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EMC's IP Wins Are Much Larger Victories
After Paul Dacier became EMC Corporation's first in-house attorney in 1990, he soon realized that the data storage company would need more than patents and lawyers to protect its intellectual property. It would have to become an aggressive litigant. Dacier was promoted to general counsel in 1993, the same year that Storage Technology Corporation sued Hopkinton, Massachusettsbased EMC. International Business Machines Corporation also had a pending suit against EMC.
"I thought, wait a minute, these guys are trying to eat our lunch," Dacier says. "And I realized that if we were going to survive, we'd need to be strategic and very aggressive on the legal side." EMC filed a countersuit for defamation against IBM, which dropped its case. Dacier's company also took StorageTek to trial, and won.
That's the moxie that EMC most recently unleashed against Oasis Research LLC, the patent troll that sued EMC and 17 other defendants almost three years ago in the Eastern District of Texas. One by one, the defendants have settled, with only EMC and Boston-based Carbonite Inc. holding out. (The settlement amounts are protected by confidentiality agreements.)
But EMC isn't backing down. On the contrary, twice now it's gone to the U.S. Court of Appeals for the Federal Circuit to challenge decisions issued
by U.S. Magistrate Judge Amos Mazzant, who is presiding over the suit. In the process, the company has won appellate rulings that clarify how judges in the Eastern District of Texas must handle infringement suits filed against multiple out-of-district defendants. And these precedents matter, because more patent suits are filed in the Eastern District than in any other district [see "An Unlikely IP Venue Regains Its Lead"].
Hewlett-Packard Company, Cisco Systems Inc., and Microsoft Corporation are among the tech giants that have filed amicus briefs in support of EMC in its Federal Circuit appeals. According to Gibson, Dunn & Crutcher partner Matthew McGill, who filed those briefs, "You can only make good law if you're willing to fight for the principle in which you believe, at least through the Federal Circuit and perhaps through the U.S. Supreme Court."
McGill continues, "That's a process that's fraught with risk, particularly for large companies. So I think that EMC should be applauded for that. A lot of companies get to free-ride on the hard work that they are doing and the risks they are bearingwhich is why so many companies filed amicus briefs in support of EMC."
Dacier says that his companywhich now focuses on offering cloud computing servicesis intent on seeing the Oasis suit through to the end. "Our philosophy is this: If you file a lawsuit against us, you've made a decision that you want to take us to trial," he explains. "We will litigate. And if we lose, we'll appeal. We'll protect and defend EMC's intellectual property rights and the livelihood of our employees as part of the strategic goals and overall objectives of the company."
When Oasis filed its suit in August 2010, it only had a superficial presence in the Eastern Districtjust a name on a door in Marshall, Texas, which was later exposed as an empty office in a July 2011 episode of National Public Radio's This American Life series.
Though the defendants knew little about Oasis when the case began, they soon learned that the small private company had ties to Intellectual Ventures Management LLC. Based in Bellevue, Washington, IV is one of the original nonpracticing entities (NPEs), as patent trolls are also known. Oasis acquired the patents from IV (which retained an interest in the outcome of the suit) just a month before filing the Eastern District case. John Desmarais and Alan Kellman of New Yorkbased Desmarais LLP, who represent Oasis, declined to comment for this story.
AT&T Inc., with headquarters in Dallas, was the only one of the deep-pocket defendants in Oasis's suit to be located close to the Eastern District. All of the other big defendants, including EMC, were based elsewhere, but Oasis was able to file in the district because it sued some smaller local companies to anchor the case. It alleged that all of the defendants offered products or services that infringed the same Oasis patents.
According to EMC deputy general counsel Krish Gupta, Oasis's tactic was a familiar one: lump together several competing companies and force them to defend a case in a forum far from their respective locales. "The model works because, as patent trolls hope, most of the defendants are going to want to quickly settle the case rather than have to spend hundreds of thousands of dollars to defend the action," says Gupta, whom Dacier credits with implementing the company's IP litigation strategy. "If you have a quick trial schedule and many defendants, it creates more pressure to settle." Dragging companies into a venue perceived as plaintiff-friendly just adds to that pressure, he says.
So too does the prospect of having to coordinate your defense with your competitors. "Everybody has confidential information, everybody has trade secret information, everybody has different ways of looking at the case," Dacier says. "It's logistically more challenging for everybody to get together and figure out a defense, and it's a way for the plaintiff to have an unfair advantage."
