USPPS, Ltd. v. Avery Dennison Corp., No. 2011-1525 (Fed. Cir. Apr. 17, 2012) (Judges Prost, Mayer, and O’Malley) (per curiam)
In this unusual decision, the judges all agreed on the result. But they couldn’t agree on whether the Federal Circuit should have heard the case in the first place.
Lost in the Mail
This case has a “long and tortuous history,” going all the way back to 1999. It all started with an idea for personalized postage stamps. It ended with no patent, no lawsuit, and a lot of bad blood.
I’ll give you the short version of events: Joe Pat Beasley, the chairman of USPPS, applied for a patent for his personalized postage stamp idea. While patent prosecution was ongoing, he made an agreement with Avery Dennison to market the stamps. He believed Avery Dennison’s attorneys would also handle the prosecution of the patent. The patent examiner initially issued a notice of allowance for the application, but, after he independently discovered a piece of prior art, he revoked the notice of allowance and rejected the application. The attorney handling the prosecution said he couldn’t come up with a way to overcome the PTO’s objections, and the application went abandoned in May 2003.
Beasley believed the application was rejected because of Avery’s attorneys’ mishandling of the applications, and he sued them for negligence, breach of fiduciary duty, and fraud. That case got tossed out because Beasley had transferred ownership of the patent applications to USPPS, so he didn’t have standing to sue.
In November 2007, USPPS sued Avery Dennison and the law firm that handled the patent prosecution for breach of fiduciary duty and fraud—that’s this lawsuit. (That IS the short version, I promise—if you want more details, you can read the original opinion.)
Under Texas state law, claims for breach of fiduciary duty and fraud have to be brought within 4 years of the “legal injury”—in this case, the legal injury is the PTO issuing the abandonment notices in May 2003. USPPS filed this lawsuit on November 27, 2007. That’s more than four years after the injury, so the statute of limitations had already run. The Federal Circuit said neither exception to the statute of limitations (the discovery rule or the fraudulent concealment doctrine) applied, so USPPS had missed the deadline, and the case couldn’t proceed.
Change of Address
The more contentious question for the Federal Circuit is whether the case should be at the Federal Circuit at all. The appeal was originally at the Fifth Circuit, but the Fifth Circuit transferred it based on the Federal Circuit’s holding in Davis v. Brouse McDowell, L.P.A. Davis held that the Federal Circuit has exclusive jurisdiction over state-law malpractice cases if the alleged malpractice involves a question of patentability, even if no patent has issued. In this case, like in Davis, USPPS had to show that its invention was patentable in order to meet the elements of its malpractice claims.
All the judges on the panel agreed that Davis is binding law and the court had to follow it, so the Fifth Circuit’s transfer was appropriate. But they couldn’t agree on whether Davis is the right law
In her concurrence, Judge Prost stated her belief that there’s no reason to weigh in on the jurisdiction question since it wasn’t briefed or argued. She also believed that Davis is consistent with Supreme Court precedent on the questions of Federal Circuit jurisdiction.
Judge O’Malley, in her concurrence—in which Judge Mayer joined—opined that Davis should be overturned: “Our case law requiring the exercise of jurisdiction over state law claims such as those at issue here conflicts with Supreme Court precedent, however, and should be revisited.” (See page 2 of Judge O’Malley’s concurrence.) Judge O’Malley pointed out that there are no federal law claims in this case, and she argues that the underlying patent issues aren’t substantial enough to justify Federal Circuit jurisdiction. Her take is that determining whether these personalized postage stamps are patentable is a fact-specific question, and it would require “only application, not interpretation, of the federal patent laws.” Plus, patentability was only one part of one element of USPPS’s claims—not the main attraction.
Finally, Judge O’Malley expressed her concern about a trend of jurisdictional overreaching:
This case demonstrates the far-reaching nature of our flawed reasoning in patent-related malpractice cases. In this case, the Fifth Circuit extended our case law to encompass the exercise of jurisdiction over claims for fraud and breach of fiduciary duty, thus confirming that our decisions in patent-related malpractice actions will continue to draw more state law causes of action into federal court. … Left unchecked and unrevised, our case law will continue to upset the balance of federal and state judicial responsibilities.
(See pages 8-9 of Judge O’Malley’s concurrence).
I think Judge O’Malley makes a fair point. Under Davis, it seems that any state law malpractice claim that involves a patent, no matter how remotely, must go to the Federal Circuit. There aren’t any federal claims in this case—the case was only in federal court because of diversity jurisdiction. Also, the point of giving the Federal Circuit jurisdiction over all patent cases was to insure the uniformity of patent law. These malpractice cases aren’t the type of cases that will interfere uniformity of patent law—as Judge O’Malley noted, whether a particular invention is patentable only involves application of patent laws.
To me, it seems like a jurisdictional stretch to send all patent-related malpractice cases to the Federal Circuit. But, as the panel recognizes, Davis will remain controlling law unless the court overturns it with an en banc decision. So, for the time being, Davis is here to stay. Do you think patent-related malpractice cases should go the Federal Circuit? We’d love to hear your thoughts!
Photo credit: Magyar Posta