Pre-Trial Consolidation May Run Afoul of the America Invents Act

12 January 2015 IP Litigation Current Blog

The America Invents Act introduced a new statute, 35 U.S.C. § 299, which provides that “accused infringers may not be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, based solely on allegations that they each have infringed the patent or patents in suit.” In the years since its enactment, however, Section 299 has done little to change the way patent infringement cases are litigated. Instead of joining multiple patent defendants under Rule 20, district courts now often consolidate unrelated defendants for pre-trial purposes pursuant to Rule 42. Courts have reasoned that because Section 299 does not expressly refer to pre-trial consolidation, it is not prohibited. Although litigants have by and large accepted pre-trial consolidation as the new normal, the legislative history of Section 299 may indicate that this result is not what the drafters intended, and that advocates should think twice before going along with consolidation when it may be against their client’s best interests.

The Origins of Section 299

Section 299 was enacted to combat a trend among plaintiffs (principally non-practicing entities) of filing a single lawsuit naming numerous unrelated defendants selling unrelated accused products. Many felt (and Congress ultimately agreed) that this practice undercut the ability of defendants to mount individualized defenses, and made venue transfer difficult. The court in WIAV Networks, LLC v. 3COM Corp., No. 10-3448, 2010 U.S. Dist. LEXIS 110957 (N.D. Cal. Oct. 1, 2010) described the issue colorfully as: “[e]ach defendant has simply been thrown into a mass pit with others to suit plaintiff’s convenience.” Often, the practical result of joinder was that many defendants chose to simply settle at the nuisance value of the lawsuit rather than seek adjudication on the merits.

It was with these concerns in mind that Congress drafted Section 299. The Official Report of the House Committee on the Judiciary concerning the America Invents Act (No. 112-98) explains that the “Act [] addresses problems occasioned by the joinder of defendants (sometimes numbering in the dozens) who have tenuous connections to the underlying disputes in patent infringement suits.” The House Report further explains that Section 299 “effectively conform[s] [the district] courts’ jurisprudence to that followed by a majority of jurisdictions,” and cites Rudd v. Lux Prods. Corp., No. 09-6957, 2011 U.S. Dist. LEXIS 4804 (N.D. Ill. Jan. 12, 2011) as the prime example. In Rudd, the district court severed a joint patent defendant on the grounds that “a party fails to satisfy Rule 20(a)’s requirement of a common transaction or occurrence where unrelated defendants, based on different acts, are alleged to have infringed the same patent.” Significantly, the Rudd court also declined to order pre-trial consolidation under Rule 42, determining that “[t]he Court has already concluded that [defendant] was misjoined, and declines to consolidate [defendant] with this case.”

Senator Jon Kyl, a member of the Senate Judiciary Committee, provided critical insight into the legislative history of Section 299 in his remarks on the floor of the Senate on September 8, 2011, shortly before the America Invents Act was signed into law. The original bill presented to the House of Representatives on March 30, 2011 did not contain Section 299, but Senator Kyl was one of the Senators who negotiated its inclusion. Senator Kyl explained that Section 299 was originally written without reference to “consolidation for trial,” and that the reason this clause was added was to ensure that, where Rule 20 joinder was prohibited at the outset of a litigation, defendants would not subsequently be joined for trial under the less stringent test for consolidation under Rule 42:

H.R. 1249 as introduced applied only to joinder of defendants in one action. As amended in the mark up and in the floor managers’ amendment, the bill extends the limit on joinder to also bar consolidation of trials of separate actions. When this change was first proposed, I was skeptical that it was necessary. A review of legal authority, however, reveals that under current law, even if parties cannot be joined as defendants under rule 20, their cases can still be consolidated for trial under rule 42…If a court that was barred from joining defendants in one action could instead simply consolidate their cases for trial under rule 42, section 299’s purpose of allowing unrelated patent defendants to insist on being tried separately would be undermined. Section 299 thus adopts a common standard for both joinder of defendants and consolidation of their cases for trial.

Although Senator Kyl did not expressly address pre-trial consolidation, his remarks show that the “consolidated for trial” clause of Section 299 was not added to endorse pre-trial consolidation, but rather to shore up what was perceived as a loophole by which previously un-joined defendants could be effectively joined for trial. The most likely reason that Congress did not expressly address pre-trial consolidation was that, prior to Section 299′s enactment, the primary method for combining multiple defendants before trial was joinder under Rule 20 – not consolidation under Rule 42. It was only in reaction to Section 299 that pre-trial consolidation came into widespread use. A fair reading of Section 299 in light of the legislative history is that Congress intended to prevent wholesale combination of unrelated defendants by any procedural device at any point in litigation. Indeed, if Congress had intended to allow unrelated defendants to be combined during the pre-trial phase, Section 299 could simply have been written to require severance of joined actions prior to trial. Furthermore, given how few patent cases even go to trial, it is not unreasonable to infer that Congress intended Section 299 to govern the vast majority of cases that never get beyond the pre-trial stage.

