Wednesday, February 20, 2013

State Patent Law Is Born

The United States Supreme Court has ruled that a Texas legal malpractice case, whose outcome hinged on the interpretation of the experimental use exception in federal patent law, was properly heard in Texas state court, not federal court.  The case, Gunn v. Minton, was decided on February 20, 2013.

Vernon Minton invented a software system for managing securities trading.  He leased this system to a securities brokerage in 1995, and then, more than a year after the lease began, filed a patent application claiming his software system.  Minton received a patent for his in 2000.  Next, he sued the National Association of Securities Dealers and the associated NASDAQ Stock Market, Inc..  The defendants prevailed by successfully having the patent invalidated on the grounds that it had been on sale for more than a year prior to the filing of a patent application, in violation of 35 U.S.C. 102(b).

Minton filed a motion for reconsideration in federal district court, arguing that his commercial sale of his software system failed to trigger the on sale bar of section 102(b) because the leased use of the software system was experimental in nature.  The court denied this motion.  Minton appealed to the Court of Appeals for the Federal Circuit, but it affirmed.

Finally, Minton sued his attorneys in Texas state trial court for malpractice, arguing that they should have raised the experimental use defense at the outset of litigation.  His former lawyers contended the leased use of the software system had not qualified as experimental use, and, so, this defense had been unavailable.  Before the Texas Court of Appeals, Minton argued that, because his dispute involved an issue of federal patent law, the trial court had lacked jurisdiction to hear his case.  The appeals court disagreed with Minton.  However, the Supreme Court of Texas reversed the court below because the case involved "a substantial federal [patent law] issue."

The U.S. Supreme Court decisively reversed the judgment of the Texas Supreme Court.  Moreover, the Supreme Court largely restricted patent malpractice lawsuits to state, not federal, court, announcing that
we are comfortable concluding that state legal malpractice claims based on underlying patent matters will rarely, if ever, arise under federal patent law for purposes of section 1338(a).  Although such cases may necessarily raise disputed questions of patent law, those cases are by their nature unlikely to have the sort of significance for the federal system necessary to establish jurisdiction.
Even though, as a consequence, state courts may now have to decide questions of federal patent law to decide state legal malpractice disputes, the Supreme Court appeared unconcerned about any doctrinal messiness that might result.  Such a prediction may be shortsighted.  Furthermore, it may come back to haunt the Supreme Court.  Since state courts are permitted to develop patent doctrine (as some, like Massachusetts, did prior to the American Revolution), differences in interpretation are sure to occur.  For better or for worse, the Supreme Court has now made itself the only court with jurisdiction to decide whether state or federal interpretations of patent law are correct.  As discordance in patent law grows, the Supreme Court may long for the good old days - prior to February 20, 2013 - when the Court of Appeals for the Federal Circuit was allowed to function as their gatekeeper for all substantial patent appeals.

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