During past month when many patent practitioners may have been distracted by the “laws of nature” meaning of the Mayo v. Prometheus decision, the Court of Appeals for the Federal Circuit issued four precedential rulings confirming the exclusive authority of federal courts to adjudicate patent legal malpractice claims. Only the Supreme Court can alter this fixed jurisdictional landscape. Is this issue finally cert-worthy?
The Federal Circuit first held that federal courts should exercise exclusive jurisdiction over patent legal malpractice claims in two separate panel decisions issued in October 2007. In the view of a super-majority of Federal Circuit judges, exclusive jurisdiction is a done deal. As Judge Dyk stated in his concurring opinion denying a rehearing in the Byrne v. Wood Herron case, “I see no reason to revisit this court’s repeated holdings that where the outcome of malpractice cases turns on federal patent law, federal jurisdiction exists.”
But some of members of the Federal Circuit beg to differ with this jurisdictional result. Two impassioned dissents and two begrudging concurrences authored by Judge Kathleen O’Malley may well compel SCOTUS review.
Judge O’Malley’s dissent case in the Byrne case is blunt. She rebukes the Federal Circuit for its supposed jurisdictional land grab: “It is time we stop exercising jurisdiction over state law malpractice claims.” Per O’Malley, rather than “force the Supreme Court to correct our jurisdictional mistakes, we should take this opportunity to do so ourselves.” She is not alone in her convictions. Judge Evan Wallach, the appellate court’s newest member, joined in Judge O’Malley’s dissent.
In dissenting from a denial of a Memorylink v. Motorola rehearing some three weeks later, Judge O’Malley again opined that this “court’s routine extension of jurisdiction to purely state-law malpractice claims is improper and conflicts with governing Supreme Court precedent.”
Having already dissented twice, Judge O’Malley reluctantly concurred with the Federal Circuit’s dismissal of the state law claims implicating patent law in the USPPS v. Avery Dennison decision issued on April 17, because “our case law compels that we exercise subject matter jurisdiction over it.” Although she conceded the import of the Federal Circuit’s holdings, Judge O’Malley added a stinging rejoinder that the “case exemplifies the mischief our jurisdictional over-reaching has caused in situations where a state law claim involves an underlying patent issue.” Interestingly enough, Judge Mayer (a Federal Circuit judge since 1987) joined in this concurring opinion.
Finally, in a decision issued on April 23, 2012, Judge O’Malley concurred in the result of the Federal Circuit’s decision in Landmark Screens v. Morgan, Lewis & Bockius, but wrote separately because “our case law in this area treads unduly into matters which are—and should remain—governed by state law [and] I encourage our court to address the scope of our jurisdiction in these matters en banc.”
With this kind of jurisdictional gauntlet being laid down, the filing of petitions for writs of certiorari appears imminent. Will the Supreme Court seize on this opportunity to rein in an expansionist Federal Circuit? Or will it deny any forthcoming cert petitions and implicitly bless the Federal Circuit’s exercise of authority over patent legal malpractice claims? This brief article examines this question further in light of legislative history of the Federal Courts Improvement Act of 1982 and a review of Byrne, Memorylink, USPPS and Landmark Screens case facts.
Divining 1982 Legislative History
Chief Judge Rader is a leading proponent of the Federal Circuit’s decision to fold patent legal malpractice cases into its patent jurisdictional mandate. He, along with then Chief Judge Michel and Circuit Judge Lourie, issued the two panel decisions in 2007—the Air Measurement and Immunocept cases—that resolved an “issue of first impression,” i.e., whether 28 U.S.C. § 1338 jurisdiction exists where a legal malpractice claim requires resolution of an underlying question of patent law.
During a seminar at the ABA/IPL’s recent 2012 spring meeting, Chief Judge Rader talked about his early years on Capitol Hill and his work as counsel for the Senate Judiciary Committee. One of his primary initial tasks involved working on what would become the Federal Courts Improvement Act of 1982, the legislation that formed the Federal Circuit and granted it exclusive authority over patent appeals.
