Minton v. Gunn

355 S.W.3d 634

55 Tex. Sup. Ct. J. 196

Vernon F. MINTON, Petitioner,

v.Jerry W. GUNN, Individually, Williams Squire & Wren, L.L.P., James E. Wren, Individually, Slusser & Frost, L.L.P., William C. Slusser, Individually, Slusser Wilson & Partridge, L.L.P., and Michael E. Wilson, Individually, Respondents.

No. 10–0141.

Supreme Court of Texas.

Argued March 1, 2011.Decided Dec. 16, 2011.

Thomas M. Michel, Griffith, Jay & Michel, LLP, Fort Worth, TX, Coyt Randal Johnston, Robert L. Tobey, Johnston & Tobey, P.C., Gregory W. Carr, Theodore F. Shiells, Carr, LLP, Dallas, TX, Robley E. Sicard, Griffith Jay & Michel LLP, Fort Worth, TX, Attorney for Petitioners.

Robert S. Harrell, Charles Bruce Walker, Fulbright & Jaworski L.L.P., Edward J. Murphy, Bruce C. Morris, Beirne, Maynard & Parsons, L.L.P., Mark Allen Waite, Gensler, Joseph D. Jamail, Jamail & Kolius, William Fred Hagans, Hagans Burdine Montgomery & Rustay P.C., Houston, TX, David E. Keltner, Kelly Hart & Hallman LLP, Fort Worth, TX, Stephen E. McConnico, Jennifer Knauth, Jane M.N. Webre, Cynthia Saiter Connolly, Scott Douglass & McConnico, L.L.P., Austin, TX, John Thomas Wilson IV, Kelly Hart & Hallman, P.C., Fort Worth, TX, for Respondents.

Justice GREEN delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice WAINWRIGHT, Justice JOHNSON, and Justice LEHRMANN joined.

This case arises out of patent infringement litigation. We consider whether federal courts possess exclusive subject-matter jurisdiction over state-based legal malpractice claims that require the application of federal patent law. The federal patent issue presented here is necessary, disputed, and substantial within the context of the overlying state legal malpractice lawsuit. 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. Accordingly, without reaching the merits of the legal malpractice claim, we reverse the court of appeals' judgment and dismiss this case.

I. BACKGROUND

A. TEXCEN and the '643 Patent

Petitioner, Vernon Minton, is a former securities broker. In early 1990, Minton formed Texas International Stock Exchange, Inc. (TISE). A couple of years later, Minton began developing the Texas Computer Exchange Network (TEXCEN), a software program intended to operate over a telecommunications network. Minton developed the TEXCEN software to allow financial investors to “open[ ] brokerage accounts and execut[e] trades” at their own convenience “with all the investment technology the experts enjoy.” After successfully establishing TEXCEN's commercial viability to R.M. Stark & Co. (Stark), a New York corporation and member of the National Association of Securities Dealers, Inc. (NASD), Minton asked Stark to employ TEXCEN in its business. In a January 1995 letter, Minton touted TEXCEN's utility to Stark's business, stating that “[a]fter five years of development, TEXCEN is scheduled to be on-line during March or April of this year.” Stark agreed to lease TEXCEN from TISE, Minton's company. The lease permitted Stark to use TEXCEN “for the purpose of opening brokerage accounts and executing trades for individuals.” In exchange, Stark agreed to pay TISE a monthly payment of the lesser of $2,000.00 or 30% of the gross revenues that Stark derived from using TEXCEN. The lease warranted that “TEXCEN will perform in a workmanlike manner.” During the lease negotiations, Minton knew that Stark could not use TEXCEN or provide its customers with TEXCEN's benefits until NASD had reviewed and approved of the software. Despite this knowledge, Minton did not disclose to Stark that he intended to lease TEXCEN to Stark for experimental purposes.

More than one year after signing the TEXCEN lease, Minton filed a provisional application for a patent covering an interactive securities trading system that contained features very similar to TEXCEN. Minton's patent attorney drafted the patent application with the aid of TEXCEN's software assistance manual, which Minton had provided him. The United States Patent and Trademark Office granted Minton a patent (the '643 Patent) on January 11, 2000.

