For many years now, patent plaintiffs have been bringing suit in venues that are perceived to be plaintiff friendly — venues such as the Eastern District of Texas. Meanwhile, defendants have been diligent at attempting to get the cases transferred out of these perceived “plaintiff friendly” forums. Extensive precedent1 requires district courts to consider a broad range of issues — involving both the private rights of the parties involved and public policy considerations — in determining who wins this constant battle of tug of war. In an attempt to entrench the litigation in preferred venues, patent holders have often formed legal entities, such as corporations or limited liability companies (“LLCs”), in their preferred litigation forum and have used these newly created entities to sue defendants in that forum.
A pair of recent district court cases illustrates the differing views and attitudes of courts with respect to this practice and the amount of weight it should be given as applied to the various precedential transfer factors.2
With a relatively low threshold for establishing jurisdiction over defendants, the general federal venue statute (28 U.S.C. § 1391) gives plaintiffs extensive control over where to bring suit, especially against large corporations with contacts in virtually every part of the country.3 However, the venue transfer statute (28 U.S.C. § 1404) has been established to temper the effects of the general venue statute to prevent plaintiffs from abusing their choice of venue by subjecting defendants to inconvenient venues.4 But, Section 1404 merely states that a court may transfer venue “for the convenience of parties and witnesses” and “in the real interests of justice,” thus, providing little specific insight as to when venue may or should be transferred.5
To provide guidance as to when venue may or should be transferred, various courts, most notably the United States Supreme Court, have set forth a variety of both public and private interest factors that a district court should consider when deciding whether or not to transfer venue.6 In Piper Aircraft v. Reyno, the Supreme Court listed some private interest factors for courts to consider when contemplating transfer from one venue to another: (1) the relative ease of access to sources of proof; (2) the availability of process to secure witnesses; (3) the cost of attendance for willing witnesses; and (4) other practical issues that make trial of a case easy, expeditious and inexpensive.7
The Supreme Court also listed several public interest factors that courts should consider: (1) court congestion; (2) local interest in resolution of a particular dispute; (3) the familiarity of the forum with the law that governs the case; and (4) the avoidance of unnecessary problems of conflict of laws.8
In In re Volkswagen and In re TS Tech, the United States Courts of Appeals for the Fifth and Federal Circuits, respectively, recently revisited the Piper factors and clarified how to apply them after the two courts heard arguments from defendants to the effect that the factors were sometimes being applied in a way that effectively precluded transfer of venue in many cases.9 The two district court venue transfer decisions discussed in this article — Shared Memory Graphics v. Apple and Personal Audio v. Apple — exhibit differing district court views as to how one particular factor —incorporation by a patent owner of a holding company in a particular jurisdiction — should be analyzed in weighing the reemphasized and clarified private and public interest factors as applied in TS Tech and Volkswagen.
In Shared Memory Graphics v. Apple, a recent case out of the United States District Court for the Western District of Arkansas, the court gave little weight to the fact that the plaintiff was an Arkansas-incorporated entity in deciding to transfer venue to the Northern District of California.10 Shared Memory Graphics (“SMG”) is a patent holding company that was incorporated in Arkansas less than one month before filing suit against Apple in Arkansas.11 Apple and the other defendants moved to have the case transferred to the Northern District of California.12
The Arkansas court found that the convenience of the parties supported transferring the case to the Northern District of California based on four—principally private interest—reasons: (1) “the most relevant and material stateside defendants have substantial facilities in the Northern District of California”; (2) “relevant [accused] research, design, and technical activities take place in the Northern District of California”; (3) “the majority of relevant documents and witnesses are also located there”; and (4) “SMG’s parent corporation and its principal place of business is located in Newport Beach, California.”13
In analyzing the four convenience factors, the court found that SMG’s incorporation in Arkansas had little significance.14 The court found that although SMG was incorporated in Arkansas, SMG and Arkansas had no role in the development of the patents involved in the case.15 It also found that SMG had no relevant documents or employees in the Western District of Arkansas.16 Thus, SMG’s Arkansas incorporation carried little weight in favor of the Western District of Arkansas being a more convenient forum.17
Additionally, the court addressed venue considerations relating to the interests of justice (i.e., public interest factors), and determined that SMG’s incorporation in Arkansas was also largely irrelevant in this analysis.18 In addressing the public policy consideration that plaintiff’s choice of forum should be given significant deference — an argument that some courts had given great weight to prior to the TS Tech and Volkswagen cases — the court determined that SMG’s choice of forum should be given little deference due to a lack of connection of the forum to events that gave rise to the suit.19
The court found that the only connection to the forum was sales of the accused product within the forum, but given that the accused products were sold nationwide, the connection was no more meaningful in Arkansas than elsewhere, in the court’s view.20 The court further noted that SMG’s incorporation in Arkansas supplied no meaningful connection either, concluding that SMG’s incorporation in Arkansas just twenty days before filing the lawsuit had the appearance of forum shopping.21 Finally, the court concluded that Arkansas had slight to no localized interest in the dispute because the case was a patent case and it was governed by federal law, not local law.22 Accordingly, the district court found SMG’s incorporation in Arkansas to be largely irrelevant in determining that the case should be transferred to California.
