GUNN ET AL. v. MINTON
No. 11-1118
Supreme Court of the United States
February 20, 2013
251
Argued January 16, 2013
Thomas M. Michel argued the cause for respondent. With him on the brief were Coyt Randal Johnston, Robert L. Tobey, Coyt Randal Johnston, Jr., Theodore F. Shiells, and Daniel R. Ortiz.*
CHIEF JUSTICE ROBERTS delivered the opinion of the Court.
Federal courts have exclusive jurisdiction over cases “arising under any Act of Congress relating to patents.”
I
In the early 1990‘s, respondent Vernon Minton developed a computer program and telecommunications network designed to facilitate securities trading. In March 1995, he leased the system—known as the Texas Computer Exchange Network, or TEXCEN—to R. M. Stark & Co., a securities brokerage. A little over a year later, he applied for a patent for an interactive securities trading system that was based
Patent in hand, Minton filed a patent infringement suit in Federal District Court against the National Association of Securities Dealers, Inc. (NASD), and the NASDAQ Stock Market, Inc. He was represented by Jerry Gunn and the other petitioners. NASD and NASDAQ moved for summary judgment on the ground that Minton‘s patent was invalid under the “on sale” bar,
Minton then filed a motion for reconsideration in the District Court, arguing for the first time that the lease agreement with Stark was part of ongoing testing of TEXCEN and therefore fell within the “experimental use” exception to the on-sale bar. See generally Pfaff v. Wells Electronics, Inc., 525 U. S. 55, 64 (1998) (describing the exception). The District Court denied the motion. Minton v. National Assn. of Securities Dealers, Inc., No. 9:00–cv–00019 (ED Tex., July 15, 2002).
Minton appealed to the U. S. Court of Appeals for the Federal Circuit. That court affirmed, concluding that the District Court had appropriately held Minton‘s experimental-use argument waived. See Minton v. National Assn. of Securities Dealers, Inc., 336 F. 3d 1373, 1379–1380 (CA Fed. 2003).
On appeal, Minton raised a new argument: Because his legal malpractice claim was based on an alleged error in a patent case, it “aris[es] under” federal patent law for purposes of
A divided panel of the Court of Appeals of Texas rejected Minton‘s argument. Applying the test we articulated in Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U. S. 308, 314 (2005), it held that the federal interests implicated by Minton‘s state law claim were not sufficiently substantial to trigger
The Supreme Court of Texas reversed, relying heavily on a pair of cases from the U. S. Court of Appeals for the Federal Circuit. 355 S. W. 3d 634, 641–642 (2011) (discussing Air Measurement Technologies, Inc. v. Akin Gump Strauss Hauer & Feld, L. L. P., 504 F. 3d 1262 (2007); Immunocept, LLC v. Fulbright & Jaworski, LLP, 504 F. 3d 1281 (2007)). The court concluded that Minton‘s claim involved “a substantial federal issue” within the meaning of Grable “because the success of Minton‘s malpractice claim is reliant upon the viability of the experimental use exception as a defense to the on-sale bar.” 355 S. W. 3d, at 644. Adjudication of Minton‘s claim in federal court was consistent with the appropriate balance between federal and state judicial responsibilities, it held, because “the federal government and patent litigants have an interest in the uniform application of patent law by courts well-versed in that subject matter.” Id., at 646 (citing Immunocept, supra, at 1285–1286; Air Measurement Technologies, supra, at 1272).
Justice Guzman, joined by Justices Medina and Willett, dissented. The dissenting justices would have held that the federal issue was neither substantial nor disputed, and that maintaining the proper balance of responsibility between state and federal courts precluded relegating state legal malpractice claims to federal court.
We granted certiorari. Post, p. 936.
