May 4, 2012
The Federal Circuit today required reconsideration of a motion for severance in a lawsuit filed prior to the America Invents Act, issuing a mandamus in In re EMC. The opinion addressed severance under the standard used by the Eastern District of Texas and a minority of other district courts prior to “patent reform” and its “anti-joinder” provisions, holding as follows:
“We agree 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. Claims against independent defendants (i.e., situations in
which the defendants are not acting in concert) cannot be joined under Rule
20’s transaction-or-occurrence test unless the facts underlying the claim of
infringement asserted against each defendant share an aggregate of operative
facts. 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. The sameness of the accused products is not
enough to establish that claims of infringement arise from the “same
transaction.” Unless there is an actual link between the facts underlying each
claim of infringement, independently developed products using differently
sourced parts are not part of the same transaction, even if they are otherwise
Slip opinion page 15, In re EMC
The order from the Federal Circuit gave the case back to the district court to reconsider severance under the correct test, but the result should be a foregone conclusion. Moreover, the Federal Circuit added that even where joinder might be proper, severance is still an important consideration due to the complexity of multi-defendant patent lawsuits and trials.
Defendants should look hard at severance and/or transfer in pre-AIA cases. The real impact this ruling is likely to have is cases will be severed — but then coordinated pretrial, either in the same district, or, alternatively, where transfers are ordered with severance, re-combined in one court for pre-trial litigation by an MDL panel. An MDL court can handle a case up to and including ruling on summary judgment motions, but then must send the case back to the court where it originated for trial. Separate trials strongly favor patent defendants because each time invalidity is tried as a defense, the patent owner risks its patent — the first time the patent is found invalid, collateral estoppel will apply, and the patent should be invalidated in all cases. Since a patent is valid or not, this means each trial could be the last trial for the patent owner. Equitable defenses or non-infringement defenses or damages issues will also invoke collateral estoppel on subsidiary fact issues if the record is sufficiently clear on the fact issues decided by the jury or court (which may require special attention to the jury charge and questions so that what fact issues were decided and how they were decided is not subject to debate). Of course, the defendant will also benefit from being able to focus hard on its own story, product, and damages scenario, while forcing the patent owner to do the same: Any past advantages to painting defendants at trial with a broad brush to blur important differences between them, or from defendants having to present their case at the lowest common point, are now gone.
There is yet the possibility of a “wrinkle” in what appears to be a rather broad ruling in In re EMC because another mandamus raising the identical issue from the same district court remains pending, In re TD Ameritrade, Misc. No. 107. (It is possible the Court could expand on or narrow or otherwise inject new considerations into the analysis in In re EMC with a decision in In re TD Ameritrade).
Given the backlog of cases filed prior to the AIA, this is now a significant issue, albeit one that is likely time-limited to the next few months….
Whether for better or worse, agree or not with In re EMC, as patent enforcement costs go up, as patent enforcement risks increase, the value of patents goes down…That’s the bottom line…The consolidated EU patent is moving closer to reality. Patent protection in the EU and other jurisdictions becomes increasingly important as U.S. patent enforcement and remedies become riskier and more difficult for patent owners.
Do the math…
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