In re EMC Corp.: the Federal Circuit Offers Thoughts on Joinder and Transfer in Multidefendant Litigations
On January 29, 2013, the U.S. Court of Appeals for the Federal Circuit issued its second mandamus decision in In re EMC Corp., 2013 WL 324154 (Fed. Cir. Jan. 29, 2013) (“EMC II”). While affirming the denial of a motion to transfer from the U.S. District Court for the Eastern District of Texas, the court offered judges and litigants helpful guidance on the appropriate time frame to decide motions to transfer. The decision comes after, in response to the first mandamus petition, the court clarified the proper analysis for joinder of accused infringers under Fed. R. Civ. P. 20(a)(2). In re EMC Corp., 677 F.3d 1351, 1357 (Fed. Cir. 2012) (“EMC I”). Understanding the Federal Circuit’s reasoning in the EMC decisions may be useful to practitioners, at least because its interpretation of the joinder rules has been adopted by lower courts as persuasive guidance for interpreting the new joinder statute under the American Invents Act (AIA). See, e.g., Golden Bridge Tech., Inc. v. Apple Inc., 2012 WL 3999854 (C.D. Cal. Sept. 11, 2012); ChriMar Sys., Inc. v. Cisco Sys., Inc., 2013 WL 828220 (D. Del. Mar. 6, 2013); Norman IP Holdings, LLC v. Lexmark Int’l, Inc., 2012 WL 3307942 (E.D. Tex. Aug. 10, 2012).
Multidefendant patent litigation is most commonly employed by nonpracticing entities that seek to enforce one or more patents against multiple parties in a single action. The strategy is attractive to plaintiffs because the single proceeding streamlines the litigation, substantially reduces the litigation cost associated with managing multiple cases in multiple jurisdictions, and avoids inconsistent outcomes. For example, in Technology Patents LLC v. T-Mobile (UK) Ltd., 700 F.3d 482, 489 (Fed. Cir. 2012), the plaintiff filed a patent-infringement lawsuit against more than 100 foreign and domestic defendants. For defendants, however, the picture can be less appealing. In many cases, accused infringers make different products or processes, and their only common characteristic is the alleged infringement of the asserted patents. Thus, these differently situated defendants are faced with the challenges associated with reaching agreement on a defense strategy with other defendants that may have conflicting interests. Coordinating the case strategy with other defendants also may add significant costs. These obstacles often outweigh any potential benefit of “splitting” the cost of defending the lawsuit and dividing the burden of discovery and validity challenges.
Acknowledging the burden posed by costly multidefendant patent litigations where defendants only share the tenuous connection created by the alleged infringement of the same patents, the AIA enacted a new joinder statute for patent-infringement actions effective September 16, 2011. Under the statute, codified as 35 U.S.C. § 299, joinder is only proper where the right to relief arises out of “the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process, and questions of fact common to all defendants or counterclaim defendants will arise in the action.” 35 U.S.C. § 299(a).
Prior to the AIA enactment, joinder of multiple defendants in a single lawsuit was dependent on each district court’s interpretation of Rule 20, which permits joining defendants in a lawsuit if “ any right to relief is asserted against [the defendants] . . . with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences; and  any question of law or fact common to all defendants will arise in the action.” Fed. R. Civ. P. 20(a)(2). The second prong of the inquiry was generally met by virtue of the common questions that would arise during claim construction and validity. But, if the accused infringers had different accused products or processes, and acted independently in making, selling, or using their different accused products, the first prong of the rule, requiring that the right to relief against each defendant arises from the “same transaction,” may be harder to meet. Indeed, the interpretation and application of the “same transaction or occurrence” requirement of Rule 20 resulted in disagreement between the district courts. A majority of courts read the first prong of Rule 20 as requiring more than simply allegations of infringing the same patents. Other courts, and particularly the Eastern District of Texas, read the rule more broadly, such that a shared allegation of infringement could be sufficient to meet the first prong of Rule 20. For example, in MyMail, Ltd. v. America Online, Inc., 223 F.R.D. 455 (E.D. Tex. 2004), the Eastern District of Texas held that the same transaction or occurrence requirement was satisfied in a patent-infringement case involving several unrelated defendants, because the record allegedly did not show that the defendants’ methods or products were dramatically different. Id. at 456-57.
