The Eastern District of Texas (E.D. Tex.)is well-known as being a difficult forum for foreign companies that have been named in a complaint there. Plaintiff's wanting to file patent infringement suits often head to the E.D. Tex. because of its streamlined schedule for patent infringement cases, and experienced technical judges. But for the most part, plaintiffs file patent suits in E.D. Tex. because its overwhelming tendency to favor the plaintiff patentee. Texan jurors don't look too kindly on foreign companies selling products in America and infringing a US patent. In order to avoid a likely finding of infringement, and an inflated damages verdict, many foreign companies attempt to file for a change of venue. Venue changes out of the E.D. Tex. are rarely granted. Until now.
On December 29, 2008, the Federal Circuit published its opinion in In re TS Tech USA Corp., in which the Federal Circuit overturned the E.D. Tex. denial of the defendant's request for a change of venue. Initially, the plaintiff filed suit in the E.D. Tex. alleging the defendant's pivotally attached vehicle headrest assemblies sold in cars throughout America violated its patent. The defendant requested a Section 1404(a) transfer of venue to the Southern District Ohio because most of the physical and documentary evidence were located there. In addition, the key witnesses all lived in Ohio, Michigan and Canada, making Ohio a more convenient forum for depositions. None of the parties were incorporated in Texas or had offices located in the E.D. of Tex. The plaintiff argued that the E.D. Tex. was the proper venue because the allegedly infringing products were sold in the E.D. Tex.
The district court denied the transfer, but the defendant filed a writ of mandamus to the Federal Circuit. This is a tool that is available in extraordinary situations to correct a clear abuse of discretion or usurpation of judicial power. The party applying must prove there is no other means of obtaining relief. Since this is not an issue of patent law - where the Federal Circuit has exclusive jurisdiction - the Federal Circuit applied the laws of the regional circuit in which the district court sits, in this case the 5th Circuit.
Under 5th Circuit law, a motion to transfer venue is granted upon a showing that the proposed venue is clearly more convenient. The 5th Circuit considers both "public" and "private" factors when making this determination.
The "private" interest factors include: (1)the relative ease of access to sources of proof; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practical problems that make a trial easy, expeditious and inexpensive.
The "public" interest factors include: (1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflicts of laws.
The district court held that a plaintiff's choice of venue is accorded deference and refused the request. However, the Federal Circuit held that the plaintiff's choice of venue relates to the burden of showing the proposed venue is clearly more convenient. Since plaintiff's choice of forum is not a public or private factor, and since 5th Circuit case law explicitly prohibiting as such, the district court afforded the plaintiff's choice of forum too much weight.
The 5th Circuit also held the district court was incorrect in assessing the cost of attendance for witnesses - one of the private factors. Fifth Circuit precedent holds that when the distance between the current venue and the proposed venue is more than 100 miles, the inconvenience to witnesses increases in direct relationship to the additional distance to be traveled. Applied to this case, the key witnesses are in Ohio, Michigan and Canada. This means the witnesses would need to travel 900 more miles to attend a trial in Texas than in Ohio. Since the district court found that it "was not persuaded to give great weight" to the inconvenience to the witnesses, the district courts refusal to give significant weight to the 100 mile rule was erroneous.
The 5th Circuit also held that the district court erred in the analysis of the "relative ease of access to sources of proof" factor. The district court held that this factor was neutral as to transfer, because many of the documents were stored online electronically. The district court concluded the increased ease of storage and transportation makes this factor much less significant. However, 5th Circuit law holds that this factor is not rendered superflous simply because "access to some sources of proof presents a lesser inconvenience now than it might have absent recent developments." Since all the physical and documentary evidence are near Ohio, the district court erred in not weighing this factor in favor of a transfer.
The 5th Circuit also found that the district court erred in analyzing the public factor of "having localized interests decided at home." Since the allegedly infringing products were sold throughout the United States, the citizens of the E.D. Tex. have no more or less of a meaningful connection to this case than any other venue. The 5th Circuit concluded that the district court erred by weighing this factor against the transfer.
This case is good news for foreign companies, since now there is more of a chance of having the venue transferred out of the E.D. Tex.
Tuesday, December 30, 2008
Monday, December 29, 2008
The Federal Circuit Limits the ITC’s Exclusion Order Authority
Titc-imagehe International Trade Commission (ITC) is an independent federal agency whose purpose is to protect American companies from foreign companies that attempt to import goods in an anti-competitive manner. For example, an American company can file a complaint with the ITC if a foreign company is importing goods they fear violate their patents. Pursuant to Section 337 of the Traffic Act of 1930, once a complaint is filed the ITC has 30 days to decide whether an investigation (a.k.a. "337 investigation") should be instituted. On only rare occasions will the ITC decline to investigate.
Vested with authority from 35 U.S.C. 1337(d), the ITC can issue two types of exclusionary orders prohibiting the importation of goods if the foreign company is found to be culpable: general exclusionary orders (GEO), and limited exclusion orders (LEO). An LEO prohibits only the parties involved in the investigation from importing infringing goods. By contrast, a GEO prohibits the goods from being imported from any party, even parties that are not included in the investigation. However, two exceptional circumstances must apply for the ITC to issue a GEO. The first circumstance is when a previously issued LEO is being circumvented (e.g., a named party simply pays a third party to import the goods). The second circumstance is when several complaints are filed regarding the same imported product, but the source is difficult to identify. Since it is much harder to show these two circumstances, most of the orders issued are LEOs.
