In our Fall 2009 Newsletter, we reported on some recent legal decisions regarding transferring patent cases out of the Eastern District of Texas to a more convenient and favorable court. In December 2009, the Federal Circuit Court of Appeals (the Court responsible for all patent appeals in the U.S.) issued two more cases, In re Hoffman-La Roche Inc. and In re Nintendo Co., Ltd., which have changed the legal landscape even more — making it considerably more likely that Chinese defendants can transfer their cases out of the Eastern District of Texas .1 Indeed, it appears that a plaintiff’s chances of successfully opposing a transfer motion out of the Eastern District of Texas are lower than ever before.
In recent years, the Eastern District of Texas developed a reputation for being a desirable forum for plaintiffs, attracting numerous patent owners and making the district famous for patent litigation involving multi-million dollar verdicts. Moreover, because motions to transfer appeared to be routinely denied, defendants found themselves required to litigate in the Eastern District of Texas, even when virtually no connection existed between the dispute and the venue.
The Fifth Circuit’s en banc decision in Volkswagen, an auto injury case, started a significant change in transfer law. In re Volkswagen of America, Inc., 545 F.3d 304 (5th Cir. 2008) (en banc). In ordering the case transferred from the Eastern District to the Northern District of Texas, the appellate court held that the district court could not disregard the physical location of evidence simply because modern technology makes it easier to transport certain forms of evidence. Id. at 316, 322-23. Virtually all of the evidence in Volkswagen stemmed from or was located in Dallas, including all of the witnesses, documents, and physical evidence. Id. at 316-18. Additionally, the Northern District had absolute subpoena power over all of the witnesses. Id. at 316. The appellate court concluded that the district court had erred in failing to properly consider the actual location of evidence, the availability of the compulsory process, and the local venue’s interest in deciding the case “at home.” Id. at 317-18. The Fifth Circuit granted Volkswagen’s petition and ordered the case transferred to the Northern District of Texas. Id. at 319.
Soon after Volkswagen, a patent infringement defendant, TS Tech, filed a petition in the Federal Circuit Court of Appeals, challenging a decision by the Eastern District of Texas denying transfer of a case. In re TS Tech USA Corp., 551 F.3d 1315, 1318 (Fed. Cir. 2008). Following Fifth Circuit law, the Federal Circuit held that the district court clearly abused its discretion by: (1) giving too much weight to plaintiff’s choice of venue; (2) ignoring Fifth Circuit precedent requiring an assessment of costs for attendance of witnesses; (3) marginalizing the factor concerning the relative ease of access to sources of proof; and (4) disregarding Fifth Circuit law in analyzing the public interest in having localized decisions decided “at home.” Id. at 1320-21. Accordingly, the Federal Circuit granted TS Tech’s writ and ordered the district court to transfer the case. Id. at 1322-23.
Initial district court rulings following Volkswagen and TS Tech suggested that more cases would be transferred from the Eastern District of Texas, particularly when the physical evidence and witnesses were centralized at or near the proposed transferee courts and when the alternate forum was “clearly more convenient.” Id. at 1319 (quoting Volkswagen, 545 F.3d at 315). However, defendants in “decentralized” cases involving multiple defendants (i.e., cases in which the evidence, witnesses, and parties were located throughout the country or overseas) seemed to have a more difficult time winning transfer motions. Indeed, several cases supported the notion that “centralized” cases, where the physical evidence was confined to a “limited region,” were distinguishable from “decentralized” national cases, where no single venue would clearly be more convenient. See, e.g., Novartis Vaccines & Diagnostics, Inc. v. Hoffman-La Roche Inc., No. 2:07- CV-507, Order, slip op. at 5 (E.D. Tex. Feb. 3, 2009).
The rationale for decentralized, multi-party cases, however, was short lived. The Federal Circuit again exercised its power to review district court decisions — this time ordering the transfer of a decentralized case out of the Eastern District of Texas. See In re Genentech, Inc., 566 F.3d 1338 (Fed. Cir. 2009). Several months later, the Federal Circuit issued two more transfer decisions involving decentralized evidence, parties, and witnesses. See Nintendo, 2009 WL 4842589, at *4-5; Hoffmann-La Roche, 2009 WL 4281965, at *4. The Genentech, Hoffman-La Roche, and Nintendo decisions made clear that the Federal Circuit was willing to review and reverse district court venue transfer rulings, even in decentralized cases.
