On August 10, 2012, Chief Judge Davis of the Eastern District of Texas, as first reported by Michael Smith, issued a groundbreaking opinion in the patent case Norman IP Holdings v. Lexmark International (available here) that should be read by all patent litigation practitioners. Michael Smith’s Eastern District of Texas blog has an extensive summary of the opinion.
Notable aspects of the decision include the following:
- Joinder of defendants in patent infringement cases (under both Rule 20 and the AIA joinder provision) is improper where there was only “broad allegations regarding common processor or processor family designs” with respect to each defendant. Claims against each defendant would be severed into separate causes of action.
- The newly severed cases would be consolidated with the original filed case as to all issues, except venue, through pretrial only.
- Transfer motions will only be considered as to the defendant in the severed case, not as to all defendants in the pretrial consolidated case (i.e., defendants will have their transfer motions considered on a one-off basis, irrespective of the fact that there will be many defendants in the pretrial consolidated case).
- If transfer is appropriate, the Court will retain the case through the Markman phase of the proceedings. Once the Markman decision issues, any pending orders to transfer will become effective. (Chief Judge Davis noted that, “[o]nce a case is transferred, the transferee court is of course not bound by the claim construction of this court, and may modify it if it believes it is appropriate. But, much like a magistrate judge’s recommendation, it is hoped that this court’s claim construction analysis will be of help to the transferee court, whether modified or not.”)
- After the Court issues its Markman decision and transferred those cases that will be transferred,
[T]he Court will solicit the advice of the remaining parties on how to best structure the trial of these cases. Will there be a separate trial as to each severed defendant as to all issues? Do some defendants wish to join together in a consolidated trial? Are there some issues that should be tried first as to some or all parties, such as invalidity or inequitable conduct? The Court looks to a number of factors in determining the proper trial plan for complex multiple party and multiple issue patent cases. While no single factor is dispositive, this court has developed following the list of factors to be considered in balancing the equities to all parties involved: (1) number of defendants; (2) number of patents; (3) number of asserted claims; (4) complexity of the technology involved; (5) similarity of functionality of accused instrumentalities; (6) consistency of plaintiff’s damages model against distinct defendants, e.g., single expert report as to all defendants, how distinct is the theory of infringement and damages in the expert report as to individual defendants, etc.; (7) consistency of defendants’ non-infringement, validity, and damages positions, as exemplified by, among other things, expert reports, e.g., single or multiple experts on non-infringement, single or multiple experts on validity, single or multiple experts on damages, etc.; (8) collaboration by defendants, e.g. joint defense groups, one firm representing multiple defendants, etc.; (9) risk of inconsistent results on common issues of fact or law; (10) risk of jury confusion; (11) cost of multiple trials to the parties; (12) the Court’s schedule and resources; (13) other individualized issues specific to a particular case.
Only after careful consideration of these factors, and the particular circumstances of the case, does the Court fashion a trial plan. As always, the overall consideration is finding an equitable and fair trial plan for all parties—which inevitably requires compromise. Seldom does one side or the other get their ideal trial plan. Nevertheless, the Court attempts to be fair to all parties. Accordingly, all of these issues will be addressed at a later stage of case management when discovery is complete, the number of patents, claim terms and invalidity references has been narrowed, expert reports have been filed, and perhaps experts deposed.
It will be interesting to see what the Federal Circuit has to say about Chief Judge Davis’ determination that cases (at least where there are a great number of defendants) will not be transferred pre-Markman decision. The focus of post-Volkswagen transfer decisions has been, of course, on convenience of the parties at trial. Will the Federal Circuit hold that requiring litigants to litigate through the Markman decision in an “inconvenient” venue constitutes a mandamus-able offense? Presumably, one of the reasons defendants seek severance and transfer is so that they will be able to put forth their own unique Markman arguments, and have their own shot to convince the district court that their arguments are correct. We are nearly certain that this issue will ultimately make its way to the Federal Circuit.
