Plaintiff E-Pass Technologies, Inc. (E-Pass), appeals from a judgment of dismissal following the sustaining of a demurrer in favor of defendants Moses & Singer, LLP, Stephen Weiss, Squire Sanders & Dempsey, LLP, and Mark Dosker. The trial court sustained the demurrer on the ground that E-Pass's complaint for legal malpractice is subject to the exclusive jurisdiction of the federal courts because it raises a substantial issue of federal patent law. We disagree and therefore shall reverse the judgment.
Since approximately February 2000, E-Pass has been the owner by assignment of United States Patent No. 5,276,311 entitled, "Method and Device for
The following summary of the federal patent litigation is taken from the January 2007 decision of the federal circuit court of appeals. (E-Pass Technologies, Inc. v. 3Com Corp. (Fed.Cir. 2007) 473 F.3d 1213.) "On February 28, 2000, E-Pass filed a complaint for patent infringement against 3Com Corporation and Palm, Inc. (collectively, `3Com'). In it, E-Pass accused 3Com of inducing consumers to practice the steps of the patented method on its Palm VII and Palm VIIx personal digital assistant (`PDA') products. Following a claim construction that construed `electronic multi-function card' to be `[a] device having the width and outer dimensions of a standard credit card with an embedded electronic circuit allowing for the conversion of the card to the form and function of at least two different single-purpose cards,' [citation], the district court granted 3Com's motion for summary judgment of noninfringement both literally and under the doctrine of equivalents [citation]. [¶] E-Pass appealed. On appeal, we held that the district court had erred by `requiring the dimensions of a standard credit card.' [Citation.] We observed that `the ordinary meaning of the word "card" here, as used in the phrase "electronic multi-function card," is the proper construction,' and we vacated and remanded to the district court to address the issue of infringement under the proper construction. [Citation.] Notably, we emphasized that `it may be or may not be that the accused Palm Pilot devices literally infringe' under that construction. [Citation.] [¶] . . . [¶] After we remanded the action against 3Com, E-Pass filed two new infringement actions in the district court. It filed the first new action, Case No. 03-CV-4747, 2006 U.S. Dist. Lexis 95914, on October 22, 2003, against Visa U.S.A., Inc., and Visa International Service Association (collectively, `Visa'). In that action, E-Pass alleged that Visa had infringed the '311 patent by using a Palm V PDA in two demonstrations in 2001. E-Pass filed the second new action, Case No. 04-CV-0528, 2006 U.S. Dist. Lexis 95914, against PalmSource, Inc., palmOne, Inc., and Handspring, Inc., on February 9, 2004. In the second new action, it made claims of direct, induced, and contributory infringement of the '311 patent based on three new PDA product lines—the Tungsten, Zire, and Treo lines—that had been introduced since the filing of the initial action. [¶] On March 17, 2006, the district court granted summary judgment of noninfringement as to all defendants. [Citation.] It rested its finding of noninfringement on two independent grounds. First, it held that even under a
On appeal to the circuit court, E-Pass argued that (1) the district court erred in finding that the defendant's devices could not infringe on E-Pass's patent and (2) the district court "ignored circumstantial evidence that the defendants or their customers practiced the steps of the claimed method." (E-Pass Technologies, Inc. v. 3Com Corp., supra, 473 F.3d at p. 1217.) With respect to E-Pass's first argument, the circuit court agreed with the district court's holding that based on the properties of the various devices, "no reasonable jury could find that the accused devices are `cards.'"
Thereafter, the district court required E-Pass to pay $2.3 million in attorney fees to the opposing parties. With respect to E-Pass's claim against Visa, the court concluded that E-Pass's choice of litigation strategy, including failing to
In addition to the above litigation, E-Pass, represented by Moses and Singer and Weiss, filed similar litigation against Microsoft Corporation and Hewlett-Packard Company alleging that certain PDA devices made by Hewlett-Packard using software created by Microsoft also infringed the '311 patent. The district court granted summary judgment in favor of the defendants, finding that E-Pass could not show infringement under the court's construction of a specific claim limitation.
On January 9, 2009, E-Pass filed this legal malpractice action against defendant attorneys. The operative second amended complaint alleges causes
Defendants demurrered to the second amended complaint on the ground that the court lacks subject matter jurisdiction over the action because E-Pass's claims involve substantial issues of federal patent law. Following a hearing, the trial court sustained the demurrer. E-Pass filed a timely appeal.
A demurrer is properly sustained where the court "has no jurisdiction of the subject of the cause of action alleged in the pleading." (Code Civ. Proc., § 430.10, subd. (a).) "In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. `We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58].)
