Client Alerts | 11/13/2014
Team Contact: Mark Cantor
One long-standing feature of the U.S. patent system is exclusive court jurisdiction over patent cases. Exclusive federal jurisdiction at the trial level, combined with the U.S. Court of Appeals for the Federal Circuit’s exclusive jurisdiction over patent appeals, helps to ensure the uniform application of patent law nationwide. Since the Supreme Court’s 2013 ruling in Gunn v. Minton, however, an increasing number of patent issues are being decided in state courts and regional courts of appeal. This trend appears to be at odds with the system envisioned by Congress, and results from apparent misapplications of Gunn.
I. “Arising Under” Jurisdiction Prior to Gunn
Federal subject matter jurisdiction over patent cases is based on 28 U.S.C. § 1338(a):
The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. No State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents[.]
Section 1338(a) requires federal courts to hear cases involving claims for relief under the Patent Act, including infringement and declaratory judgment actions. In addition, 28 U.S.C. § 1295 establishes the Federal Circuit’s nationwide appellate jurisdiction over appeals from the same cases.
Exclusive federal jurisdiction extends to state-law claims featuring “embedded” patent law issues. Federal jurisdiction under § 1338 “extend[s] only to those cases in which a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims.” Prior to Gunn, state and federal courts applying this test frequently applied federal jurisdiction over state-law claims with embedded patent issues, including breach of contract claims involving patent licenses, defamation, and legal malpractice claims.
II. Gunn Sends “Backward-Looking” Claims To State Court
In Gunn v. Minton, the Supreme Court restricted the scope of federal jurisdiction over state-law claims with embedded patent issues. Minton asserted a legal malpractice claim in Texas state court after a federal court ruled that his patent was invalid due to a statutory bar, alleging that his attorney, Gunn, failed to timely raise the experimental use exception. The Texas Supreme Court ruled that the action should have been litigated in federal court, because Minton’s malpractice claim relied on the viability of the experimental use exception as a defense to invalidity.
In a 9-0 ruling, the U.S. Supreme Court reversed and ruled that the malpractice claim must be heard in a state court. The Court relied on its 2005 decision in Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., stating a standard for “arising under” jurisdiction under the federal question jurisdiction statute, 28 U.S.C. § 1331 (a test interchangeable with the test under § 1338):
[F]ederal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.
The Court concluded that Minton’s claim failed to satisfy the third and fourth factors identified in Grable. First, it held that the patent issue was not “substantial,” even though it was pivotal to Minton’s claim for relief, because an issue is substantial under Grable only if it is important “to the federal system as a whole.” The Court held that the patent issue in Minton’s claim was not substantial because it was purely “backward-looking:”
Because of the backward-looking nature of a legal malpractice claim, the question is posed in a merely hypothetical sense: If Minton’s lawyers had raised a timely experimental-use argument, would the result in the patent infringement proceeding have been different? No matter how the state courts resolve that 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.
The Court noted that the fourth Grable factor also was not met, because requiring federal courts to adjudicate malpractice claims would disrupt Congress’ state-federal balance due to the strong state interest in maintaining standards for licensed attorneys. The Court then proceded to proclaim that since the third and fourth Grable factors were lacking, similar malpractice claims “rarely, if ever” would qualify for federal jurisdiction under § 1338.
The Court brushed aside concerns that state-court rulings in patent cases would result in inconsistent development of patent law by noting that, “In resolving thenonhypothetical patent questions [federal] cases present, the federal courts are of course not bound by state court case-within-a-case rulings.”
III. Courts Apply Gunn Expansively, Perhaps Improperly
Federal and state courts have applied Gunn to exercise jurisdiction over cases which previously would have enjoyed exclusive federal jurisdiction. A key factor in many of these decisions is the character of the patent rights at issue: Whether or not the issue presented is “backward-looking” or limited to a narrow, case-specific set of facts.
The Federal Circuit applied Gunn in Forrester Environmental Services, Inc. v. Wheelabrator Tech., Inc. to decline federal jurisdiction over a state court defamation action based on the defendant’s statements that the plaintiff was infringing three patents. Although the court noted that pre-Gunn cases in which it had recognized jurisdiction over disparagement claims “may well have survived the Supreme Court’s decision in Gunn,” the claims in Forrester did not survive because any state court rulings on the scope or infringement of the patents would have no forward-looking affect: The patents all had expired and the defamatory statements referenced conduct in Taiwan, which would not be infringement in any event.
A. Malpractice Claims Are Not Necessarily Backward-Looking
Unfortunately, many other courts have declined to recognize jurisdiction even where the affected patents are not completely invalid and have not expired. For example, inPetter Investment Co. v. Price Heneveld Cooper DeWitt & Litton, the court considered a malpractice action involving a botched settlement in an ongoing, parallel patent infringement case. The court characterized the malpractice claim as backward-looking and only significant to the case-within-the-case of the malpractice action, relying on Gunn’s broad statement that legal malpractice claims involving patents “rarely” would trigger federal jurisdiction.
The Petter court’s approach overlooks the potential prospective effect of a determination of patent issues on the patentee’s future rights. Although the patent issues inGunn were certainly backwards-looking, because the patents at issue were invalid, many malpractice claims will involve valid patents still within their terms. For example, a malpractice claim based on alleged errors in litigating an infringement claim where the patent was not found to be invalid could have a forward-looking effect. Similarly, a ruling in a case alleging malpractice in the prosecution of one application could affect the patentee’s rights under related applications. Patent law determinations also could have a forward-looking effect even if the patent at issue is invalid or expired, since the rulings could be binding in proceedings involving related patents or pending applications.
