After In Re Nintendo, A Quartet of Cases Question TXED’s Status

The Court of Appeals for the Federal Circuit issued a writ of mandamus on December 17th ordering the Eastern District Court of Texas to change the venue of Motiva LLC v. Nintendo Co. to the Western District of Washington.  The venue change itself is not particularly eye-catching—the suit is between two corporations with no connection whatsoever to the Lone Star State, other than the plaintiff choosing the famously (or infamously) plaintiff-friendly district for its patent infringement case against Nintendo of America.  What’s noteworthy is the Federal Circuit’s rebuke of the Eastern District; the decision even notes that writs of mandamus are issued only “in extraordinary situations to correct a clear abuse of discretion or usurpation of judicial power,” and when the writ-seeking party proves its right to the writ is “clear and indisputable.”

TXED: Favored Home of Patent Claimants

The Eastern District of Texas is unique among the 94 federal district courts.  Over the past decade the district, 200 miles east of Dallas, has become an epicenter of patent litigation in the United States.  The rise of the Eastern District under the guidance of Judge John Ward has been well-documented, and is not a coincidence: Judge Ward very intentionally built his district’s reputation as being trial friendly—or, to listen to his critics, plaintiff and patent-troll friendly.  By expediting trials and deferring to plaintiff-favoring juries, among other factors, the judges of the Eastern District made their court a favorite destination of forum-shopping plaintiffs with patent claims.

The forum shopping has not been unwelcome—the flood of patent cases filed in Marshall has brought added prestige to the four E.D. Tex. judges and has been an economic boon to the community.  For patent attorneys and parties to suits brought there, the judges’ familiarity with and expertise in patent law has made litigation more predictable.  The result has been analogous to Delaware’s rise in the area of corporate law, with a similar mix of criticism and praise.

Now, however, the Federal Circuit has threatened the primacy of the Eastern District of Texas for patent litigation.  The Federal Circuit’s writ of mandamus on Thursday was its third this year directing the Eastern District to vacate a decision denying venue change and transfer venue to the district requested by the defendant.  As in In Re Genentech and In Re Hoffmann-La Roche (the latter decided just three weeks ago), the C.A.F.C. in In Re Nintendo said it was “clear and indisputable” that the Eastern District misapplied the Fifth Circuit’s framework for considering venue change under 28 U.S.C. § 1404(a) and abused its discretion by refusing the requested transfer motion.

Venue Change after TS Tech

All three cases follow from the C.A.F.C.’s decision in In Re TS Tech.  That case was appealed from Lear Corp. v. TS Tech, in which TS Tech moved for transfer for venue from EDTX to the Southern District of Ohio.  TS Tech argued that OHSD was the more appropriate venue because the physical and documentary evidence was mainly located in Ohio and the key witnesses all lived in Ohio, Michigan, and Canada.  TS Tech’s only alleged connection to Texas was that it sold some of its products there, as it did nationwide.  Judge Ward denied the motion for transfer, giving significant deference to the plaintiff’s choice of venue and saying that the sale of TS Tech’s products in the district gave the local citizens a “substantial interest” in the litigation.

The Federal Circuit disagreed.  In a landmark decision that cited no substantive patent law, the court decided the matter on largely procedural grounds.  In the Fifth Circuit, a motion for venue change should be granted when the proposed venue would be “clearly more convenient” than the venue chosen by the plaintiff, a determination made by weighing the eight “public” and “private” forum non conveniens factors from In re Volkswagen.  The Federal Circuit said Judge Ward’s misapplication of the factors was so great as to produce a “patently erroneously result”—the standard for a writ of mandamus.

The Federal Circuit identified four “key errors” made by the Eastern District.  First, the district court gave too much weight to the plaintiff’s choice of venue—Judge Ward treated the plaintiff’s choice as a ninth forum non conveniens factor to be weighed in the Volkswagen analysis.  The plaintiff’s choice actually only shifts the burden onto the moving party to prove, using the eight factors, that its proposed venue is “clearly more convenient” than the original venue—the plaintiff’s preference should not be given any weight in itself.  Second, the district court “completely disregarded” precedent in assessing the cost of attendance for witnesses.  The cost and inconvenience of having key witnesses travel over 100 miles to a venue should be considered, and “the factor of inconvenience to witnesses increases in direct relationship to the additional distance to be traveled.”  Even though all the key witnesses would have had to travel approximately 900 miles further with the case in Texas, the district court said it “was not persuaded to give great weight” to the inconvenience.  The Federal Circuit said this was clearly erroneous, and found this factor to weigh significantly for transfer.

