May 25, 2010
Randall B. Carter was VP and General Manager of Acme Security from 1992 to 2006. While there, "he allegedly developed a high security locking assembly for a safe deposit box door on his own time and with his own resources." This led to patenting, listing Michael Hassebrock, Acme President at the time, and Carter as inventors. "Subsequently, Hassebrock allegedly demanded that Carter assign his patent rights to Acme Security. Carter refused, and Acme Security terminated his employment." So Carter sued: "nine claims purportedly based on federal law and six on state law."
ALK Holdings (DBA Acme Security) v. Michael D. Hassebrock (CAFC 2008-1168) precedential
The district court sympathetically dismissed all of Carter's claims, tell him to take it to the PTO. The district court then found sua sponte three claims as frivolous, whereupon granting Rule 11 sanctions to the tune of $30,356.89. Carter's law firm, Myers & Kaplan, appealed.
Under the Eleventh Circuit's jurisprudence, Rule 11 sanctions should only be imposed in limited circumstances where the frivolous nature of the claims-at-issue is unequivocal. The Eleventh Circuit has explained that: "Rule 11 is intended to deter claims with no factual or legal basis at all; creative claims, coupled even with ambiguous or inconsequential facts, may merit dismissal, but not punishment." Davis v. Carl, 906 F.2d 533, 538 (11th Cir. 1990) (emphasis in original). Rule 11 sanctions are appropriate when (1) a party files a pleading that has no reasonable factual basis; (2) the party files a pleading that is based on a legal theory that has no reasonable chance of success and that cannot be advanced as a reasonable argument to change existing law; or (3) the party files a pleading in bad faith for an improper purpose. Worldwide Primates v. McGreal, 87 F.3d 1252, 1254 (11th Cir. 1996) (quoting Jones v. Int'l Riding Helmets, Ltd., 49 F.3d 692, 694 (11th Cir. 1995)).
Resolution of whether Count VIII is a frivolous federal claim requires us to determine if Count VIII arises under 28 U.S.C. § 1338(a). Section 1338(a) provides that "[t]he district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trade- marks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copy- right cases." The Supreme Court has instructed that a district court's jurisdiction under § 1338(a) "extend[s] only to those cases 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 the resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims." Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808-09 (1988).
Myers & Kaplan contends that the district court erred by failing to recognize that, even though malpractice is a claim under state law, the claim here is dependent on federal law. This is so, Myers & Kaplan asserts, because the court must measure the scope of John Doe I's fiduci- ary duty to his clients as a patent practitioner under the Patent Act, the Code of Federal Regulations ("CFR"), and the Manual of Patent Examining Procedure ("MPEP").
The principles discussed in Christianson have been applied in a number of our cases involving state malpractice claims where we have concluded that a state malpractice claim arises under federal law because federal law is a necessary element of the claim.
The opinion went on to cite a few exemplary cases of state malpractice claims arising under federal law.
Similarly, federal law is a necessary element of Count VIII. Count VIII alleged that the patent prosecuting attorney, John Doe I, breached his fiduciary duties under the patent laws and regulations, including the CFR and the MPEP, by representing two inventors with conflicting interests. The standards for practice before the PTO are governed by federal law, as both the Supreme Court and we have previously recognized. Sperry v. Fla. ex rel. Fla. Bar, 373 U.S. 379, 385-86 (1963); Augustine v. Dep't of Veterans Affairs, 429 F.3d 1334, 1340 (Fed. Cir. 2005).
The PTO's standards are codified in the CFR and in the MPEP. The CFR regulates practice before the PTO, and the MPEP incorporates language from the CFR. For example, 37 C.F.R. § 10.66, which is incorporated into Section 404 of the MPEP, limits a patent practitioner's ability to represent parties with conflicting interests. Specifically, 37 C.F.R. § 10.66(a) generally requires a patent practitioner to "decline proffered employment if the exercise of the practitioner's independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve the practitioner in representing differing interests." Similarly, 37 C.F.R. § 10.66(b) generally prohibits a practitioner from continuing "multiple employment if the exercise of the practitioner's independent professional judgment in behalf of a client will be or is likely to be adversely affected by the practitioner's representation of another client, or if it would be likely to involve the practitioner in representing differing interests." In addition, 37 C.F.R. § 11.18 governs representations to the PTO by practitioners and non-practitioners. Specifically, 37 C.F.R. § 11.18(b)(1) requires that, when a party files a patent application or other document with the PTO, that person certifies that "[a]ll statements made therein of the party's own knowledge are true, all statements made therein on information and belief are believed to be true." A practitioner who fails to comply with these PTO standards may receive a suspension or disbarment. See 35 U.S.C. § 32.
