United States Court of Appeals
for the Federal Circuit
__________________________
USPPS, LTD.,
Plaintiff-Appellant,
v.
AVERY DENNISON CORPORATION,
Defendant-Appellee,
and
RENNER, OTTO, BOISSELLE & SKLAR, LLP
AND NEIL DUCHEZ,
Defendants-Appellees.
__________________________
2011-1525
__________________________
Appeal from the United States District Court for the
Western District of Texas in case no. 07-CV-0963, Chief
Judge Fred Biery.
______________________
Decided: April 17, 2012
_______________________
JAMES E. WILLINGHAM, JR., Law Offices of Jim Wil-
lingham, P.C., of San Antonio, Texas, argued for plaintiff-
appellant.
J. DANIEL HARKINS, Cox Smith Matthews Incorpo-
rated, of San Antonio, Texas, argued for defendant-
USPPS LTD v. AVERY DENNISON CORP 2
appellee Avery Dennison Corporation. Of counsel on the
brief was LESLIE SARA HYMAN, Pulman, Cappuccio, Pullen
& Benson, LLP, of San Antonio, Texas.
VAUGHAN E. WATERS, Thornton, Biechlin, Segrato,
Reynolds & Guerra, L.C., of San Antonio, Texas, argued
for defendants-appellees Renner, Otto, et al.
__________________________
Before PROST, MAYER, and O’MALLEY, Circuit Judges.
Opinion for the court filed PER CURIAM. Concurring
opinion filed by Circuit Judge PROST. Concurring opinion
filed by Circuit Judge O’MALLEY, in which Circuit Judge
MAYER joins.
PER CURIAM
USPPS, Ltd. (“USPPS”) appeals the order of the
United States District Court for the Western District of
Texas dismissing its claim for breach of fiduciary duty
and fraud. See USPPS, Ltd. v. Avery Dennison Corp., No.
SA-07-CA-963-FB, 2010 U.S. Dist. LEXIS 81707 (W.D.
Tex. June 4, 2010). We affirm.
BACKGROUND
The report of the magistrate judge, which was
adopted by the district court, provides a comprehensive
summary of this case’s long and tortuous history, and we
therefore provide only a brief synopsis of the pertinent
facts. See USPPS, Ltd. v. Avery Dennison Corp., No. SA-
07-CA-963-FB, 2010 U.S. Dist. LEXIS 84450 (W.D. Tex.
Mar. 18, 2010) (“Magistrate Report”). In 1999, Joe Pat
Beasley filed an application with the United States Pat-
ent and Trademark Office (“PTO”), seeking patent protec-
tion for personalized postage stamps. See U.S. Patent
Application No. 09/326,712 (the “’712 application”).
3 USPPS LTD v. AVERY DENNISON CORP
Beasley originally retained the Litman Law Offices, Ltd.
(“Litman”) to represent him at the PTO. In March 2001,
the PTO issued a notice of allowance on the ’712 applica-
tion.
Two months later, Beasley entered into a licensing
and manufacturing agreement with Avery Dennison
Corporation (“Avery”). This agreement specified that
Avery would “assume responsibility for prosecution of
Beasley’s patent application” and would “pay all future
patent prosecution expenses in the [’712 application].” In
May 2001, Beasley executed a “Revocation and Power of
Attorney” which discharged Litman and appointed attor-
neys from Renner, Otto, Boisselle & Sklar, L.L.P.
(“Renner”) to prosecute his application. Beasley informed
Daryl L. Lansdale, an attorney with Fulbright & Jawor-
ski, L.L.P. (“Fulbright”), 1 “that he sent the [’712 applica-
tion] to Avery or ‘Avery Dennison’s attorneys’ to prosecute
so [that] Avery would be the one paying the prosecution
fees.” Magistrate Report, 2010 U.S. Dist. LEXIS 84450, at
*44 (footnote omitted). Lansdale responded by telling
“Beasley that ‘having his own attorneys, who [were]
familiar with the patents, continue to review the patents,
probably was in his best interest.’” Id. (footnote omitted). 2
When Neil DuChez, a Renner attorney, analyzed the
prosecution file for the ’712 application, he discovered
1 Fulbright represented USPPS until February
2003.
2 Beasley asserted that he had “no recollection of
ever being advised by [Lansdale] to retain separate coun-
sel to represent [him] in the prosecution of the patents,”
but he does not deny that this conversation occurred.
App’x Exhibit G; see Magistrate Report, 2010 U.S. Dist.
LEXIS 84450, at *52-53.
USPPS LTD v. AVERY DENNISON CORP 4
that it contained relevant prior art that had not been
disclosed to the PTO. Accordingly, DuChez filed a sup-
plemental information disclosure statement disclosing
this prior art and a second patent application (the “con-
tinuation application”). On July 16, 2001, the PTO issued
a second notice of allowance on Beasley’s ’712 application.
In July 2001, Beasley transferred ownership of the
’712 application to USPPS. 3 On August 2, 2001, USPPS
and Avery entered into an agreement under which: (1)
Avery would market personalized postage stamps; (2)
USPPS would purchase personalized postage stamps
exclusively from Avery; and (3) Avery would pay USPPS a
royalty equal to five percent of sales of the personalized
stamps to third parties.
