May 29, 2012
LES Insights
Authored by D. Brian Kacedon, John "Jack" A. Kelly, and John C. Paul
In recent years, it has become more common for patent owners to sue a large number of defendants in a single lawsuit regardless of whether any relationship exists between those defendants. In response to this trend, the recently-passed America Invents Act limits the circumstances under which plaintiffs can join multiple defendants in one lawsuit. For cases filed before the passage of the AIA, however, the issue of when a defendant should be entitled to sever its case from that of other defendants remains important. In Inre EMC Corp., No 2011-M100 (Fed. Cir. May 4, 2012),1 the Federal Circuit recently announced a new, stringent standard for joining multiple defendants in pre-AIA cases.
Oasis Research LLC, with a single complaint, sued eighteen defendants in the Eastern District of Texas, alleging infringement of four of its method patents relating to off-site computer data storage. The defendants were all alleged to have offered services that provide online backup storage for home or business computer users, but although similar, the commercial online backup/storage services offered were not the same. There was also no concert of action among the defendants. The district court found that claim validity, claim construction, and the scope of the patents were questions common to all defendants. Moreover, it held that the claims arose out of the same transaction, occurrence, or series of transactions or occurrences—the requirement from Federal Rule of Civil Procedure 20 for joinder—because the accused services were "not dramatically different." Consequently, the district court denied the defendants' motion to sever and transfer the lawsuits to various forums around the country.
Initially, the Federal Circuit considered whether it had jurisdiction to hear the petition for writ of mandamus given that the petition involved both a petition to sever and one to transfer. The court noted that transfer motions, like other procedural issues, are governed by regional circuit law. Because motions to sever, however, are based on an analysis of the accused acts of infringement—a substantive issue unique to patent law—Federal Circuit law applied to those issues and, hence, the Federal Circuit had jurisdiction to decide the entire petition.
Furthermore, the court deemed it appropriate to consider the extraordinary mandamus petition because, if not addressed at an interlocutory stage, the defendants would be unable to demonstrate that they would have won the case had it been tried in a convenient forum. Thus, the defendants had no other means to obtain the relief requested. Moreover, their right to relief was clear and indisputable because, if joinder was later found improper, the defendants would lose a meaningful opportunity to present individualized defenses.
Turning specifically to the issue of severance, the Federal Circuit first noted that Congress had recently amended the defendant-joinder statute in the AIA. The court recognized, however, that because this case was filed before the AIA became law (September 16, 2011), the new "same accused product or process" test for joinder did not apply. Instead, the court read Rule 20 to require (1) that the claims against the defendants must arise out of the same transaction, occurrence, or series of transactions or occurrences, and (2) there must be a question of law or fact common to all defendants. Clearly, defendants alleged to be jointly and severally liable would meet this standard, but the question in this case involved independent actors. So the court considered under what circumstances joinder of independent actors would be permissible. It concluded that merely alleging infringement of the same claims of the same patent does not suffice, even if the products happened to be similar. This would invariably be the case, because products alleged to infringe the same claims would naturally be similar in at least several respects.
Ultimately, the Federal Circuit determined that a "logical relationship" must exist between the causes of action asserted against different defendants. The logical-relationship test is satisfied when there is substantial evidentiary overlap in the facts giving rise to the cause of action against each defendant. In other words, the court explained, the defendants' allegedly infringing acts must share an aggregate of operative facts. In essence, joinder of independent defendants is only appropriate where the accused products or processes are the same in respects relevant to the patent; mere sameness of the accused products is not enough to establish that claims arise from the same transaction. Unless there is an actual link underlying each claim of infringement, independently developed products using different parts are not part of the same transaction, even if they are otherwise coincidentally identical. And once the sameness of the product or process has been determined, other factual or legal factors going to the commonality of questions of law and fact remain for the trial court to weigh.
Because the "not dramatically different" standard applied by the district court conflicted with the standard announced by the Federal Circuit, the appeals court set aside the district court's ruling and remanded for reconsideration.
(1) The Federal Circuit adopts the logical-relationship test for joinder under Rule 20. Joinder of multiple defendants is proper, according to the Federal Circuit's new test, when there is a logical relationship between the separate causes of action asserted against different defendants. This test requires a substantial evidentiary overlap in the facts giving rise to the cause of action in that the causes of action must share an aggregate of operative facts. Independently developed products with differently sourced parts do not arise from the same transaction; instead, the products or processes must be the same in respects relevant to the patent. But the sameness of the products is not sufficient. Instead, the causes of action must share an aggregate of operative facts as well, including, for example, the timing of the alleged acts of infringement, the relationship between the defendants, the use of identically sourced components, the existence of licenses or other agreements, the overlap of development or manufacturing methodologies, or the demand for lost profits by the plaintiff.
(2) While a new standard for joinder will apply in all cases covered by the AIA, the Federal Circuit's new standard will only apply to cases filed before that Act's passage. The Federal Circuit found that Congress did not intend to apply the AIA's joinder provisions retroactively. Therefore, the standard announced by the court in this case will control all cases filed before the passage of the AIA. What remains to be determined is how the Federal Circuit interprets the AIA's "same accused product or process" standard—a question expressly left for another day.
http://www.cafc.uscourts.gov/images/stories/opinions-orders/11-m100%20order.pdf.
1The EMC decision:
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
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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