Just last week, on Jan. 16, 2013, the U.S. Supreme Court heard oral argument about whether patent-related malpractice claims should be filed and tried in federal or state court. The case, Gunn v. Minton, is discussed below, and represents an unfortunate trend of increased patent malpractice cases which has caught the attention of the nation’s highest court. Indeed, as the volume of patent litigation has increased over the past decade, so has the incidence of patent malpractice suits. According to the American Bar Association, patent malpractice claims have risen steadily from 685 in 2007 to 873 in 2011, an increase of more than 30 percent.1

Many have speculated about the cause of the trend, including the movement into the patent field of contingent fee attorneys but, regardless, there are important principles to be gleaned from these cases. And, although in today’s litigious world almost anyone can bring a lawsuit against almost anyone, there are steps patent practitioners can take to minimize the risks of being sued but, more importantly, to insure all clients in the patent field receive what they deserve—zealous representation linked with the highest ethical standards in the legal profession. With this in mind, this article provides an overview of the recent trends and developments in the field of patent malpractice law.

Federal Circuit Revives Suit

Recently, in Landmark Screens v. Morgan, Lewis,2 a three-judge panel of the U.S. Court of Appeals for the Federal Circuit revived a malpractice suit that had been dismissed by the trial court as untimely in view of the state statute of limitations on fraud. The dispute centered on a pair of allegedly mishandled 2002 patent applications. In one of the applications, the Patent and Trademark Office issued a rejection, but it was left unanswered until over a year had elapsed, at which point the grace period expired, and the substance of the application became prior art, thus rendering unpatentable the claims of a related second application.

Landmark brought suit in California state court on legal malpractice, negligence, and fraud theories, but the state court dismissed the suit for lack of subject matter jurisdiction, finding that the case was intimately bound up with questions of patent law, and as such belonged in federal court. Landmark promptly refiled in the Central District of California, but over a period of two years saw all of its claims dismissed on summary judgment as being barred by California’s one-year statute of limitations for legal malpractice actions.

On appeal to the Federal Circuit, Landmark argued that its fraud claim should have been subject to California’s equitable tolling doctrine, according to which California and Ninth Circuit courts should “toll[] the limitation period of a second action during the pendency of a first action later found to be defective.”3 Finding that Landmark reasonably and in good faith pursued the fraud claim in state court, only to find out that state courts lacked jurisdiction over the case, the Federal Circuit, in remanding the case, held that the district court should have equitably tolled the fraud claim during its pendency in the state court. Writing in a separate concurrence, Judge Kathleen O’Malley reiterated her dismay at the degree to which the Federal Circuit has sought to expand its jurisdiction into matters properly reserved for state courts, and urged her colleagues to take up the question en banc in hopes of clarifying the law.

‘Gunn v. Minton’

Judge O’Malley could not have known that her plea would be answered so quickly, though not by her colleagues, but by her reviewing court. On Oct. 5, 2012, the Supreme Court granted the petition for certiorari in Gunn v. Minton, seeking to clarify whether federal courts have exclusive “arising under” jurisdiction when the sole substantive issue is the application of a patent law doctrine which is an essential element of Minton’s legal malpractice claim.

Gunn originated in Texas state courts, as the fallout from an underlying patent litigation in which the law firm represented Vernon Minton in an infringement action against Nasdaq in the Eastern District of Texas over a patent Minton directed to a telecommunications network and software trading system. That action was dismissed when the court there invalidated the patent in suit for violating the on-sale bar of 35 U.S.C. 102(b). Allegedly, the firm neglected to assert the experimental use exception to the on-sale bar, and the decision was upheld on appeal.

Minton responded by filing a malpractice suit in Texas state court, alleging that the firm’s purported negligent failure to timely raise the experimental use exception to the on-sale bar cost him the opportunity of winning his federal patent infringement litigation. The trial court dismissed the action for lack of evidence, and Minton appealed to the state appellate court in Fort Worth.

