Parallel Networks: Judge Davis Grants Summary Judgment in Favor of 99 Defendants

Following up on  my June 9 post regarding the Parallel Networks case, Judge Davis has now issued an order granting summary judgment in favor of 99 of the 112 defendants in these related cases.  This decision is a vindication of the defendants' position and, more importantly, justifies the use of the expedited process Judge Davis used in this case.  For a more comprehensive write up on this order, see Michael Smith's EDTexweblog.

Parrallel Networks – Recognition of a Patent Defendant’s “Hobson’s Choice” in the E.D. Texas

And the Start of a Trend to Help Defendants Deal With It?

Two (fairly) recent procedural orders from the Tyler Division of the Eastern District of Texas reflect a new approach to case management in patent cases, where defendant’s often face the no-win dilemma of settling a claim that they believe has little or no merit, or spending more than the settlement demand in defense costs to prove that it was not liable.

Imagine you’re a defendant in a “typical” multi-defendant patent case brought by a non-practicing entity. You look at the patent and the file history and try to make sense of the infringement allegation, but you can’t – no matter how you look at it, the claim is meritless. The plaintiff contacts you and offers to resolve the case with you for only $500K if you settle early, before both sides are forced to expend resources litigating the case. You know that it will cost over $1 Million to get through the discovery phase and claim construction proceedings and another million or more to get through summary judgment and trial. Given the ominous possibility of spending millions in legal fees to prove that your company did not infringe the plaintiff’s patent (and still have some risk that the judge or jury won’t agree), the $500K offer starts looking like a “reasonable” business resolution to the dispute, even though you are sure that the claim has no merit.

This scenario plays out on a regular basis in cases brought by non-practicing entities. The problem has been particularly acute in the Eastern District of Texas, a forum known to favor trials over summary judgment as the best tool for resolving disputes. The Local Patent rules, intended to efficiently and fairly move cases to trial simply do not provide a built in mechanism for a defendant to dispose of a weak case without spending hundreds of thousands or millions of dollars in defense costs. Plaintiff’s recognize and exploit this dilemma – filing suit against dozens, sometimes over a hundred, defendants, knowing full well that most, if not all, will settle for substantial amounts regardless of the merits of the claim.

Thus, the Hobson’s choice – pay the plaintiff and remove the risk, or pay defense counsel (maybe more than the settlement offer) and accept the risk of success.

Judge Davis faced this dilemma head-on in Parallel Networks v. Abercrombie & Fitch, et (6:10-cv-111) and to his credit, fashioned a procedural remedy to address this problem.  (See Memorandum Opinion and Order, D.I. 338, March 15, 2011).  In Parallel Networks, the plaintiff (a NPE) filed suit against 124 defendants in four related cases. In response to J. Davis’ inquiry, plaintiff’s counsel admitted that its litigation strategy involved offering defendants a substantial discount on potential liability to entice early settlement. The magnitude of the settlement offer was based less on a risk-based assessment of potential damages, but on the certainty of incurring significant defense costs.  J. Davis noted that “[p]laintiff’s strategy presents Defendants with a Hobson’s choice: spend more than the settlement range on discovery, or settle for what amounts to cost of defense, regardless of whether a defendant believes it has a legitimate defense.” Defendants’ counsel argued for a limited claim construction/summary judgment proceeding in which the parties would only address three (3) claim limitations that defendants’ argued as being case dispositive. J. Davis granted this request and significantly limited discovery until this motion is resolved. (A hearing is set for June 21, 2011).  The parties will be bound by the court’s construction of the three claim terms, but will not otherwise be prejudiced by this early summary judgment motion.


A month later, in Whetstone Electronics, LLC v. Xerox Corp., (6:10-cv-278) Magistrate J. Love, also in Tyler, followed suit and granted a similar order. (See Order, D.I. 156, April 7, 2011).  A Markman hearing on the three selected terms in this case is scheduled for July 13, 2011.