In April 2002, the PTO vacated its notice of allowance
for the ’712 application. As part of a “quality review
process,” the PTO determined that the claims of the ’712
application were not patentable over a prior art reference,
see U.S. Patent No. 5,923,406, which the PTO had inde-
pendently discovered. In May 2002, the PTO likewise
rejected Beasley’s continuation application as unpat-
entable over the prior art.
Soon thereafter, Terry Kerr, USPPS’ president, sent
email messages to Al Green, an Avery vice-president,
complaining about the “lack of follow up” on USPPS’
intellectual property matters and Avery’s failure to in-
clude USPPS in decisions related to prosecution of the
patent applications. Magistrate Report, 2010 U.S. Dist.
LEXIS 84450, at *18-19. In the fall of 2002, the PTO
issued final rejections on both the ’712 and the continua-
tion applications. In December 2002, Beasley called
Avery and spoke with Julie Hauger, who worked for
3 Beasley serves as chairman of USPPS.
5 USPPS LTD v. AVERY DENNISON CORP
Avery’s president. Hauger reported that Beasley com-
plained that Avery had “mismanaged” his patent applica-
tion and had “caused him to lose his patent.” Id. at *21
(internal quotation marks omitted). On December 17,
2002, Green sent Beasley and Kerr an email stating that
he thought the chance of overcoming the PTO’s final
rejections was “remote” and that he was “unable to come
up with any further claim language which would over-
come the [PTO’s] objections.” Id. (internal quotation
marks omitted).
In January 2003, Beasley complained to Matthew
Mellis, an Avery vice-president, about Avery’s handling of
patent issues. According to Mellis, Beasley asserted that
Avery had “mishandled” the patent applications and “had
deliberately prevented him from obtaining a patent on
personalized postage stamps.” Id. at *22 (footnote and
internal quotation marks omitted). On February 14,
2003, USPPS sent Avery a memorandum entitled “A
Million Dollar Opportunity Damaged.” This memoran-
dum stated that USPPS had “sustained significant mone-
tary and other damages” as a result of Avery’s “actions
and omissions.” It further stated that Avery’s “lack of
action and mismanagement of our Intellectual Property
has resulted in the rejection of our patent after we had
twice received an approval for issuance of the patent.”
In the spring of 2003, the PTO issued notices of aban-
donment on both patent applications. DuChez forwarded
these PTO notices to Beasley in May 2003. Avery thereaf-
ter notified USPPS that it intended to sell personalized
postage stamps without further payment of royalties after
the royalty agreement between Avery and Beasley ex-
pired by its own terms in August 2004. In September
2004, Beasley brought suit against Avery and Renner,
alleging negligence, breach of fiduciary duty, and fraud.
His complaint was dismissed, however, after the district
USPPS LTD v. AVERY DENNISON CORP 6
court concluded that Beasley lacked standing to sue
because he had transferred title to the patent applications
to USPPS. Beasley subsequently appealed to the United
States Court of Appeals for the Fifth Circuit, but his
appeal was dismissed for want of prosecution. Beasley v.
Avery Dennison Corp., No. 07-51311, 2008 U.S. App.
LEXIS 28075 (5th Cir. Feb. 7, 2008).
On November 27, 2007, USPPS filed suit against
Avery, Renner, and DuChez (collectively “the defen-
dants”), alleging breach of fiduciary duty and fraud. 4
USPPS alleged that Avery had made representations
“that Beasley as owner of the patent was the client of
[Renner] with regard to the prosecution of his patent,”
and failed to inform “USPPS that Avery Dennison (not
Beasley or USPPS) was the client.” Magistrate Report,
2010 U.S. Dist. LEXIS 84450, at *5 (internal quotation
marks omitted). USPPS asserted that “it relied on the
representations that Beasley was the client of Renner and
DuChez when firing [Litman] and allowing Renner and
DuChez to take over the patent prosecution,” when in fact
“Beasley and USPPS had no legal representation in the
prosecution of the patent which caused injury and dam-
ages.” Id. (footnote omitted).
On May 30, 2008, the district court issued an order
dismissing USPPS’ complaint as barred by the applicable
four-year statute of limitations. On appeal, however, the
United States Court of Appeals for the Fifth Circuit
reversed. The court noted that when reviewing a trial
court’s dismissal under Federal Rule of Civil Procedure
12(b)(6), it was required to “accept all well-pleaded facts
4 USPPS subsequently amended its complaint, add-
ing new “collusive action claims,” including conspiracy
and aiding and abetting fraud and breach of fiduciary
duty. Magistrate Report, 2010 U.S. Dist. LEXIS 84450, at
*6.
7 USPPS LTD v. AVERY DENNISON CORP
as true.” USPPS, Ltd. v. Avery Dennison Corp., 326 F.
App’x 842, 843 (5th Cir. 2009). Applying that standard,
the court determined that it could not “definitively say
that the discovery rule and fraudulent concealment
exceptions” to the running of the limitations period did
not apply to postpone the accrual date of USPPS’ claim.
Id. at 851.
On remand, a magistrate judge, at the close of limited
discovery, granted the defendants’ motion for summary
judgment. The magistrate judge concluded that: (1)
neither the discovery rule nor the fraudulent concealment
doctrine served to postpone the accrual of USPPS’ claims;
and (2) there were no genuine issues of material fact on
the causation element of USPPS’ claims for fraud and
breach of fiduciary duty. On June 4, 2010, the district
court adopted the report and recommendations of the
magistrate judge.