While the appeal was pending, the Federal Circuit issued its opinions in Air Measurement v. Akin Gump4 and Immunocept v. Fulbright,5 holding that when a state-law malpractice case arises from a substantive issue of patent law, federal courts have jurisdiction over such claims. Minton then moved to dismiss his own case for lack of subject matter jurisdiction, hoping to refile the malpractice suit in federal court.

The appeals court was unmoved, however, and instead affirmed the trial court’s ruling dismissing the suit with prejudice. On appeal to the Texas Supreme Court, Minton at last prevailed: the Texas Supreme Court held that, under the U.S. Supreme Court’s Grable test, as interpreted by the Federal Circuit in Air Measurement and Immunocept, Minton’s malpractice case belonged exclusively in federal court, and granted the motion to dismiss (Grable & Sons Metal Prods. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005)).

The Texas Supreme Court’s majority, in a narrow 5-3 decision, stated: “The federal patent issue presented here is necessary, disputed, and substantial within the context of the overlying state legal malpractice lawsuit.6 …Additionally, the patent issue may be determined without creating a jurisdictional imbalance between state and federal courts. We conclude that exclusive federal jurisdiction exists in this case.”7

Following this ruling, the firm’s attorneys filed a petition for certiorari, a petition which was granted as discussed above. With the issue fully briefed, oral argument was last week, with most justices seemingly expresssing some skepticism about letting state court juries decide federal-related questions (like whether patent prosecutors did their job appropriately). Indeed, Chief Justice John Roberts expressed concern about state courts opining on what it believed federal law requires, the result perhaps being “disruptive to the uniformity of federal patent law.” Regardless, it remains to be seen how the justices will eventually decide this issue, but it is likely a reasonable bet that federal courts will retain at least some jurisdiction depending of course on whether the underlying dispute turns on the federal or patent law issue.

Client Alleges Frivolous Suits

In contrast with most patent malpractice cases, in which the plaintiff accuses his counsel of failing to act or failing to act in a timely manner, the device maker E-Pass Technologies instead accused its counsel of doing too much—namely filing frivolous infringement suits on its behalf, for which E-Pass itself claimed there was insufficient evidence.8 Taking a somewhat maximalist position on the issue, E-Pass argued to Judge Edward Chen of the Northern District of California that, because all of its infringement suits were disposed of via summary judgment for the defendants and did not reach trial, its attorneys had committed malpractice.

The firm defended on the grounds that it had conducted a reasonable and adequate investigation, and that the mere fact that courts eventually determined that E-Pass did not have enough evidence to proceed, is insufficient to constitute malpractice. Before the court had an opportunity to issue a ruling, the parties entered into a settlement agreement on Dec. 19, 2012, on undisclosed terms.

Judicial Estoppel

In some malpractice actions, plaintiffs attempt to use previously rendered opinions against their former counsel.9 In this case, for instance, Britannica had attempted to assert a number of related patents directed generally to multimedia search systems against potential infringers, only to discover that it could not get the benefit of an earlier filing date, because one of the patents-in-suit purportedly did not correctly reference its predecessor.10

As a result, Britannica brought a malpractice and negligence claim against its patent counsel—and in order to establish a causation between counsel’s alleged negligence and its alleged injury, sought to have counsel judicially estopped from denying that the now-invalid patents were infringed in the underlying action. (The firm had averred that the patents were infringed in a filing at the PTO, in order to satisfy the requirements of a Petition to Make Special). The lower court was unsympathetic to Britannica’s arguments, noting that the application of judicial estoppel in malpractice cases would “vitiate the plaintiff’s burden.”11

The logic of judicial estoppel unravels in the malpractice context. An entity acting as a lawyer to a client is fundamentally differently situated than an entity acting in its own interest in subsequent malpractice litigation. The positions a law firm takes in those two contexts are necessarily in significant tension—as a lawyer representing a client, a firm defends the strengths of the client’s position while in malpractice litigation it seeks to demonstrate the opposite, i.e., that the client would have lost. A lawyer cannot be faulted for this inherent inconsistency, and where a party cannot be faulted, applying judicial estoppel is often inappropriate.12

Copying

In Cold Spring Harbor Laboratory v. Ropes and Gray,13 the plaintiff allegedly discovered that roughly half of the material in the detailed description of his patent application was copied verbatim from another patent in the same field. Concerned, the plaintiff sought counsel’s assistance in bringing the issue to the attention of the PTO; counsel, however, purportedly declined to help unless the Laboratory would execute a waiver releasing counsel from any future liability related to the matter.

