SAN FRANCISCO — There’s a new move for patent litigators doing the venue dance.
And lawyers at McKool Smith are busting it out for a patent holder that wants its suits against major tech firms and retailers grouped together and litigated in Texas.
After seeing some cases kicked out of the Eastern District of Texas and sent to the defendants’ home jurisdictions in San Jose and New York, McKool Smith is vying to get its suits back in the Lone Star state, but this time designated as multidistrict litigation.
Lawyers for the 19 defendants are crying foul.
In a joint opposition brief, lawyers for Apple Inc., Amazon.com, Facebook Inc., Google Inc. and Yahoo Inc. argued that merging the matters brought by Droplets Inc. would circumvent provisions in the 2011 America Invents Act designed to clamp down on single lawsuits against multiple companies.
The dispute provides a case study in patent litigation post-AIA and signals that fights over venue will increasingly land in front of an MDL panel that hasn’t traditionally seen many patent cases.
In its most recent session, the Judicial Panel on Multidistrict Litigation considered Droplets’ request to move its cases to a single judge in Dallas. McKool Smith lawyers argue that consolidation makes sense since the cases involve the same patents and similar infringement theories.
The MDL panel heard arguments Nov. 29 and has not yet ruled on the motion.
Regardless of what the panel decides, it is poised to assume a greater role in patent cases. The rise is the combined result of the AIA’s limits on joinder and recent Federal Circuit case law making it easier to transfer cases out of the notoriously sticky Eastern District of Texas.
More filings against individual defendants means more cases scattered to multiple jurisdictions and more district judges potentially ruling on the same complex and technical patents. It all adds up to a sure recipe for pretrial consolidation as an MDL, said lawyers monitoring the trend.
“Are you going to see more MDLs in light of the AIA? Yes,” said Yar Chaikovsky, a patent litigator at McDermott Will & Emery. “Once you have cases in three different venues, you have a pretty decent argument for an MDL.”
It’s not just plaintiffs using the process strategically, Chaikovsky said. For instance, turning to the MDL panel can be a “get out of jail free card,” he said, for defendants looking for a way out of the Eastern District of Texas, famously viewed as an undesirable jurisdiction to fight patent suits.
But patent lawyers point out that petitioning for an MDL is also a gamble because the panel can send cases anywhere in the country, regardless of whether related cases are pending in that jurisdiction.
Meanwhile, in the Eastern District of Texas, Chief Judge Leonard Davis has crafted an approach to keep control of the district’s mammoth patent docket in the wake of recent reforms.
He laid out his procedure in Norman IP Holdings v. Lexmark International, 11-495. His August order severed some defendants as required by the America Invents Act but consolidated the newly split cases for pretrial issues.
“It does not make sense for two courts to plow the same ground,” Davis wrote.
Davis said he would rule later on transfer motions and stay transfers until after the critical claim construction phase of the case when judges construe the terms of a patent.
“It’s like a mini-MDL. It applies MDL principles to the AIA’s requirement that all these cases be filed separately,” said Matthew Powers of Tensegrity Law Group, a plaintiffs-side law firm. “I think it’s clever.”
Lawyers who defend clients against nonpracticing entities, or so-called patent trolls, in the Eastern District of Texas had a different take on the Norman IP ruling. One lawyer called the order from “King Judge Davis” “a scary thing” for defendants in patent cases.
It’s conventional wisdom that patent lawsuits targeting numerous companies become unwieldy and difficult to defend. Meanwhile, it is cheaper and easier for plaintiffs to pursue litigation when a case is consolidated.
Congress attempted to address the imbalance with a provision in the America Invents Act tightening joinder rules. However, splitting up infringement cases has created new problems for parties and judges — problems that pretrial consolidation as an MDL can solve, said Edward Reines, a patent litigator at Weil, Gotshal & Manges and chair of the advisory council for the U.S. Court of Appeals for the Federal Circuit.
“You want consistency, you want judicial economy. You want coordination,” he said.”Pre-AIA, plaintiffs were suing 10 companies in one case and putting one or two Texas companies in there, so there would be enough connection to keep the case in Texas. Under the AIA, there’s been more scattering,” Reines said. “But let’s say, each of the 10 cases gets sent to a different court and you have 10 different district judges handling claim construction. That’s not satisfying either.”
a case study
Plano, Texas-based Droplets holds two patents related to the delivery of information from a remote source over a server. It has three employees, according to court records.
