November 28, 2011
LES Insights
Authored by Amanda Joy Dittmar, D. Brian Kacedon, and John C. Paul
Plaintiffs in patent cases are often accused of trying to game the legal system and obtain unfair advantage when they bring lawsuits in venues rumored to be advantageous for patent owners, rather than the venue in which the plaintiff has significant contacts or the most connection to the parties and the dispute. This practice, known as forum-shopping, has attracted particular attention in recent years and caused great concern to those in the legal system and to lawmakers.
A defendant can combat the plaintiff's forum-shopping by filing a motion to transfer venue and arguing that another venue is more convenient for the parties and the courts. As soon as the district court decides a motion to transfer, the losing party may immediately appeal instead of having to wait until a final judgment in the case. Although in patent-infringement cases these appeals are heard by the Federal Circuit and Federal Circuit law applies to patent issues, the law of each regional circuit applies to motions to transfer.
Since 2005, Congress has included a provision on venue transfer in patent-reform bills in an attempt to minimize the benefits of forum-shopping. The patent-reform bill recently passed by the Senate, however, lacked such a provision. Many believe that the Senate did not include a venue provision because the Federal Circuit has been handling the issue to Congress's satisfaction. Over the last few years, the Federal Circuit has become increasingly involved with the issue of forum-shopping, recently reversing several decisions denying transfers to other courts.1 To further solidify its venue-transfer doctrine and thus provide further guidance to those involved in patent litigation, the Federal Circuit decided three appeals to venue-transfer decisions on August 17, 2011: In re Xoft, Inc., Misc. Docket No. 983 (Fed. Cir. Aug. 17, 2011);2 In re Vertical Computer Systems, Inc., Misc. Docket No. 985 (Fed. Cir. Aug. 17, 2011);3 and In re Board of Regents of University of Texas, Misc. Docket No. 974 (Fed. Cir. Aug. 17, 2011).4 Because the cases were on appeal from district courts in the Third and Ninth Circuits, the court applied different laws from those previously on appeal from the Eastern District of Texas in the Fifth Circuit.
In Xoft, the District Court of Delaware denied a motion to transfer. The defendant then sought a writ of mandamus from the Federal Circuit directing the district court to vacate its denial. Mandamus is available only in extraordinary situations, and the petitioner bears the burden of proving that the right of mandamus is "clear and indisputable." The Federal Court applied Third Circuit law to determine whether venue transfer was appropriate. Relying on Third Circuit law dictating that "unless the balance of convenience of the parties is strongly in favor of defendant, the plaintiff's choice of forum should prevail," the Federal Circuit affirmed the decision of the district court. The Federal Circuit found that the facts did not strongly favor the defendant, emphasizing that Xoft was incorporated in the chosen forum and that the defendant failed to identify witnesses or proofs not available in the chosen forum.
The importance and difference of applying regional circuit law is highlighted in this case. Here, the Federal Circuit countered defendants' argument that the district court placed too much emphasis on the plaintiff's choice of forum by stating that "[i]n the Third Circuit, that choice is afforded considerable weight" whereas in In re TS Tech USA Corp., 551 F.3d 1315 (Fed. Cir. 2008), on appeal from the Eastern District of Texas and thus applying Fifth Circuit law, the Federal Circuit found that the district court gave too much weight to the patent owner's choice of venue.
In Vertical Computer, the Federal Circuit again denied defendant's petition for a writ of mandamus by finding that defendants failed to show that the case should be transferred. In this case, after several letters from Vertical Computer and a failed licensing discussion, Interwoven filed a declaratory-judgment action in the Northern District of California. A month later, Vertical Computer brought an infringement action against several defendants in the Eastern District of Texas. That court transferred the portion of the infringement suit relating to Interwoven to the Northern District of California, based, in part, on the first-to-file rule. Vertical Computer moved for transfer back to Texas, and the Northern District of California denied it. Vertical Computer then sought a writ of mandamus from the Federal Circuit.
The Northern District of California is within the Ninth Circuit, which follows the first-to-file rule. Vertical Computer argued that this rule still favors transferring the case to Texas because Interwoven's declaratory judgment was merely an anticipatory filing and should not be given priority. Vertical Computer, therefore, claimed that its infringement suit should be the first filed. Federal Circuit rejected Vertical Computer's argument by explaining that the race to the court is merely one factor and that the convenience and availability of the witnesses, the possibility of consolidation with related litigation, and considerations relating to the real party in interest should also be considered. The Federal Circuit found that the Northern District of California correctly considered all of these factors and Vertical Computer failed to meet its burden.
Similar to Vertical Computer, Board of Regents involved an infringement suit in the Eastern District of Texas and a declaratory-judgment action in the Northern District of California. In Board of Regents, however, the infringement suit was brought first and the declaratory action was not filed until the day after the defendants moved to dismiss the Eastern District of Texas case. The patent owners moved to transfer the Northern District of California case to the Eastern District of Texas, and it was granted. The Board of Regents, one of the alleged patent owners and a government agency in Texas, appealed the order to transfer. The Board of Regents argued that its motion to be dismissed from the case based on sovereign immunity and lack of subject-matter jurisdiction should be decided before transfer. The Federal Circuit rejected this argument, stating that "the Board has not shown that a trial court is required to decide a defense before determining whether to transfer an action" and that "arguments concerning lack of subject matter jurisdiction can be effectively made on appeal from a final judgment, and thus mandamus is not appropriate absent extraordinary circumstances not presented by the petition here."
These cases provide several insights about the future of motions-to-transfer analysis at the Federal Circuit and venue forum-shopping in patent litigations:
1. When investigating the merits of a motion to transfer, it is important to take into account the circuit in which the deciding district court resides. Recent cases have made it clear that the decision can hinge on the circuit.
2. If a declaratory-judgment action is filed, it will be given priority for first-to-file analysis. But this is not the only factor a court may consider.
3. Before granting an order to transfer, a district court is not required to decide issues regarding sovereign immunity or lack of subject-matter jurisdiction.
1 See http://www.finnegan.com/resources/articles/articlesdetail.aspx?news=8eedb91e-62f7-4817-9adc-526b7c95e1fd
2 The Xoft decision: http://www.cafc.uscourts.gov/images/stories/opinions-orders/2011-m983.8-17-11.1.pdf
3 The Vertical Computer decision: http://www.cafc.uscourts.gov/images/stories/opinions-orders/2011-m985.8-17-11.1.pdf
4 The Board of Regents decision: http://www.supremecourt.gov/opinions/10pdf/09-1159.pdf
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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