In the subsequent malpractice suit, counsel sought to have the case dismissed on the ground that copying was an accepted practice in patent drafting, an argument the district court found “dubious at best, and at worst, an insult to the professional standards of the patent bar.”14 Counsel’s other arguments on summary judgment were found equally unavailing, with the court clearly finding little sympathy for the defendant, consequently allowing the case to proceed to trial on all theories of recovery, including malpractice, fraud and breach of fiduciary duty.

Confidential Information

Finally, on Dec. 29, 2012, a former client of McDermott Will & Emery filed a complaint in the District of Columbia Superior Court alleging that a former McDermott attorney misappropriated confidential information obtained during his representation of plaintiff, and passed it on to his family members who successfully obtained a patent on an invention using the information. Revealingly, the complaint is directed not at the attorney but to the firm.

The complaint alleged the firm committed malpractice in not sufficiently protecting confidential client information and preventing unauthorized access to client data. (Noteworthy again is that the malpractice suit against the individual attorney was dismissed by a California court as barred by the one-year statute of limitations on malpractice claims.) The firm has yet to file an answer, but its general counsel issued a statement that the firm is “committed to maintaining the confidentiality of all of the information with which we are entrusted by our clients.”

Conclusion

Given the rise of the number of patent malpractice actions and the different types, it has become clear that plaintiff malpractice lawyers have become especially creative in crafting claims against patent lawyers. Consequently, it likely is not enough merely to do things right by meeting the bar’s ethical standards and regulations but, rather, it has become equally important to take additional steps to guard against even the most creative claims.

All firms should review their procedures—client intake, lateral and new lawyer hiring, lawyer training and quality control, docketing due dates, data security, and engagement letter forms—with the plaintiff’s malpractice lawyer in mind. Are they designed not only to fully protect your client’s interests and minimize the risk of loss to a client, but also to head off potential misunderstandings and other problems that could lead to claims? The more careful and clear you are at the outset of a relationship the less likely there will be any issues between lawyer and client going forward.

Robert C. Scheinfeld is a partner and the head of the intellectual property group in the New York office of Baker Botts. Parker H. Bagley is a partner at Goodwin Procter. Nemanja Dundjerovic, a Baker Botts associate, assisted in the preparation of this article.

Endnotes:

1. American Bar Association, Profile of Legal Malpractice Claims 2008-2011.

2. Landmark Screens v. Morgan, Lewis, Case No. 11-1297, (Fed.Cir. April 23, 2012).

3. Id. at 13.

4. Air Measurement Technologies v. Akin Gump Strauss Hauer & Feld, 504 F.3d 1262 (Fed. Cir. 2007).

5. Immunocept v. Fulbright & Jaworski, 504 F.3d 1281 (Fed. Cir. 2007).

6. Minton v. Gunn, 355 S.W.3d 634 (Tex. 2011).

7. Id.

8. E-Pass Tech’s v. Moses Singer, No. No. C-09-5967 (N.D. Cal. Dec. 19, 2012).

9. Encyclopedia Britannica v. Dickstein Shapiro, No. 10-454 (D.D.C. Nov. 26, 2012).

10. See Encyclopedia Britannica v. Alpine Elecs. of Am., 643 F.Supp.2d 874, 876 (W.D. Tex. 2009), aff’d, 609 F.3d 1345 (Fed. Cir. 2010).

11. Encyclopedia Britannica v. Dickstein, Memorandum Opinion at 9.

12. Id. at 8.

13. Cold Spring Harbor Laboratory v. Ropes and Gray, 11-10128-RGS, (D.Mass. Jan 13, 2012).

14. Id. at 8.