Intellectual Property Quarterly Newsletter, Fall 2011 (Part 1)

Note from the Editors

Welcome to the Fall issue of our Intellectual Property Quarterly Newsletter.

We are pleased to announce the launch of our Patent Reform Resource Center, our online resource of key developments and practical advice for dealing with the complex changes of the Leahy-Smith America Invents Act (AIA). The site includes relevant articles, client alerts, presentations, upcoming events, and a link to the USPTO's Implementation Information. Please visit the Patent Reform Resource Center at www.mofo.com/patent-reform.

In this issue of our IP Quarterly Newsletter, we examine current topics involving patent law, including:

venue selection in patent litigation and the move away from multidefendant litigation and the Eastern District of Texas; and a comprehensive look at patent procurement and enforcement in China. The End of an Era? The Move Away From Multidefendant Ligitation and the Eastern District of Texas

By Nicole M. Smith and Scott C. Moore

Patent holders—especially non-practicing entities, which are typically not tied to particular geographical areas—have long sought to bring patent infringement lawsuits in venues perceived to be plaintiff-friendly. Although the Federal Circuit has issued a series of decisions over the past few years that have made it easier for defendants to seek transfers, patent holders have still been able to resist transfers in certain judicial districts, such as the Eastern District of Texas, by bringing suit against multiple companies from different areas of the country. This strategy makes it difficult for the defendants to identify an alternative venue that is clearly more convenient than the venue chosen by the plaintiff—a requirement for seeking a transfer.

A provision of the Leahy-Smith America Invents Act changes the joinder rules in a way that will make it much more difficult for patent holders to sue multiple independent companies in a single patent infringement lawsuit. In so doing, this new law should severely limit one of the last, best strategies that non-practicing entities have used to maintain litigation in their chosen forums.

Venue in Patent Cases

Federal law generally allows a plaintiff to file a lawsuit in any judicial district of the United States in which the defendants are subject to personal jurisdiction.1 Thus, larger companies and companies that sell products throughout the United States may find themselves subject to personal jurisdiction nationwide.2 A patent holder can bring a lawsuit against such a defendant in whatever forum it considers to be most favorable. A common choice of forum for patent holders is the Eastern District of Texas.

The law permits defendants to request a transfer to a different forum if it can show that the transfer would be more convenient for the parties and witnesses, and serve the interest of justice.3 The convenience analysis often turns on how close in distance the parties, witnesses, and evidence are to the plaintiff's chosen forum and the proposed transferee forum.4 However, courts have generally held that the plaintiff's choice of forum is entitled to deference, and that a transfer is therefore only available if the defendants can show that an alternative court would be a clearly more convenient forum for the dispute.5

Commonly Used Forum-Shopping Strategies

Non-practicing entities have employed several strategies in order to prevent defendants from seeking transfers to venues that are viewed as less favorable to plaintiffs. They have formed subsidiaries in their preferred forums, and then brought suit through these forumbased subsidiaries. This strategy allows non-practicing entities to argue that their chosen forum is, in fact, the plaintiff's home forum: a factor that strengthens the arguments against transfer.6 Because the location of evidence is an important factor in the transfer analysis, nonpracticing entities have also attempted to resist transfer by transporting evidence to a subsidiary or other location within their chosen forum. However, recent Federal Circuit decisions have rejected both of these strategies.7

One strategy that has so far survived appellate court scrutiny is joining separate defendants that are based in different parts of the country in a single patent infringement lawsuit. The transfer statute does not empower courts to transfer claims against one defendant, while retaining jurisdiction over claims against a different defendant.8 Thus, unless a defendant can meet the legal standards for having the plaintiff's claims against it severed into a separate onedefendant lawsuit—something that has been particularly difficult to accomplish in the Eastern District of Texas9—transfer is usually an all-or-nothing proposition.

For example, a patent holder who wishes to maintain a lawsuit in the Eastern District of Texas may choose to sue a California defendant and a New York defendant. In this situation, a transfer to the New York-based defendant's home forum might be more convenient for that defendant (i.e., result in a trial closer to that defendant, its witnesses, and its evidence). However, this convenience gain would be offset by the additional inconvenience the transfer would cause to the California-based defendant. In such circumstances, it would be difficult for the defendants to argue that either obvious alternative forum would be clearly more convenient than the forum chosen by the plaintiff.

Impact of the Leahy Smith America Invents Act

The Leahy-Smith America Invents Act ("AIA"), which was signed into law on September 16, 2011, may severely curtail this strategy. The AIA enacted specialized joinder rules for patent infringement actions that prohibit plaintiffs from joining multiple defendants together in a single lawsuit "based solely on allegations that they each have infringed the patent or patents in suit."10 This new statutory provision was designed to overrule the Eastern District of Texas case law permitting plaintiffs to consolidate patent infringement claims against unrelated defendants.11 Under the new law, accused infringers may only be joined as defendants if (1) the right to relief asserted arises "out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing . . . offering for sale, or selling of the same accused product or process; and (2) "questions of fact common to all defendants . . . will arise in the action." For example, both the manufacturer and seller of an accused product could conceivably be joined under this standard, but multiple unrelated sellers of different accused products should not be.

While the old joinder rule (which still applies in non-patent cases) was embodied in Rules 20 and 21 of the Federal Rules of Civil Procedure, the new joinder rule is written directly into the patent statute. Thus, it is highly likely that the Federal Circuit will develop and enforce its own interpretation of the new joinder rules.12 Indeed, in view of its history of hostility to forum shopping, as well as a recent speech given by Chief Judge Rader,13 it appears likely that the Federal Circuit will interpret the new joinder rule to narrowly and severely limit multidefendant litigation.

Footnotes

1. Venue in a patent infringement action is proper in any judicial district in which the defendant is subject to personal jurisdiction. See 28 U.S.C. §§ 1400(b), 1391(c).

2. Personal jurisdiction is governed by long-arm statutes, which vary from state to state. However, most long-arm statutes permit courts to exercise personal jurisdiction over any company that transacts significant business within a state, or which is registered to do business in a state.

3. See 28 U.S.C. § 1404(a).

4. See, e.g., In re Volkswagen of Am., Inc., 545 F.3d 304, 315 (5th Cir. 2008) (en banc).

5. See, e.g., In re Volkswagen, 545 F.3d at 314-15; Coffey v. Van Dorn Iron Works, 796 F.2d 217, 219-20 (7th Cir. 1986).

6. The plaintiff's choice of forum is given less weight where the plaintiff is not a resident of the chosen forum. See, e.g., In re Apple, Inc., 602 F.3d 909, 913 (8th Cir. 2010).

7. See In re Microsoft Corp., 630 F.3d 1361, 1364-65 (Fed. Cir. 2011) (plaintiff's connections to the chosen forum...