Venue Challenges: Increasingly Common in Patent Infringement Cases Filed in the Eastern District of Texas | White & Case LLP International Law Firm, Global Law Practice
Venue Challenges: Increasingly Common in Patent Infringement Cases Filed in the Eastern District of Texas

Venue Challenges: Increasingly Common in Patent Infringement Cases Filed in the Eastern District of Texas

White & Case Technology Newsflash

Introduction
United States law allows plaintiffs to bring a lawsuit in any judicial district where a corporate defendant is subject to personal jurisdiction. [1] Companies that conduct business nationally can be sued for patent infringement almost anywhere in the country. This creates an incentive for plaintiffs to "forum shop" for a venue that is "patentee friendly." Federal courts in the Eastern District of Texas have rapidly developed as such a district.

In the last decade, the Eastern District of Texas has experienced a significant increase in the number of patent infringement cases filed there. This rapid increase is due to patent holders' perception that they will have an increased likelihood of success in this district. This perception is not without merit. The Eastern District of Texas has the second-highest plaintiff success rate, the third highest average damages award, and the sixth shortest time-to-trial for plaintiffs in patent cases among all district courts in the United States.[2]

Patent infringement defendants sued in the Eastern District of Texas may have little or no contact with the district, aside from selling their products there. Yet unless they are able to transfer the venue, they must suffer the great inconvenience and high cost of defending the lawsuit in the district. The costs of transporting witnesses and evidence can be crippling.

Defendants are not entirely without recourse. If a lawsuit could have been brought in another federal district court, the court may transfer the lawsuit to a district where it could have originally been brought if it is clearly more convenient for the parties and witnesses.[3] The district court judge has great discretion in making this determination. Defendants sued in the Eastern District of Texas often move for this change of venue to a more convenient district court and have had varying degrees of success.

Survey: Federal Circuit Reverses Several Denials of Motions to Transfer Venue from the Eastern District of Texas
Despite the district court judges' discretion in ruling on a motion to transfer venue, recently the Court of Appeals for the Federal Circuit has had to get involved. Since the December 2008 decision in In re TS Tech USA Corporation, [4] the Federal Circuit has vacated several orders that denied defendants' motion to transfer venue from the Eastern District of Texas. The Federal Circuit has admonished Eastern District of Texas judges to carefully consider all factors relevant to the motion, including where the parties and witnesses reside, whether the products are sold nationally or just locally, where documents are located, and where employees work. In each case, the district court was found to have abused its discretion by denying the motion.

(1) In re TS Tech USA Corporation - In TS Tech, the Federal Circuit held that the district court clearly abused its discretion when it denied a motion to transfer venue. The Federal Circuit judge held that the Eastern District of Texas did not have a substantial interest to try the case because the accused products were sold nationally, not just in this district. Also, the witnesses and all physical evidence would have had to be transported approximately 900 miles to the trial. Further, aside from the product being sold in the district, there were no other meaningful connections between the district and the product. Finally, the court held that the district court judge should not have considered that the plaintiff preferred the Eastern District of Texas.
(2) In re Nintendo Co. [5] - The district court in Nintendo also "clearly abused its discretion" when it denied Nintendo's motion to transfer venue to Washington state. No parties, witnesses, or evidence had any significant connection with the Eastern District of Texas. The sole fact that the product was sold in the district was not enough to justify the lawsuit being in Texas. [6]
(3) In re Hoffmann-La Roche Inc. [7] - Again, the district court clearly abused its discretion when it denied a motion to transfer venue. The only connection between the Eastern District of Texas and the lawsuit was that the California plaintiffs sent 75,000 documents electronically to their Texas lawyers and called them "Texas" documents. The Federal Circuit judge called this "a fiction which appears to have been created to manipulate the propriety of venue."
(4) In re Zimmer Holdings, Inc. [8] - Here, the plaintiff claimed that its principal place of business was in Texas. However, the Federal Circuit called this "recent, ephemeral, and an artifact of litigation." Like in Hoffmann-La Roche Inc., the plaintiff merely transferred files from their Michigan office to the Texas office they shared with their Texas lawyer. The plaintiff also had no Texas employees. The district court judge said the plaintiff was "attempting to game the system" and granted defendant's motion to transfer venue.
(5) In re Microsoft Corporation [9] - Yet again, the Federal Circuit held that the trial court judge abused its discretion when it denied a motion to transfer venue, this time from the Eastern District of Texas to the Western District of Washington. The plaintiff incorporated in Texas just sixteen days before filing the patent infringement lawsuit and had an "office" in the district but no employees there. The court called these tactics manipulations, did not give them any weight, and transferred the case.
(6) In re Acer America Corporation [10] - The Federal Circuit again reversed the Eastern District of Texas's decision to deny transfer of a patent case, this time to the Northern District of California. The court transferred the case because no party or witness resided in the Eastern District of Texas and many parties were headquartered in or near the Northern District of California. [11] The court held that it was not enough that one defendant was located in Texas, particularly because that defendant resided about 300 miles from the courthouse.