Previously, the ITC has issued LEOs where the respondent manufactures an infringing component that is made and sold abroad and then assembled into a downstream product before finally being imported to America. Recently, the ITC has been issuing LEOs that not only exclude the component from importation, but also excludes the downstream product containing the component from importation. This allowed US patent holders to file a complaint against component manufacturers, even if they themselves didn’t import the component. Such was the case in Kyocera Wireless Corp v ITC.
In Kyocera Wireless Corp. v. ITC, the ITC issued an LEO to all downstream cell phone manufacturers that contained the Qualcomm chip found to infringe. This angered cell phone manufacturers who joined in on the remedy phase of the suit. The Federal Circuit, which has appellate review of the ITC, held that the ITC did in fact overstep its authority by issuing an LEO that excluded the downstream cell phone manufacturers from importing cell phones. The statute only allows an LEO to be issued against named respondents, so the cell phone manufacturers could not be affected by the LEO.
The Federal Circuit’s decision currently affects several other cases where a downstream manufacturer has been included in an LEO. In light of Kyocera, these manufacturers will likely seek a modification of those orders. As for the US patent holders, it’s likely that more complaints filed with the ITC will have more named respondents. Of course, it‘s also possible that the current economic downturn can spark legislative reform which could institute protectionist measures and broaden the leverage once held by US patent holders.
Vested with authority from 35 U.S.C. 1337(d), the ITC can issue two types of exclusionary orders prohibiting the importation of goods if the foreign company is found to be culpable: general exclusionary orders (GEO), and limited exclusion orders (LEO). An LEO prohibits only the parties involved in the investigation from importing infringing goods. By contrast, a GEO prohibits the goods from being imported from any party, even parties that are not included in the investigation. However, two exceptional circumstances must apply for the ITC to issue a GEO. The first circumstance is when a previously issued LEO is being circumvented (e.g., a named party simply pays a third party to import the goods). The second circumstance is when several complaints are filed regarding the same imported product, but the source is difficult to identify. Since it is much harder to show these two circumstances, most of the orders issued are LEOs.
Previously, the ITC has issued LEOs where the respondent manufactures an infringing component that is made and sold abroad and then assembled into a downstream product before finally being imported to America. Recently, the ITC has been issuing LEOs that not only exclude the component from importation, but also excludes the downstream product containing the component from importation. This allowed US patent holders to file a complaint against component manufacturers, even if they themselves didn’t import the component. Such was the case in Kyocera Wireless Corp v ITC.
In Kyocera Wireless Corp. v. ITC, the ITC issued an LEO to all downstream cell phone manufacturers that contained the Qualcomm chip found to infringe. This angered cell phone manufacturers who joined in on the remedy phase of the suit. The Federal Circuit, which has appellate review of the ITC, held that the ITC did in fact overstep its authority by issuing an LEO that excluded the downstream cell phone manufacturers from importing cell phones. The statute only allows an LEO to be issued against named respondents, so the cell phone manufacturers could not be affected by the LEO.
The Federal Circuit’s decision currently affects several other cases where a downstream manufacturer has been included in an LEO. In light of Kyocera, these manufacturers will likely seek a modification of those orders. As for the US patent holders, it’s likely that more complaints filed with the ITC will have more named respondents. Of course, it‘s also possible that the current economic downturn can spark legislative reform which could institute protectionist measures and broaden the leverage once held by US patent holders.
Sunday, December 28, 2008
ACTA negotiations are still ongoing
The Anti-Counterfeiting Trade Agreement (ACTA) is a proposed treaty that would significantly increase anti-piracy enforcement powers. The sweeping changes contained in the treaty are currently being discussed in a series of secret meetings between the United States, the European Community, Switzerland, Japan, Australia, the Republic of Korea, New Zealand, Mexico, Jordan, Morocco, Singapore, the United Arab Emirates and Canada. The Act was previously unknown until a draft unintentionally began surfacing at media outlets in May of 2008. The European Commission indicates that three rounds of negotiations have already taken place, and the fourth round was to start in mid-December.
From the information that has leaked, it seems that the ambitious goal of ACTA is to create a new international legal framework outside of the authority of the World Trade Organization (WTO), the World Intellectual Property Organization (WIPO) and even the United Nations. The premise is that the existing enforcement standard in the TRIPS Agreement has largely failed to prevent counterfeiting and international piracy. By increasing the penalties for not just the piracy of CDs, but for information distributed over the internet, the parties hope to discourage existing international piracy operations. The most controversial issue raised by the Act is a provision that forces ISP holders to divulge information regarding an alleged copyright infringer without a warrant. In this respect, the treaty is simply an extension of the Patriot Act.
The European Commission indicates that a final version of ACTA should be completed early in 2009. However, adoption of the treaty by the United States is far from likely. Several rights groups vehemently oppose the treaty claiming it violates privacy rights. This will likely be a big issue in 2009.
From the information that has leaked, it seems that the ambitious goal of ACTA is to create a new international legal framework outside of the authority of the World Trade Organization (WTO), the World Intellectual Property Organization (WIPO) and even the United Nations. The premise is that the existing enforcement standard in the TRIPS Agreement has largely failed to prevent counterfeiting and international piracy. By increasing the penalties for not just the piracy of CDs, but for information distributed over the internet, the parties hope to discourage existing international piracy operations. The most controversial issue raised by the Act is a provision that forces ISP holders to divulge information regarding an alleged copyright infringer without a warrant. In this respect, the treaty is simply an extension of the Patriot Act.
The European Commission indicates that a final version of ACTA should be completed early in 2009. However, adoption of the treaty by the United States is far from likely. Several rights groups vehemently oppose the treaty claiming it violates privacy rights. This will likely be a big issue in 2009.
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