EMC decided that the best way to fight Oasis was to focus on the issue of joinderwhich parties can be properly joined as defendants in a single suit. The Eastern District of Texas has allowed patent holders to join multiple unrelated companies as defendants, so long as the same patents were involved, and even if the defendants sold different products or services. Under the America Invents Act, which became law in September 2011, joinder is now allowed only if all of the defendants offer the same product or process.
But defendants who were sued in the Eastern District of Texas before the AIA took effect must contend with the district's old rules. EMC had to come up with another way of addressing the joinder question. In November 2010 the company and several of its codefendants asked Judge Mazzant to sever claims against the companies and transfer them to more appropriate venues. EMC argued that even before the AIA, most of the U.S. district courts in the country permitted joinder only when the same product or process was involved.
For its counterargument, Oasis fell back on precedents in the Eastern District of Texas that allowed the company to sue multiple defendants as long as the same patents were implicated. Oasis further claimed that bringing all possible infringers into the same suit was the most efficient way of resolving its claims. Its lawyers at Desmarais wrote in the company's brief, "Defendants seek to have at least five district court judges construe the same claims of the same patents, consider the same invalidity arguments, and determine that similar services infringe the same claims of the same patents." Mazzant agreed with Oasis, and denied the defendants' motions in July 2011.
Two months later, EMC asked the Federal Circuit to overturn Mazzant's decision, repeating the argument that it had made unsuccessfully before the magistratethat joining multiple defendants was proper only when the same products or services were involved. In May 2012 a three-judge panel unanimously sided with EMC, ruling that in multiple defendant patent cases, joinder was not proper if different products or processes by the defendants were implicated. The panel then sent the case back to Mazzant and ordered him to reconsider the defendants' motions to sever.
News of the decision reverberated through patent defense circles. On the same day that the Federal Circuit ruling was announced, some of the more than 300 defendants sued by Geotag Inc. for patent infringement in the Eastern District of Texas offered up the panel's ruling as dispositive on their own motions to sever there.
The Oasis case had already been pending for two years when Mazzant reconsidered the motions to sever and transfer the claims against EMC and its codefendants. In August 2012 the judge agreed to sever the cases. But instead of transferring them to other districts, he consolidated them in the Eastern District for pretrial purposes, saying that it made no sense to send the cases elsewhere, given the length of time that they'd been pending before him.
Once again EMC appealed Mazzant's order to the Federal Circuit. The company claimed that it was the judge's erroneous decision on joinder and his delay on the transfer motions that kept the Oasis case in the Eastern District for so long. EMC also maintained that the court shouldn't be able to use that time lapse as a basis to prevent the defendants from litigating their cases in more convenient forums.
But Oasis argued that, regardless of any delay issue, the Eastern District remained the most convenient forum to hear the case, given that the company would be relying on witnesses and proofs that were located in the district. Oasis further added that EMC had not established that its forum of choiceUtahwas more convenient.
This time around, the same Federal Circuit panel agreed unanimously with Oasis in a January 2013 ruling. According to the panel, EMC was correct that courts should not delay in deciding transfer motions, which should be resolved very early on in a case. But in deciding those motions, courts should consider factors related to transfer, such as the location of witnesses and sources of proof as they existed at the time that a case was filed. Here, because Oasis had witnesses and other proofs in the district and no other district was more convenient, the Federal Circuit panel ruled that the company's case should remain in the Eastern District of Texas.
EMC's commitment has brought needed clarity to the standards for transfer in patent cases, according to Brian LaCorte, a Ballard Spahr partner who represented former defendant Go Daddy Group Inc. "What EMC did was help make it clear that venue issues have to be dealt with very early on in these patent cases," he says. "And establishing that the courts have to look at venue considerations that exist at the time the case was filed is an absolute that comes out of this case. That certainly wasn't the case in other cases following EMC's first petition, but will be now."
With $20 billion in revenue, EMC had the wherewithal to take on Oasis, an option not available to some of its smaller codefendants, such as Rackspace Hosting, an open cloud company based in San Antonio with $1 billion in revenue in 2011. Rackspace associate general counsel Mary Stich spoke about her company's litigation costs at a December 2012 workshop that the Federal Trade Commission held on the businesses that it referred to as "patent assertion entities." Stich said that Rackspace had been sued eight times by patent trolls in the past three years, and that 90 percent of its litigation expense in 2012 went to suits brought by trolls. Posing a rhetorical question, she asked, "Is a small business going to go to trial at a cost of over $2 million, or settle for, say, $100,000?" Indeed, Rackspace settled with Oasis in June 2011 for an undisclosed amount.
