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Test for Joinder Is Satisfied When the Facts Giving Rise to the Cause of Action Against Each Defendant Substantially Overlap

May 04, 2012
Emsley, Rachel L.

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Last Month at the Federal Circuit - June 2012

Judges: Rader, Dyk (author), Moore

[Appealed from: E.D. Tex., Judge Schneider]

In In re EMC Corp., No. 11-M100 (Fed. Cir. May 4, 2012), the Federal Circuit granted petitioners’ writ of mandamus, directing the district court to reconsider the defendants’ motions to sever and transfer in light of the correct test under Fed. R. Civ. P. 20(a) to determine whether the claims “aris[e] out of the same transaction, occurrence, or series of transactions or occurrences.” Slip op. at 3 (alteration in original) (quoting Fed. R. Civ. P. 20(a)).

Oasis Research LLC (“Oasis”) brought suit against eighteen companies for infringement of four patents directed to off-sight computer storage, alleging infringement by the defendants’ respective online backup and storage services. Eight of the eighteen companies moved to sever and transfer the claims to other venues. The district court denied those motions, finding nothing improper about maintaining the claims in one action in the Eastern District of Texas because there would be common questions of validity, claim construction, and scope of the asserted patents, and that the claims arose “out of the same transaction, occurrence, or series of transactions or occurrences” because the products were “not dramatically different.” Id. at 4 (citation omitted).

Initially, the Federal Circuit noted that mandamus was available since a defendant would not otherwise have an adequate remedy for an improper failure to transfer or sever the case after final judgment because the defendant would be unable to demonstrate that it would have won the case had it been tried elsewhere. Next, the Court stated that Fed. R. Civ. P. 20(a)(2) has two independent requirements: (1) that the claims against the joined defendants must be asserted “with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences”; and (2) that there must be a “question of law or fact common to all defendants.” Id. at 9 (quoting Fed. R. Civ. P. 20(a)(2)). The Federal Circuit explained that the fact that the defendants are independent actors would not preclude joinder as long as the rule is satisfied, but that a single common question of law or fact alone is insufficient and the mere fact that a plaintiff alleges infringement is insufficient, although the claims would raise common questions of claim construction and patent validity.

The Federal Circuit concluded that independent defendants satisfy the transaction-or-occurrence test of Rule 20 when there is a logical relationship between the separate causes of action, and that this “logical relationship test” is satisfied when there is substantial evidentiary overlap in the facts giving rise to the causes of action against each defendant—the infringing acts must “share an aggregate of operative facts.” Id. at 13. The Federal Circuit rejected the previously used “not dramatically different” standard applied by some district courts, reasoning that a court would always find that similarity exists under such a standard because the distinct products were alleged to infringe the same patent.

Concluding that joinder is not appropriate where different products or processes are involved, the Court explained that for joinder to be appropriate, the accused products or processes must first be the same in respects relevant to the patent, and there must be shared, overlapping facts giving rise to the infringement allegations—not just “distinct, albeit coincidentally identical, facts.” Id. at 15. In addition, the Federal Circuit listed other pertinent factual considerations, which the district court has discretion to weigh in determining whether a patent case satisfies Fed. R. Civ. P. 20: whether the alleged acts of infringement occurred during the same time period, the existence of some relationship among the defendants, the use of identically sourced components, licensing or technology agreements between the defendants, overlap of the products’ or processes’ development and manufacture, and whether the case involves a claim for lost profits.

Finally, the Court recognized that the district court has considerable discretion to consolidate cases for discovery and trial under Rule 42 where venue is proper and there is “a common question of law or fact,” and that common pretrial issues of claim construction and patent invalidity can be adjudicated together through the multidistrict litigation procedures of 28 U.S.C. § 1407. The Court further noted that even when the Rule 20 joinder standard is satisfied, district courts have discretion to refuse joinder in the interest of avoiding prejudice and delay, ensuring judicial economy, or safeguarding fairness.

Accordingly, the Federal Circuit directed the district court to reconsider the defendants’ motions to sever and transfer in light of the correct test for joinder.

Summary authored by Rachel L. Emsley, Esq.