II
“Federal courts are courts of limited jurisdiction,” possessing “only that power authorized by Constitution and statute.” Kokkonen v. Guardian Life Ins. Co. of America, 511 U. S. 375, 377 (1994). There is no dispute that the Constitution permits Congress to extend federal court jurisdiction to a case such as this one, see Osborn v. Bank of United States, 9 Wheat. 738, 823–824 (1824); the question is whether Con-
As relevant here, Congress has authorized the federal district courts to exercise original jurisdiction in “all civil actions arising under the Constitution, laws, or treaties of the United States,”
For statutory purposes, a case can “aris[e] under” federal law in two ways. Most directly, a case arises under federal law when federal law creates the cause of action asserted. See American Well Works Co. v. Layne & Bowler Co., 241 U. S. 257, 260 (1916) (“A suit arises under the law that creates the cause of action“). As a rule of inclusion, this “creation” test admits of only extremely rare exceptions, see, e. g., Shoshone Mining Co. v. Rutter, 177 U. S. 505 (1900), and accounts for the vast bulk of suits that arise under federal law, see Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U. S. 1, 9 (1983). Minton‘s original patent infringement suit against NASD and NASDAQ, for example, arose under federal law in this manner because it was authorized by
In an effort to bring some order to this unruly doctrine several Terms ago, we condensed our prior cases into the following inquiry: Does the “state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities?” Grable, 545 U.S., at 314. That is, federal 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. Where all four of these requirements are met, we held, jurisdiction is proper because there is a “serious federal interest in claiming the advantages thought to be inherent in a federal forum,” which can be vindicated without disrupting Congress‘s intended division of labor between state and federal courts. Id., at 313–314.
III
Applying Grable‘s inquiry here, it is clear that Minton‘s legal malpractice claim does not arise under federal patent law. Indeed, for the reasons we discuss, 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
A
To begin, we acknowledge that resolution of a federal patent question is “necessary” to Minton‘s case. Under Texas law, a plaintiff alleging legal malpractice must establish four elements: (1) that the defendant attorney owed the plaintiff a duty; (2) that the attorney breached that duty; (3) that the breach was the proximate cause of the plaintiff‘s injury; and (4) that damages occurred. See Alexander v. Turtur & Associates, Inc., 146 S. W. 3d 113, 117 (Tex. 2004). In cases like this one, in which the attorney‘s alleged error came in failing to make a particular argument, the causation element requires a “case within a case” analysis of whether, had the argument been made, the outcome of the earlier litigation would have been different. 355 S. W. 3d, at 639; see 4 R. Mallen & J. Smith, Legal Malpractice §37:15, pp. 1509–1520 (2012). To prevail on his legal malpractice claim, therefore, Minton must show that he would have prevailed in his federal patent infringement case if only petitioners had timely made an experimental-use argument on his behalf. 355 S. W. 3d, at 644. That will necessarily require application of patent law to the facts of Minton‘s case.
B
The federal issue is also “actually disputed” here—indeed, on the merits, it is the central point of dispute. Minton argues that the experimental-use exception properly applied to his lease to Stark, saving his patent from the on-sale bar; petitioners argue that it did not. This is just the sort of “‘dispute respecting the . . . effect of [federal] law‘” that Grable envisioned. 545 U.S., at 313 (quoting Shulthis v. McDougal, 225 U. S. 561, 569 (1912)).
Minton‘s argument founders on Grable‘s next requirement, however, for the federal issue in this case is not substantial in the relevant sense. In reaching the opposite conclusion, the Supreme Court of Texas focused on the importance of the issue to the plaintiff‘s case and to the parties before it. 355 S. W. 3d, at 644 (“because the success of Minton‘s malpractice claim is reliant upon the viability of the experimental use exception as a defense to the on-sale bar, we hold that it is a substantial federal issue“); see also Air Measurement Technologies, 504 F. 3d, at 1272 (“the issue is substantial, for it is a necessary element of the malpractice case“). As our past cases show, however, it is not enough that the federal issue be significant to the particular parties in the immediate suit; that will always be true when the state claim “necessarily raise[s]” a disputed federal issue, as Grable separately requires. The substantiality inquiry under Grable looks instead to the importance of the issue to the federal system as a whole.
