February 21, 2011
LES Insights
Authored by Amanda Joy Dittmar, D. Brian Kacedon, John C. Paul
Over the past decade, the Eastern District of Texas has become a popular venue for patent owners to bring patent infringement lawsuits based, at least in part, on the familiarity of that court with patent issues, the relatively fast time to trial, and a perception that juries in the district tend to be more favorable to patent owners. For these reasons, many suits have been brought in Texas even when the cases have little to no connection to that district. This, in turn, has led to increased efforts by defendants to transfer cases from Texas to other forums. Historically though, it has been difficult to obtain such a transfer.
Over the last few years, however, the Federal Circuit has become increasingly involved in this issue, reversing several Texas decisions denying such transfers, starting with In re TS Tech USA Corp., 551 F.3d 1315 (Fed. Cir. 2008), and continuing, most recently, with In re Acer America Corporation, Misc. Docket No. 942 (Fed. Cir. Dec. 3, 2010).
The court in the Eastern District of Texas has begun to follow this lead and is transferring cases out of Texas with greater frequency, as illustrated by the recent case of MGM Well Services, Inc. v. Production Control Services, Inc., 6:10-cv-088 (E.D. Tex., Nov. 22, 2010). In that case, the Texas court, following recent Federal Circuit precedent, transferred a case out of their district based on considerations of judicial economy. The net result of these decisions is that Motions to Transfer are becoming an increasingly important weapon in the arsenal of defendants, helping to level the playing field and provide more balance in selecting the forum for litigation.
Since December 2008, the Federal Circuit has reversed denials of motions to transfer in six of the seven such cases appealed from the Texas court: In re TS Tech USA Corp., 551 F.3d 1315 (Fed. Cir. 2008), In re Genentec, Inc., 566 F.3d 1338 (Fed. Cir. 2009), In re Hoffmann-La Roche Inc., 587 F.3d 1333 (Fed. Cir. 2009), In re Nintendo Co., 589 F. 3d 1194 (Fed Cir. 2009), In re Zimmer Holdings, Inc., NO. 2010-M938 (Fed. Cir. 2010) and In re Acer Am. Corp.. The Court affirmed a denial of transfer in In re Volkswagen of Am., Inc., 566 F.3d 1349 (Fed. Cir. 2009).
Although Federal Circuit law applies to patent issues, the law of each regional circuit applies to motions to transfer. The Fifth Circuit is the regional circuit for Texas courts and its law allows for a court of appeals to issue a mandamus writ to a trial court to correct a clearly erroneous denial of transfer. This lets a defendant appeal such a denial immediately to the Federal Circuit instead of having to wait until a final judgment in the case. Under Fifth Circuit law, a motion to transfer venue to another court should be granted upon a showing that the new venue is "clearly more convenient" than the venue chosen by the patent owner.
The Fifth Circuit applies "private" and "public" factors when deciding a § 1404(a) venue transfer question. The "private" factors include: (1) the relative ease of access to sources of proof; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practical problems that make a trial easy, expeditious, and inexpensive. The "public" factors include: (1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflicts of laws or in the application of foreign law. What follows is a brief analysis of how the Federal Circuit has analyzed these factors in its recent decisions.
In TS Tech, the Federal Circuit reversed a denial of transfer due to the disregard of four principles set forth in Fifth Circuit precedent.
First, the court gave too much weight to the patent owner's choice of venue. This is not a distinct factor in the § 1404(a) venue transfer analysis, but rather, it corresponds to the fact that the moving party has the burden to show that the transferee venue is "clearly more convenient.”
Second, the Fifth Circuit has established a "100-mile" rule, which requires that, when the distance between the existing venue and the venue sought for transfer is more than 100 miles, the factor of inconvenience to witnesses increases in direct relationship to the additional distance to be traveled. In this case, the court failed to account for the fact that most of travel to Texas for the majority of the witnesses would be significantly greater than travel to the proposed transferee forum.
Third, the court did not give enough weight to the fact that the physical evidence was all closer to the transferee venue.
Finally, there is a public interest in having localized interests decided at home, namely, the jurisdiction involving the vast majority of the identified witnesses, evidence, and events leading to the lawsuit.
The Fifth Circuit has explicitly rejected the notion that Texas had a "substantial interest" in having the case tried locally because of products sold there, where those products were also sold throughout the United States.
