Are East Texas companies becoming pawns in the venue-shopping game?

Bedrock Computer Technologies is a patent-holding company owned by David Garrod, a former Goodwin Procter lawyer. Last month, I wrote about Bedrock's lawsuit against several of the biggest Internet companies—and CitiWare Technology Solutions, a tiny Longview, Texas software company.

Since the publication of that column, CitiWare's owner, Nate Neel-Smith, has taken down his old website and replaced it with a web page denouncing the lawyers who sued him. The lawsuit against him was a big mistake, says Neel-Smith, since he actually went out of business some time ago. "See how you might feel when your [sic] sent a BOGUS lawsuit on which you must waste time and money to defend!" writes Neel-Smith.

In my earlier column, I speculated that CitiWare's inclusion in the lawsuit was a strategy by Bedrock and its McKool Smith lawyers to maintain their preferred venue in the Eastern District of Texas.

The Recorder's Zusha Elinson has done some additional reporting that suggests that theory may be right. Elinson cites research by patent lawyer Yar Chaikovsky showing that since the Federal Circuit's TS Tech ruling in December, it's been easier for defendants to get out of East Texas when they want to—except when at least one local defendant is included in the suit. In those instances, the venue seems to stick. Elinson notes another example of a small East Texas company tangled up in venue politics: Plano-based Big Jump Media Inc., which runs Tangle.com, "a sort of Christian YouTube site that used to be called GodTube." McKool Smith is also lead counsel on the lawsuit involving Big Jump Media.

These small companies may have become "absurd pawns in the patent litigation venue-shopping game," writes Elinson. Read the full article.

Photo: J. Mullin, Longview, Texas

Comments

[Bob Matthews]

Hi Joe:

A very interesting article. Thanks for posting it. The article shows that it is time for the ED Texas to follow Rule 20(a)(2) of the Federal Rules of Civil Procedure. Under that rule it is improper to originally join multiple defendants in a lawsuit unless the claim against each defendant not only shares a common question of law or fact (for patent infringement the question would be claim construction, validity and unenforceability) but ALSO that the cause of action asserted against each arise out of the SAME transaction. Specifically, the Rule states: "Persons … may be joined in one action as defendants if: (A) any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the SAME transaction, occurrence, or series of transactions or occurrences; AND (B) any question of law or fact common to all defendants will arise in the action."

Hence, distinctly different accused products, like those existing where the accused infringers are not related and each makes their own accused product, do NOT arise out of the same transaction. There are a few opinions where the courts, following Rule 20(a), have severed accused infringers improperly joined at the outset. Naschem Co., Ltd. v. Blackswamp Trading Co., No. 08-cv-730-slc, 2009 WL 1307865, *2-*3 (W.D. Wis. May 8, 2009) (severing infringement claims where patentee sued two unrelated corporations and stating "Plaintiffs cannot satisfy Rule 20 simply by alleging that each defendant engaged in acts of infringement. Plaintiffs may satisfy the requirement for a 'common question of law,' but they have failed to make a showing that their claims against defendants Sports Line, [and its named employees] arise out of the same transaction …"); MLR, LLC v. U.S. Robotics Corp., No. 02 C 2898, 2003 WL 685504, *3 (N.D. Ill Feb. 26, 2003) (accused infringer who made its own products separate from other defendants was not properly joined, nonetheless refusing to dismiss accused infringer and treating patentee's opposition as a request for consolidation under Rule 42(a) and consolidating the case); see also New Jersey Machine, Inc. v. Alford Indus., Inc., 21 USPQ2d 2033, 2034-35 (D.N.J. 1991), aff'd without opinion, 983 F.2d 1087 (Fed. Cir. 1992) (denying patentee's motion under Rule 20 to join an additional accused infringers, competitors of the originally named accused infringer, as a defendant because the additional accused infringers were not related to the original defendant, made and sold distinctly different accused products).

Unfortunately, Rule 20(a) has little teeth because Rule 21 provides that misjoinder of a party is not a grounds for dismissing an action. Nonetheless, in cases where it appears a patentee is seeking to manufacture venue in a particular forum, the court should seriously consider enforcing Rule 20(a) and sever the defendants, then require the patentee to make a motion to consolidate while the accused infringers make their Rule 12 motions, and possible transfer motion.

Some may say that enforcing Rule 20(a) would just cause unnecessary work for the courts and the parties since judicial economy will likely justify having one court hear all the infringement claims for a given patent even though each accused infringer may have its own accused product that differs from the others; so consolidation is practically a foregone conclusion. That may be so, but the Rule is on the books and should be followed. If it was followed, the court would have the opportunity to see if a small company located in the forum and named as a defendant was in fact being used by the patentee as a pawn to defeat a potential motion for a transfer of venue, and where the interest of justice best deem a suit against multiple accused infringers to be consolidated.

Bob Matthews

Matthews is a patent law consultant at Matthews Patent-Law Consulting and author of the Annotated Patent Digest and the Patent Jury Instruction Handbook.