In Grable itself, for example, the Internal Revenue Service had seized property from the plaintiff and sold it to satisfy the plaintiff‘s federal tax delinquency. 545 U. S., at 310–311. Five years later, the plaintiff filed a state law quiet title action against the third party that had purchased the property, alleging that the Internal Revenue Service had failed to comply with certain federally imposed notice requirements, so that the seizure and sale were invalid. Ibid. In holding that the case arose under federal law, we primarily focused not on the interests of the litigants themselves, but rather on the broader significance of the notice question for the Federal Government. We emphasized the Government‘s “strong interest” in being able to recover delinquent taxes through seizure and sale of property, which in turn “require[d] clear terms of notice to allow buyers . . . to satisfy themselves that the Service has touched the bases necessary for good title.” Id., at 315. The Government‘s “direct in-
A second illustration of the sort of substantiality we require comes from Smith v. Kansas City Title & Trust Co., 255 U. S. 180 (1921), which Grable described as “[t]he classic example” of a state claim arising under federal law. 545 U. S., at 312. In Smith, the plaintiff argued that the defendant bank could not purchase certain bonds issued by the Federal Government because the Government had acted unconstitutionally in issuing them. 255 U. S., at 198. We held that the case arose under federal law, because the “decision depends upon the determination” of “the constitutional validity of an act of Congress which is directly drawn in question.” Id., at 201. Again, the relevant point was not the importance of the question to the parties alone but rather the importance more generally of a determination that the Government “securities were issued under an unconstitutional law, and hence of no validity.” Ibid.; see also Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U. S. 804, 814, n. 12 (1986).
Here, the federal issue carries no such significance. 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.
Nor will allowing state courts to resolve these cases undermine “the development of a uniform body of [patent] law.” Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U. S. 141, 162 (1989). Congress ensured such uniformity by vesting exclusive jurisdiction over actual patent cases in the fed-
As for more novel questions of patent law that may arise for the first time in a state court “case within a case,” they will at some point be decided by a federal court in the context of an actual patent case, with review in the Federal Circuit. If the question arises frequently, it will soon be resolved within the federal system, laying to rest any contrary state court precedent; if it does not arise frequently, it is unlikely to implicate substantial federal interests. The present case is “poles apart from Grable,” in which a state court‘s resolution of the federal question “would be controlling in numerous other cases.” Empire HealthChoice Assurance, Inc., 547 U. S., at 700.
Minton also suggests that state courts’ answers to hypothetical patent questions can sometimes have real-world effect on other patents through issue preclusion. Brief for Respondent 33–36. Minton, for example, has filed what is known as a “continuation patent” application related to his original patent. See
Nor can we accept the suggestion that the federal courts’ greater familiarity with patent law means that legal malpractice cases like this one belong in federal court. See Air Measurement Technologies, 504 F. 3d, at 1272 (“The litigants will also benefit from federal judges who have experience in claim construction and infringement matters“); 355 S. W. 3d, at 646 (“patent litigants have an interest in the uniform application of patent law by courts well-versed in that subject matter“). It is true that a similar interest was among those we considered in Grable. 545 U. S., at 314. But the possibility that a state court will incorrectly resolve a state claim is not, by itself, enough to trigger the federal courts’ exclusive patent jurisdiction, even if the potential error finds its root in a misunderstanding of patent law.
There is no doubt that resolution of a patent issue in the context of a state legal malpractice action can be vitally im-
D
It follows from the foregoing that Grable‘s fourth requirement is also not met. That requirement is concerned with the appropriate “balance of federal and state judicial responsibilities.” Ibid. We have already explained the absence of a substantial federal issue within the meaning of Grable. The States, on the other hand, have “a special responsibility for maintaining standards among members of the licensed professions.” Ohralik v. Ohio State Bar Assn., 436 U. S. 447, 460 (1978). Their “interest . . . in regulating lawyers is especially great since lawyers are essential to the primary governmental function of administering justice, and have historically been officers of the courts.” Goldfarb v. Virginia State Bar, 421 U. S. 773, 792 (1975) (internal quotation marks omitted). We have no reason to suppose that Congress—in establishing exclusive federal jurisdiction over patent cases—meant to bar from state courts state legal malpractice claims simply because they require resolution of a hypothetical patent issue.
* * *
As we recognized a century ago, “[t]he Federal courts have exclusive jurisdiction of all cases arising under the patent laws, but not of all questions in which a patent may be the subject-matter of the controversy.” New Marshall Engine Co. v. Marshall Engine Co., 223 U. S. 473, 478 (1912). In this case, although the state courts must answer a question of patent law to resolve Minton‘s legal malpractice claim, their answer will have no broader effects. It will not stand as binding precedent for any future patent claim; it will not even affect the validity of Minton‘s patent. Accordingly, there is no “serious federal interest in claiming the advan-
The judgment of the Supreme Court of Texas is reversed, and the case is remanded for further proceedings not inconsistent with this opinion.
It is so ordered.