USPPS then again appealed to the United States
Court of Appeals for the Fifth Circuit. The Fifth Circuit
issued an order transferring the case to this court, ex-
plaining that “the Federal Circuit has exclusive jurisdic-
tion of an appeal where the district court’s jurisdiction
was based, in whole or in part, on 28 U.S.C. § 1338.”
USPPS, Ltd. v. Avery Dennison Corp., 647 F.3d 274, 277
(5th Cir. 2011) (citations and internal quotation marks
omitted) (“Transfer Order”). The court stated that “the
Federal Circuit [has] held that a Texas state-law claim of
attorney malpractice in a patent infringement case ‘arises
under’ patent law for purposes of § 1338.” Id. at 278-79.
It noted, moreover, that Davis v. Brouse McDowell, L.P.A.,
596 F.3d 1355, 1359-62 (Fed. Cir. 2010), held that this
court has jurisdiction over state-law malpractice claims
where the alleged malpractice involves “a question of
patentability [even] where no patent ha[s] actually is-
sued.” Transfer Order, 647 F.3d at 280. Because USPPS
USPPS LTD v. AVERY DENNISON CORP 8
could not “prove causation without proving the patentabil-
ity of its invention,” the Fifth Circuit determined that
federal patent law was a necessary element of its claims.
Id.; see Christianson v. Colt Indus. Operating Corp., 486
U.S. 800, 808-09 (1988) (emphasizing that section 1338
jurisdiction “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 resolution of a substantial
question of federal patent law, in that patent law is a
necessary element of one of the well-pleaded claims”).
The Fifth Circuit acknowledged that the decision to
transfer USPPS’ state-law tort claim to this court raised
an important “federalism inquiry,” Transfer Order, 647
F.3d at 278 n.1, and that the transfer would be appropri-
ate only if the patent issue presented in USPPS’ state-law
claim rose “to the level of creating a substantial federal
interest such that the Federal Circuit has exclusive
appellate jurisdiction.” Id. at 278; see Grable & Sons
Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308,
314 (2005) (emphasizing that “the question is, does a
state-law claim necessarily raise a stated federal issue,
actually disputed and substantial, which a federal forum
may entertain without disturbing any congressionally
approved balance of federal and state judicial responsi-
bilities”). The court concluded, however, that because of
the “strong federal interest” in uniformity in the patent
law that “exclusive federal jurisdiction was intended to
ensure,” the patent issues raised in USPPS’ appeal “in-
volve[d] a sufficiently substantial federal interest to
permit federal jurisdiction over a state-law tort.” Trans-
fer Order, 647 F.3d at 282.
9 USPPS LTD v. AVERY DENNISON CORP
DISCUSSION
I. Jurisdiction
In Davis, an inventor sued her attorney, asserting
that he had “committed malpractice by performing vari-
ous acts of negligence in connection with the preparation
and filing of” her U.S. patent applications and that this
negligence “cost her the opportunity to secure patents on
her inventions.” 596 F.3d at 1360, 1361. We concluded
that the district court had properly exercised section 1338
jurisdiction over Davis’ state-law malpractice claim
because unless she could show that her inventions were
patentable, her attorney’s “negligence could not have
caused her to suffer any damages.” Id. at 1361; see 28
U.S.C. § 1338 (providing that federal district courts “shall
have original jurisdiction of any civil action arising under
any Act of Congress relating to patents”). In short,
because demonstrating that her inventions were pat-
entable was “a necessary element of one of [her] legal
malpractice claims,” Davis, 596 F.3d at 1362, Davis’ “right
to relief necessarily depend[ed] on resolution of a substan-
tial question of federal patent law,” id. at 1359 (citations
and internal quotation marks omitted).
A similar analysis applies here. USPPS alleges that
the defendants’ malfeasance caused it to be denied a
patent on personalized postage stamps. Unless USPPS
can demonstrate that its invention was patentable over
the prior art, however, it cannot establish that the defen-
dants’ actions “caused [it] to suffer any damages.” Id. at
1361. Accordingly, applying Davis, the Fifth Circuit
concluded that the exercise of section 1338 jurisdiction
was appropriate.
Davis arguably raises important questions related to
the “congressionally approved balance of federal and state
judicial responsibilities,” Grable, 545 U.S. at 314, but we
USPPS LTD v. AVERY DENNISON CORP 10
are bound by that decision unless it is overruled by an en
banc court. See Tex. Am. Oil Corp. v. U.S. Dep’t of En-
ergy, 44 F.3d 1557, 1561 (Fed. Cir. 1995) (en banc) (“This
court applies the rule that earlier decisions prevail unless
overruled by the court en banc, or by other controlling
authority such as intervening statutory change or Su-
preme Court decision.”). Moreover, USPPS had already
brought two appeals before the United States Court of
Appeals for the Fifth Circuit before its case was trans-
ferred here. For this court to refuse to adjudicate the
merits of USPPS’ appeal at this stage of the proceedings
would subject the parties to precisely the sort of “jurisdic-
tional ping-pong” the Supreme Court has cautioned
against. Christianson, 486 U.S. at 818. As the Court
made clear, “[u]nder law-of-the-case principles, if the
transferee court can find the transfer decision plausible,
its jurisdictional inquiry is at an end.” Id. at 819.