E-Pass's complaint seeks to recover damages "caused by defendants' misconduct by misleading E-Pass into bringing claims which were never viable, by abandoning defendants' fiduciary duties, by gouging E-Pass with unreasonable attorney fees and costs and by subjecting E-Pass to liability for costs and fees of the prevailing parties in the underlying actions." The amended complaint alleges that defendants "failed to conduct a pre-filing investigation" and "failed to discover evidence in support of E-Pass's claims of infringement because . . . such evidence did not exist" and that defendants "knew or should have known that there was no legitimate evidence to support any claims asserted on behalf of E-Pass." E-Pass emphasizes that it is not arguing that it lost valuable claims in the underlying litigation as a result of defendants' litigation strategies. Rather, acknowledging that the claims were without merit and properly dismissed, E-Pass claims that "defendants breached their duties to E-Pass and fell below the standard of care by failing to disclose to E-Pass that there existed no foundational evidence [to support the actions], by failing to advise E-Pass to discontinue the underlying actions, and/or by negligently misrepresenting to E-Pass that legitimate foundational evidence existed." E-Pass asserts that "[w]ithout this basic factual evidence, [it] could not prevail on any of the patent infringement claims asserted in the underlying actions, regardless of the strength of any other aspect of E-Pass's
Defendants argue, "To prove breach of duty will require resolution of substantial questions of patent law because E-Pass must show that (1) there was no factual or legal basis for the claim construction that [defendants litigated]; and (2) there was no factual or legal basis for [defendant attorneys] to conclude that the defendants [in the patent litigation] had infringed E-Pass's patent, in light of the proposed claim construction."
Defendants cite numerous cases involving state law claims, including legal malpractice claims for the mishandling of patent applications or patent litigation, that provide apparent support for defendants' contention that such issues touching upon application of patent law place jurisdiction of the claim exclusively in federal court under section 1338. In each of those cases it was necessary to decide a material question of patent law in order to establish the plaintiff's right to recover on the state law claim. For example, in Air Measurement Technologies, Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P.
There is a critically significant distinction between each of those cases and the situation here. In each of those cases, it was necessary to establish the validity, invalidity, or proper scope of a patent in order to establish liability or damages and causation. In each, "the plaintiff's right to relief necessarily
We assume, as defendants contend, that the determination concerning the insufficiency of E-Pass's evidence in the underlying federal actions is not binding on the parties in this action. (Church v. Jamison (2006) 143 Cal.App.4th 1568, 1585 [50 Cal.Rptr.3d 166] ["where the underlying proceeding was decided by a trial court's ruling, that ruling will come under scrutiny in the malpractice case when the issue of what should have been the result of the underlying proceeding is addressed"]; Dawson v. Toledano, supra, 109 Cal.App.4th at pp. 396-397.) However, although defendants may not be precluded from arguing that the federal courts decided the issue incorrectly, that is not the issue that must be determined in this malpractice action. The issue in this case is not whether the evidence that E-Pass submitted in the federal proceedings was sufficient to support an inference that the defendants in the federal cases had practiced all of the steps of the patented method claimed by E-Pass and thus infringed its patent. The only question here in this respect is whether, in evaluating E-Pass's claim and the evidence that undisputedly was in the attorneys' hands, defendants used the skill and care that a reasonably careful attorney would have used in similar circumstances. (CACI No. 600.) There is no need for plaintiff or defendants to prove what the proper outcome of the federal litigation should have been. It will be sufficient for E-Pass to prove that a reasonable attorney would have realized that under the facts before it, there was no reasonable possibility of prevailing in the federal action. Defendants need only show that a reasonable attorney would have considered there to be a sufficient likelihood of prevailing to justify the litigation and that they properly advised E-Pass of the risk of failure.
Moreover, to the extent that defendants seek to prove that E-Pass was entitled to prevail in the infringement litigation, that is at most a matter of defense. Jurisdiction under section 1338 is to be determined from the allegations of the complaint and not from consideration of issues that are or may be asserted in defense of the plaintiff's claims. (Christianson v. Colt Industries Operating Corp., supra, 486 U.S. at p. 809.)
