Air Measurement Technologies, inc., et al. v. Akin, Gump, Strauss, Hauer & Feld, L.L.P., et al., ___F.3d___, 2007 WL 2983660 (C.A. Fed. (Tex.))

Immunocept, L.L.C., et al. v. Fulbright & Jaworski, L.L.P., ___F.3d___, 2007 WL 2983673 (C.A. Fed. (Tex.))

Brief Summary
In these two recent decisions, the U.S. Court of Appeals, Federal Circuit, held that when the “case within a case” in a legal malpractice suit involves substantial questions of federal patent law, exclusive federal jurisdiction exists even though the malpractice claims themselves are state law claims.

Complete Summary
Air Measurement Technologies, Inc. (“AMT”) developed technology for a safety device used by firemen and emergency personnel. The device was used in self-contained breathing apparatuses and calculated the wearer’s ability to safely continue working in a hazardous environment. Air Measurement at *1.

Initially, patent attorney Gary Hamilton was retained to secure a patent for the device and its technology. At the time the first patent application was filed in 1991, Mr. Hamilton was affiliated with Akin, Gump, Strauss, Hauer & Feld, L.L.P. Subsequently, AMT became involved in infringement litigation that settled without a judicial determination on the issue of infringement, invalidity or unenforceability of AMT’s patents. Id. at *1. During the infringement litigation, AMT concluded that errors had been made by Mr. Hamilton during the patent prosecution and patent litigation. AMT then filed a legal malpractice claim in Texas state court. There was no diversity between the parties. The case was removed to US District Court for the Western District of Texas in June 2003 under 28 U.S.C. § 1338 on the ground that resolution of the case required resolution of a substantial question of federal patent law. The district court rejected all attempts to remand the case back to state court, and this interlocutory appeal resulted. Id. at *2.

The court noted that the issue was whether a state legal malpractice claim arising out of an underlying patent prosecution and litigation raised a question of federal patent law to the extent that it should be in a federal forum. The primary concern was not to disturb “any congressionally approved balance of federal and state judicial responsibilities.”  Id. at *3. This was a case of first impression for the court. As there was no diversity, there had to be a substantial question of federal law. The court stated that for federal jurisdiction to exist, the case must present a “well pleaded complaint” that establishes either that federal law creates the cause of action or that the plaintiff’s right to relief (as distinct from potential affirmative defenses) depends on resolution of a substantial question of federal patent law. See Christianson v. Colt Indus. Operating Corp., 486 U.S. 800 (1988).

In this case, the malpractice case is created by state law and the analysis must then rest on the role played by federal patent law as an element of the malpractice claim. Air Measurement at *3. The court noted that, as a practical matter, the district court would have to adjudicate the merits of the infringement claim. The “arising under” doctrine was noted by the court to fulfill the “commonsense” reasoning that federal courts should be able to hear claims recognized under state law that turn on substantial questions of federal law. Id. at *5. AMT’s claim regarding an “impaired settlement value” as a result of the negligence does not defeat federal jurisdiction because it is a theory of damages, not a theory of liability for malpractice. Id. at *6. The court found that in this case, the patent infringement aspect of the malpractice claim tips the balance in favor of federal jurisdiction.

In the second case, Immunocept, L.L.C. was the holder of the intellectual property rights to a large pore hemofiltration technology. Immunocept hired Fulbright & Jaworski (“Fulbright”) to obtain patent protection for its technology in 1996.

Immunocept subsequently entered into preliminary investment negotiations to commercialize the invention. During the course of due diligence, patent attorneys for the potential investor discovered that the ‘418 patent had a fatal flaw based on the phrase “consisting of” which had been used in the patent and which significantly narrowed the scope of protection. Negotiation discussions were terminated. Immunocept at *1.

After a tolling agreement expired on April 20, 2005, Immunocept sued Fulbright for legal malpractice under Texas state law in the Western District of Texas based on “arising under” jurisdiction pursuant to 28 U.S.C. § 1338. The parties agreed that the key date for determining the statute of limitations was March 9, 2002. Fulbright moved for summary judgment and argued that the two-year legal malpractice statute had run and that the damages were too speculative as a matter of law. The district court granted the motion on both grounds and this appeal resulted. Id. at *2.

On appeal, the court asked the parties to brief the issue of “arising under” jurisdiction under §1338. The court noted that §1338 extends jurisdiction to any case “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.” Id. at *2, quoting Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 809 (1988). Immunocept alleged a patent claim drafting mistake as its only claim of negligence. According to Immunocept, the drafting mistake led to inadequate patent protection and allowed competitors to copy the claimed methods without infringing on the ‘418 patent by merely adding another element. Consistent with its Air Measurement decision, the court stated that “[B]ecause patent claim scope defines the scope of patent protection…we surely consider claim scope to be a substantial question of patent law. As a determination of patent infringement serves as the basis of §1338 jurisdiction over related state law claims, so does a determination of claim scope. After all, claim scope determination is the first step of a patent infringement analysis.” 2007 WL 2983673 at *3. The court noted that claim scope determination can be a complex question of law and that litigants would benefit from federal judges used to handling these types of complicated rules. Federal jurisdiction also assures Congressional intent to avoid non-uniformity in patent law. Id. at *4.

The court then addressed the issue of the narrowing effect of “consisting of” on the scope of the claims in the ‘481 patent. Immunocept argued it was not on notice of the malpractice issue until the potential investor pointed out the flaws in the claim scope in April 2002. The court rejected this argument and held that the knowledge of this language by a post-Fulbright attorney for Immunocept would be imputed to Immunocept. The court rejected Immunocept’s argument that this attorney did not reasonably know of the malpractice claim because he was hired to secure additional patents on the technology, not to investigate a possible malpractice claim.

Significance of the Cases
These cases break new ground in declaring federal question jurisdiction of state law legal malpractice cases that arise from alleged errors in the procurement of patents — at least when the “case within a case” hinges upon a substantial question of federal law. According to the court, the expertise of the federal courts in matters involving federal patents and the Patent & Trademark Office, a federal agency, and the desire for uniform decisions regarding such cases, tips the balance in favor of federal jurisdiction. Whether future cases will limit the effects of this holding remains to be seen.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.