are to be decided in state courts, just like any other legal malpractice cases.

In Gunn, plaintiff Minton sued the law firm defendants in Texas state court for legal malpractice. The law firm defendants had represented Minton as plaintiff in earlier patent infringement litigation, which Minton lost based on invalidity of Minton’s patents due to the on-sale bar. Minton alleged in the malpractice action that the law firm defendants had failed to assert the experimental use exception to the on-sale bar, causing him to lose the case. The Texas trial court granted summary judgment for the defendants in the malpractice action because it found that Minton had offered “less than a scintilla of proof” that his use was actually experimental and thus could not show that the exception applied.

Faced with a loss in the state court forum he had chosen, Minton changed tacks on appeal and argued that the judgment should be vacated because the Texas state court did not have jurisdiction over the claim. Instead, he argued, the federal courts had exclusive jurisdiction of his claim under 28 U. S. C. §1338(a). That section provides for federal court jurisdiction of actions “arising under any Act of Congress relating to patents” and states that “[n]o State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents.” The Texas Supreme Court agreed, relying on Federal Circuit cases holding that the federal courts have exclusive jurisdiction of legal malpractice actions based on alleged errors in patent litigation.

The United States Supreme Court reversed. The Court held that “arising under” in 28 U.S.C. §1338(a) has the same meaning as “arising under” in 28 U.S.C. §1331, the general federal question jurisdiction statute (“all civil actions arising under the Constitution, laws, or treaties of the United States”). The Court also held that both statutes are governed by the standards articulated in Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U. S. 308, 314 (2005), applying §1331. A claim can “arise under” if it is created by federal (or patent) law. Alternatively, a claim created by state law can “arise under” federal (or patent) law if a federal (or patent) issue is: (1) necessarily raised by the claim, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.

The Supreme Court concluded that malpractice cases like Minton’s would “rarely, if ever,” qualify for federal jurisdiction. There was no dispute in Gunn that the first and second Grable criteria were satisfied. On the third criterion, the Texas Supreme Court (and the Federal Circuit in its malpractice cases) had found the patent issue “substantial” essentially because it would determine the outcome of the malpractice suit. The Supreme Court dismissed that focus on the importance of the federal issue to the suit and the parties as not the “relevant” sense of “substantial.” Instead, it said, “The substantiality inquiry under Grable looks instead to the importance of the issue to the federal [or patent] system as a whole.” But here the invalidity of the patent had been finally determined in the original patent infringement action and would not be changed by the hypothetical decision of the experimental use issue in the case-within-a-case in the malpractice action. Moreover, the decision of the issue in the malpractice case would not even be binding precedent on the federal courts. As a result the issue had no substantial importance to the federal patent system as a whole. Since the issue was not of importance to the federal system, and the state had a well-established interest in regulating the practice of law, it followed that the fourth criterion for federal jurisdiction, pertaining to the federal-state balance, was also not satisfied.

On February 25, the Supreme Court denied certiorari in another case also asserting “arising under” jurisdiction, this time in a case alleging breach of and fraud concerning a patent licensing agreement. Regents of the University of California, et al. v. Caldera Pharmaceuticals, Inc., No. 12-570. It thus appears that the Supreme Court intends to restrict federal jurisdiction under 28 U.S.C. §1338 to cases where the claims are created by patent law, such as patent infringement, and not to extend it to claims that are created by state law that only involve patents incidentally, even where those cases will involve significant application and dispute regarding patent law. In those instances, the parties will have to bear the burden of educating state trial and appellate judges, as well as juries, about the relevant patent law principles.

This article was originally published by Bingham McCutchen LLP.