As CFR and by extension MPEP were necessary elements of Carter's malpractice cause of action with regard to fiduciary duties of the patent prosecutor, the claim was not frivolous.
Carter was not off the hook, however, having cited the power to promulgate patents in the Constitution as a private cause of action.
While we conclude that Count VIII was not frivolous, we reach a different result with regard to Counts I and XI. Count I alleges a violation of Article I, Section 8, Clause 8 of the U.S. Constitution, which grants Congress the power to "promote the Progress of Science and useful Arts, by securing for limited Times to . . . Inventors the exclusive Right to their respective . . . Discoveries." The district court rejected Myers & Kaplan's assertion that the Patent Clause creates a private cause of action on behalf of inventors. Carter, slip op. at 4. The court noted that Myers & Kaplan presented "no legal authority or reasonable explanation as to how [the Patent Clause] does confer a private cause of action." Id. Myers & Kaplan contends the district court erred because Count I presents a non-frivolous argument for establishing new law, which Rule 11(b)(2) expressly permits.
We agree with the district court that the Patent Clause does not create private rights of action on behalf of inventors. Myers & Kaplan's assertion that no sanctions should be imposed under Count I because this count presents an argument for establishing new law ignores the fact that the argument for creating new law must be non-frivolous. There is no basis for inferring that Article I, Section 8, Clause 8 provides rights to inventors without congressional action, and we long ago made clear, in the context of the Copyright Clause, that it does not.
The other bit of nonsense was being aggrieved over the PTO revealing listing Hassebrock as an inventor.
In summary, we conclude that, while the district court correctly determined that Counts I and XI are frivolous, the court erred by finding Count VIII frivolous. We remand for the district court to determine whether sanctions should be imposed, and, if so, in what amount. We note that the district court's primary concern in imposing sanctions appeared to have been that Myers & Kaplan was attempting to make an impermissible claim to federal jurisdiction. Since we have established that Count VIII contains a non-frivolous allegation of federal jurisdiction, the district court's previous concern no longer exists. Under the circumstances, the district court may appropriately conclude that no sanctions should be imposed.
Affirmed-in-part, reversed-in-part, and remanded.
Judge Newman dissented in part, thinking this whole thing a waste of the court's time.
I cannot discern a supportable basis for violation of Rule 11 in the invocation of the Constitution in Count I of the com- plaint; or in seeking support in the Patent Act, in Count XI, for the asserted violation of the inventor's right of secrecy. The Eleventh Circuit has explained that "Rule 11 is in- tended to deter claims with no factual or legal basis at all; creative claims, coupled even with ambiguous or inconsequential facts, may merit dismissal, but not punishment." Davis v. Carl, 906 F.2d 533, 538 (11th Cir. 1990). While my colleagues have invited reconsideration by the district court of the basis for the Rule 11 sanction, now that a basis for federal jurisdiction has been recognized in the complaint as filed, I see no reason to prolong this satellite litigation on Rule 11.
Posted by Patent Hawk at May 25, 2010 11:41 AM | Case Law
Would someone please tattoo the following quote from this case on the foreheads of all of the David Boies constitutional scholar wanna-bees out there who keep barking about inventors having a constitutional right to a patent:
"There is no basis for inferring that Article I, Section 8, Clause 8 provides rights to inventors without congressional action, and we long ago made clear, in the context of the Copyright Clause, that it does not." [However, they are not citing any USSCt opinions, are they? So maybe the tattoo should be a henna one.]
I'd also suggest that readers not to come to the conclusion that every malpractice case that touches patent practice is a federal case. For instance, conducting a bogus search is not practicing before the PTO and state malpractice law applies. [Patent searchers need not be registered.] I think it's probably safe to generalize that conduct prior to filing the application is not practice before the PTO and therefore lacks federal jurisdiction.
I do not know who has jurisdiction over a bogus search case after a futile application is filed. I would think that filing an application the lawyer knew or should have know is anticipated would be a federal cause of action, so you could file the federal claim in DC along with the state claim on pendent jurisdiction.
Posted by: Babel Boy at May 26, 2010 7:47 AM