In Genentech, Sanofi, a German pharmaceutical firm, filed a patent infringement action against Genentech (located in the Northern District of California) and Biogen (located in the Southern District of California) in the Eastern District of Texas. Genentech, 566 F.3d at 1340-41. The witnesses and evidence were located in multiple geographic regions, and none were located in Texas. Id. The district court based its ruling on its determination that the Eastern District of Texas was as good a central location for a decentralized case as any other venue. Id. at 1342. The Federal Circuit rejected this “central location rationale” and set forth several instances in which the district court failed to properly assess the relevant factors under Fifth Circuit law. Id. at 1342-49. After considering all of these factors, the Federal Circuit granted the petition and ordered the district court to transfer the case to the Northern District of California. Id. at 134849.
The first of the Federal Circuit’s two most recent transfer opinions, Hoffmann-La Roche, extended this ongoing shift in transfer law. Hoffmann-La Roche, 2009 WL 4281965, at *4. In Hoffmann-La Roche, Novartis Vaccines and Diagnostics, Inc., a company headquartered in California, brought suit in the Eastern District of Texas against Hoffmann-La Roche Inc., Roche Laboratories Inc., Roche Colorado Corp., and Trimeris, Inc. Id. at *1. Novartis alleged that Fuzeon®, a commercial HIV inhibitor drug, infringed its patent. Id. Fuzeon® was developed at Trimeris’ labs in North Carolina where certain documents were maintained. Id. Roche’s manufacturing and processing facilities were located in Colorado, Michigan, and Switzerland. Id. The company packaged the drug at its New Jersey headquarters and marketed Fuzeon® nationwide. Id. Only a handful of 25 potential witnesses lived in North Carolina. Id.
Defendants moved to transfer, contending that there were no witnesses or evidence within 100 miles of the Eastern District of Texas. Id. Additionally, defendants argued that most of the relevant evidence, a number of Trimeris’ employee witnesses, and four non-employee witnesses were located in North Carolina. Id. Novartis opposed, arguing that the case involved multiple parties from across the country, and that sources of proof and witnesses were located throughout the United States. Id. Consequently, transferring the case to North Carolina would merely rearrange the inconveniences. Id.
The Eastern District of Texas court agreed with Novartis and denied the motion to transfer, finding that: (1) four non-party witnesses in North Carolina did not constitute a substantial number of witnesses; (2) Novartis’ documents had been transferred to Texas; and (3) the district court had subpoena power over one of the witnesses who lived in Houston. Id. at *2. The district court concluded that “the Eastern District of North Carolina had no more of a local interest in deciding this matter than the Eastern District of Texas” because the accused product was offered for sale nationwide. Id. at *4. Defendants petitioned the Federal Circuit for a writ of mandamus. Id. at *2.
The Federal Circuit compared the case’s connection to the Eastern District of Texas and its connection to the Eastern District of North Carolina and held that there was “a stark contrast in relevance, convenience, and fairness between the two venues.” Id. The appellate court held that the district court clearly abused its discretion by failing to give proper weight to the meaningful connection that the patent infringement dispute had to North Carolina but did not have to the Eastern District of Texas. Id. at *4. In its decision granting the petition to transfer the case, the Federal Circuit analyzed relevant factors under Fifth Circuit law and made the following conclusions:
- The “sources of proof” related to the development and testing of the infringing product were located in North Carolina (the location where the accused drug was developed). Id. at *2.
- The district court had no basis to conclude that documents that were electronically transferred from California to Texas supported rejection of the transfer motion. The law prohibits “attempts to manipulate venue in anticipation of litigation or a motion to transfer.” Id. at *3.
- The district court disregarded precedent by holding that North Carolina had no more of a local interest than Texas. On the contrary, the “local interest in this case remains strong because the cause of action calls into question the work and reputation of several individuals residing in or near that district.” Id. at *2.
- The matter had “no relevant factual connection to the Eastern District of Texas.” In contrast, North Carolina’s interest in the matter was “self-evident.” Id. at *4.