Third, the district court purposefully discounted the relevance of all the physical and documentary evidence being much closer to the proposed venue, and none of the evidence being in Texas.  Judge Ward’s decision said that “the increased ease or storage and transportation” makes the factor assessing relative ease of access to sources of proof “much less significant.”  The Federal Circuit noted that this interpretation was directly contrary to Fifth Circuit precedent, which indicates that modern ability to store, transport, and electronically view evidence does not neutralize this FNC factor.  Finally, the district court disregarded Fifth Circuit precedent as to “the public interest in having localized interests decided at home,” finding a local interest in the outcome of the case because some of the defendant’s products had been sold within the borders of the Eastern District.  The Federal Circuit said the district court’s application of this factor had been “unequivocally rejected” by the Fifth Circuit.  This factor only weighs against transfer when there is a local connection to the case that is greater than in the proposed venue—here, because the defendant’s products were sold nationwide, there was no more connection to the case in Marshall, Texas than there was in any other federal district.

In Re Nintendo

Much of the Federal Circuit’s analysis in Nintendo was identical to its analysis in TS Tech, Genentech, and Hoffmann-La Roche.  The court said a “stark contrast in relevance, convenience, and fairness between the two venues” existed in Nintendo “as in” those other three cases, and the court “has held and holds again in this instance that in a case featuring most witnesses and evidence closer to the transferee venue with few or no convenience factors favoring the venue chosen by the plaintiff, the trial court should grant a motion to transfer” (emphasis added).

The Federal Circuit identified the same four errors in FNC-factor analysis in Nintendo as it did in TS Tech, reiterating that the plaintiff preference is not a factor to be considered, and restating the importance of the cost and inconvenience of additional travel to get to Texas for witnesses, the physical location of evidence, and the lack of local connection to the case.  The Federal Circuit was also unimpressed by an argument by the district court that because key witnesses were located in Japan, Washington, and New York, the Eastern District could serve as a “centralized location” for the case.  The Federal Circuit rejected that claim (as it had in Genentech), and noted that to even make this “hypothesized” argument the district court included minor satellite offices of the parties in its analysis that probably should not have been considered.  Accordingly, the court ruled that “the district court clearly abused its discretion in denying transfer from a venue with no meaningful ties to the case.”

Future application

The factors motivating the Federal Circuit’s conclusion could easily apply to a significant number of cases brought in the Marshall courthouse.  The Eastern District of Texas’ centrality to the world of patent litigation has been questioned precisely because it is rarely convenient for witnesses to get there, the source of the case’s evidence, or locally connected to the issue at trial.  In TS Tech, Genentech, Hoffmann-La Roche, and now Nintendo, the Federal Circuit has made clear that in such cases, the district court should grant venue-transfer motions to more convenient districts.  Often, the only stated reason to have the trial in the Marshall courthouse is the plaintiff’s preference or possibly its neutral, central location between the actual places witnesses or evidence are to be found.  The Federal Circuit has made clear that these considerations are categorically insufficient to outweigh the three problem factors.  A forum-shopping plaintiff—or an EDTX judge protecting the relevance of the district—has significantly less ground on which to defend a denial of motion transfer after Nintendo.

Though the quartet of mandamus cases could represent a dramatic blow to the EDTX’s plaintiff-friendly reputation, it’s yet to be seen if TS Tech will result in a “wave of transfers of actions” from the Texas district.  One reason to believe the change will be moderate is In Re Telular Corp., in which a motion for a writ of mandamus on the same bases as the defendants in TS Tech and Nintendo was denied by the Federal Circuit.  Judge Moore emphasized that even if the Federal Circuit disagreed with the district court ruling, for a writ of mandamus he must defer to the lower court unless “it is clear that the facts and circumstances are without any basis for a judgment of discretion.”  The decision noted that unlike in those cases where the Federal Circuit had recently granted writs for transfer, the venue proposed by Telular was not clearly more convenient than the Eastern District.  In the other cases, the key witnesses and evidence were unequivocally closer to the proposed venue; here, two key witnesses would potentially be more inconvenienced traveling to the proposed venue, and some evidence would potentially be more costly to send to the proposed venue.  Additionally, Telular waited five months after the district court’s denial of transfer to motion for the writ; Judge Moore noted that although “remedy by mandamus is at law, its allowance is controlled by equitable principles,” so Telular’s delay weighed against granting the writ.  Together, these two aspects of Telular led to the Federal Circuit’s conclusion that mandamus was not appropriate.

Game over?

The conclusion for patent litigators on the defense side should be one of cautious optimism.  The four writs of mandamus coming from the Federal Circuit since December 2008 gives defendants hoping to avoid the plaintiff-friendly district a last resort assurance against the clearest cases of forum-shopping.  Moreover, the language of the decisions indicates that the Federal Circuit might be sending a message to the Texas judges to scale back their efforts to boost the importance of their district.  On the other hand, Telular shows that the Federal Circuit still gives deference to the district courts to make rational decisions regarding change of venue motions.

The issue going forward will be how the judges of TXED react to the Federal Circuit’s five mandamus rulings.  Will they continue to guard the district’s importance and err on the side of rejecting transfer motions?  Or will they hedge against further mandamus writs or reversals on appeal by more willingly transferring cases out of the district—and send with them the district’s unique position?  Future analysts might look back to December 2009 and see that Nintendo marked the end of the game for the Eastern District of Texas.

By Rajiv Batra.

Leave a Reply