©2013. Published in Landslide, Vol. 5, No. 4, March/April 2013, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
On September 16, 2011, President Obama signed the Leahy-Smith America Invents Act (AIA) into law. This Act represents one of the most extensive changes to patent law within the last 60 years. One of the purported goals of the AIA was to address the growth in multidefendant patent suits filed by nonpracticing entity (NPE) plaintiffs. As of enactment of the AIA, lawsuits by plaintiffs may no longer join multiple unrelated defendants to an action solely on the basis that they have each allegedly infringed the patent-in-suit. The AIA did not alter existing lawsuits because the joinder provision of the AIA was not retroactive.
It has now been over a year since enactment of the joinder provision of the AIA, and several recent district court decisions have shed light as to the proper analysis of joinder under the AIA. In addition, the Federal Circuit’s rejection of the minority’s position in In re EMC appears to have finally resolved the split among district courts regarding the proper standard for joinder for pre-AIA cases. In re EMC appears to have adopted the majority standard that, while not the same as the AIA, inspired a modified joinder provision under the AIA. Moving forward, the AIA and In re EMC will shape the ability of a plaintiff to join or maintain the joinder of multiple defendants.
Growth in NPEs
Traditionally, patent protection had been thought of as a battle between two competitors attempting to obtain a competitive advantage by obtaining an exclusive right to a potential new product. However, as patents have become increasingly important assets to corporations, this model has changed. Entities began to realize that there was value in using patents, not as a way of keeping competitors out of the marketplace, but as a source of licensing revenue. A particular group of entities, known as NPEs, were the primary proponents of this business model. While there are varying definitions of NPEs, generally they are defined “as an entity that does not have the capability to design, manufacture, or distribute products with features protected by the patent.”1
The rise in NPE litigation over the years has resulted in a great deal of debate within the business community. Not surprisingly, many businesses viewed the rise of NPEs as contrary to the goal of promoting innovation present in patent law, but others viewed NPEs as a legitimate means to extract value from intellectual property. In contrast to traditional patent litigation against a single competitor, NPEs frequently initiate lawsuits against a large number of parties within an entire industry or across multiple industries. Defendants in these multiparty suits have argued that inclusion of all these unrelated parties violates Federal Rule of Civil Procedure 20 (Rule 20).2
AIA Seeks to Address Split Regarding Joinder in District Court Patent Litigation
Rule 20 states, in part, that defendants may be joined in a single action when: “(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.”3 “The purpose of the rule is to promote trial convenience and expedite the final determination of disputes, thereby preventing multiple lawsuits.”4 Over the years, a split developed among the district courts as to the proper application of this rule to patent cases. In the majority of jurisdictions, district courts held that joinder was improper where “unrelated defendants, based on different acts, are alleged to have infringed the same patent.”5 In contrast, a small number of jurisdictions held that joinder was appropriate where a group of unrelated defendants sold similar products that were alleged to infringe the same patent.6
Through enactment of the AIA, Congress set forth 35 U.S.C. § 299 to clarify the standard for joinder of multiple defendants. Section 299 provides that accused infringers may be joined only if:
(1) [A]ny right to relief is asserted against the parties jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process; and
(2) [Q]uestions of fact common to all defendants or counterclaim defendants will arise in the action.7
Section 299 further clarified that joinder is not proper “based solely on allegations that [the defendants] each have infringed the patent or patents in suit.”8 By adding this further clarification, Congress appeared to resolve the split by adopting the majority view.9
Joinder under the America Invents Act
Following enactment of the AIA, many plaintiffs decided to avoid the issue of joinder and instead filed separate lawsuits on the same patent against multiple parties in the same jurisdiction.10 However, some plaintiffs continued the practice of joining multiple parties, compelling district courts to interpret the joinder provision of the AIA.
In Omega Patents, LLC v. Skypatrol, the court denied a motion to sever claims against Skypatrol from claims brought against Enfora.11 The court found that joinder was proper under the AIA because Enfora manufactured a product that was reconfigured and sold by Skypatrol.12 This relationship, the court determined, raised common questions of fact and noted that severance would not promote judicial economy.
In addition, the court allowed joinder of all claims against both defendants when only some of the claims brought against each defendant had a logical relationship. The court acknowledged that the plaintiff also alleged that Skypatrol infringed by selling products not manufactured by Enfora.13 The court interpreted § 299 to state “that so long as joinder is appropriate for one or more claims, misjoinder will not result due to the presence of one or more independent infringement claims against only one of the defendants.”14 Thus, joinder was proper against Skypatrol as to all claims since some of the claims overlapped with the case brought against Enfora.
Similarly, in Motorola Mobility, Inc. v. TiVo, Inc., the court stated that, under the AIA, “complete commonality of all claims i[s] not required as long as at least one claim overlaps among all of the defendants.”15 The court held that two counterclaim defendants were properly joined because one counterclaim overlapped.16
However, at least one district court was hesitant to join defendants where the only overlapping fact was that the defendants were downstream purchasers of the same products. In Motorola Mobility, Inc. v. Apple Inc., the court analyzed whether to sever Apple’s counterclaims against HTC and Motorola.17 The court expressly distinguished Omega Patents because (1) HTC and Motorola did not have any relationship with one another, and (2) HTC and Motorola were competitors, not collaborators.18
Apple argued that HTC and Motorola were collaborators because they were members of the Open Handset Alliance (OHA), which jointly developed the Android software.19 The court, noting that OHA is an industry association of over 84 companies, disagreed because membership in a broad-based industry association alone does not support joinder because it does not indicate that defendants “have jointly designed, developed, manufactured, or sold their [a]ccused [p]roducts.”20
Apple argued, in the alternative, that the accused products satisfied the same transaction or occurrence test because its infringement case was based on “specific software—including applications such as Maps and Play Store—that is present in the same form on both HTC’s and Motorola’s accused devices.”21 The court rejected this argument because the accused devices were not the same and the devices from HTC and Motorola run on “at least somewhat modified Android software.”22 Based on these facts, the court granted severance.