The Outcome of Transfer Motions Remains Unclear

(1) NovelPoint Learning LLC v. Leapfrog Enterprises, Inc. [12] - Just three days after Acer was decided, the trial court judge refused to transfer a patent case in NovelPoint Learning LLC v. Leapfrog Enterprise. NovelPoint incorporated in Texas less than four months before filing the lawsuit. It purchased the patent at issue from a Florida inventor and moved all of the inventor's original documents and prototypes to its office in the Eastern District of Texas. The judge rejected defendants' argument that NovelPoint's relationship with Texas was a manipulative fiction. Judge Love said the case was different from Microsoft because NovelPoint incorporated four months before they filed the lawsuit and the plaintiffs in Microsoft incorporated only sixteen days before they filed the lawsuit. Judge Love also noted that NovelPoint operated exclusively in Texas, two of its principals lived in Texas, and the documents transferred to Texas were part of NovelPoint's acquisition of the entire business.
(2) Optimum Power Solutions LLC v. Apple Inc. [13] - Unlike NovelPoint, here the trial court judge held that the lawsuit should be transferred from the Eastern District of Texas to the Northern District of California because it was more convenient and fair. Plaintiff Optimum Power Solution's ("OPS") incorporated in the Eastern District of Texas just a few weeks before it filed the lawsuit but had no employees, documents, or business there. Most of the defendants and witnesses lived in the Northern District of California, including OPS's parent company, Acacia, who purchased the patent from a California company and assigned it to OPS. Even though one of the defendants, Dell, and one non-party witness were headquartered in Texas, they both were outside the Eastern District.

Conclusion
It is still unclear if Eastern District of Texas trial court judges will begin to transfer cases more often, in light of the many Federal Circuit reversals. The analysis continues to turn on whether there is a legitimate local connection to the district. There are no bright-line rules for what makes a connection legitimate and what makes it a manipulative tactic. Plaintiffs will likely continue to try to build more connections to the district, perhaps going so far as to hire employees in the district as "custodians" of documents or renting office space there. Defendants now have substantial Federal Circuit precedent to use to build their case for transfer. In any case, it will not be a surprise if the Federal Circuit must revisit the issue of venue transfer again soon.

 

[1] - See 28 U.S.C. § 1391. 
[2] - See pwc.com/us/en/forensic-services/publications/assets/2010-patent-litigation-study.pdf (last visit on July 14, 2011). 
[3] - This motion to transfer venue is governed by 28 U.S.C. § 1404. When the same action might have been brought in other districts, the court may transfer it to one of those districts for "the convenience of parties and witnesses, in the interest of justice." 28 U.S.C. § 1404(a). Accordingly, the defendant may seek transfer if good cause for the transfer can be shown. In re Volkswagen of America, Inc., 545 F.3d 304, 315 (5th Cir. 2008) (en banc). To show good cause, the moving party must demonstrate the transferee venue is clearly more convenient. Id. 
[4] - In re TS Tech USA Corporation, 551 F.3d 1315 (Fed. Cir. 2008). 
[5] - In re Nintendo Co., 589 F.3d 1194 (Fed. Cir. 2009). 
[6] - See also In re Genetech, 566 F.3d 1338, 1344 (Fed. Cir. 2009). 
[7] - In re Hoffmann-La Roche Inc., 587 F.3d 1333 (Fed. Cir. 2009). 
[8] - In re Zimmer Holdings, Inc., 609 F.3d 1378 (Fed. Cir. 2009). 
[9] - In re Microsoft Corporation, No. 944 (Fed. Cir. Nov. 8, 2010). 
[10] - In re Acer America Corporation, 626 F.3d 1252 (Fed. Cir. 2010). 
[11] - In this case all thirteen parties, except for Microsoft (located in Washington) and Dell (located in the Western District of Texas), were headquartered in California, including six in the Northern District of California. 
[12] - NovelPoint Learning LLC v. Leapfrog Enterprises, Inc., No. 6:10-cv-229 JDL, 2010 WL 5068146 (E.D. Tex. December 6, 2010). 
[13] - Optimum Power Solutions LLC v. Apple Inc., 6-10-cv-00061 (E.D. Tex. February 22, 2011).

 

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