Complete Consolidation, Partial Consolidation, Coordination and Centralization

Some of the confusion surrounding the application of pre-trial consolidation is rooted in a definitional problem. Whereas joinder under Rule 20 implies that the defendants will engage in joint discovery and conduct joint briefing, consolidation under Rule 42 can be implemented in a variety of ways. A district judge might order “complete consolidation,” which is the functional equivalent of Rule 20 joinder. Alternatively, a district judge might order only partial consolidation, allowing the parties to conduct some amount of their own separate discovery and briefing. Further down the spectrum is “coordination,” in which the district judge will oversee multiple cases in parallel, but not require any joint activity. The umbrella term for both consolidation and coordination is “centralization.”

It was not long after the enactment of Section 299 that the question of combining unrelated defendants was put to the Judicial Panel on Multi-District Litigation (JPML) in the context of a multi-jurisdictional action. In In re Bear Creek Techs., Inc., 858 F. Supp. 2d 1375 (J.P.M.L. 2012), the JPML made clear that it did not view Section 299 as precluding centralization of multi-jurisdictional cases in front of a single district judge based solely on the fact that the same patent(s) are asserted. However, the JPML expressly stated that it would leave the decision of whether and how to consolidate or coordinate cases to the district courts. Apparently not appreciating this distinction, some district courts have simply interpreted In re Bear as authorizing pre-trial consolidation. See, e.g., Cellport Sys. v. BMW of N. Am., No. 14-1631, 2014 U.S. Dist. LEXIS 170092 (D. Colo. Dec. 9, 2014).

Other district courts have ruled that Section 299 does not preclude pre-trial consolidation because such a result would make it harder to manage court dockets. For example, in Unified Messaging Solutions, LLC v. United Online, Inc., No. 13-343, 2013 U.S. Dist. LEXIS 63316 (N.D. Ill. May 3, 2013), the court reasoned that “coordination [rather than consolidation]…would thwart the court’s ability to manage the present litigation by transforming each case into an individual action circumventing [] uniform rulings and judicial efficiency…[P]retrial consolidation does not run afoul of Section 299(a)’s prohibition of consolidating accused infringers for the purposes of trial because the court will ultimately remand the transferred cases after the pretrial proceedings conclude.”

While partial pre-trial consolidation would seem to be within the district courts’ discretion, it is difficult to reconcile complete pre-trial consolidation with the prohibitions of Section 299, particularly in light of the statute’s legislative history. The Supreme Court observed in Adams Fruit Co., Inc. v. Barrett, 494 U.S. 638 (1990) that “[a]s a general rule of statutory construction, where the terms of a statute are unambiguous, judicial inquiry is complete.” Here, Section 299 prohibits pre-trial joinder. If complete consolidation under Rule 42 is nothing more than joinder by another name, logic would dictate that it is prohibited by the statute, or else compliance with the law would turn on a simple word game.

Handling a Consolidation Order

A defendant confronted by a consolidation order should ask itself whether consolidation is in its best interests. This will usually hinge on several factors, such as: (1) the uniqueness of the defendant’s accused technology, (2) whether the defendant is likely to want different claim constructions than the other defendants, (3) how much discovery the defendant expects to need, (4) the defendant’s budget, (5) how much the defendant has at stake in the litigation, (6) whether the defendant would prefer the litigation to be expedited or not, and (7) the defendant’s views on participation in joint defense groups. Plaintiffs, too, may find that consolidation is not desirable, particularly if the facts and circumstances surrounding their filed cases are highly dissimilar.

Often, district courts will order pre-trial consolidation of parallel patent suits at the outset of a case without specifying the extent of the consolidation (i.e., the degree to which the defendants will have to engage in joint discovery and joint briefing). For example, the standard form scheduling order used in consolidated cases in the Eastern District of Texas does not explicitly state whether discovery and briefing is to be conducted jointly (though it does specify uniform deadlines). The judge may clarify the intended scope of consolidation at the initial scheduling conference, but if the question remains unresolved, parties interested in seeking de-consolidation should consider filing a motion before the issue is deemed waived. It may be more palatable to a given judge to seek only partial de-consolidation, such as by requesting a certain amount of additional discovery and/or a certain number of extra pages for briefing. Given the weight of evidence suggesting that Congress did not intended complete pre-trial consolidation to replace joinder, practitioners would do well to explore options for objecting to pre-trial consolidation, which will at least preserve the issue for appeal.

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