II. Timeliness
We conclude that the district court correctly deter-
mined that USPPS’ complaint was untimely. 5 Under
Texas law, a plaintiff must bring a cause of action for
fraud or breach of fiduciary duty no later than four years
after the date it first accrues. Tex. Civ. Prac. & Rem.
Code § 16.004(a). “In most cases, a cause of action ac-
crues when a wrongful act causes a legal injury, regard-
less of when the plaintiff learns of that injury or if all
resulting damages have yet to occur.” Provident Life &
Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex.
2003). Here, the alleged legal injury suffered by USPPS
5 On appeal, USPPS contends that the district court
erred when it concluded that USPPS failed to present
evidence sufficient to raise genuine issues of material fact
on the causation element of its breach of fiduciary duty
and fraud claims. We need not reach this issue, however,
because we conclude that USPPS’ suit is time-barred.
11 USPPS LTD v. AVERY DENNISON CORP
occurred no later than May 2003, when the PTO issued
final notices of abandonment on both of USPPS’ patent
applications. USPPS did not file suit, however, until
November 27, 2007, more than four years after this injury
occurred.
Texas law provides two exceptions to the rule that the
statute of limitations begins to run when a legal injury
occurs. First, under the “discovery rule” a cause of “action
does not accrue until the plaintiff knew or in the exercise
of reasonable diligence should have known of the wrongful
act and resulting injury.” S.V. v. R.V., 933 S.W.2d 1, 4
(Tex. 1996). Second, under the “fraudulent concealment”
doctrine the accrual of a claim “is deferred because a
person cannot be permitted to avoid liability for his ac-
tions by deceitfully concealing wrongdoing until limita-
tions has run.” Id. at 6.
A. The Discovery Rule
The discovery rule provides a “very limited exception”
to the running of the limitations period. Computer Assocs.
Int’l v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996). It
serves to defer the accrual of a claim when “the alleged
wrongful act and resulting injury were inherently undis-
coverable at the time they occurred but may be objectively
verified.” S.V., 933 S.W.2d at 6. An injury will be deemed
“inherently undiscoverable if it is by nature unlikely to be
discovered within the prescribed limitations period de-
spite due diligence.” Id. at 7; see Colonial Penn Ins. Co. v.
Mkt. Planners Ins. Agency, Inc., 157 F.3d 1032, 1034 (5th
Cir. 1998).
As the district court correctly concluded, the discovery
rule is not available to defer the accrual of USPPS’ claim.
By May 2003, at the latest, USPPS knew that it had lost
the right to obtain a patent on personalized postage
stamps and had concluded that this loss was due to
USPPS LTD v. AVERY DENNISON CORP 12
wrongdoing on the part of the defendants. Soon after the
PTO rejected USPPS’ applications as unpatentable over
the prior art, USPPS wrote to Avery to complain of
Avery’s “lack of follow-up” regarding USPPS’ intellectual
property. Magistrate Report, 2010 U.S. Dist. LEXIS
84450, at *18 (internal quotation marks omitted). In
December 2002, Beasley called Hauger, who worked for
Avery’s president, complaining that Avery had “misman-
aged” his application and had caused him to “lose his
patent” for personalized postage stamps. Id. at *21
(internal quotation marks omitted). Two months later,
USPPS sent Avery a memorandum captioned “A Million
Dollar Opportunity Damaged.” This memorandum stated
that Avery’s “lack of action and mismanagement of
[USPPS’] Intellectual Property has resulted in the rejec-
tion of our patent after we had twice received an approval
for issuance of the patent.” Id. at *25 (internal quotation
marks omitted). Thus, by May 2003, when the PTO
issued final notices of abandonment on both of USPPS’
applications, USPPS had not only concluded that it had
lost a “million dollar opportunity” when it forfeited its
patent rights, but also believed that this loss was the
result of “mismanagement” and “lack of follow-up” on
Avery’s part. Because USPPS knew, or should have
known, by May 2003 that it had suffered an actionable
injury as a result of the defendants’ alleged wrongdoing,
the discovery rule does not serve to defer the accrual of its
claim. See Exxon Corp. v. Emerald Oil & Gas Co., 348
S.W.3d 194, 202 (Tex. 2011) (“Causes of action accrue and
statutes of limitations begin to run when facts come into
existence that authorize a claimant to seek a judicial
remedy.”).
USPPS argues that although it might have deter-
mined, by May of 2003, that Avery and Renner acted
negligently in prosecuting the ’712 application, it was not
13 USPPS LTD v. AVERY DENNISON CORP
until 2004 that it discovered that the defendants acted
fraudulently and in breach of their fiduciary obligations.
As the Texas Supreme Court has said, however, “the
discovery rule does not linger until a claimant learns of
[the] actual causes” of his injury. PPG Indus., Inc. v.
JMB/Houston Ctrs. Ltd., 146 S.W.3d 79, 93 (Tex. 2004).
USPPS knew by May 2003 not only that it had suffered
an injury—the loss of its patent rights—but also had come
to the conclusion that this loss was due to misconduct on
the part of the defendants. Regardless of whether USPPS
believed that the defendants had acted negligently, or
with fraudulent intent, USPPS’ cause of action accrued
when it learned that it had suffered an actionable injury.