In contrast, in Personal Audio v. Apple, a case out of the United States District Court for the Eastern District of Texas, the court found the fact that plaintiff Personal Audio was incorporated in Texas to be relevant in deciding similar issues.23 The court found that the recency of Personal Audio’s incorporation in Texas only two months prior to filing suit was irrelevant to the decision.24 The court also found that the private interest factor of presence of documents related to the case, held by Personal Audio in its Beaumont Texas office by virtue of its incorporation there, weighed in favor of maintaining the case in Texas.25 Finally, the court found a public interest in support of maintaining venue in that Personal Audio’s incorporation in Texas gave Texas a local interest in adjudicating the lawsuit.26
In determining that Personal Audio’s incorporation a mere two months prior to filing suit was irrelevant, the court focused on the fact that Personal Audio’s existence in Texas was not a “fiction,” essentially proceeding on the basis that all lawfully-incorporated organizations are to be treated equally.27 The court noted that there was no case or statute that required that a plaintiff could not file suit until after a mandatory waiting period after incorporating had passed.28 Also, unlike the Arkansas court in Shared Memory, the court in Personal Audio found that strategically incorporating in a preferred venue should not be held against a corporation when analyzing venue or jurisdiction.29 The court likened the practice to the common tactic of incorporating in Delaware to take advantage of Delaware’s advantageous corporate tax laws and policies.30
Personal Audio also held all of its documents relating to the patents in suit in its offices in Beaumont, which the court found relevant to the private interest factors and helpful in determining that venue should not be transferred.31 The court found that the proposed transfer venue — Massachusetts — did not contain any relevant documents pertinent to the litigation, and thus convenience weighed in favor of maintaining the case in Texas, partially due to Personal Audio’s presence in Texas.32
The Texas court also determined that Personal Audio’s incorporation in Texas created a localized interest for the court to adjudicate the matter.33 No parties were located in Massachusetts, while Personal Audio was located in Texas.34
On appeal, though, the United States Court of Appeals for the Federal Circuit issued a non-precedential mandamus order that upheld the Texas court’s decision not to transfer venue in Personal Audio v. Apple, but indicated disagreement with the weight given by the district court to Personal Audio’s incorporation in Texas.35 The Federal Circuit noted that Personal Audio’s incorporation in Texas “is not entitled to significant weight, inasmuch as the company’s presence in Texas appears to be both recent and ephemeral — its office is apparently the office of its Texas litigation counsel, and it appears not to have any employees in Texas.”36 However, the Federal Circuit upheld denial of the motion to transfer because “petitioners [had] not made a compelling showing that Massachusetts [was] a more convenient forum, particularly in light of the fact that none of the defendants are located there.”37 Thus, the Federal Circuit came closer to the rationale of the Western District of Arkansas than to that applied by the Eastern District of Texas in giving little weight to patentee’s incorporation in its chosen venue, even while agreeing that other factors upheld the district court’s decision not to transfer venue.
Although other factors weighed in favor of transferring venue in Shared Memory Graphics, factors that were not present or at least not shown by defendant in Personal Audio, and incorporation in the plaintiff’s preferred forum was not necessarily a dispositive issue in either case, the two cases illustrate the differing amount of weight and credibility that courts may give to a recently incorporated plaintiff when deciding venue transfer issues. Notably, the district court in Personal Audio seemed to consider incorporation of a holding company in a desired litigation venue to be a legitimate practice deserving of significant weight in the transfer analysis, while the district court in Shared Memory Graphics and the Federal Circuit in In re Apple, looked upon the practice with more skepticism.
Therefore, as the district courts develop jurisprudence on how to apply TS Tech and Volkswagen, different district courts may give varying weight to the multiple transfer factors. Nonetheless, the Federal Circuit’s skepticism in what amounts to dicta in the mandamus appeal in the In re Apple opinion suggests that nominal corporate citizenship in a venue may not, standing alone, be a persuasive argument for avoiding transfer when defendant has supplied significant arguments favoring transfer under the other applicable factors set forth in Piper and reemphasized and clarified in TS Tech and Volkswagen.