B. Underlying Patent Infringement Litigation

Subsequently, Minton filed a patent infringement action against NASD and The NASDAQ Stock Market, Inc. in the United States District Court for the Eastern District of Texas. Minton v. Nat'l Ass'n of Sec. Dealers, Inc., 226 F.Supp.2d 845, 852 (E.D.Tex.2002). Minton's infringement suit alleged that the NASDAQ software system used in conjunction with NASD's services infringed the ' 643 patent. Id. at 854. At the time they filed the patent infringement suit on Minton's behalf, his attorneys had no knowledge of the TEXCEN lease. NASD and NASDAQ moved for summary judgment, alleging the '643 patent's invalidity under the “on-sale bar” provided in § 102(b) of the U.S. Patent Act. Id. at 852; see 35 U.S.C. § 102(b). Under the on-sale bar, a patent is invalid when the invention claimed by the patent is sold “more than one year prior to the date of the application for patent in the United States.” 35 U.S.C. § 102(b). As an initial defense to the application of the on-sale bar, Minton pled that TEXCEN was a different type of software system than that claimed by the '643 patent. Minton, 226 F.Supp.2d at 855. The federal district court found Minton's argument unpersuasive and, accordingly, granted NASD and NASDAQ's motion for summary judgment and declared the '643 patent invalid. Id. at 852, 882–84.

Following the district court's decision, Minton asked his attorneys to consider a new defense to the on-sale bar—the experimental use exception. Under the experimental use exception, a patent will not be invalidated by the on-sale bar if the purpose for which the patented invention was sold was primarily experimental rather than commercial. See Electromotive Div. of Gen. Motors Corp. v. Transp. Sys. Div. of Gen. Elec. Co., 417 F.3d 1203, 1210 (Fed.Cir.2005). Minton obtained new counsel to brief the experimental use exception to the on-sale bar, and a motion for reconsideration arguing the experimental use exception was filed on Minton's behalf. When the federal district court denied Minton's motion for reconsideration, Minton appealed to the United States Court of Appeals for the Federal Circuit. See Minton v. Nat'l Ass'n of Sec. Dealers, Inc., 336 F.3d 1373 (Fed.Cir.2003). On appeal, the Federal Circuit affirmed the federal district court's denial of reconsideration because the experimental use exception was not timely asserted during trial. Id. at 1379–81.

C. Resulting State–Based Legal Malpractice Lawsuit

Minton filed a legal malpractice suit in state court against Respondents, the attorneys who had originally prosecuted his patent infringement litigation in the federal district court: Jerry W. Gunn, individually; Williams Squire & Wren, L.L.P.; James E. Wren, individually; Slusser & Frost, L.L.P.; William C. Slusser, individually; Slusser Wilson & Partridge, L.L.P.; and Michael E. Wilson, individually (collectively “Gunn”). Minton alleged that Gunn's negligent failure to timely plead and brief the experimental use exception to the on-sale bar cost him the opportunity of winning his federal patent infringement litigation. Alternatively, Minton claimed that Gunn's negligence resulted in the pretrial dismissal of his patent infringement suit, costing him a potential settlement with NASD and NASDAQ of his claim for more than $100,000,000.00 in damages. Gunn, in turn, challenged the causation element of Minton's malpractice claim by filing joint no-evidence and traditional motions for summary judgment. Gunn's joint motions asserted that he was not obligated to raise the experimental use exception to the on-sale bar because, under the facts in existence at the time of the federal patent infringement litigation, the exception was neither a legally nor factually viable defense. Therefore, Gunn asserted that Minton could not establish as a matter of law that, but for his failure to plead the experimental use exception, Minton would have won his patent infringement lawsuit.

Based on the absence of any evidence that the primary purpose of the TEXCEN lease was experimental, the trial court granted Gunn's no-evidence motions for summary judgment and motions to dismiss and rendered a take-nothing judgment in his favor.¹ Minton appealed the judgment to the Second Court of Appeals in Fort Worth. Minton v. Gunn, 301 S.W.3d 702 (Tex.App.-Fort Worth 2009, pet. granted).

Shortly after Minton filed his state court appeal, the United States Court of Appeals for the Federal Circuit decided Air Measurement Technologies, Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P., 504 F.3d 1262 (Fed.Cir.2007). Air Measurement held that when “establishing patent infringement is a necessary element of a [state] malpractice claim stemming from alleged mishandling of ... earlier patent litigation, the issue is substantial and contested, and federal resolution of the issue was intended by Congress,” and thus, federal courts possess exclusive “arising under” jurisdiction of the malpractice claim. Id. at 1273. Relying on Air Measurement, Minton argued that his malpractice suit arose under exclusive federal patent law jurisdiction and asked the court of appeals to dismiss his appeal for lack of subject-matter jurisdiction. Declining to follow the Federal Circuit's precedent, the court of appeals held that it had subject-matter jurisdiction over Minton's appeal and denied his motion to dismiss. Minton, 301 S.W.3d at 709. The court of appeals then affirmed the trial court's judgment, which granted Gunn's joint motions for summary judgment. Id. at 715. Minton filed a petition for review, which we granted. 54 Tex.Sup.Ct.J. 538 (Feb. 8, 2011).

II. ANALYSIS

A. Subject–Matter Jurisdiction

Before we can reach the merits of Minton's claim, we must first determine whether we...