Even the larger companies in the Oasis case settledGoDaddy did so after the first Federal Circuit decision and while its motion to transfer its case to Arizona was pending before Judge Mazzant. "Parties settle for a variety of reasons," says LaCorte, who could not comment on his client's settlement because of confidentiality provisions. But he adds that he and his client "just commend EMC for staying with this fight. It would have been easy and less expensive for them to have accepted the hand they were dealt by the trial court, but they persevered."
EMC, which had just one patent when Dacier joined, now has 2,700 patents, and more than 3,000 pending. "We've been in every court in every major country in the world, and in many instances at the highest level of those courts," Dacier says. "And our executives, and our board, subscribe to the philosophy that we're going to protect our rights to the end."The company is particularly intent on defending its position in patent troll litigation, which is premised on a "fundamentally fraudulent" business model, according to Dacier. "When the founding fathers set up the Constitution, the legal system was designed to seek justice, not economics," he says. "Patent troll litigation has nothing to do with justice. It's an economic recovery."
But executives at nonpracticing entities maintain that economic recovery is exactly what validates their business model, which Nathan Myhrvold and Peter Detkin, the founders of Intellectual Ventures, prefer to call "invention capitalism." In a 2010 Harvard Business Review article, Myhrvold said, "What we're really trying to do is create a capital market for inventions akin to the venture capital market that supports start-ups and the private equity market that revitalizes inefficient companies."
At the recent FTC workshop on patent assertion entities, Detkin said, "We are pumping billions of dollars into the invention economy. We are buying from inventors big and small, and we haven't heard complaints from inventors that feel like we've unfairly capitalized upon their inventions."
EMC wasn't the first company to complain that it had been improperly sued by nonpracticing entities in the Eastern District of Texas. James Pistorino, a Perkins Coie IP partner who's followed patent filings in the district over the past few years, says that the Federal Circuit issued eight writs of mandamus ordering Eastern District judges to transfer cases elsewhere between 2008 and 2010. The Federal Circuit issued an additional three orders of transfer in 2011. (Perkins Coie does not represent EMC.)
Patent plaintiffs are attracted to the Eastern District for a number of reasons, according to lawyers who regularly practice in the venue. It has just six judges, three of whom handle the lion's share of the patent cases. Their views are not wildly variable, according to Pistorino. He adds that the district's method of case assignment gives plaintiffs lawyers some predictability about who will handle their cases. Matt McGill, the Gibson, Dunn & Crutcher partner who filed the amicus briefs in EMC's battle against Oasis, says that the Eastern District of Texas is also a venue where judges are known to favor trial over summary judgment, and where juries have handed down some eye-popping verdicts. Michael Smith of Marshall, Texasbased Siebman Burg Phillips & Smith further adds that the Eastern District is a venue where judges seem intent on holding on to their cases until told otherwise. (Smith, who regularly blogs about the district, represented defendant ADrive LLC in the Oasis case.) "Judges in the Eastern District are highly resistant to dumping work on somebody else," he says. "If it hits their docket, they will work the case until the law tells them to send it somewhere else."
What does set EMC apart is how hard it has fought to get out of the Eastern District. McGill says that EMC's decision to file two appeals in the Oasis case is rareand risky. "It's not an easy thing to file a mandamus petition, which is essentially directed toward your district judge, and it's quite rare to do it twice," he says. "But it reflects EMC's strongly held view that they should not be compelled to litigate this case in the Eastern District of Texas."
After the Federal Circuit's latest decision in January, EMC had to go back to the Eastern District to fight Oasis. EMC has pending motions for summary judgment, and trial dates have been set for March on the issue of inventorship and for August on the issue of infringement. Dacier says that while EMC is disappointed in the most recent Federal Circuit ruling, it respects the court's decision and is prepared to move ahead on the merits. The company's appeals were not for naught, he adds: "The Federal Circuit has established very good case law that will benefit EMC and other litigants going forward."
And if EMC's fight to have its case heard in the proper venue has also benefited its competitors by shaping the standards on patent suits, then so be it, says Dacier. "We're doing what we feel is right for us," he says. "We're here to defend the company."
But, Dacier continues, "you read in the paper every day about companies seeking to maximize their patents, whether wrongfully or rightfully. More companies should litigate these things. That's why the courts are there."