Id. (emphasizing that a claim accrues regardless of
whether a party knows the “specific cause” of his injury);
Bayou Bend Towers Council v. Manhattan Constr. Co.,
866 S.W.2d 740, 743 (Tex. App. 1993) (explaining that “all
that is required to commence the running of the limita-
tions period is the discovery of an injury and its general
cause, not the exact cause in fact and the specific parties
responsible”). Under Texas law, when a party learns that
he has suffered a loss as a result of “the wrongful conduct
of another,” he has a duty to investigate the cause of that
loss and to file suit in a timely manner. KPMG Peat
Marwick, L.L.P. v. Harrison Cnty. Hous. Fin. Corp., 988
S.W.2d 746, 749 (Tex. 1999).
B. The Fraudulent Concealment Doctrine
USPPS argues that it “had no patent attorney or legal
representation in the prosecution of its patent,” and that
“[t]his lack of legal representation resulted in the loss of
the patent.” It contends, moreover, that the fraudulent
concealment doctrine serves to toll the statute of limita-
tions because, due to Avery’s alleged misrepresentations
and fraud, USPPS did not learn until 2004 that Renner
was working for Avery and not for USPPS. This reason-
USPPS LTD v. AVERY DENNISON CORP 14
ing is not persuasive. The equitable doctrine of fraudu-
lent concealment tolls the statute of limitations in situa-
tions in which “a defendant is under a duty to make
disclosure but fraudulently conceals the existence of a
cause of action from the party to whom it belongs . . . .”
Borderlon v. Peck, 661 S.W.2d 907, 908 (Tex. 1983); see
also Seatrax, Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358, 366
(5th Cir. 2000). This doctrine, however, “only tolls the
running of limitations until the fraud is discovered or
could have been discovered with reasonable diligence.”
BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 67 (Tex.
2011). Here, USPPS knew, or should have known, by at
least May 2003, that Renner was working as Avery’s
attorney in prosecuting the ’712 application. Pursuant to
the 2001 agreement between Beasley and Avery, Avery
agreed to “assume responsibility” for prosecution of the
’712 application. Magistrate Report, 2010 U.S. Dist.
LEXIS 84450, at *44. Beasley then informed Lansdale,
an attorney from a law firm that represented USPPS
until February 2003, “that he sent the [’712 application]
to Avery or ‘Avery Dennison’s attorneys’ to prosecute so
[that] Avery would be the one paying the prosecution
fees.” Id. (footnote omitted). Lansdale responded by
telling “Beasley that having his own attorneys, who [are]
familiar with the patents [and] continue to review the
patents, probably was in his best interest.” Id. (footnote
and internal quotation marks omitted).
USPPS’ argument that it was unaware that Renner
worked for Avery and not for USPPS is undermined by
the fact that USPPS never signed a retainer agreement
with Renner and never paid legal fees to Renner for its
work in prosecuting the ’712 application. Instead, Renner
sent monthly bills to Avery for its work prosecuting the
’712 application and Avery paid Renner. As early as May
2002, USPPS was complaining to Avery that Avery had
15 USPPS LTD v. AVERY DENNISON CORP
“restricted” communications between USPPS and
DuChez, the Renner attorney prosecuting the ’712 appli-
cation. Id. at *46. USPPS asserted that Avery had
prevented DuChez “from communicating with [USPPS] on
the same time frame” that he communicated with Avery.
Id. (internal quotation marks omitted). Given that Avery
was paying Renner’s fees and had acted to restrict com-
munications between Renner and USPPS, USPPS knew,
or in the exercise of due diligence should have known,
that Renner was acting as legal counsel to Avery in the
prosecution of the ’712 application.
A “plaintiff must, of course, exercise reasonable dili-
gence to discover what has been hidden from him by the
defendant and the period of tolling may not extend beyond
the time the plaintiff actually acquired knowledge of the
facts or should have acquired such knowledge by the
exercise of reasonable diligence.” Leonard v. Eskew, 731
S.W.2d 124, 128 (Tex. App. 1987). Even assuming ar-
guendo that the defendants failed to disclose the fact that
Renner was working for Avery, the statute of limitations
was tolled only until such time as USPPS, in the exercise
of reasonable diligence, should have discovered that fact.
CONCLUSION
Accordingly, the order of the United States District
Court for the Western District of Texas is affirmed.
AFFIRMED
United States Court of Appeals
for the Federal Circuit
__________________________
USPPS, LTD.,
Plaintiff-Appellant,
v.
AVERY DENNISON CORPORATION,
Defendant-Appellee,
and
RENNER, OTTO, BOISSELLE & SKLAR, LLP
AND NEIL DUCHEZ,
Defendants-Appellees.
__________________________
2011-1525
__________________________
Appeal from the United States District Court for the
Western District of Texas in case no. 07-CV-0963, Chief
Judge Fred Biery.
__________________________
PROST, Circuit Judge, concurring.
Our jurisdiction over this case is not disputed, and we
all agree that the Fifth Circuit’s transferring the case to
this court was appropriate. Judge O’Malley’s concur-
rence, however, uses this case as a vehicle to criticize this
court’s previous decisions which have held that we have
jurisdiction over certain patent-related malpractice cases.
