In Re TS Tech USA Corp and the future of patent litigation in the Eastern District of Texas

A recent decision of the US Court of Appeals for the Federal Circuit may have changed patent litigation in 2009 and beyond. The 29th December 2008 ruling in In Re TS Tech USA Corp transferred a case from the Eastern District of Texas, a popular forum for patent-related lawsuits, to the Southern District of Ohio, and could result in a wave of transfers of actions that do not have the necessary nexus to the courthouse in Marshall, Texas.

Patent litigants should understand the history of the matter to craft a successful strategy in 2009.

Background
Plaintiff Lear Corporation (incorporated in Delaware but based in Southfield, Michigan) holds a patent relating to automobile headrest assemblies. Defendants TS Tech USA Corp, TS Tech North America, Inc (both Ohio corporations based in Reynoldsburg, Ohio) and TS Tech Canada, Inc (based in Ontario, Canada) make headrest assemblies for Honda Motor Co, Ltd. On 14th September 2007 Lear filed suit in the US District Court for the Eastern District of Texas claiming infringement and asserting that TS Tech had induced Honda to infringe Lear’s patent by selling the products in its vehicles.

Arguing that the evidence was predominantly located in Ohio and that party witnesses lived in Ohio, Michigan and Canada, on 27th December 2007 TS Tech filed a motion to move the case to the US District Court for the Southern District of Ohio. TS Tech also argued that none of the parties was incorporated in Texas or had offices in the Eastern District. Lear opposed, noting that Honda sold several vehicles with the allegedly infringing headrest assembly in the area.

The law gives the courts discretion to transfer cases “for the convenience of parties” or “in the interest of justice”, based on the particular circumstances of a particular case. When deciding whether to transfer venue, the courts must balance private concerns with public interests. The district court assessed the private concerns of: 

• the plaintiff’s choice of forum; 
• the convenience of the parties and witnesses; 
• the place of the alleged wrong; 
• the costs to secure witnesses or compel their testimony; 
• the accessibility and location of evidence; and 
• the possibility of delay and harm.

The court also weighed the public issues of: 

• the potential for court congestion; 
• local interest; 
• the unfairness of burdening citizens in an unrelated forum with jury duty; and 
• the avoidance of unnecessary problems in conflict of laws.

On 10th September 2008 Judge Ward found that most of these factors were neutral as to transfer and denied the motion. He held that the plaintiff’s choice of forum was a factor in the transfer analysis and entitled to deference and that, since the accused products were sold in the Eastern District of Texas, its citizens had “a substantial interest in whether acts of patent infringement have occurred in this District and in the State of Texas”. The court found that because most of the information was in electronic format, the ease of storage and transportation mitigates the access to evidence factor. In addition, since there were only four designated key witnesses, the burdens of travel were not severe enough to outweigh the other factors.

TS Tech subsequently filed a petition for a writ of mandamus (used only “to correct a clear abuse of discretion or usurpation of judicial power”), arguing that the district court ignored precedent and erroneously denied the transfer. The Federal Circuit granted the writ and held that the district court had clearly abused its discretion.

Federal Circuit analysis
The Federal Circuit applied the law of the US Court of Appeals for the Fifth Circuit, which governs district courts in Texas, Louisiana and Mississippi. In doing so, it relied on the 10th October 2008 decision in In Re Volkswagen of Am, Inc (commonly referred to as Volkswagen II), which evaluated a similar transfer issue. In Volkswagen II ,a product liability action initially filed in the Eastern District of Texas concerning allegations about a traffic accident that took place in the Northern District of Texas about 150 miles away, the Fifth Circuit similarly granted a writ of mandamus and transferred the case to a forum with more meaningful ties to the action.

In applying Volkswagen II, the Federal Circuit held that while the district court correctly appraised the issues of compulsory process, delay and prejudice, court congestion and which federal court was more appropriate (highlighting that both are capable of applying patent law), it erred in considering the plaintiff’s choice of forum as a distinct factor. The Federal Circuit held that under Fifth Circuit law, the plaintiff’s choice of forum is not a factor to be balanced in the analysis, but instead “corresponds to the burden that a moving party must meet in order to demonstrate that the transferee venue is a clearly more convenient venue”.

Distance is a key element
The Fifth Circuit also failed to give proper consideration to the costs for the witnesses who would need to travel more than 100 miles, stating “the factor of inconvenience to witnesses increases in direct relationship to the additional distance to be traveled”. Because the witnesses would need to travel over 900 miles to attend trial in Texas as opposed to trial in Ohio, the Federal Circuit found clear error in the lower court’s conclusion.

Location of evidence remains important
As to the availability of evidence, the Federal Circuit followed Volkswagen II in explaining that although technology makes the actual location of certain electronic records less critical, the factor is still important. It held that since the headrests and hard copies of documents were located closer to the court in Ohio, the district court failed to weigh this factor properly in favour of transfer.

Local interest in patent cases
The Federal Circuit also found error in the district court’s conclusion that the Eastern District of Texas has a “local interest” in the patent dispute because some allegedly infringing products were sold in that district. The Federal Circuit ruled that this reasoning “was unequivocally rejected by the Fifth Circuit in Volkswagen I and Volkswagen II”,and held that this factor should not have weighed against transfer.

From a timing perspective, the judge issued his decision to deny the defendants’ motion to transfer on 10th September 2008. The Fifth Circuit did not file its decision in Volkswagen II until 10th October 2008. Thus, the judge did not have the Fifth Circuit’s guidance on which to base his holding in TS Tech.

Evaluation and planning
With clear instructions from both the Fifth Circuit and the Federal Circuit, it appears that motions to transfer cases that have no meaningful relationship to the Eastern District of Texas could have a greater likelihood of success in the future. However, the Eastern District of Texas will continue to attract attention, and creative patent holders may seek to avoid venue disputes by establishing a presence there through locally registered subsidiary corporations that maintain an entity’s intellectual property. Whether such tactics will succeed, or whether the TS Tech decision will result in a reduction in the number of cases filed in the Eastern District, is unclear.

Both plaintiffs and defendants will need to focus on the analysis outlined in this case to ensure that appropriate courts evaluate their claims in the interest of fairness and judicial economy.