"Delaware Corporations May Be Able to Transfer Patent Cases Out of Delaware District Court More Easily"

by Skadden, Arps, Slate, Meagher & Flom LLP
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[authors: Daniel A. DeVito, James J. Elacqua, Edward V. Filardi, David W. Hansen, Douglas R. Nemec, P. Anthony Sammi, Andrew N. Thomases]

In a recent precedential decision, the Federal Circuit granted mandamus relief and ordered the transfer of a patent case from Delaware, the defendant’s state of incorporation, to the Northern District of California. In re Link_A_Media Devices Corp., No. 2011-M990 (Fed. Cir. Dec. 2, 2011). The decision is part of a recent line of Federal Circuit decisions granting mandamus relief and transferring patent cases out of forums with minimal or questionable connections to the case. The decision is particularly significant because it rejects the notion that a plaintiff’s choice of forum, coupled with a defendant’s incorporation in that forum, effectively eliminates the possibility of transfer to a more convenient forum under 28 U.S.C. § 1404(a). Although the Federal Circuit has previously granted mandamus relief and ordered the transfer of patent cases out of plaintiff-friendly districts, such as the Eastern District of Texas, its decision to transfer a patent case out of Delaware is unique and may tip the scales in favor of transfer for defendants forced to litigate patent disputes in the state solely because they are incorporated there.

Summary of the Case

On October 11, 2010, Marvell International Ltd. (Marvell) filed a patent infringement case against Link_A_Media Devices Corp. (LAMD) in the District of Delaware. The case was assigned to Judge Sue L. Robinson. The complaint alleged that LAMD infringed and continues to infringe four Marvell patents related to error correction of data stored in computer-readable mediums. LAMD, a Delaware corporation having its principal place of business in northern California, produces microchips for data storage devices that are sold and distributed in the United States. Nearly all of LAMD’s 130 employees work in its headquarters in northern California. Although Marvell is a foreign holding company having its principal place of business in Bermuda, the inventors of the patents-in-suit are employed by a Marvell affiliate, Marvell Semiconductor, Inc., which is also located in northern California.

LAMD moved to transfer the case pursuant to 28 U.S.C. § 1404(a) from the District of Delaware to the Northern District of California, a forum that LAMD argued was more convenient to the parties and potential witnesses. Judge Robinson denied the motion to transfer for two primary reasons. First, LAMD’s incorporation in Delaware constituted a “pivotal connection” to the forum and, “because LAMD is a Delaware corporation, it has no reason to complain about being sued in Delaware.” Second, Judge Robinson held that Marvell’s decision to file suit in Delaware was a “paramount consideration” because the plaintiff’s choice of forum is afforded substantial deference in the venue transfer analysis.

LAMD petitioned the Federal Circuit for a writ of mandamus vacating Judge Robinson’s order and directing the District of Delaware to transfer the case to the Northern District of California.

Summary of the Federal Circuit’s Decision

In reviewing LAMD’s petition for a writ of mandamus, the Federal Circuit initially noted that it was bound by the law of the regional circuit, in this case the Third Circuit. In accordance with Third Circuit jurisprudence, various public and private interest factors must be considered when determining whether a venue transfer under 28 U.S.C. § 1404(a) is appropriate.

The public interest factors include: (i) the enforceability of the judgment; (ii) practical considerations that could make the trial easy, expeditious or inexpensive; (iii) court congestion; (iv) the local interest in deciding local controversies at home; (v) the public policies of the forums; and (vi) the familiarity of the trial judge with the applicable state law in diversity cases. The private interest factors include: (i) the plaintiff’s forum preference as manifested in the original choice; (ii) the defendant’s preference; (iii) whether the claim arose elsewhere; (iv) the convenience of the parties as indicated by their relative physical and financial condition; (v) the convenience of the witnesses; and (vi) the location of books and records.

With respect to Marvell’s choice of forum, the Federal Circuit determined that the district court placed too much weight on this factor. Although the Third Circuit places significance on a plaintiff’s choice of forum, when a plaintiff brings a case in a venue that is not its home forum, that choice of forum is entitled to less deference. Similarly, where the plaintiff is a foreign entity, such as Marvell in this case, the presumption favoring its choice of forum also is weakened.

The Federal Circuit also criticized the district court’s heavy reliance on the fact that LAMD was incorporated in Delaware. In particular, the Federal Circuit pointed out that neither 28 U.S.C. § 1404 nor Third Circuit case law include the defendant’s state of incorporation as a relevant factor in the venue transfer inquiry. Even if the defendant’s state of incorporation was a factor, the Federal Circuit noted that it certainly is not a determinative factor, as the district court apparently believed.

According to the Federal Circuit, the district court’s fundamental error was finding that Marvell’s choice of forum, coupled with the fact that LAMD was incorporated in Delaware, was dispositive of the venue transfer inquiry. Instead, the district court should have fairly balanced all of the relevant private and public interest factors to determine if the Northern District of California was a more convenient forum. Because other relevant interest factors, including the location of witnesses, tangible evidence and the parties’ business operations, clearly favored transfer, the Federal Circuit granted LAMD’s petition for a writ of mandamus and directed the district court to transfer the case to the Northern District of California.

Implications of the Decision for Companies Involved in Patent Litigation

The Federal Circuit’s decision continues to erode the plaintiff’s choice of forum as a dominant factor in the venue transfer analysis. Instead, courts must fairly balance all relevant interest factors to determine which forum is more convenient. No single factor, such as a defendant’s state of incorporation or the plaintiff’s choice of forum, is dispositive of the analysis. In accordance with 28 U.S.C. § 1404(a), the convenience of the parties and witnesses is the overriding criteria when determining whether a transfer of venue is appropriate.

A defendant sued in a remote forum that has little or no meaningful connection to the case would be well-advised to seek transfer to a more convenient forum, especially where the plaintiff is not suing in its home turf. As pointed out by the Federal Circuit, when the plaintiff is a foreign corporation or a domestic entity suing in a district that is not its home forum, its choice of venue is entitled to little deference. In such cases, other interest factors, such as the location of tangible evidence, witnesses and the parties’ business operations, become more central to the venue transfer analysis. If the defendant secures a venue transfer, the plaintiff effectively loses its strategic selection of forum. By forcing the plaintiff to litigate in is a less favorable forum, the defendant may gain significant leverage in settlement negotiations or otherwise help set the stage for a positive outcome of the litigation on the merits.

Although it is unclear how judges within and outside the District of Delaware will respond to the decision, the Federal Circuit has sent a clear message that requests for venue transfer must be taken seriously. A judge can no longer shorthand the analysis and overemphasize a few arbitrary factors. An equitable weighing of all relevant private and public interest factors is required, which should result in a gradual increase in successful venue transfer requests by defendants. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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