In many other state-law claims, the court may be required to construe the claims of a patent or assess the validity of one or more claims. For example, in a claim for breach of a patent license, the patentee/licensor is required to prove that the licensee’s product was covered by the licensed patent. The court’s rulings on claim construction may affect the patentee’s rights in future infringement or license actions.
Gunn did not discuss this consequence of state court adjudication of patent issues, because the patents at issue were invalid. In addition, although the Gunn Court noted that state court interpretations of the Patent Act would not be binding on federal courts, final state court judgments determining patent issues, such as validity, infringement, or claim construction, may well be binding on a patentee in subsequent litigation involving the same or related patents.
B. Narrow Factual Issues Are Not “Backward-Looking”
Other courts have declined to exercise jurisdiction under §§ 1338 and 1295 after characterizing the issues as narrow and fact specific, and therefore apparently insignificant to the patent system as a whole. In MDS (Canada) Inc. v. Rad Source Techs., Inc., the court ruled that the Federal Circuit lacked appellate jurisdiction over a breach of license dispute that turned on whether the licensee’s product infringed three patents. The court held that the issue of patent infringement was not substantial because, “both the highly specialized nature of patent claims and the niche market for [the accused] blood irradiation devices suggest that the resolution of this issue is unlikely to impact any future construction of claims.” The court did not mention that the licensed patents do not expire until 2022. Other courts have followed the same logic.
MDS (Canada) and similar cases rely on Gunn’s acknowledgement that any possible preclusive effect of state court rulings on patent law issues “would be limited to the parties and patents that had been before the state court. Such ‘fact-bound and situation-specific’ effects are not sufficient to establish federal arising under jurisdiction.” However, the fact that a patent covers a technology of interest only in a small industry, or in highly specific applications, is not a reliable indicator of whether the issue is backwards-looking or substantial. In each of these cases, the patent issue has arisen in at least one dispute. The likelihood that a similar dispute involving the same patent should not be dismissed casually, especially when the patent will be in effect for a significant remaining term.
III. Federal Circuit Signals Skepticism About Expanded State-Court Jurisdiction
Recently, the Federal Circuit has signaled that nowithstanding the post-Gunn trend, exclusive federal jurisdiction may continue over many state-law claims with embedded patent issues. In Jang v. Boston Scientific Corp., the court considered whether it had appellate jurisdiction over a patent license dispute. The appeals court distinguished Forrester and stressed the risks of allowing other courts to rule on patent validity or infringement:
Permitting regional circuits to adjudicate questions of patent validity, for example, could result in inconsistent judgments between a regional circuit and the Federal Circuit, resulting in serious uncertainty for parties facing similar infringement charges before district courts within that regional circuit. Maintaining Federal Circuit jurisdiction over such contractual disputes to avoid such conflicting rulings is important to “the federal system as a whole” and not merely “to the particular parties in the immediate suit.” Gunn, 133 S.Ct. at 1066.
As a result, the appeals court ruled that the patent issues raised by Jang’s breach of license claim were substantial and triggered “arising under” jurisdiction. This was true even though Jang’s patent had been invalidated as a result of reexamination proceeding. The Federal Circuit reasoned that jurisdiction must be assessed at the time an action is commenced, and since the patent only was invalidated later, federal jurisdiction attached to Jang’s claim.
The sound application of Gunn to state-law claims requires a careful evaluation of whether embedded patent issues are “substantial.” Purely backward-looking issues, with no reasonable prospect of affecting patent rights in future cases, generally will lack federal jurisdiction under § 1338. As the Federal Circuit noted in Jang, however, consistency and uniformity in the patent system requires that issues with forward-looking effects be determined by federal trial courts and the Federal Circuit. Courts should consider the possible future effects in cases even if they present claims for legal malpractice, or are based on narrow technical issues.
 Gunn v. Minton, ___ U.S. ___, 133 S. Ct. 1059, 185 L. Ed. 2d 72 (2013).
 Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 808 (1988).
 Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U.S. 308 (2005).
 Gunn, 133 S. Ct. at 1066-67.
 Id. at 1065.
 Id. at 1068.
 715 F.3d 1329 (Fed. Cir. 2013).
 715 F.3d at 1334.
 2013 WL 1442200 (Mich. App. Ct. Apr. 9, 2013).
 Gunn, 133 S. Ct. at 1067.
 720 F.3d 833 (11th Cir. 2013).
 720 F.3d at 842.
 See, e.g., Bonnafant v. Chico’s FAS, Inc., 2014 WL 1664554 (M.D. Fla. Apr. 25, 2014) (whistleblower case lacked federal question jurisdiction when issue only “will require the application of a set body of law to the facts at hand.”); Airwatch LLC v. Good Technology Corp., 2014 WL 1651964 (N.D. Ga. Apr. 24, 2014) (no federal jurisdiction over defamation action because infringement issue was “context-specific”).
 Gunn, 133 S. Ct. at 1067-68, quoting Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 701 (2006).
 No. 2014-134, 2014 WL 4746002 (Fed. Cir. Sept. 16, 2014).
 Jang, 2014 WL 4746002 at *3.