The legislative history of the Act explains the need for a court of appeals whose jurisdiction is defined on a topical rather than geographical basis. The Senate judiciary committee determined that “an adequate showing has been made for nationwide subject matter jurisdiction in the areas of patents and claims court appeals.” S. Rep. No. 97-275, at 4, as reprinted in 1982 U.S.C.C.A.N. 11, 14. The basic objective of the legislation is to provide for “uniformity of doctrinal development in the patent area.” Id., at 5. The testimony in support of the creation of the Federal Circuit demonstrated that “patent cases are inconsistently adjudicated” and that that “forum shopping [is] common in patent litigation.” Id.
But the Senate committee report further notes that it “must be understood, however, that it is not the committee’s judgment that broader subject matter jurisdiction is intended for this court. It must therefore be noted that any additional subject matter for the United States Court of Appeals for Federal Circuit will require not only serious future evaluation, but new legislation.” Id. at 4 (emphasis added).
The legislative history does not explicitly discuss whether federal courts should exercise exclusive jurisdiction over state law patent legal malpractice claims. Although concerns about forum shopping and inconsistent patent litigation adjudications animated passage of the Federal Courts Improvement Act of 1982, neither of these concerns was expressed in connection with the resolution of patent legal malpractice actions. This absence of congressional discussion perhaps can be explained by the relative paucity of patent legal malpractice claims before the creation of the Federal Circuit.
Doctrinal uniformity of patent law is a vital goal of the 1982 Act. That goal is arguably best satisfied by requiring that patent legal malpractice claims be filed in federal court in the first instance and that their appeals heard by a specialized patent appeals court. By creating a more commercially robust patent system, the Federal Circuit spawned a system of high stakes patent prosecution and litigation. By expanding jurisdiction over the lawyer “stakeholders” in the patent system as well as the intangible property created through a government grant, the Federal Circuit can exercise more complete control over the entire patenting process.
A super-majority of the Federal Circuit obviously believes that no new legislation is necessary to support exclusive federal court jurisdiction over state law claims whose merits turn on issues of federal patent law.
Are Judge O’Malley’s “Substantiality” and “Federalism” Objections Valid or Overstated?
What should one make of Judge O’Malley’s vigorously expressed substantiality and federalism concerns in extending federal court jurisdiction over patent matters?
To meet the Supreme Court’s Grable test for determining whether a federal issue embedded in a state law claim warrants the exercise of federal question jurisdiction, courts must consider whether: (1) the federal issue is a necessary element of a state law claim; (2) a federal issue is actually disputed; (3) the federal issue is substantial; and (4) exercising federal jurisdiction will disturb the balance of federal and state judicial responsibilities.
The first two Grable factors are generally viewed as favoring an exercise of federal jurisdiction over patent legal malpractice claims. The “case within a case” nature of a patent legal malpractice claim means that patent issues are embedded and that the outcome of the malpractice claim may require resolution of those underlying patent issues. In addition, individuals who are registered to practice before the USPTO are bound by ethical canons and disciplinary rules set forth in Code of Federal Regulations (see 37 C.F.R. § 10.1 et seq.). These two topics implicate federal patent law and are likely to arise in any patent legal malpractice action.
The jurisdictional debate essentially revolves around whether federal patent issues can be classified as “substantial” when the court rulings in a legal malpractice claim cannot create binding law regarding the patent grant itself. If so, can the insubstantial result justify upsetting the traditional balance of federal and state judicial responsibilities? Judge O’Malley frames the issue succinctly in her USPPS concurrence:
“Where [. . .] the resolution of any patent issue will relate to hypothetical circumstances and neither result in a finding of either infringement or invalidity nor have any precedential effect in any patent law action, the federal interest is marginal at best. * * * * Left unchecked and unrevised, our case law will continue to upset the balance of federal and state judicial responsibilities.”
