Updates on Transfers in the Eastern District of Texas
1. Microsoft: Transferred from Texas to Washington State
In November 2010, the Federal Circuit ordered a case transferred out of the Eastern District of Texas in In re Microsoft Corporation, No. 2010-M944 (Fed. Cir. Nov. 8, 2010). This is one of a line of cases attempting to transfer lawsuits out of one of the most frequently selected forums for patent infringement claims.
Over the course of the last two years, the Federal Circuit has redefined the landscape for cases brought before the U.S. District Court for the Eastern District of Texas by nonpracticing entities (NPEs—sometimes referred to as “patent trolls”). Specifically, since the Fifth Circuit issued its en banc decision providing new guidance on the standard for transferring cases in In re Volkswagen of America, Inc., 545 F.3d 304 (5th Cir. 2008) (en banc), the Federal Circuit has found ample opportunity to interpret that case and apply its holdings to patent infringement actions in the Eastern District of Texas. Based on the Volkswagen case, the Federal Circuit has granted numerous mandamus petitions forcing the Eastern District of Texas courts to transfer cases out of that district.1 The Federal Circuit in In re Microsoft Corporation rejected another argument that plaintiffs have relied on to keep their cases in the Eastern District of Texas.
In the underlying district court case, plaintiff Allvoice Developments (Allvoice) filed a patent infringement action against Microsoft Corporation in the Eastern District of Texas alleging infringement of patented speech recognition technology based on functionality found in certain Microsoft operating systems. Allvoice incorporated its company in Texas just 16 days before filing the suit against Microsoft and maintains a physical office in Tyler, Texas (located in the Eastern District). However, Allvoice has no employees at its Tyler office or anywhere in the United States. Microsoft sought transfer to the Western District of Washington, where Microsoft’s headquarters and a substantial number of employees are located. Microsoft indicated that all of its witnesses knowledgeable with the sales, marketing, and product direction for its accused products reside in the Western District of Washington, and all of the relevant documents and evidence relating to the marketing, development, and design of the accused products are also in that district.
The district court denied transfer based in large part on the fact that Allvoice was incorporated under the laws of Texas and maintained an office in Tyler, Texas. The district court also held that third-party witnesses located in New York, Massachusetts, and Florida would find Texas more convenient thanWashington, and that access to documents only slightly favored transfer because Allvoice’s documents were at its offices in the Eastern District of Texas.
The Federal Circuit disagreed and ordered the case to be transferred to the state of Washington. The Federal Circuit found that Allvoice’s alleged ties to Texas and the Eastern District forum, including incorporating under the laws of Texas just before bringing suit, were clearly in anticipation of litigation and were nothing more than an attempt to manipulate venue. In reaching its conclusion to order transfer to the Western District of Washington, the Federal Circuit again stressed that “courts [should] ensure that the purposes of jurisdictional and venue laws are not frustrated by a party’s attempt at manipulation.” The Federal Circuit again recounted its recent mandamus decisions that help define the boundaries for bringing—and keeping—cases in a particular district, ultimately deciding that the facts in this case favored transfer.
The Microsoft case is another point of reference for companies that find themselves defending patent infringement cases in the Eastern District of Texas. When the plaintiff has no legitimate ties to that district, but attempts to create ties to that district to manipulate a tie to the Texas venue, there is a higher probability that the case can be successfully transferred to a more convenient forum.
A copy of the opinion can be found at:
2. Vistaprint: No Transfer Out of Texas
In December 2010, after ordering the Microsoft case transferred out of Texas in the In re Microsoft Corporation case (discussed above), the Federal Circuit allowed the pendulum to swing back and declined to transfer a case out of the Eastern District of Texas. In the case of In re Vistaprint Limited and Officemax Inc., No. 954 (Dec. 15, 2010), the Federal Circuit clarified the judicial economy standard set out in the earlier case In re Zimmer Holdings, Inc., 609 F.3d 1378 (Fed. Cir. 2010).
The Federal Circuit held that denying a transfer in the Vistaprint case was warranted based in part on “more than negligible” gains in judicial economy. In the Vistaprint case, the district court had substantial experience with the patent based on a prior litigation and had issued a lengthy claim construction opinion; there was also a second co-pending case before the court involving the same patent. Therefore, based on the judicial economy and an individualized consideration of all factors, the Federal Circuit agreed that the case should remain in the Eastern District of Texas.
The Federal Circuit also noted that, oftentimes, a transfer analysis may dictate only one correct outcome, and in those cases (e.g., In re Microsoft), transfer may be appropriate. However, in other cases, the transfer analysis may create a reasonable range of choices. And, “[u]nder such circumstances, it is entirely within the district court’s discretion to conclude that in a given case the . . . factors of public interest or judicial economy can be of ‘paramount consideration,’ and as long as there is plausible support of record for that conclusion we will not second guess such a determination, even if the convenience factors call for a different result” (citation omitted). Such was the case in the case of In re Vistaprint.
However, the Federal Circuit also cautioned that its holding is not intended to give patent owners a free pass to maintain all future litigations involving the same asserted patent(s) in the same venue. Instead, a lower court’s decision to deny transfer will be upheld where there are sufficient gains in judicial economy and when the lower court performs a detailed analysis of the other factors explaining why the case should not be transferred.
A copy of the opinion can be found at:
3. Aliphcom: Transferred from California to Texas
In February 2011, just a few months after denying a transfer in the case of In re Vistaprint (discussed above) based on judicial economy, the Federal Circuit refused to vacate an order transferring a case into the Eastern District of Texas from California based on similar reasoning. See In re Aliphcom, No. 971 (Feb. 9, 2011).
In May 2010, Aliphcom received a letter indicating that some of its products were infringing two patents owned by patentee Wi-LAN. One week later, Aliphcom filed a declaratory judgment action in the Northern District of California seeking declarations of invalidity and noninfringement of the Wi-LAN patents. Wi-LAN then requested a transfer of the declaratory judgment action to the Eastern District of Texas where it was currently litigating two previously filed suits involving the same patents.
The district judge in the Northern District of California agreed with Wi-LAN and ordered the case to be transferred to the Eastern District of Texas, finding that although certain factors counseled in favor of keeping the case in California, “the risk of inconsistent judgments and waste of judicial resources must outweigh the equitable concerns of Aliphcom’s convenience in litigating its claims.” Aliphcom petitioned the Federal Circuit to order the judge in the Northern District of California to vacate the transfer order and keep the case in California.
The Federal Circuit agreed with the California district court and allowed the transfer of the case to the Eastern District of Texas. In the wake of Vistaprint, it was no surprise that the Federal Circuit reiterated its analysis regarding judicial economy as a factor in determining whether a transfer should be granted. In particular, the Federal Circuit stated that “having the same . . . judge handle this and the co-pending case involving the same patent would be more efficient than requiring another magistrate or trial judge to start from scratch.” Therefore, the Federal Circuit ruled that the California district court did not clearly and indisputably abuse its discretion transferring the declaratory judgment case to Texas.
A copy of the opinion can be found at:
1. See, e.g., In re Zimmer Holdings, Inc., 609 F.3d 1378 (Fed. Cir. 2010) (Morgan Lewis IP Update, September 22, 2010); In re Nintendo Co., 589 F.3d 1194 (Fed. Cir. 2009); In re Hoffmann-La Roche Inc., 587 F.3d 1333 (Fed. Cir. 2009); In re Genentech, Inc., 566 F.3d 1338 (Fed. Cir. 2009); and In re TS Tech USA Corp., 551 F.3d 1315 (Fed. Cir. 2008).