To address inconsistent views among the district courts, the AIA joinder statute provides that accused infringers may not be joined in one action as defendants or counterclaim defendants, or have their action as defendants or counterclaim defendants, or have their actions consolidated for trial, based solely on allegations that they each have infringed the patent or patents-in-suit. 35 U.S.C. § 299(b).¹
This changing environment was the background in which the Federal Circuit decided the first mandamus petition in EMC I, 677 F.3d at 1357. The plaintiff, Oasis, originally filed its complaint on August 30, 2010, against eighteen defendants, including EMC Corp., Decho Corp., Carbonite, Iron Mountain, and GoDaddy.com. Oasis alleged infringement of four patents directed to off-site computer data storage. The defendants in the case were all alleged to offer services that provide online backup and storage for home or business computer users. Several defendants moved to sever claims and transfer the severed cases to more convenient venues. The district court denied the motions to sever and declined to rule on the motions to transfer. The petitioners filed a petition for writ of mandamus seeking severance and transfer. In EMC I, decided May 4, 2012, the Federal Circuit granted the writ in part, holding that the district court had applied an “incorrect test” on the issue of joinder, but remanded to the district court for reconsideration of the venue-transfer issue.
In deciding to reverse in part and remand in part the lower court’s decision, the Federal Circuit decided that the Rule 20(a)(2) “same transaction or occurrence” inquiry requires the sameness of the accused products of processes. EMC I, 677 F.3d at 1359. Specifically, the court held that claims against independent defendants (i.e., where the defendants are not acting in concert) cannot be joined under Rule 20’s transaction-or-occurrence test unless the facts underlying the claim of infringement asserted against each defendant share an “aggregate of operative facts.” Id. The court went on to explain that, to be part of the “same transaction” requires shared, overlapping facts that give rise to each cause of action. Id. The mere sameness of the accused products is not enough to establish that claims of infringement arise from the “same transaction.” Id. at 1357. According to the court, unless there is an actual link between the facts underlying each claim of infringement, independently developed products using differently sourced parts are not part of the same transaction, even if they are otherwise coincidentally identical. Id. at 1359. The court clarified that, where defendants are alleged to be jointly liable, joinder under Rule 20 is proper because jointly liable defendants share an aggregate of operative facts that satisfies the transaction-or-occurrence test of the rule. Id at 1356.
Acknowledging the changes in the multidefendant-litigation landscape prompted by the AIA, the court explicitly noted that it did not need to decide whether the sameness test in the AIA is identical to the sameness requirement under Rule 20 for litigations filed before the AIA became effective. Id. at 1360 n.4. Nevertheless, a growing number of district courts that have faced questions of proper joinder of defendants post-AIA have found the EMC I standard persuasive to resolve the issue. See, e.g., Golden Bridge Tech., 2012 WL 3999854, at *2; ChriMar Sys., 2013 WL 828220, at *2; Norman IP Holdings, 2012 WL 3307942, at *2.
On remand, the district court severed Oasis’s claims into separate cases. Nevertheless, the district court judge denied the transfer motions. This time, the district court concluded that after the case had been pending in the court for two years, judicial economy considerations “weighed heavily” against transfer, and noted that a court may deny motions to transfer based on “judicial economy alone.” See EMC II, 2013 WL 324154, at *2 (Fed. Cir. Jan. 29, 2013). For a second time, defendants EMC and Carbonite petitioned for a writ of mandamus with regard to the district court’s denial of their motions for transfer.
This time around, the Federal Circuit rejected the lower court’s rationale for refusing to grant the motions to transfer, but denied the petition for writ of mandamus, finding that other factors weighed in favor of keeping the case in Texas. The court took the opportunity to emphasize the importance of addressing motions to transfer at the outset of litigation. According to the court, “Congress’[s] intent ‘to prevent the waste of time, energy and money and to protect litigants, witnesses and the public against unnecessary inconvenience and expense’ . . . may be thwarted where . . . defendants must partake in years of litigation prior to a determination on a transfer motion.” Id. (citation omitted). The court noted that judges should rule on motions to transfer quickly and cannot use their familiarity with a case as a reason to deny transfer. Id. According to the court, while judicial-economy considerations are proper in the assessment of whether a motion to transfer is appropriate, their relevance is determined based on the situation that existed at the time the suit was filed, not on judicial considerations that arise after filing the suit. Id. In other words, a district court cannot rely on judicial-economy principles that arise from any familiarity with the case that the court may have gained while the transfer motion was under consideration. See id.
The environment of multidefendant litigation will continue to change. While 35 U.S.C. § 299 and the court’s interpretation of Rule 20(a)(2) promise defendants an easier challenge to joinder, the burden imposed by a significant increase of serially filed infringement lawsuits may create a new pattern of consolidation of pretrial proceedings, which continues to be allowed under Fed. R. Civ. P. 42. For now, litigants must wait until some post-AIA cases are decided on joinder issues to better assess the true impact of the new statute.
¹ Notwithstanding, under § 299(c), defendants may voluntarily waive the nonjoinder provisions of subsection (b) and be joined with other defendants that may not otherwise meet the “same transaction or occurrence” requirement.