- The district court overlooked the importance of the “absolute subpoena power,” which permits a court to compel a witness to attend depositions and trial. In doing so, the district court gave too much weight to its ability to compel one witness at trial, noting that because the witness lived more than 100 miles away, the district court would not be able to compel her to attend a deposition. The district court also failed to consider the fact that the Eastern District of North Carolina had absolute subpoena power over at least four non-party witnesses, which favored transfer. Id.
- The less-congested docket of the district court of North Carolina indicated that the court “may be able to resolve this dispute more quickly.” Id. at *2.
- The second of the Federal Circuit’s two recent decisions further confirmed this ongoing shift in the law. See Nintendo, 2009 WL 4842589, at *4-5. In Nintendo, the Eastern District of Texas had denied Nintendo’s motion seeking to transfer the case to the Western District of Washington, where Nintendo was incorporated and had its principal place of business. Id. at *1. Motiva opposed transfer, arguing that Eastern District of Texas was the proper venue for such a decentralized case. Id. The Federal Circuit again rejected the “decentralized” argument for maintaining a case in Texas that lacks any connection to the venue and reminded the district court that it had “already questioned this type of reasoning in another case involving the Eastern District of Texas.” Id. at *4 (citing Genentech, 566 F.3d at 1344). In holding that “the district court clearly abused its discretion in denying transfer from a venue with no meaningful ties to the case,” id. (citing TS Tech, 551 F.3d at 1322-23), the Federal Circuit reached the following conclusions:
- Although the district court “correctly assessed the local interest of the Western District of Washington as high” and “candidly observed that the Eastern District of Texas has little relevant local interest in the dispute,” it “gave the plaintiff’s choice of venue too much deference.” Id. at *3-4.
- The district court also improperly failed to give proper weight to the fact that “[a]ll of the identified key witnesses in this case [we]re in Washington, Japan, Ohio, and New York” and “[n]o witnesses live[d] in Texas.” Id. at *3.
- The fact that Nintendo’s products are sold nationally did not justify keeping the case in Texas. “The Fifth Circuit has unequivocally rejected the argument that citizens of the venue chosen by the plaintiff have a ‘substantial interest’ in adjudicating a case locally because some allegedly infringing products found their way into the Texas market.” Id. (citing Volkswagen, 545 F.3d at 317-18).
- The district court “glossed over a record without a single relevant factor favoring the plaintiff’s chosen venue” and incorrectly “hypothesized that the Eastern District of Texas could serve as a centralized location” despite the fact that neither party had evidence in Texas, and the majority of Nintendo’s evidence was located in Washington. Id. at *4-5.
Because all of the relevant factors favored transfer, the Federal Circuit held that the district court’s result was “patently erroneous” and ordered the case transferred to the Western District of Washington.
These recent Federal and Fifth circuit venue decisions indicate that the trend continues to favor parties seeking to transfer cases out of the Eastern District of Texas. Moreover, it appears that the Federal Circuit is paying close attention to newly issued district court transfer rulings and will not hesitate to find an abuse of discretion when lower courts fail to balance the transfer factors in a manner that conforms to its recent decisions. Genentech and Nintendo indicate that transfer is appropriate in decentralized cases if there are no witnesses in the district where the case is filed and a significant number of witnesses would benefit from a change of venue. Hoffman- La Roche and Nintendo suggest that district courts must evaluate whether the patent dispute’s connection to a plaintiff’s selected venue is more meaningful than the connection to any one alternative local venue. All of these cases highlight the importance of witness convenience, location of evidence, and a connection between the dispute and the district. Additionally, the fact that a case involves a product that is sold nationwide no longer means that any venue in the country is appropriate. Consequently, even decentralized cases now appear to have a high probability of being transferred if the dispute does not have any meaningful connection to the Eastern District of Texas and an alternate jurisdiction with such a connection exists.
For Chinese companies, the Federal Circuit’s recent decisions are particularly good news. First, these decisions may cause patent plaintiffs to rethink their strategy of suing Chinese companies in the Eastern District of Texas in an effort to make the case as inconvenient and threatening as possible. Second, if Chinese companies are sued in the district, the odds of obtaining transfer to a forum with a more significant connection to the case are much better than they were just a year ago. Finally, if a case is successfully transferred out of Texas, the case will lose some of its momentum, and Chinese companies will have more leverage in settlement discussions and a more favorable venue if trial should become necessary.