The facts of the four recent precedential cases can shed analytical light on whether Judge O’Malley’s substantiality and federalism concerns are justified.
Byrne v. Wood Herron
Byrne’s malpractice claim centered on an allegation that his patent prosecution counsel “negligently failed to secure broader patent rights [for a lawn trimmer device] from the [USPTO] and, as a result, Byrne was unsuccessful in a subsequent patent infringement lawsuit against Black & Decker [and related entities].” The district court’s dismissal of Byrne’s claims turned on whether Byrne and his patent attorney expert were sufficiently qualified to opine as experts or as persons of at least ordinary skill in the relevant art of string trimmers.
The Byrne facts present classic patent law questions. They would be understood and resolved most readily by those familiar with patent law jurisprudence. These issues would not be second nature to state court jurists, however. Most state court judges will never rule upon a POSITA (an acronym for “person of ordinary skill in the art”) issue in their judicial tenures.
The Federal Circuit’s Byrne panel decision (even though technically non-precedential) is illuminating and clarifies the standards by which expert and POSITA declarations should be evaluated by patent practitioners. In contrast, a state court opinion on the standards for POSITA declarations would be rather meaningless. A dissent argument that patent legal malpractice cases perforce have no precedential impact ignores this significant point. Federal court malpractice cases will establish precedential standards for the patent bar where state court adjudications of such claims may well yield no binding guidance.
Memorylink v. Motorola
The Memorylink case involves allegations that Motorola basically co-opted inventorship of two U.S. patents regarding technology to wirelessly transmit and receive multimedia data. Memorylink and Motorola had previously entered into a joint development agreement regarding this technology.
Memorylink named five in-house Motorola patent counsel in a malpractice claim. The malpractice complaint was preceded by and closely tied to another complaint that included claims for correction of patent inventorship and patent infringement. The federal district court dismissed Memorylink’s malpractice claim as untimely under applicable Illinois statutes of limitation and repose. The Federal Circuit summarily affirmed the dismissal pursuant to Fed. Cir. R. 36.
Judge O’Malley’s substantiality and federal/state balance of power concerns gain more traction in this case. Because the case turns on state statutes of limitation and repose, no issue of patent law was actually litigated. On the other hand, federal court judges would not need an instant education regarding inventorship issues if the malpractice claim had survived dispositive motion practice. State court judges would have.
How joint ventures operate in the context of federal ethical canons and disciplinary rules eventually would have surfaced in the Memorylink case. Motorola’s in-house patent counsel would have had their conduct scrutinized in the context of those federal regulations. Having a federal judiciary experienced with patent law rules would have been much more efficient than having an inexperienced state judiciary deal with these issues. Had the case proceeded, it may well have led to a precedential ruling of intense interest to the patent bar.
State judges and bar associations likely would have no experience applying CFR-imposed ethical canons and disciplinary rules to the practice of patent prosecutors. In this regard, patent agents are not attorneys, but are subject to federal examination and ethical and disciplinary requirements governing their patent practice.
Evaluated against this factual milieu, the dissent’s assertion that exercising exclusive federal jurisdiction over the Memorylink malpractice claim upsets a state/federalism balance rings hollow. It might be marginally more efficient in the short run for a state court adjudication of statute of limitations and repose issues upon which many patent legal malpractice cases turn. However, those efficiencies would be lost when patent issues surface, as they eventually must in non-dismissed actions. Because federal district court judges rule on statutes of limitation and repose issues repeatedly, there is no reason to believe that they would be less able to apply state law as well as state court judges in their jurisdictions.
