Patent Venue and Convenience Transfer: New World or Small Shift?

• Publication year: 2009

Paul M. Janicke⁰

In the wake of a large rise of patent infringement suit filings in the Eastern District of Texas in recent years, critics have complained that the court is too receptive to such filings and too reluctant to transfer them to other districts. Accusations of forum-shopping have been prevalent. However, as long as Congress provides a plurality of acceptable districts in which cases of a given type can be filed, lawyers are duty-bound to select the one perceived as best for their clients; defense counsel are similarly obliged to try to move the case to a place seen as more hospitable to the defendant's positions. It is then up to the courts themselves to sort out venue in light of existing provisions of law, notably the convenience transfer provision of 28 U.S.C. § 1404(a). Normally a matter of judicial discretion, some recent decisions refusing transfer of patent cases have been reversed for abuse of discretion. The present article studies the questions of (i) whether, prior to the recent cases, the Eastern District of Texas held onto civil cases more often than other courts; and (ii) whether the district kept more patent cases than other high-patent-volume districts did. Both are answered essentially in the negative. The court has transferred civil cases generally, and patent cases in particular, as often or more often than the average for all federal courts nationally.

I. Introduction

There have been some changes of late in convenience transfer law, especially as relating to patent infringement suits. The Eastern District of Texas has been the focal point for much of the judicial attention. Rulings on motions to transfer patent cases out of that district have risen slightly. In the twelve-month period ending June 30, 2009, there were thirty-two such rulings,¹ ten grants and twenty-two denials. The majority of these rulings, nine of the grants and sixteen of the denials, occurred in the later half of the period, very likely reflecting the accelerated pace of transfer motions in the wake of a Federal Circuit ruling on the subject of convenience transfers that came down on December 29, 2008.² However, as a proportion of total patent case terminations,³ including all settlements, transfers still occupy about the same portion as before, at 3.7%. Moreover, the success rate for a contested transfer motion has actually dropped slightly, to 31%.⁴

The recent spate of mandamus decisions from courts of appeals on convenience transfer rulings has triggered an inquiry into the transfer experience of a few prior years in patent cases. Has something happened that caused unease in the courts of appeal about venue choice in patent cases? In particular, was the Eastern District of Texas holding onto a disproportionate number of patent cases, or civil cases generally? This article investigates those questions.

The first recent appellate foray into the area, In re Volkswagen of America Inc.,⁵ known as Volkswagen II for reasons that will later become apparent, was a product liability action against a car manufacturer stemming from a highway accident in Dallas. The suit was properly brought in the Eastern District of Texas, but was transferred on convenience grounds to the Northern District by the Fifth Circuit sitting en banc.⁶ The second case, In re TS Tech USA Corp.,⁷ was a patent infringement action brought in the Eastern District of Texas against an Ohio-based auto parts vendor. The Federal Circuit ordered it transferred, again for convenience reasons, to the Southern District of Ohio.⁸ Since TS Tech the Federal Circuit has had further occasion to look at transfers by the mandamus route, as will be detailed herein.

These decisions raise important issues about the reach of a district court's discretion in deciding convenience transfers under 28 U.S.C. § 1404(a).⁹ They also raise the question of whether the Eastern District of Texas had been unduly holding onto patent and other civil cases. Here, the question is investigated through comparing the proportion of transfers out of that district, in patent cases and civil cases generally, to the proportions in other districts and the federal system as a whole.

The rulings in Volkswagen II and TS Tech attracted considerable attention in light of the large increase in the proportion of patent suits filed in the Eastern District of Texas in the last five years: rising from 20 filings (0.81%) in 2000,¹⁰ to 161 (6.0%) in 2005,¹¹ to 311 (11.2%) in 2008.¹² It is now the district with the largest number of patent suit filings in the United States.¹³ Adverse commentary and Congressional proposals to limit patent venue have followed.¹⁴