USPPS LTD v. AVERY DENNISON CORP 2
Respectfully, I am reluctant to weigh in on a question
that was not presented in this case and therefore, obvi-
ously, never briefed or argued. Nor am I persuaded by
Judge O’Malley’s arguments that our case law contradicts
Supreme Court precedent. Indeed, the concurrence in the
denial of the petition for rehearing en banc in Byrne v.
Wood, No. 2011-1012, 2012 U.S. App. LEXIS 6021, at *2-8
(Fed. Cir. Mar. 22, 2012) (Dyk, J. concurring), discussed
at length why our case law comports with Supreme Court
precedent. In particular, it observed that the “substan-
tive patent law issues” implicated in these patent-based
malpractice cases “necessarily make[] the issues ‘substan-
tial’ within the meaning of Christianson [v. Colt Indus-
tries Operating Corp.], 486 U.S. [800,] 809 [1988], and
indicate[] a ‘serious federal interest’ in federal adjudica-
tion within the meaning of Grable & Sons Metal Prods.,
Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 313 (2005).” Id.
at *4.
United States Court of Appeals
for the Federal Circuit
__________________________
USPPS, LTD.,
Plaintiff-Appellant,
v.
AVERY DENNISON CORPORATION,
Defendant-Appellee
and
RENNER, OTTO, BOISELLE & SKLAR, LLP AND
NEIL DUCHEZ,
Defendants-Appellees.
__________________________
2011-1525
__________________________
Appeal from the United States District Court for the
Western District of Texas in case no. 07-CV-0963, Chief
Judge Fred Biery.
__________________________
O’MALLEY, Circuit Judge, with whom MAYER, Circuit
Judge joins, concurring.
Although I agree that the district court properly
granted summary judgment in favor of defendants in this
matter, I write separately to address the significant
federalism concerns raised by our exercise of jurisdiction
over these purely state law claims. See Slip Op. at 9
(“Davis arguably raises important questions related to the
“congressionally approved balance of federal and state
USPPS LTD v. AVERY DENNISON CORP 2
judicial responsibilities . . . .’” (citations omitted)). I
concur rather than dissent because, as the majority notes,
our current case law extends our jurisdictional reach to
the plaintiff’s claims in this case. Specifically, because
Plaintiff’s fraud and breach of fiduciary duty claims
require the plaintiff to prove that its invention would
have received patent protection absent the defendants’
allegedly unlawful conduct, our case law compels that we
exercise subject matter jurisdiction over it. See Davis v.
Brouse McDowell, L.P.A., 596 F.3d 1355 (Fed. Cir. 2010)
(extending jurisdiction over a state law malpractice claim
where the plaintiff would have to prove that, but for her
attorney’s missed patent application filing deadline, her
invention would have been patentable). Our case law
turns what would otherwise be a “clearly wrong” transfer
decision into one that is “plausible,” thus requiring this
court to accept the transfer and resolve the merits of the
appeal. Christianson v. Colt Industries Operating Corp.,
486 U.S. 800, 817-19 (1988).
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 Byrne v. Wood, Herron & Evans, LLP, 2011
WL 5600640, *5 (Fed. Cir. Nov. 18, 2011) (“Although we
must adhere to our precedent, we believe this court
should re-evaluate the question of whether jurisdiction
exists to entertain a state law malpractice claim involving
the validity of a hypothetical patent . . . .” (emphasis in
original)); see also Byrne v. Wood, Herron & Evans, LLP,
No. 2011-1012, 2012 U.S. App. LEXIS 6021 (Fed. Cir.
Mar. 22, 2012) (O’Malley, J., dissenting from denial of
petition for rehearing en banc). This case exemplifies the
mischief our jurisdictional over-reaching has caused in
situations where a state law claim involves an underlying
patent issue. Indeed, in objecting to a state court dis-
3 USPPS LTD v. AVERY DENNISON CORP
missal of a state law malpractice claim based on our case
law, three dissenting Texas Supreme Court justices
identified this very case as emblematic of the problems
created by this court’s case law. Minton v. Gunn, 355
S.W.3d 634, 653 (Tex. 2011) (Guzman, J., dissenting)
(“[T]he Supreme Court's fears have already been realized
in USPPS. . . . “[T]he reach of the Federal Circuit's section
1338 reasoning is uncabined, and can potentially sweep
any state law case that touches on substantive patent law
(or, for that matter, the other areas of law covered by
section 1338, such as copyright and trademarks) irrevoca-
bly into federal court.”).
I.
USPPS, Ltd. (“USPPS”) filed suit in United States
District Court for the Western District of Texas, citing
diversity jurisdiction under 28 U.S.C. § 1332 as the sole
basis for federal jurisdiction. USPPS asserted only state
law claims for fraud and breach of fiduciary duty. No one
disputes that these are purely state law claims for which
federal law does not create a cause of action.
All parties to the case proceeded under the assump-
tion that diversity jurisdiction provided the only basis for
federal jurisdiction. Indeed, when the district court
initially granted defendants’ motion to dismiss, USPPS
appealed to the United States Court of Appeals for the
Fifth Circuit. See USPPS, Ltd. v. Avery Dennison Corp.,
No. 08-50664, 326 Fed. Appx. 842 (5th Cir. June 17,
2009). Defendants did not challenge the correctness of
that appellate route, and the Fifth Circuit did not ex-
pressly consider whether it possessed jurisdiction over the
appeal. Instead, the Fifth Circuit reversed and remanded
the action back to the district court. Id. at 851.
