Carter v. ALK Holdings, Inc., No. 2008-1168 (Fed. Cir. May 24, 2010).

The initial controversy before the district court concerned fifteen claims made by the plaintiff-inventor—under a combination of federal and state law—against his former patent counsel and employer, alleging the improper listing of a co-inventor on the patent application and improper legal representation of that individual due to the conflicting interests of the plaintiff. The district court found sua sponte that three of the claims were frivolous, and thus imposed Rule 11 sanctions against plaintiff. On appeal, the Federal Circuit agreed with the district court that two of the claims were frivolous, but found that the third claim involved a substantial question of federal patent law and was not frivolous.

The Federal Circuit reviewed the district court’s ruling for an abuse of discretion and applied the relevant law of the Eleventh Circuit concerning Rule 11 sanctions—which makes clear that Rule 11 is intended to deter claims that have no factual or legal basis at all. In short, the frivolous nature must be unequivocal.

One of the three counts that led to the district court’s sua sponte determination of Rule 11 sanctions involved allegations of a breach of fiduciary duty by the patent counsel in violation of patent laws and regulations, including the CFR and the Manual of Patent Examination Procedure (MPEP). The district court felt that this count was merely a “garden-variety malpractice claim [couched] in terms of patent law,” but the Federal Circuit disagreed. Even though attorney malpractice is a state law claim, in this case, that claim is dependent on federal law because it is a necessary element of the claim. The standards for practice before the PTO are governed by federal law because the CFR and MPEP establish the fiduciary duties owed by patent counsel to a client. With a substantial question of federal patent law at issue, this claim was not frivolous and the Federal Circuit reversed the district court’s sanctions for that claim.

The Federal Circuit did find that the remaining two claims were frivolous and affirmed the district court’s sanctions ruling on these claims. One of the two counts invoked the Patent Clause of the U.S. Constitution. However, the Federal Circuit agreed that the Patent Clause does not confer a private cause of action on an inventor and that there was no legal merit or reasonable explanation to support the plaintiff’s claim. The remaining sanctions count alleged a violation of 35 U.S.C. § 122(a), which provides that “applications for patents shall be kept in confidence by the Patent and Trademark Office.” The Federal Circuit found that this statute only applies to the actions of the PTO and therefore this claim was also frivolous.

Circuit Judge Newman concurred with the majority’s decision that the plaintiff’s malpractice claim was not frivolous, but would have reversed the sanctions rulings on the other two counts because federal jurisdiction would have been conferred by the malpractice claim, thus removing the foundation for the sanction.

A copy of the opinion can be found here.