Sunstein Kann Murphy & Timbers LLP

March 2009 IP Update

It May Now Be Harder to Keep Patent Lawsuits in Texas

T he Federal Circuit's decision in TS Tech this winter prompted many patent defendants to try their best to escape the warm Texas sun for the blizzard conditions of places like Michigan and Oregon. This may puzzle those of us who, in the doldrums of March, crave nothing more than a stretch of nice weather. However, given the perceived plaintiff-friendliness of the Eastern District of Texas, not to mention its aggressive case schedules, patent defendants will take winter fatigue over E.D. Texas any day of the week.

The Hatch-Waxman Act rewards makers of generic drugs for the risk and expense of litigating challenges to a pioneer drug company's patents: 180 days of exclusive marketing rights, if the patent challenge succeeds. Procedurally, the generic drug maker files an abbreviated new drug application (ANDA) for drugs that are the bioequivalent of previously approved drugs.

When the approved drug is covered by patents still in force, the ANDA filer submits a so-called Paragraph IV certification, declaring that those patents are invalid. This declaration is itself an act of infringement, entitling either party to commence an infringement lawsuit. Increasingly, pioneer drug companies have settled such litigations with reverse payments. See our May 2008 article.

The courts have taken conflicting views of such payments. The FTC and at least one appeals court regards them as per se antitrust violations. Other courts, applying a "rule of reason," believe that, as long as the pioneer drug company does not seek to expand the scope of its patent through the settlement process, reverse payments do not offend the antitrust laws. See our December 2008 article.

The prevailing wisdom before TS Tech was that a defendant's winning a transfer out E.D. Texas was about as likely as shoveling snow off the Marshall courthouse steps. This is chiefly because the plaintiff's mere choice of E.D. Texas dominated the court's transfer analysis.

Not only was the plaintiff's forum choice respected by shifting the burden to the defendant to prove that another court would be "clearly more convenient," the court would also count the plaintiff's forum choice as an affirmative factor weighing against transfer. The bottom line was that some cases with little connection to E.D. Texas could resist transfer, largely on the strength of the plaintiff's forum choice alone.

TS Tech was one such case that did not have much connecting it to Texas, as the parties, witnesses, and evidence were in Toronto, Michigan, and Ohio. When the district court denied a transfer, the defendant sought a writ of mandamus, a rare procedure available before a final judgment to urge an appeals court to control a lower court's abuse of discretion.

The Federal Circuit, applying a recent Fifth Circuit en banc decision in In re Volkswagen, decided that the district court in fact abused its discretion, and cited the overweighting of the plaintiff's forum-choice among the indications. The appeals court held that the case was rightly to be transferred to the Southern District of Ohio, which was roughly 900 miles more convenient for everyone involved.

In the wake of TS Tech, a number of transfer motions have been filed, as patent defendants believe they have finally found their ticket for escaping the beautiful weather and Gulf Coast beaches of Eastern Texas. As a result, E.D. Texas has issued a number of decisions in the past couple of months, and from them, a rough pattern has emerged.

Where the cases are regional - that is, where the evidence, parties, and witnesses are geographically clustered in a particular region far from Texas - there is a good chance that another court will be deemed more convenient for everyone, and the case will be transferred. For example, in Odom v. Microsoft, the case was transferred to Oregon because the parties and witnesses were all in Oregon and Washington.

Where, however, the scope of the case is national - that is, where the evidence, parties, and witnesses are spread out - transfer merely redistributes the inconvenience. For example, in Novartis v. Hoffmann-La Roche, the court denied transfer to North Carolina because the added convenience to the East Coast parties and witnesses was offset by the added inconvenience to the parties and witnesses on the West Coast.

Given this development in the case law, there is a clear incentive for prospective plaintiffs who want to stay in E.D. Texas to engineer their cases to be un-transferable by suing (if practicable) a number of defendants to create a national case out of a collection of what may otherwise be seen as regional cases.

A recent example of this is MHL Tek v. Nissan, in which Judge Ward declined to transfer a case brought against twenty or so auto makers hailing from the U.S., Europe, and Asia. Had the plaintiff sued just Audi, whose offices are in Germany and New Jersey, it may have been challenging to keep the case in Texas. But since the plaintiff also sued Nissan, whose offices are in Japan and California, the motion to transfer was denied.

While TS Tech has caused a significant change in climate, it remains to be seen what effect it will have on E.D. Texas's reputation as a prime port o' call for patent litigation. It would not be surprising, however, if it becomes an even hotter destination for certain types of complex patent cases because, as regional cases get shipped out, the court will have more resources to focus on the national-scope cases that remain.

In the meantime, defendants in patent cases involving dispersed parties and evidence may as well enjoy the sun because it does not look like their dream of a transfer to colder, if more hospitable, climes will come true.