Some have observed in Volkswagen II and TS Tech that the judges in the Eastern District of Texas might be fueling increased filings through unreasonable and persistent refusal to transfer civil cases out of the district when requested by defendants.¹⁵ That view appears to lack basis. Information drawn from federal databases demonstrates that for fiscal years 2005, 2006, and 2001, the proportion of civil cases transferred out of the Eastern District of Texas was considerably higher than the national average for all federal districts.¹⁶ The proportion of patent cases transferred was also higher than the national average in 2005 and 2001, and nearly the same in 2006.¹⁷ In 2008 the results continued largely the same way, with transfers of civil cases generally, and patent cases in particular, significantly higher in the Eastern District of Texas than the averages for all districts.¹⁸

II. The Law of Venue

A. Venue in Civil Cases Generally

The current civil venue statute was enacted in 1988,¹⁹ amending prior law to specify that the residence of a defendant domestic corporation for venue purposes not only would be the state of incorporation, as before, but also any district with which the corporation had minimum contacts of the type that would be sufficient for in personam jurisdiction if that district were a separate state.²⁰ A foreign corporation can be sued, as before, in any district where the state-wide minimum contacts needed for in personam jurisdiction can be met.²¹

Given the operational scope of most large business entities today, the current corporate venue statute is often easy to satisfy in nearly every district. Businesses want their goods and services to be sold nationwide, in an attempt to do business everywhere. Techniques like internet advertising and online sales accentuate those wishes and add to a firm's contacts with all districts. While such contacts still need to meet a minimum threshold,²² most venue disputes involving large corporate defendants in practice come down to a decision on convenience transfer.

B. Venue in Patent Cases

Until 1988, patent venue was determined by the special venue provision of Section 1400(b) of the Judicial Code,²³ which was much more restrictive than the general venue statute. An accused patent infringer, then and now, could be sued in his state of residence, but residence was narrowly defined as only the state of incorporation.²⁴ Accordingly, most pre-1988 patent cases laid venue under the alternative provision of Section 1400(b), in a district where the defendant had a "regular and established place of business" and had committed at least one act of infringement.²⁵ In 1988 Congress amended the general venue provision, Section 1391, in a manner that clearly (though perhaps unintentionally) affected the patent venue provision as well. Congress redefined a corporation's residence "for purposes under this chapter."²⁶ A corporation's residence was now to be broadly defined as any district where it would have minimum contacts sufficient to support personal jurisdiction. This had the effect of mooting the special patent venue provisions, at least for cases filed against corporate infringers.²⁷ Plaintiffs no longer needed to invoke the alternative of regular and established place of business plus an act of infringement. Usage of that method vanished from the patent litigation scene.

Concomitantly, corporate defendants after 1988 sensed a heightened need to invoke the convenience transfer provision of the Judicial Code as the only viable way to escape a forum they did not like. The Eastern District of Texas was one such forum. It has almost uniformly been seen as more pro-plaintiff and more pro-patent than any other in the country,²⁸ a proposition I do not intend to challenge. Rather, the purpose of this article is to determine whether this district, perceived this way, has been harder to exit than other districts by the mechanism of convenience transfer.

III. The Holdings in Volkswagen II and TS Tech

A. Volkswagen II

Volkswagen II is popularly called by that name to distinguish it from the 2004 Fifth Circuit convenience-transfer mandamus case now known as Volkswagen I.²⁹ The two cases are unrelated. Volkswagen II was a product liability case brought by Ruth Singleton, the driver of a 1999 VW Golf, and by her husband Richard who was in the passenger seat. Both claimed their injuries sustained in a collision with another vehicle were due to the faulty design of their Volkswagen.³⁰ Their daughter Amy was also a plaintiff in the case. Amy was not in the car but claimed wrongful death of her seven-year-old daughter Mariana, who was killed in the accident.³¹ Volkswagen of America, a New Jersey corporation, and its parent, Volkswagen AG of Germany were named as defendants.

The Singletons' car was struck from behind by another vehicle on a Dallas highway.³² The impact spun the Volkswagen around and pushed it onto the highway shoulder, where it struck, rear first, a flatbed truck parked there.³³ The dual impacts were alleged to have pushed the grandfather Richard's seatback rearwards to a fully reclined position, where it crushed Mariana who was riding in back.³⁴ The little girl was taken to a hospital but died shortly afterward.³⁵ The other vehicle's driver, Colin Little, was not initially named as a party to...