Federal Circuit Orders Transfers Verizon out of Eastern Texas

Earlier today the United States Court of Appeals for the Federal Circuit granted the petition for writ of mandamus filed by Verizon, AT&T and Qwest Communications. See In re Verizon. The dispute arose initially when Red River Fiber Optic Corporation filed a patent infringement lawsuit asserting that the defendants’ end-to-end fiber optic transmission systems infringe U.S. Patent No. 5,555,478, entitled “Fiber optic information transmission system.” According to Red River it is “a Texas corporation that exists to improve the state of technology by licensing…”

Red River, a company incorporated in Texas, brought the lawsuit in the Eastern District of Texas, which is a good strategy for plaintiffs since they rarely, if ever, transfer cases, push for cases to settle or resolve them in a timely manner prior to trial. The trouble for Red River, among many other things, was the lack of a coherent geographical identity. At first they explained that their principle place of business was in Oklahoma, but had recently been recently relocated to Marshall, Texas, in what seems an obvious attempt to create the Eastern District as a proper venue for the litigation. However, in the papers they filed at the Federal Circuit they explained: “If this Court concludes that Red River’s Marshall-based location and documents are not entitled to any weight, it should also conclude that Red River, for transfer purposes, is located in Oklahoma.” I can only imagine what the judges must have thought, but is sure seems to me as if Red River and its attorneys were too cute by at least half.

In any event, to move along with the story — based on what I hear in my travels and discussions it seems pretty clear to me that the view of many, if not most, in the industry is that the Eastern District of Texas is a rogue court. The perception is that the court likes patent infringement trials, and I have heard some even go so far as to say that they feel this is because patent trials bring a lot of business to the community. Regardless of whether that is true, I can tell you I have heard it from numerous people, and it is fair to observe that at some point reality ceases to matter. When perception is overwhelming, and there are reasons to cause reasonable people to question what is going on, that perception starts to becomes reality for all intents and purposes. Such a reputation does nothing to promote the idea of judicial neutrality, particularly given the peculiar rulings that sometimes seems to be flat out incorrect interpretations of procedural rules. In addition to motions to transfer, which are largely based on discretion, I have personally never been able to explain an intellectually satisfying reason for the Eastern District allowing tens of dozens of defendants to be joined in a single action with the sole nexus being the asserted patent. If those cases get transferred out the first thing that typically happens is the transferee district courts issues an order to show cause why the cases shouldn’t be severed.

The Federal Circuit has recently seemed to attempt to reign in the Eastern District of Texas, with limited success really. For example, on December 29, 2008, the Federal Circuit issued what seemed to be an extremely important decision in In re TS Tech USA Corp. In this case TS Tech filed a petition for a writ of mandamus with the Federal Circuit, requesting that the United States District Court for the Eastern District of Texas be ordered to transfer the case to a more appropriate venue. In reality, any venue would have likely been more appropriate than the Eastern District of Texas, which seems to have had absolutely nothing to do with the dispute between the parties other than it being an extremely plaintiff friendly court. But the thing that seemed to upset the Federal Circuit most was that the district court in TS Tech simply ignored the so-called “100 mile rule,” which states that when the distance between an existing venue for trial of a matter and a proposed venue is more than 100 miles, the factor of inconvenience to witnesses increases in direct relationship to the additional distance to be traveled. In this situation the witnesses would need to travel 900 more miles to attend trial in Texas than in Ohio.

It would have seemed that the Eastern District should have gotten the message, but it seems that it will be necessary for the Federal Circuit to micromanage the docket for the Eastern District in order to make sure that they only hear cases that are at least in some way actually tied to the district.

With respect to Verizon et al, the petitioners moved to transfer the case to the Northern District of Texas, Dallas Division, which is approximately 150 miles away from the Eastern District of Texas, Marshall Division. The motion was initially denied by a Magistrate Judge. In his decision, the Magistrate agreed with the petitioners that the Northern District of Texas, Dallas Division would likely be more convenient for the parties and the witnesses, and he even noted that a number of party witnesses resided within 100 miles of Dallas and no witness resided within 100 miles of Marshall, Texas. Let’s let that sit for a moment, shall we? It was determined that the Northern District would be more convenient for the parties and witnesses and that not a single witness lived within 100 miles of the Eastern District of Texas, yet the motion to transfer was denied? Unbelievable!

So what was the alleged hook that kept this patent infringement case in a place where there was absolutely no nexus? The Magistrate determined that judicial economy favored maintaining this suit in Marshall, Texas. The Magistrate noted that the court had previously handled a lawsuit involving the same patent and had construed 25 of the patent’s terms. But that lawsuit settled back in 2003. That, of course, didn’t matter, and neither did the intervening reexamination by the United States Patent and Trademark Office that would largely, if not completely, render any previous claim constructions moot.  Additionally, such a rule would mean that wherever the patent is first litigated would be the venue of preference for ever more regardless of how inconvenient it is to the parties and witnesses, and regardless of whether there is even a single witness is located within 100 miles of the court, and regardless of whether the witnesses are within the subpoena powers of the Eastern District.

In a matter like this the Federal Circuit does not apply unified patent law because the matter is one of procedure. Because it is a patent case it must get appealed to the Federal Circuit, who applies the law of the regional circuit on the procedural matters. In this situation that is the law of the Fifth Circuit, and the leading case is In re Volkswagen of America, Inc., 545 F.3d 304, 310 (5th Cir. 2008).

In Volkswagen, the Fifth Circuit sitting en banc granted mandamus and determined that a significant number of witnesses and parties were located within 100 miles of the Dallas Division and could be deposed and testify without significant travel or expense, while no witness or party was located within the Marshall Division. The Fifth Circuit held that the trial court’s denial of transfer was patently erroneous, in part because every witness would be required to expend significant time and cost to attend trial. Judge Linn pointed out that in many respects the Volkswagen case is nearly identical to the Verizon matter.

First, the Federal Circuit noted that not only would the Northern District of Texas be far more convenient and fair for witnesses, but “many witnesses reside within 100 miles of the Dallas Division and so they would be subject to the Northern District’s subpoena powers.”

Next, the Federal Circuit explained that because the previous lawsuit settlement more than five years before this present lawsuit was even filed the Eastern District would have to relearn a considerable amount based on the lapse in time between the two suits and would have to familiarize itself with reexamination materials that were not part of the record during the previous suit.

Finally, the Federal Circuit reiterated what it said in In re Vistaprint Ltd., namely that once a patent is litigated in a particular venue the patent owner will not necessarily have a free pass to maintain all future litigation involving that patent in that venue.   The Vistaprint case was distinguished by Judge Linn because in Vistaprint there was a co-pending litigation before the district court, which would create a real and meaningful judicial economy argument that simply is not present in the Verizon litigation.

In the end, the Federal Circuit granted the writ of mandamus and the patent litigation will be transferred to the Northern District of Texas.  Now we are left to wonder how many more times will this type of thing happen, and how crowded will the Federal Circuit docket get with writs of mandamus challenging obviously incorrect legal rulings from the Eastern District of Texas.


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