Monday, January 05, 2009

Fed Circuit Rains on ED Texas Patent Suit Parade

The Federal Circuit's recent decision in In re TS Tech USA Corporation is going to make it more difficult for out-of-Texas patent holders with few connections to that forum to sue U.S. infringers there. Difficult, that is, where the strongest connection to Texas is that infringing product ended up there.

In TS Tech, the plaintiff was a Delaware corporation with a principal place of business in Michigan; the defendants were two Ohio corporations (with Ohio PPOBs), and a Canadian corporation. The patent infringement lawsuit was filed in the Eastern District of Texas, where the district court denied the defendants' motion for a change of venue (to Ohio). The district court found that the inconvenience to parties and witnesses was outweighed by the "deference" entitled to the plaintiff's choice of forum.

The defendants took the question straight to the Federal Circuit via a writ of mandamus, which ratcheted up the standard of review from the "abuse of discretion" standard applicable to ordinary appeals to the higher "'clear' abuse of discretion" that "produced a 'patently erroneous result'" standard applicable to mandamus cases.

While the Federal Circuit noted that district court was correct in its evaluation of several "neutral" factors, it ruled that there were "several key errors" that together combined to meet the "clear abuse of discretion producing a clearly erroneous result" standard. In particular:

- the district court "ignored" the Fifth Circuit's "100-mile rule," requiring that the court consider "[w]hen the distance between an existing venue . . . and a proposed venue . . . is more than 100 miles, the factor of inconvenience to witnesses increases in direct relationship to the additional distance to be traveled." Here, witnesses were identified in Michigan, Ohio, and Canada, making the proposed Ohio venue materially (900 miles) more convenient than the existing Texan one.

- the district court treated the plaintiff's choice of forum as a "factor" against transfer, instead of merely according it "deference." This seems to be a rather fine point, but at a minimum expect to see future district courts explaining how they have given "deference" to plaintiff's forum choice without weighing it as a "factor" in the venue analysis.

- despite the fact that the "vast majority of physical and documentary evidence" was located in Ohio, Michigan, and Canada, and that none of the evidence was in Texas, the district court incorrectly treated the location of the evidence as a "neutral" factor because many of the documents were in electronic form. The Federal Circuit pointed out that, given that all of the physical evidence was "far more conveniently located near the Ohio venue," this factor should have been weighted in favor of transfer.

- the public interest did not favor the Texas forum, since allegedly infringing product was sold nationwide. As a result, the "citizens of the Eastern District of Texas have no more or less of a meaningful connection to this case than any other venue."

- finally, in an effort to justify its decision that this was a "clear abuse of discretion," the Federal Circuit compared the TS Tech case with the Fifth Circuit's most recent leading venue case, In re Volkswagen of Am., Inc., and after listing the factors from that case that favored the same finding (including that the district court "glossed over the fact that not a single relevant factor favored the plaintiff's chosen venue") stated that "the district court's errors here are essentially identical." (Ouch.)

While TS Tech is not going to preclude use of the Eastern District of Texas as a popular forum for patent infringement cases, it will make things more difficult for plaintiffs that cannot show an obvious connection to the forum. Expect to see patent plaintiffs add as defendants ED Tx-based parties in the distribution chain in an effort to bulk up the relevance of the forum to something more than "some infringing products ended up there."

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