In Genentec, the Federal Circuit determined that the attendance-of-witnesses factor favors transfer to the Northern District of California, where ten witnesses were located in that district, two witnesses were outside that district but inside California, and no witnesses resided in Texas. Although the district court stated that Northern California would be less convenient than Texas for some witnesses located in Europe, the Federal Circuit found that those witnesses will be required to travel a significant distance no matter where they testify.
Two other factors in favor of transfer were that a substantial number of witnesses would be within the subpoena power of the Northern District of California while no witnesses were within the subpoena power of Texas, and some of the evidence was located in the Northern District of California while no evidence was located in Texas. The court also found that several factors do not weigh against the transfer, including the possibility of a lack of personal jurisdiction over the patent owner in the transferee venue and the fact that the defendant filed a prior, unrelated suit in Texas.
In Hoffmann-LaRoche, the only connection between the case and Texas was that the patent owner transferred 75,000 pages of documents in electronic format to its counsel's office in Texas in anticipation of litigation. The Federal Circuit found the assertion that these documents were "Texas" documents to be a "fiction" created to manipulate the propriety of venue. On the other hand, the Court recognized that the accused product was developed and tested in the venue to which transfer was sought, the Eastern District of North Carolina, sources of proof remained in North Carolina, North Carolina had a local interest in the case because it involved several individuals residing in or near the district, at least four non-party witnesses resided within 100 miles of North Carolina, and North Carolina's less congested docket suggested that it may be able to resolve the dispute more quickly.
In Nintendo, the Federal Circuit recognized that, as in TS Tech, Genentech, and Hoffman-La Roche, the case presented "a stark contrast in relevance, convenience, and fairness between the two venues.” The Court found that the cost of attendance for witnesses clearly favored transfer to the Western District of Washington, where four Japanese witnesses would have to each travel an additional 1,756 miles or 7 hours by plane to Texas compared to Washington State, and the average travel for the remaining six identified witnesses to Texas was approximately 700 miles more than to Washington. In addition, most evidence resided in Washington or Japan with none in Texas. The Federal Circuit concluded that a transfer should be granted when the case involves "most witnesses and evidence closer to the transferee venue with few or no convenience factors favoring the venue chosen by the patent owner."
In Volkswagen, the Federal Circuit agreed that transfer should be denied because two other lawsuits were pending in Texas involving the same patents. One of the two cases had already been transferred to Texas from the Michigan to avoid wasting judicial resources and the risk of inconsistent rulings on the patents. Thus, the Court found that judicial economy was better served by trying the cases together in Texas.
In Zimmer, the patent owner, MedIdea, transferred copies of its patent prosecution files from Michigan to its Texas office space, which it shared with another of its trial counsel's clients, before filing the suit. The Federal Circuit compared this situation to the "Texas" documents in Hoffmann-LaRoche and found that MedIdea's principal-place-of-business claim was "an artifact of litigation" and "a legal fiction.” Additionally, the Court found substantial conveniences for trying the case in the Northern District of Indiana. The district court assigned substantial weight to the fact that MedIdea filed suit against another defendant in Texas. The Federal Circuit disagreed, however, and distinguished this case from Volkswagen because MedIdea's cases involved different products and only one overlapping patent, making it likely these cases would result in significantly different discovery, evidence, proceedings, and trial. Accordingly, the Court ordered the case to be transferred to Indiana.
Finally, in Acer, the patent owner attempted to show that Texas was the appropriate forum in part because one of the defendants was headquartered near Texas. However, five of the twelve defendants resided in California, and, like in Nintendo, the expense of the witnesses travel was a substantial factor in the Federal Circuits decision to transfer the case out of Texas.
In MGM Well Services, after the reversals, the Eastern District of Texas district court considered each of the factors discussed in the prior Federal Circuit opinions and transferred the case to the Southern District of Texas. Quoting Volkswagen, the court found that judicial economy was a "paramount consideration when determining whether a transfer was in the interest of justice." A major factor in the court's decision was that the patent owner had previously brought a patent infringement case in Southern District involving some but not all of the patents in the Eastern District case. The court found that that the new patents were overwhelmingly similar to the patents in the previous Southern District suit. Because Southern District was intimately familiar with the technology at issues, the patents-in-suit, and one of the parties, the court determined that judicial economy was a factor that weighed heavily in favor of transfer.
These cases serve as a guide to patent owners trying to avoid transfer and defendants seeking transfer from courts in Texas as well as other states. And they illustrate that defendants can more easily transfer a litigation that have little connection to a location chosen by the plaintiff.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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