In a lawsuit filed prior to the passage of the Leahy-Smith America Invents Act (AIA), the United States Court of Appeals for the Federal Circuit held on May 4, 2012 that joinder of multiple defendants in a single patent infringement litigation is inappropriate where the plaintiff bases joinder upon "the mere fact that infringement of the same claims of the same patent is alleged . . . ." In re EMC Corp., Misc. No. 100, slip op. at 11 (Fed. Cir. May 4, 2012). The Federal Circuit issued a mandamus order directing the federal district court for the Eastern District of Texas to reconsider eight defendants' motions for severance and to apply the "logical relationship test" to assess the appropriateness of joinder. The logical relationship test is satisfied only if "there is substantial evidentiary overlap in the facts giving rise to the cause of action against each defendant." Id. at 13. The Federal Circuit's decision appears to significantly limit a patent owner's ability to maintain multiple-defendant litigation initiated prior to the passage of the AIA.
Oasis Research, LLC, a non-practicing entity, filed patent infringement claims against eighteen defendants in the Eastern District of Texas on August 30, 2010 (more than a year prior to the enactment of the AIA). Oasis asserted U.S. Patent Nos. 5,771,354; 5,901,228; 6,411,943; and 7,080,051, all of which claim "methods for allowing home computer users to remotely connect to an online service system for purposes of external data and program storage and additional processing capacities in exchange for a fee." Id. at 3. Oasis alleged that all defendants offered "services that provide online backup and storage for home or business computer users." Id.
Eight of the eighteen defendants moved to sever and transfer the claims against them to various federal district courts in Utah, Massachusetts, Arizona, and California. The Eastern District of Texas court denied the defendants' motions, holding that joinder was proper under Federal Rule of Civil Procedure 20 because the defendants' accused services were "not dramatically different." Id. at 4. The defendants sought a writ of mandamus from the Federal Circuit ordering the Eastern District court to sever and transfer the claims.
The Federal Circuit first examined the availability of mandamus in the context of motions to sever and transfer. It applied Federal Circuit precedent in conducting its analysis because the joinder inquiry requires courts to look at issues of infringement and thus implicates substantive patent law. The Federal Circuit began its analysis by noting that mandamus is available "in extraordinary situations to 'correct a clear abuse of discretion or usurpation of judicial power.'" Id. at 5 (internal citations omitted). The party seeking the writ must establish that (1) "it has no other means of obtaining the relief desired," and (2) "the right to issuance of the writ is 'clear and undisputable.'" Id. (internal citations omitted).
In examining the first factor, the Federal Circuit held that a party seeking review of a motion to sever and transfer would not have any other means of obtaining relief because it would have no way of demonstrating on appeal from a final judgment "'that it would have won the case had it been tried in a convenient [venue].'" Id. at 6 (internal citations omitted). As to the second factor, the Federal Circuit held that the "clear and undisputable" requirement was met where a district court relied upon an erroneous conclusion of law in issuing its order. Id. Further, mandamus in this context was appropriate because
if joinder was improper, the petitioners will not have a meaningful opportunity to present individualized defenses on issues such as infringement, willfulness, and damages because each defendant will have limited opportunities to present its own defense to the jury.
Id. at 7.
Turning to the issue of severance, the Federal Circuit first noted that defendants may only properly be joined if two requirements of Rule 20 are met: (1) the claims against the parties are asserted "with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences," and (2) there is a "question of law or fact common to all defendants." Id. at 9. The Federal Circuit rejected the district court's finding that the plaintiff satisfied the transactions or occurrences requirement because the accused services were "not dramatically different." Rather, the correct test looks to whether there is a "logical relationship" between the separate causes of action. A logical relationship exists where "the defendants' allegedly infringing acts, which give rise to the individual claims of infringement . . . share an aggregate of operative facts." Id. at 13.
Specifically, the Court held that
joinder is not appropriate where different products or processes are involved. Joinder of independent defendants is only appropriate where the accused products or processes are the same in respects relevant to the patent. But the sameness of the accused products or processes is not sufficient . . . To be part of the 'same transaction' requires shared, overlapping facts that give rise to each cause of action, and not just distinct, albeit coincidentally identical, facts.
Id. at 15. The Court further indicated that the district court should consider the following pertinent facts on remand:
- whether the alleged acts of infringement occurred during the same time period;
- the existence of some relationship among the defendants;
- the use of identically sourced components;
- licensing or technology agreements between the defendants;
- overlap of the products' or processes' development and manufacture; and
- whether the case involves a claim for lost profits.
Id. at 16.
Although this case significantly limits joinder eligibility under Rule 20, the Federal Circuit went on to note that district courts retain considerable discretion to consolidate cases for discovery and/or trial under Rule 42 "where venue is proper and there is only 'a common question of law or fact.'" Id. at 16.
As a result of this decision, joinder may now be more easily challenged in multiple defendant patent cases initiated before the passage of the AIA. Patent plaintiffs who filed prior to the AIA's enactment in the hope of avoiding its strict joinder limitations may find that their claims are nevertheless subject to severance in light of the Federal Circuit's interpretation of Rule 20's transaction or occurrence requirement.
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