On December 29, 2008, in one of the last acts the court took for the year, the United States Court of Appeals for the Federal Circuit issued an extremely important decision in In re TS Tech USA Corp. I know I am late to the party to pontificate about this case, but rather than just run to the head of the pack I wanted to take some time to consider this case and its ramifications before I jumped in knee deep. Like many, I think this case will go a long way toward a solution to the patent troll problem, or the non-practicing entity problem as seems to be more politically correct to say these days. It also certainly shows that we really don’t need Congress to get involved with the thorny issues of patent reform that derailed efforts to bring about meaningful legislative change in 2008.
In this case TS Tech filed a petition for a writ of mandamus with the Federal Circuit, requesting that the United States District Court for the Eastern District of Texas be ordered to transfer the case to a more appropriate venue. In reality, any venue would have likely been more appropriate than the Eastern District of Texas, which seems to have had absolutely nothing to do with the dispute between the parties other than it being an extremely plaintiff friendly court. As a result, patent trolls from around the country have descended upon the Eastern District of Texas, which is why during 2008 one of the legislative proposals related to tightening up the rules associated with choosing an appropriate venue for patent infringement litigation.
On December 27, 2007, TS Tech filed a motion pursuant to § 1404(a) to transfer venue of the case to the Southern District of Ohio. TS Tech argued that the Southern District of Ohio was a far more convenient venue to try the case because the physical and documentary evidence was mainly located in Ohio and the key witnesses all lived in Ohio, Michigan, and Canada. TS Tech further argued that because none of the parties were incorporated in Texas or had offices located in the Eastern District of Texas, there was no meaningful connection between the venue and this case.* Lear opposed transfer, contending that the Eastern District of Texas was the proper venue considering that several Honda vehicles containing the allegedly infringing headrest assembly had been sold in Texas. Yes, believe it or not the reason the plaintiff claims to have chosen the Eastern District of Texas was because there was tortious activity associated with the sale of several Honda vehicles. Based on that argument, venue would have been appropriate anywhere and everywhere, which is just plain ridiculous.
The district court ultimately determined that TS Tech failed to demonstrate that the inconvenience to the parties and witnesses clearly outweighed the deference entitled to Lear’s choice of bringing suit in the Eastern District of Texas. The court further found that because several vehicles with TS Tech’s allegedly infringing headrest assembly had been sold in the venue, the citizens of the Eastern District of Texas had a “substantial interest” in having the case tried locally. What the substantial interest was that uniquely required the Eastern District of Texas to hear this case was not really explained, presumably because there was really no substantial interest at all.
I do understand that district courts are typically reluctant to transfer cases, but the Eastern District of Texas has taken this to new heights over the years. For the life of me I will never understand why any district court judge would ever fight to keep a patent litigation. Given the real and substantial differences of opinion held by the judges on the Federal Circuit you never know what the ruling on appeal will be until you see the panel assigned, which means that district court decisions have little or no finality and are quite likely to be overturned, only requiring the entire process to start all over again. Of course, if I were a district court judge I wouldn’t want to transfer a patent case, but then again I live for this stuff. It amazes me that those on the federal bench who are not patent wonks would ever keep a patent infringement case, but I digress.
While the Federal Circuit did explain that the district court was correct in its application of a number of the factors associated with its decision not to transfer the case, ultimately the Federal Circuit concluded that it was not the proper decision, even stating: “Turning to the facts of this case, we initially note that TS Tech’s extensive contacts in the Southern District of Ohio indisputably make it a venue in which the patent infringement suit could have been brought.”
The Federal Circuit explained that under Fifth Circuit law, the federal law applicable in Texas, no weight should have been given to the plaintiff’s choice of venue under the relevant legal inquiry regarding whether to transfer. The plaintiff’s choice of where to bring the lawsuit only relates to what the defendant must show in order to request a transfer. In other words, in order to prevail in a request to transfer the defendant must demeonstrate that the requested venue for transfer is clearly a more convenient venue, which the defendant had no trouble showing in this case.
The thing that seemed to upset the Federal Circuit most is that the district court simply ignroed the so-called “100 mile rule.” This rule states that when the distance between an existing venue for trial of a matter 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. In this situation the witnesses would need to travel 900 more miles to attend trial in Texas than in Ohio. This added distance would raise expense for the witnesses, making this factor clearly tip in favor of transfer. Add to this to the fact that the vast majority of the evidence is found in Ohio, Michigan and Canada, and that none of the evidence is located in Texas, the Federal Circuit decision was quite easy and clearly correct. There was simply no justifiable legal reason for this dispute to ever be filed in Texas and no justification for the district court to hold on to the case when there was clearly a more appropriate place for the trial to proceed.
So what impact will this have on the patent troll problem? For those who own or purchase patents and then seek out litigators more interested in using the judicial process to harass plaintiffs, this should mean significant problems lie ahead. No longer is the Eastern District of Texas going to be the warm and friendly place where patent trolls get favorable rulings and force major corporations to litigate in a hostile environment. To be sure, the patent troll problem has not been solved, and cases will continue to be brought, but they will need to be brought in places where the dispute really ought to be litigated, which means courts that are not typically going to be favorable to a plaintiff who files a horribly deficient complaint, or a plaintiff that is more interested in harassment then obtaining a just outcome.
So as one patent troll issue comes to a close, another seems to be rearing its head much as I predicted some time ago. There is a strong movement beginning to brew with respect to universities, who many would like to classify as patent trolls. This is, of course, why there has been a shift in the industry from referring to licensing entities as patent trolls and toward calling them non-practicing entities. It is impossible to believe that public sentiment would ever take to calling universities and federal laboratories trolls, hence the shift in language. The party that controls the linguistic high ground is frequently victorious, and I plan on doing my part to make sure this shift in language doesn’t stick. It is pure nonesense to consider universities, federal laboratories and research and development companies to be patent trolls. And because it is nonesense to call them patent trolls is ought to be nonsense to call them non-practicing entities as well. It is impossible to take anyone seriously who believes that those who do pure scientific research and obtain patents are somehow abusing the system, but this will become the hot button patent troll issue during 2009, just wait and see.
About the Author
|Eugene R. Quinn, Jr.
President & Founder of IPWatchdog, Inc.
US Patent Attorney (Reg. No. 44,294)
B.S. in Electrical Engineering, Rutgers University
Gene is a US Patent Attorney, Law Professor and the founder of IPWatchdog.com. He teaches patent bar review courses and is a member of the Board of Directors of the United Inventors Association. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, CNN Money and various other newspapers and magazines worldwide