Additionally, one of the many notable aspects of Chief Judge Davis’ opinion is his remarks on transfer motions:
[T]his case management approach should not be perceived as an invitation to file motions to transfer venue. In recent years, this Court has expended considerable time addressing venue. [1] This Court has many, many issues before it—both criminal and civil—and it carries one of the heaviest patent dockets in the country; yet, venue in patent cases has increasingly become an extremely expensive and time-consuming matter, not only for the Court but for the parties as well. For instance, in a recent set of serially filed cases involving only seven defendant groups, the parties had already expended over $700,000 on venue-related discovery and briefing before the cases were even ready for status conference (i.e., before all defendants had answered the complaint). This Court currently has approximately forty pending motions to transfer venue. If the average cost of discovery and briefing for each of these transfer motions is only $300,000, then approximately $12 million is being spent by the parties on an issue that does not move the ball down the field, but only seeks a new field upon which to play. Finally, some parties have even called courts in this district to essentially “threaten” mandamus if a venue ruling is not issued within the timeframe desired by the parties. This Court manages a very busy docket—as do all courts in this district—with pending motions of varying levels of priority. Criminal cases take first priority because individuals’ freedom is at stake. In the patent context, trials and Markman hearings are a high priority. Venue motions are important, but not any more important than everything else this court has to do. The court rules on these motions as soon as it can. The Civil Justice Reform Act of 1990 was instituted to provide checks on long-pending motions and cases. Courts in this district take their cases seriously and strive to timely address pending motions in an effort to resolve cases promptly. See DIR. OF THE ADMIN. OFFICE OF THE U.S. COURTS, CJRA REPORT 27 (Sept. 30, 2011) (showing only sixteen motions pending for more than six months within the Eastern District of Texas) (available at http://www.uscourts.gov/uscourts/statistics/cjra/2011-09/CJRASep2011.pdf). This Court will address motions to transfer venue as timely as possible, while balancing the many other issues unrelated to venue requiring the court’s attention.
[1] Chief Judge Davis cited in two footnotes over 70 transfer decisions issued by Chief Judge Davis and Magistrate Judge Love in the years since In re Volkswagen, decisions that “reveal[] the enormous amount of time and resources the Court and the parties invest in § 1404 convenience issues that have nothing to do with the merits of the cases.”
Two things to note regarding Chief Judge Davis’ remarks on transfer. First, many defendants in patent infringement lawsuits view transfer motions as nearly case dispositive. Very few defendants want to be in the Eastern District of Texas for a number of reasons, including the perceptions that (1) E.D. Tex. juries are pro-plaintiff, (2) E.D. Tex. juries award high damages amounts, (3) E.D. Tex. juries are unsophisticated, (4) E.D. Tex. courts typically have relatively quick time to trial, (5) E.D. Tex. courts typically don’t bifurcate trials, and (6) E.D. Tex. courts have traditionally allowed broad discovery. Accordingly, it is perhaps not surprising that so much time, effort, and money (e.g., literally millions of dollars in some cases) are expended briefing transfer issues. Defendants will often file objections to magistrate judges’ orders denying transfer motions, then file mandamus petitions with the Federal Circuit after the district court overrules Defendants’ objections to the magistrate judges’ decisions.
Second, with respect to the fact that “some parties have even called courts in this district to essentially ‘threaten’ mandamus if a venue ruling is not issued within the timeframe desired by the parties,” we believe that this is a direct result of the Federal Circuit’s decision in In re VTech Communications, Inc., 2010 WL 46332 (Fed. Cir. Jan. 6, 2010). There, the Federal Circuit denied a mandamus petition filed by a patent defendant based, in part, on the fact that the district court had become familiar with the case. The defendant argued that this familiarity should be discounted because it occurred during the time period in which it took the district court to decide the transfer motion. The Federal Circuit stated, “[defendant’s] contention that the district court’s familiarity with the case is of its own doing is to no avail. It was incumbent upon [defendant] to actively and promptly pursue its motion to transfer venue before the district court invested considerable time and attention on discovery and completing claim construction.” The Federal Circuit did not explain how a defendant could “actively and promptly pursue” a motion to transfer venue (i.e., the defendant already filed the transfer motion, what else is it supposed to do?). Many (we’d guess, the vast majority of) litigators would tell you that the last thing they’d ever think to do would be to call the Court and ask the Court to rule on a motion, much less threaten the court with a mandamus petition. We believe that the only explanation for what Chief Judge Davis has experienced is the Federal Circuit’s opinion in In re VTech.
Chief Judge Davis’ opinion is of substantial importance to patent practitioners in the Northern District of Texas, because Chief Judge Davis is an extremely well-respected judge whose opinions carry great persuasive weight, Judge Davis’ opinion is the first (to our knowledge) post-AIA opinion dealing with these issues, and Northern District of Texas judges are currently grappling with similar issues in their patent infringement cases.