	Articles Our Newsletters Speaking/Press Other Useful IP Links	March 2009 IP Update It May Now Be Harder to Keep Patent Lawsuits in Texas By Keith Toms T he Federal Circuit's decision in TS Tech this winter prompted many patent defendants to try their best to escape the warm Texas sun for the blizzard conditions of places like Michigan and Oregon. This may puzzle those of us who, in the doldrums of March, crave nothing more than a stretch of nice weather. However, given the perceived plaintiff-friendliness of the Eastern District of Texas, not to mention its aggressive case schedules, patent defendants will take winter fatigue over E.D. Texas any day of the week. The Hatch-Waxman Act rewards makers of generic drugs for the risk and expense of litigating challenges to a pioneer drug company's patents: 180 days of exclusive marketing rights, if the patent challenge succeeds. Procedurally, the generic drug maker files an abbreviated new drug application (ANDA) for drugs that are the bioequivalent of previously approved drugs. When the approved drug is covered by patents still in force, the ANDA filer submits a so-called Paragraph IV certification, declaring that those patents are invalid. This declaration is itself an act of infringement, entitling either party to commence an infringement lawsuit. Increasingly, pioneer drug companies have settled such litigations with reverse payments. See our May 2008 article. The courts have taken conflicting views of such payments. The FTC and at least one appeals court regards them as per se antitrust violations. Other courts, applying a "rule of reason," believe that, as long as the pioneer drug company does not seek to expand the scope of its patent through the settlement process, reverse payments do not offend the antitrust laws. See our December 2008 article. The prevailing wisdom before TS Tech was that a defendant's winning a transfer out E.D. Texas was about as likely as shoveling snow off the Marshall courthouse steps. This is chiefly because the plaintiff's mere choice of E.D. Texas dominated the court's transfer analysis. Not only was the plaintiff's forum choice respected by shifting the burden to the defendant to prove that another court would be "clearly more convenient," the court would also count the plaintiff's forum choice as an affirmative factor weighing against transfer. The bottom line was that some cases with little connection to E.D. Texas could resist transfer, largely on the strength of the plaintiff's forum choice alone. TS Tech was one such case that did not have much connecting it to Texas, as the parties, witnesses, and evidence were in Toronto, Michigan, and Ohio. When the district court denied a transfer, the defendant sought a writ of mandamus, a rare procedure available before a final judgment to urge an appeals court to control a lower court's abuse of discretion. The Federal Circuit, applying a recent Fifth Circuit en banc decision in In re Volkswagen, decided that the district court in fact abused its discretion, and cited the overweighting of the plaintiff's forum-choice among the indications. The appeals court held that the case was rightly to be transferred to the Southern District of Ohio, which was roughly 900 miles more convenient for everyone involved. In the wake of TS Tech, a number of transfer motions have been filed, as patent defendants believe they have finally found their ticket for escaping the beautiful weather and Gulf Coast beaches of Eastern Texas. As a result, E.D. Texas has issued a number of decisions in the past couple of months, and from them, a rough pattern has emerged. Where the cases are regional - that is, where the evidence, parties, and witnesses are geographically clustered in a particular region far from Texas - there is a good chance that another court will be deemed more convenient for everyone, and the case will be transferred. For example, in Odom v. Microsoft, the case was transferred to Oregon because the parties and witnesses were all in Oregon and Washington. Where, however, the scope of the case is national - that is, where the evidence, parties, and witnesses are spread out - transfer merely redistributes the inconvenience. For example, in Novartis v. Hoffmann-La Roche, the court denied transfer to North Carolina because the added convenience to the East Coast parties and witnesses was offset by the added inconvenience to the parties and witnesses on the West Coast. Given this development in the case law, there is a clear incentive for prospective plaintiffs who want to stay in E.D. Texas to engineer their cases to be un-transferable by suing (if practicable) a number of defendants to create a national case out of a collection of what may otherwise be seen as regional cases. A recent example of this is MHL Tek v. Nissan, in which Judge Ward declined to transfer a case brought against twenty or so auto makers hailing from the U.S., Europe, and Asia. Had the plaintiff sued just Audi, whose offices are in Germany and New Jersey, it may have been challenging to keep the case in Texas. But since the plaintiff also sued Nissan, whose offices are in Japan and California, the motion to transfer was denied. While TS Tech has caused a significant change in climate, it remains to be seen what effect it will have on E.D. Texas's reputation as a prime port o' call for patent litigation. It would not be surprising, however, if it becomes an even hotter destination for certain types of complex patent cases because, as regional cases get shipped out, the court will have more resources to focus on the national-scope cases that remain. In the meantime, defendants in patent cases involving dispersed parties and evidence may as well enjoy the sun because it does not look like their dream of a transfer to colder, if more hospitable, climes will come true.