It was not until the second appeal that the Fifth Cir-
cuit requested supplemental briefing on whether the
USPPS LTD v. AVERY DENNISON CORP 4
Federal Circuit possesses exclusive appellate jurisdiction,
ultimately concluding that jurisdiction is proper in this
court and transferring the appeal here. See USPPS, Ltd.
v. Avery Dennison Corp., 647 F.3d 274, 275-76 (5th Cir.
2011). As the majority notes, the Fifth Circuit relied
heavily on three of our recent decisions in which we held
that state law malpractice claims relating to an underly-
ing patent matter properly “arose under” the patent laws.
Id. at 278-281 (relying on Davis, 596 F.3d at 1361-62; Air
Measurement Techs., Inc. v. Akin Gump Strauss Hauer &
Feld, L.L.P., 504 F.3d 1262 (Fed. Cir. 2007); Immunocept,
LLC v. Fulbright & Jaworski, LLP, 504 F.3d 1281 (Fed.
Cir. 2007)). Specifically, the Fifth Circuit explained that,
“[a]s in Davis, USPPS cannot prove causation without
proving the patentability of its invention,” because
“[o]therwise, the cause of USPPS’s loss of patent protec-
tion would be based on the simple fact that its invention
could not be patented, and not on any breach of fiduciary
duty by [defendants].” Id. at 280. The Fifth Circuit also
relied on one of its prior decisions from 1997, which
contained only a limited jurisdictional analysis but which
the Fifth Circuit found was “nevertheless binding.” Id. at
282 (citing Scherbatskoy v. Halliburton Co., 125 F.3d 288
(5th Cir. 1997)). Accordingly, the Fifth Circuit trans-
ferred the appeal to this court.
Having considered and decided the issue, the Fifth
Circuit’s decision that exclusive jurisdiction rests with the
Federal Circuit is the law of the case. See Christianson,
486 U.S. at 817. This court, however, does not “exceed its
power in revisiting that jurisdictional issue” and is
“obliged to decline jurisdiction” if it concludes that the
Fifth Circuit’s decision is “clearly wrong.” Id. Viewing
the matter from a clean slate, without any Federal Circuit
precedent on this issue, the Fifth Circuit’s transfer deci-
sion is “clearly wrong.” Indeed, in the absence of our
5 USPPS LTD v. AVERY DENNISON CORP
current case law, I would dissent and find that the case
should proceed in the Fifth Circuit. That is true even
considering the Supreme Court’s warning against “juris-
dictional ping-pong.” Id. at 818. The principles that
underlie the Supreme Court’s concern about re-transfers –
conserving private and public resources and maintaining
public confidence in the judiciary – weigh in favor of
keeping the case in the Fifth Circuit. That court already
resolved the merits of one appeal in this matter, and the
scope of its decision in that first appeal is at issue in the
matter before us. See Appellant’s Br. 7 (quoting from the
Fifth Circuit’s first decision and arguing that “the sum-
mary judgment evidence supports USPPS’s knowledge as
described in the [First Amended Complaint] used by [the
Fifth Circuit] to reverse the district judge’s ruling on the
motion to dismiss based on limitations.”). It is inefficient
and unproductive for this court to hear the same case
upon which the Fifth Circuit already has ruled.
Under correct application of Supreme Court case law,
even a cursory review of the case reveals that it does not
invoke jurisdiction under 28 U.S.C. § 1338 and, by exten-
sion, our appellate jurisdiction under § 1295.
II.
Federal courts may exercise federal question jurisdic-
tion over state law claims only in the rare case where a
federal issue is “actually disputed and substantial,” and
where doing so will not upset “any congressionally ap-
proved balance of federal and state judicial responsibili-
ties.” Grable & Sons Metal Prods., Inc. v. Darue Eng’g &
Mfg., 545 U.S. 308, 314 (2005). Thus, courts must con-
sider whether: (1) a federal issue is a necessary element of
a state law claim; (2) a federal issue is actually disputed;
(3) a federal issue is substantial; and (4) exercising federal
jurisdiction will disturb the balance of federal and state
USPPS LTD v. AVERY DENNISON CORP 6
judicial responsibilities. Grable, 545 U.S. at 314. The
claims in this case fail at least the last two factors of this
analysis, and, therefore, jurisdiction under Sections 1338
and 1295 is lacking. See Byrne, 2012 U.S. App. LEXIS
6021, at *10 (“In choosing to exercise jurisdiction over
malpractice claims arising out of patent matters, we have
ignored the latter two parts of the inquiry.”).
As to the third factor, the purported “patent” issue in
this case is not “substantial” under Grable for several
reasons. First, determining whether USPPS likely could
have obtained a patent in light of the specific prior art the
United States Patent and Trademark Office cited is a
case-specific, factual inquiry, and requires only applica-
tion, not interpretation, of the federal patent laws. See
Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S.
677, 701 (2006) (distinguishing Grable on the ground that
it presented a “nearly ‘pure issue of law,’” unlike the “fact-
bound and situation-specific” claim at issue in the case
before it (citation omitted)); Byrne, 2012 U.S. App. LEXIS
6021 (same); Bennett v. Sw. Airlines Co., 484 F.3d 907
(7th Cir. 2007) (“What the Court said about Grable in
Empire Healthchoice can be said here too. We have a fact-
specific application of rules that come from both federal
and state law rather than a context-free inquiry into the
meaning of a federal law.”).