If these summary procedures successfully resolve these cases (in other words, if the defendants’ cases are as strong as they have suggested to the court) Parallel Networks may signal the start of a trend towards case management of multi-defendant cases in which the defendants have a meaningful procedure available to dispose of meritless cases without being driven to resolution solely by the cost to defend the case, regardless of the merits. To insure that this happens, however, defendants have an obligation to the court to deliver the goods. If, in every case, the defendants call for an expedited summary proceeding and fail to deliver clear positions where no questions of fact preclude summary judgment, it would not be surprising for the court to conclude that these procedures are not justified and revert to more traditional case management.


*** I started this post back in April, after the Whetsone order, but didn't get around to finishing it then.  Its not "hot news" anymore, but its still important so I thought it was worth posting now, even if its a bit late.

-Paul

Texas Data v. Target: Transfer Motions in False Marking Cases in The Eastern District of Texas

In 2010, we witnessed a bit of a new trend in the Eastern District of Texas. A number of cases were transferred out of the district. In the case of patent infringement actions, this was often with the help of the Federal Circuit issuing a writ of mandamus. In the context of the recent wave of false marking cases, however, it was not uncommon for the district court to grant a defendant’s motion to transfer under 28 U.S.C. 1404(a). Once recent exception is Texas Data Co. L.L.C. v. Target Brands, Inc., 10-CV-269, (E.D. Tex.), a false marking case in which Judge Ward denied defendant’s motion to transfer. (Memorandum Opinion and Order, January 12, 2011, D.I. 43, “Opinion”). Transfer motions tend to be very fact specific, and Texas Data is no exception. Judge Ward’s 27 page opinion provides a thorough discussion of the law governing transfer motions in the Eastern District of Texas (5th Circuit law) and the facts of the case before him. Although Judge Ward has historically been reluctant to transfer cases out of his district, Texas Data clearly turns on its own facts and does not appear to signal a new direction for venue motions in false marking cases.


Facts:

In Texas Data, the products that are allegedly improperly marked with an expired patent number are training pants that are sold by Target, a retailer which is based in Minnesota. The products was made for Target by Kimberly-Clark in a factory that is located in Paris, Texas in the Eastern District of Texas. Kimberly-Clark also has its headquarters in Irving, Texas. The packaging for the product, which allegedly has the improper patent marking printed on it, was made by Bemis, in a factory located in Longview, Texas, also in the Eastern District of Texas. Target provided evidence to establish that although the product and packaging were manufactured in the Eastern District of Texas, the decision to mark the product was primarily made in Kimberly-Clark’s facility in Neenah, Wisconsin, which is in the jurisdiction that Target sought to transfer to.


Movant’s Burden In False Marking Cases:

Target argued that less deference should be given to plaintiff’s in false marking cases. Judge Ward rejected this argument and held “that the burden of proof in a false marking case should be the same as the burden set forth in [In re Volkswagen of Am., Inc. (“Volkswagen II”), 545 F.3d 304 (5th Cir. 2008) en banc.] Opinion at 6.

In the Fifth Circuit, a defendant seeking to transfer a case must show “good cause” in order for the court to grant the motion. This burden is met when the moving party can demonstrate that the “transferee venue is ‘clearly more convenient’ than plaintiffs’ chosen forum.” Judge Ward notes that “plaintiff’s choice of venue is not an independent factor to be considered in the transfer analysis; instead deference to the plaintiff’s choice of venue is accounted for in the ‘clearly more convenient’ burden on the movant.” Opinion at 7.

Motion Denied:

In the analysis of the private factors and public factors set forth in Volkswagen II, the court did credit the fact that witnesses and other evidence related to the issue of “intent to deceive” was more likely to be found in Wisconsin and Minnesota, but also found that relevant evidence and witnesses relevant to other issues, such as damages, would be found in the Eastern District of Texas. In denying the transfer motion, the court held that

[i]n balancing the Gilbert convenience factors in this case, the Court observes that two factors slightly weigh in favor of transfer and one factor slightly weighs against transfer. Therefore, Target has not met its burden in showing the Eastern District of Wisconsin is ‘clearly more convenient than the Eastern District of Texas.   Opinion at 27.

Given the competing facts in Texas Data, this case does not stand out as a beacon of change for transfer motions in the Eastern District of Texas. The detailed opinion does, however, merit review for anyone considering bringing a motion to transfer out of the Eastern District of Texas.