Further, the malpractice claim in Memorylink involved issued, non-expired patents. Far from being non-precedential, a ruling on inventorship (or lack thereof) in a state court proceeding could well have profound effects on the ultimate enforceability of the subject patents over their lifespan. Certainly, a federal court or appellate ruling would have even more force and would provide uniform guidance to those involved in patent-based joint ventures. These more nuanced federalism issues are not broached in Judge O’Malley’s recent opinions. They raise federalism concerns in a rather nostalgic fashion; they do not examine the actual, palpable efficiencies that can be expected from an assertion of exclusive federal court jurisdiction over state law claims founded on patent law.
USPPS v. Avery Dennison
Like the Memorylink case, the USPPS case stems from a falling-out between an inventor and his licensee and the licensee’s attorneys who took over prosecution of the patent application under the terms of a licensing agreement. The licensor sued both Avery Dennison and its outside law firm claiming that they had mishandled the patent prosecution, leading to an abandonment of the patent application. The district court dismissed the claim on statute of limitations grounds.
Judge O’Malley’s substantiality and federalism concerns have some facial appeal with respect to USPPS case facts. No patent had ever issued, and the case dismissal turned on state law grounds. Had the case not been dismissed, the embedded patent conflict of interest rules would have become litigated subject matter and would likely have provided guidance to patent lawyers about their relative duties and obligations under this kind of licensing scenario. State court rulings would lack national uniformity and thus would not provide the kind of real guidance patent practitioners may need regarding their CFR-imposed ethical obligations.
Landmark Screens v. Morgan Lewis
The Landmark Screens case involves an invention of a light-emitting diode electronic billboard. The inventor retained the former Pennie & Edmonds law firm to prepare his patent application.
The underlying alleged patent legal malpractice concerned deficiencies with respect to a divisional patent application that adversely affected its ability to benefit from the priority date of the original patent application. Because of these errors, when the original patent application was published, it became prior art to the divisional application. A bad result.
Landmark Screens filed a patent legal malpractice claim in November 2005 in state court, but that case was dismissed for lack of subject matter jurisdiction in 2008 in light of Federal Circuit’s Immunocept and Air Measurement cases. When the claims were refiled in federal court, the patent legal malpractice claim was dismissed based on California’s one year statute of limitations. An amended state fraud claim would later be dismissed on statute of limitations grounds. Potential damages were previously limited by an order restricting their permissible scope.
The Federal Circuit reversed the dismissal of the attorney fraud claim and vacated the damages limitation order. To do so, it applied California equitable tolling law. The district court’s damages ruling stemmed from how damages are impacted by a reissued patent claims. To prevent a reissued patent from claiming scope “lost” by the defective divisional patent application, the lower court cut off any damages as of the date of the reissued patent.
The Landmark Screens case demonstrates some clear efficiencies of exclusive federal court jurisdiction. The interplay between divisional and reissued patents and their predecessors is a complex patent law issue. To rule on these matters effectively at a state court level would have required extensive briefing and education and potential use of expert witnesses. Federal courts are much more versed in these issues and by granting them jurisdiction, much of the state court patent education expense can be avoided by party litigants.
The “mischief” that Judge O’Malley refers to in her opinions is really directed to the stumbling procedural snafus caused by courts and party litigants as they began to find, understand and apply the Federal Court’s new case law regarding exclusive federal court jurisdiction over patent legal malpractice claims. Now that this basic rule of federal exclusivity is more well-known, these procedural snafus—such as not filing the malpractice claim in federal court in the first instance or appealing a patent-based case to a regional circuit rather than the Federal Circuit—should naturally fall away.
What began as a fissure in a Byrne panel decision questioning the continued wisdom of exercising federal jurisdiction developed into a full-blown string of vigorously stated dissents and concurrences in four recent Federal Circuit precedential decisions. The fissure that emerged is now as wide as the Columbia Gorge.
Unless Judge O’Malley’s dissenting voice catches fire soon with those reviewing Supreme Court writ of certiorari petitions, the Federal Circuit’s s Byrne, Memorylink, USPPS and Landmark Screens holdings plainly show that exclusive federal jurisdiction over patent legal malpractice cases is here to stay.