Second, allowing a regional circuit court to decide this
matter does not pose a threat to the uniformity of patent
law because: (1) any patent issue that is decided will not
affect the underlying patent rights, it will merely inform
an element of the plaintiff’s state law claim; (2) such a
decision will not have binding effect on other patent cases;
and (3) this is a private dispute that does not impair a
federal agency’s ability to vindicate its rights in a federal
forum. See Byrne, 2012 U.S. App. LEXIS 6021, at *33
(“Further, patent-related malpractice claims do not impli-
7 USPPS LTD v. AVERY DENNISON CORP
cate any underlying patent rights themselves, and instead
require consideration of patent law only to inform the
state law standards of causation or damages.”). See also
Adventure Outdoors, Inc. v. Bloomberg, 552 F.3d 1290,
1301 (11th Cir. 2008) (“[T]he state court interpretation of
the gun statutes will not be controlling in numerous other
cases because it will not have precedential effect in the
federal system”); Mikulski v. Centerior Energy Corp., 501
F.3d 555, 570 (6th Cir. 2007) (en banc) (“While the federal
government may have an interest in the uniform applica-
tion of regulations that relate to the collection of taxes, it
has only a limited interest in private tort or contract
litigation over the private duties involved in that collec-
tion.”).
Finally, determining whether USPPS likely could
have obtained a patent absent defendants’ allegedly
unlawful acts does not resolve this matter; rather, it is
only one piece of the causation element of USPPS’s claim.
Thus, federal court jurisdiction is neither necessary nor
appropriate because the patent law issue presented is not
substantial by any measure. See Empire Healthchoice,
547 U.S. 677, 701 (distinguishing Grable because the
federal issue in Grable was “both dispositive of the case
and would be controlling in numerous other cases”);
Byrne, 2012 U.S. App. LEXIS 6021, at *36 (“The fact that
the patent issue in a malpractice action is not the sole,
dispositive issue in the case strongly cuts against the
conclusion that it is a ‘substantial’ one.”).
Not only is § 1338 jurisdiction lacking because the
patent issues in USPPS’s claims are not “substantial,”
§ 1338 jurisdiction also does not lie because exercising
jurisdiction would upset the balance of federal and state
judicial responsibilities. See Grable, 545 U.S. at 313-14
(explaining that the exercise of federal jurisdiction is
“subject to a possible veto,” even where a state law claim
USPPS LTD v. AVERY DENNISON CORP 8
contains a contested and substantial federal question, if
exercising jurisdiction is not “consistent with congres-
sional judgment about the sound division of labor between
state and federal courts”). While it is true that there is a
strong federal interest in the adjudication of patent
infringement actions, states have a similarly strong
interest in regulating attorney misconduct within their
borders. Indeed, state courts are the traditional arbiter of
such misconduct, which is governed by long-standing
common law principles of negligence, fraud and breach of
fiduciary duty. Where, as here, the resolution of any
patent law issue will relate to hypothetical circumstances
and neither result in a finding of either infringement or
invalidity nor have any precedential effect in any patent
law action, the federal interest is marginal at best. See
e.g., Adventure Outdoors, 552 F.3d at 1301 (“state court
interpretation of the gun statutes . . . will not have prece-
dential effect in the federal system.” (citing Tafflin)).
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. In other words,
the Supreme Court's fears have already been real-
ized in USPPS. There, the Fifth Circuit adopted
the reasoning applied by the Federal Circuit in
Air Measurement and Immunocept to reach the
same outcome in a fraud and breach of fiduciary
duty case involving patent law. [citation omitted]
Put another way, the reach of the Federal Cir-
cuit's section 1338 reasoning is uncabined, and
can potentially sweep any state law case that
9 USPPS LTD v. AVERY DENNISON CORP
touches on substantive patent law (or, for that
matter, the other areas of law covered by section
1338, such as copyright and trademarks) irrevo-
cably into federal court.
Minton v. Gunn, 355 S.W.3d 634, 653 (Tex. 2011)
(Guzman, J., dissenting). See also Singh v. Duane Morris
LLP, 538 F.3d 334, 340 (5th Cir. 2008) (explaining that
the argument for extending federal jurisdiction over
malpractice claims involving a federal issue “reaches so
broadly that it would sweep innumerable state-law mal-
practice claims into federal court.”). Left unchecked and
unrevised, our case law will continue to upset the balance
of federal and state judicial responsibilities.
III.
Although resolution of the jurisdictional question in
this case is clear under a correct application of Supreme
Court precedent, we are not working from a clean slate.
Under our law as it now stands, the Fifth Circuit’s deci-
sion meets the low threshold under Christianson of being
“plausible,” and we must accept the transfer and resolve
the merits of this case. Christianson, 486 U.S. at 819
(“Under law-of-the-case principles, if the transferee court
can find the transfer decision plausible, its jurisdictional
inquiry is at an end.”). For these reasons and those
spelled out in my decision from this court’s order denying
rehearing en banc in Byrne, I concur in the result, but
believe our case law in this area is wrong.