The trial of this matter undoubtedly will require extended testimony concerning the requirements of federal patent law. Experts assuredly will be
Lockwood v. Sheppard, Mullin, Richter & Hampton (2009) 173 Cal.App.4th 675 [93 Cal.Rptr.3d 220], another recent California appellate court decision, is instructive. In that case, the plaintiff alleged that false representations made by the attorney representing parties that had infringed his patent caused the United States Patent and Trademark Office (USPTO) to reexamine his patents. (Id. at p. 680.) The plaintiff alleged that he was damaged "because he had to defend the reexamination and was unable to enforce his patent rights until the reexamination concluded several years later, with a finding reconfirming the patentability of the reexamined claims of the patents." (Id. at p. 686.) To prevail on his claims, the plaintiff would have to prove that the defendant attorneys "knew or should have known that its representations ... were incorrect or misleading" and that but for the attorney's misrepresentations, "the USPTO would not have granted the request for reexamination." (Ibid.) The court observed that while the question of whether a reasonable patent attorney would have known that the alleged misrepresentations were incorrect or misleading "would require some knowledge and application of patent law (as well as an ability to understand highly technical data), it is not clear whether they involve such substantial questions of patent law that the claims would be subject to exclusive federal jurisdiction under section 1338." (Ibid.) The court concluded that there was exclusive federal jurisdiction only because whether the USPTO would have granted reexamination but for the misrepresentations presents a substantial question of patent law, requiring the court to "put itself in the position of a `reasonable' patent examiner." (Id. at
In a somewhat analogous case, the court in Delta Process Equipment, Inc. v. New England Ins. Co. (La.Ct.App. 1990) 560 So.2d 923, rejected the defendant's argument that the plaintiff's claim for professional malpractice was subject to section 1338 jurisdiction. In that case, the plaintiff alleged that the defendant attorney was "negligent in that he failed to timely file the patent application, he failed to make relevant inquiries and disclosures concerning prior sales of the system, and that he gave erroneous advice concerning the timing of the patent application." (Id. at p. 924.) The court found that there was no section 1338 jurisdiction because "[t]he plaintiff's right to relief in the instant case ... does not necessarily depend on resolution of a substantial question of federal patent law, i.e. the validity of the patent. Even without a showing of the invalidity of the patent, the plaintiff may be able to prove damages and has therefore stated a cause of action under state law." (560 So.2d at p. 926.) The court explained, "The allegations of negligence asserted by plaintiff ... support the plaintiff's theory that his patent rights were damaged, notwithstanding the validity of the patent which was issued. These acts of negligence by the defendant, if proven true could cause the plaintiff damages merely by creating an issue as to the validity of the patent. [¶] If, because of the defendant's negligence, the validity of the patent is questionable, it is certainly conceivable that the plaintiff would suffer a loss of business and be forced into litigation to assert the validity of its patent. The fact that the patent is ultimately upheld will not alleviate these damages." (Ibid.) In the present case, the absence of a necessary patent question is even clearer, since E-Pass's complaint does not seek to prove, even in the alternative, that it should have prevailed in the infringement litigation.
Finally, to the extent that the subject matter of patent law is relevant to the determination of the professional negligence claim, it does not present a question of patent law that is substantial. (Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., supra, 545 U.S. at p. 314 ["the presence of a disputed federal issue ... [is] never necessarily dispositive ..."]; Merrell Dow Pharmaceuticals Inc. v. Thompson (1986) 478 U.S. 804, 813 [92 L.Ed.2d 650, 106 S.Ct. 3229] [noting "long-settled understanding that the mere presence of a federal issue in a state cause of action does not automatically confer federal-question jurisdiction"].) In Singh v. Duane Morris LLP (5th Cir. 2008) 538 F.3d 334, 339, the court acknowledged that the plaintiff's malpractice claim may involve a disputed issue of trademark law that was necessary to the resolution of the state-law claim. The court concluded, however, that
In New Tek Manufacturing, Inc. v. Beehner (2005) 270 Neb. 264 [702 N.W.2d 336, 346], the Nebraska Supreme Court rejected an argument that the malpractice action was subject to federal jurisdiction, finding that "[p]atent law is implicated only incidentally ..." insofar as the measure of the plaintiff's alleged damages requires consideration of the hypothetical infringement of the patent. The court explained that "the precise question is not whether Orthman Manufacturing infringed on the '080 patent; rather, the question is whether, absent Beehner's negligence, New Tek would have been successful in an infringement action against Orthman. [Citation.] The construction and alleged infringement of the '080 patent is relevant only insofar as it helps us to determine who would have prevailed in that hypothetical action. Simply stated, it is difficult to see how this case arises under federal patent law when on the record before us, the only patent that has been construed, and of which infringement is alleged, has expired. The federal government has no interest in hypothetical determinations regarding an unenforceable patent." (Ibid.)
In Warrior Sports, Inc. v. Dickinson Wright, P.L.L.C. (E.D.Mich. 2009) 666 F.Supp.2d 749, the court dismissed the action for lack of federal subject
The judgment is reversed and remanded. E-Pass is to recover its costs on appeal.
Siggins, J., and Jenkins, J., concurred.