Federal Circuit Decision Indicates There Will Be More Scrutiny of Venue in East Texas

05 January 2009 Publication

Legal News Alert: IP Litigation

On December 29, 2008, the U.S. Court of Appeals for the Federal Circuit ordered the U.S. District Court for the Eastern District of Texas to transfer a patent infringement case to the Southern District of Ohio. The decision, In re TS Tech USA, 2008 WL 5397522 (Fed. Cir., Dec. 29, 2008) (TS Tech), is sure to be one of the most-cited patent cases in the Eastern District of Texas this year and may trigger an increase in transfer motions as well as a decline in patent infringement filings in that court.

The Eastern District of Texas is among the most popular courts in the country for filing patent infringement cases. The court has a reputation for being favorable to patent owners and reluctant to transfer cases to other judicial venues. As a result, plaintiffs frequently file infringement actions in that court despite tenuous connections to that forum.

TS Tech may cause some patent owners to think twice about filing in that district. In the case, the Federal Circuit held that the district court “clearly abused its discretion in denying TS Tech’s motion to transfer venue pursuant to 28 U.S.C. § 1404(a).” Section 1404(a) provides that, “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.”

Federal courts in Texas are required to apply a multi-factor test to determine whether transfer is appropriate. “Private interest” factors include: (1) ease of access to sources of proof; (2) availability of compulsory process to secure the attendance of witnesses; (3) cost of attendance for willing witnesses; and (4) all other practical problems that make a trial easy, expeditious, and inexpensive. “Public interest” factors include: (1) administrative difficulties flowing from court congestion; (2) the interest in having local issues decided at home; (3) familiarity of the forum with the law that will govern the case; and (4) avoidance of unnecessary problems of conflicts of laws [or in] the application of foreign law.

In TS Tech, the lawsuit had virtually no connection to the Eastern District of Texas. None of the parties was incorporated in Texas or had offices in the Eastern District of Texas. All of the key witnesses and the vast majority of physical and documentary evidence in the case were located in Ohio, Michigan, and Canada. The only connections between the lawsuit and the Eastern District of Texas appeared to be the sale of some of the infringing products in that district and the plaintiff’s decision to file suit there.

The Federal Circuit found it was a clear abuse of discretion to deny transfer based on those facts. In the Federal Circuit’s view, the district court gave too much weight to the plaintiff’s choice of venue, and the fact that some infringing products were sold in the district was irrelevant because the products were sold throughout the United States, giving all states’ residents an equal interest in the suit. The Federal Circuit wrote that the district court “glossed over the fact that not a single relevant factor favored the plaintiff’s chosen venue.”

The Federal Circuit’s decision comes on the heels of a similar decision by the Fifth Circuit Court of Appeals in October 2008. In In re Volkswagen of America, Inc., 545 F.3d 304 (5th Cir. 2008) (Volkswagen), the Fifth Circuit ordered the Eastern District of Texas to transfer a product liability case to another district in Texas because “not a single relevant factor” favored keeping the case in the Eastern District. Because the Eastern District of Texas is located within the Fifth Circuit, the Federal Circuit applied the reasoning of Volkswagen in deciding TS Tech.

While TS Tech is likely to increase the number of transfer motions in the Eastern District of Texas and affect the number of patent cases filed in that court, just how dramatic the impact will be remains to be seen. Patent owners contemplating lawsuits with virtually no connection to Texas, however, may consider filing elsewhere. Other fora that may benefit from a move away from East Texas include the Western District of Wisconsin and the U.S. International Trade Commission with their fast-moving dockets.

Limited evidence to date suggests that TS Tech is unlikely to cause a sea-change in the thinking of Eastern District of Texas judges. Since the Volkswagen decision, there have been four published decisions by the Eastern District involving motions to transfer, and all of those motions were denied.

Nevertheless, TS Tech appears to give some hope to defendants seeking to escape the Eastern District of Texas and may give pause to patent owners shopping for what they perceive as a favorable forum.

If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or:

Jeffrey A. Simmons