In 2011, Droplets filed three lawsuits in the Eastern District of Texas accusing companies in the online, retail and financial sectors of infringing its patents with systems that present material like maps or stock quotes to users after retrieving it off a separate server.
Ultimately, suits against Nordstrom, Williams-Sonoma and several high-tech companies landed before judges in the Northern District of California. Meanwhile, a case naming E-Trade Financial Corp., The Charles Schwab Corp., Scottrade Inc. and other financial firms was transferred to the Southern District of New York.
In August, Droplets filed its motion with the MDL panel seeking transfer to the Northern District of Texas, close to its lead lawyer, Theodore Stevenson III in the Dallas office of McKool Smith.
Michael Levin of Wilson Sonsini Goodrich & Rosati, who represents E-Trade in the New York case, likened the tactic to “what golfers call a ‘mulligan’: an attempt for a ‘do-over’ on an issue they have already lost.”
“Requests for centralization should not be used as a second opportunity at forum shopping after the district courts have already expended judicial resources, and defendants have borne the burden and expense of transferring cases to appropriate forums,” Levin wrote in a brief opposing centralization.
In the event an MDL is created, defendants argued the case, In re Droplets, 2403, should be transferred to New York or California.
“Transfer of the Droplets actions back to Texas — after they were transferred out of Texas — would undermine Congress’ policy and due process goals,” stated a brief filed on behalf of the California defendants.
Droplets lawyer Stevenson called it “good case management” to consolidate patent cases for discovery and claim-construction, or Markman, hearings.
“I can understand why everyone wants a bite at the apple for their own client, but at some point you have to take into account judicial economy,” Stevenson said.
Turning to the MDL panel is not forum shopping because parties cannot control where the case winds up, Stevenson said. And cases are ultimately sent back to home districts for trial so “it doesn’t get you a different jury,” he added.
“I don’t think it’s that strategic of a weapon,” he said. “It’s really a cost reduction and efficiency enhancer.”
Congress created the MDL panel in 1968 to determine whether similar civil actions pending in different federal districts should be centralized and transferred to one judge for coordinated pretrial proceedings.
The panel consists of seven sitting federal judges from different judicial circuits appointed by the chief justice of the United States. U.S. District Judge Charles Breyer of San Francisco was appointed to the panel earlier this year.
The bulk of matters considered for MDLs are mass tort claims, including product liability suits against drugmakers, where thousands of cases might be filed across the country.
Another big area involves antitrust cases, such as the massive MDL over alleged price-fixing in the market for thin-screen LCD panels being handled by U.S. District Judge Susan Illston in San Francisco.
Patent cases have traditionally been a minor category of cases. Of 284 open MDL dockets, just 18 are patent cases.
But the judges of the MDL panel have been paying attention to recent shifts and seem to be gearing up for more patent-related matters.
Last month, several member judges participated in a forum sponsored by the State Bar of Texas that included topics like “What Patent Litigators Need to Know about MDL” and “To MDL or Not to MDL: Views from the Trenches.”
Including Droplets, the MDL panel reviewed 11 requests related to patent litigation in 2012 and granted seven. An additional motion, filed in November, is being briefed.
By comparison, the panel authorized two patent MDLs in 2010 and five in 2011.
Perhaps as expected, plaintiffs seem to be pursuing centralization slightly more often than those sued for infringement. Of the 12 patent MDL petitions this year, plaintiffs initiated eight matters, compared to four motions filed by defendants.
Notably, in every 2012 case where a patent holder’s request for centralization was granted, the matter was sent to a venue favored by defendants. Since the America Invents Act, no patent MDLs have been sent to the Northern District of California.
Powers said the MDL option has benefits that appeal to plaintiffs and defendants in patent cases, depending on the circumstances.
“From the plaintiffs point of view, you don’t want six different claim construction rulings. It’s a way of consolidating cases,” he said. “If you’re a defendant and don’t want to be where you are, it gives you a basis to get in a different court.”
But it does involve an element of risk, Powers said. “You don’t control which court. You may or may not get to a court you want.”