Power Play: District Court Properly Transferred Bad Faith Anticipatory Suit
The US Court of Appeals for the Federal Circuit denied a petition for mandamus relief from an order transferring a first-filed declaratory judgment action from the District of New Jersey to the Western District of Texas, finding that the district court did not abuse its discretion in departing from the first-to-file rule. In re Amperex Tech. Ltd., Case No. 22-105 (Fed. Cir. Jan. 14, 2022) (Lourie, Prost, Taranto, JJ.) (per curiam).
Maxell, Ltd. owns patents related to lithium-ion battery technology. To facilitate licensing discussions regarding Maxell’s patents, Maxell and Amperex entered into a non-disclosure agreement (NDA) stipulating that neither party would sue the other for one year. At the end of the one-year period, Amperex proposed extending the NDA because the parties had not reached an agreement. Maxell replied that Amperex’s products infringed Maxell’s patents and cautioned that if “Maxell and Amperex are not able to enter into a licensing agreement by Friday, April 9, 2020, Maxell will be left with no choice but to pursue litigation.”
After some discussion, Maxell’s counsel expressed interest in having another meeting and requested Amperex’s presentation materials in advance. Amperex’s counsel replied, “I will be in touch as soon as I can get the materials,” just two hours before filing a 90-page complaint seeking a declaratory judgment of noninfringement in the US District Court for the District of New Jersey. Two days later, Maxell filed an infringement action in the US District Court for the Western District of Texas. Maxell moved the New Jersey court to decline jurisdiction over the declaratory judgment action or transfer the action to the Western District of Texas. Amperex subsequently moved to enjoin Maxell’s action, and Maxell filed a motion to dismiss or transfer Amperex’s complaint, arguing that the action was brought in bad faith and in anticipation of Maxell’s actions.
Departing from the first-to-file rule, the district court granted Maxell’s transfer request. The district court acknowledged that a “first-filed action is preferred . . . unless considerations of judicial and litigant economy, and the just and effective disposition of disputes, require otherwise.” The district court then addressed several factors, including whether Amperex’s suit was anticipatory and the relative convenience of the forums. The district court concluded that Amperex’s suit was anticipatory because “when one party gives a deadline by which a dispute must be resolved non-judicially and the other party quickly files a declaratory action, the declaratory action is anticipatory.” Moreover, while neither bad faith nor ongoing negotiations are required for a suit to be anticipatory, bad faith actions that “disrupt the non-judicial settlement of disputes or . . . string the defendant along so that the plaintiff can win the race to the courthouse . . . weigh strongly in favor of transfer or dismissal.” Thus, the district court found that Maxell’s clear ultimatum coupled with Amperex’s “feigned cooperation” weighed heavily in Maxell’s favor.
The district court next noted that neither district was more convenient for the parties or witnesses, whereas Amperex’s failure to properly serve Maxell and “the absence of jurisdiction over all necessary . . . parties” favored transfer. The possibility of consolidation and conservation of judicial resources also weighed in favor of transfer since the Texas litigation was further along. Finally, the district court found that Amperex’s choice of forum was not entitled to deference, as both parties were foreign, no infringement was alleged in the forum and Amperex’s suit was anticipatory. Amperex petitioned the Federal Circuit for mandamus relief from the order.
Reviewing the district court’s ruling for abuse of discretion, the Federal Circuit denied Amperex’s petition, finding that the district court had a reasonable basis for departing from the first-to-file rule. The Court agreed that “the first-to-file rule is not absolute,” and that a district court “may consider whether a party intended to preempt another’s infringement suit” when making a transfer or dismissal ruling. After noting the parties’ communications, Amperex’s feigned cooperation, the lack of witnesses in New Jersey, the potential for consolidation and the Texas action’s progress, the Court concluded that the district court had a plausible basis for its transfer ruling and denied Amperex’s petition.