As these recent cases demonstrate, district courts are still grappling with exactly which types of relationships between defendants and/or the suppliers are sufficient to establish joinder under the AIA. It appears that the closer the relationship, the greater the chance a party has to make its case for joinder. However, given the fact-specific nature of this analysis, each relationship will have to be closely examined to make a determination.
In re EMC: The Federal Circuit Rejects the Minority View of Rule 20
Because joinder under the AIA was not retroactive, courts still faced challenges to the joinder of multiple defendants in patent lawsuits filed prior to enactment of the AIA. After enactment of the AIA, the Federal Circuit was faced with tackling the issue of joinder for pre-AIA cases in In re EMC Corp. In In re EMC Corp., a group of defendants, who were denied severance in the Eastern District of Texas, sought a writ of mandamus from the Federal Circuit, arguing that the Eastern District’s minority view was an improper interpretation of Rule 20.23 At the lower court, the eight defendants moved to sever and transfer the claims brought by the plaintiff because the only support for joinder was the alleged similarity between the defendants’ online backup and storage services.24 The district court denied the motion because the accused products were “not dramatically different.”25
The Federal Circuit first determined that it had authority to grant a writ, but, as the case at issue was filed before enactment of the AIA, the court expressly stated that its holding would only “govern” cases filed before the enactment of the AIA.26 Accordingly, the focus of the Federal Circuit’s analysis was on Rule 20.
As a preliminary matter, the Federal Circuit held that when defendants are “alleged to be jointly liable,” joinder is always proper.27 The Federal Circuit held that the same transaction or occurrence test is satisfied by allegations against independent defendants when “there is a logical relationship between the separate causes of action.”28 The Federal Circuit explained that the “logical relationship” test is “satisfied if there is substantial evidentiary overlap” in the allegedly infringing acts, i.e., the claims of infringement against each defendant “must share an aggregate of operative facts.”29
In determining whether the “logical relationship” test is satisfied, the Federal Circuit provided the following list of relevant factors: (1) the temporal proximity of alleged infringement, (2) the relationship among defendants, (3) the use of common components in the accused products, (4) licensing or technology agreements between defendants, (5) shared development and manufacturing, and (6) whether the damages sought are based on lost profits.30
The Federal Circuit thus determined that “independently developed products using differently sourced parts are not part of the same transaction, even if they are otherwise coincidentally identical.”31 It acknowledged that districts other than the Eastern District of Texas had already adopted this rule, and thus its holding seemed to resolve this split in authority.32 Of relevance to the AIA, the Federal Circuit’s holding appears to bring the interpretation of Rule 20 closer to the higher bar for joinder under the AIA.
Post-In re EMC Decisions Provide Further Clarification as to the Issue of Joinder
Following the Federal Circuit’s rejection of the Eastern District’s “not dramatically different” standard, several recent cases in the Eastern District of Texas severed claims against entities where the only overlap was the alleged “similarity” between the accused products.33
However, the case law regarding the “logical relationship” test announced in In re EMC is still developing. In particular, in at least one recent decision, joinder was deemed proper under In re EMC where multiple defendants used a product purchased from the same third party. In Novartis Vaccines & Diagnostics, Inc. v. MedImmune, LLC, a plaintiff alleged that each defendant used an “expression vector” manufactured by the same third party.34 The plaintiff argued that, although the expression vectors for each defendant differed with respect to the “polypeptide coding sequence,” the difference was irrelevant because the patent at issue accommodated any such coding sequence.35 Applying In re EMC, the court found that there was (1) overlap in the development and manufacture of the accused products, and (2) the accused products used identically sourced parts.36 Based on these factors, the court denied the motion to sever because a logical relationship existed between the allegations against each defendant.
Accordingly, parties need to examine the relationship of the defendants and investigate any common relationship the defendants may have with a third party. Given the fact-specific nature of the logical relationship test, parties will have to consider all factors that could potentially be deemed as forming a relationship sufficient to establish joinder.
After In re EMC and the enactment of the AIA, joinder of multiple defendants in a lawsuit must be supported by more than mere allegations that each defendant infringes the same patent. While this requirement increases the burden on plaintiffs, multidefendant lawsuits still persist. District courts applying In re EMC and the AIA have provided some indication regarding the overlapping or common facts that may support joinder, but the holdings to date are very fact specific. It is clear that the developing case law regarding In re EMC and the AIA will continue to present challenges and opportunities to plaintiffs attempting to join or maintain the joinder of multiple defendants.
1. Chris Barry et al., PricewaterhouseCoopers LLP, 2011 Patent Litigation Study: Patent Litigation Trends as the “America Invents Act” Becomes Law 34 (2011), available at http://www.pwc.com/en_US/us/forensic-services/publications/assets/2011-patent-litigation-study.pdf.
2. See, e.g., Rudd v. Lux Prods. Corp., No. 09-CV-6957, 2011 WL 148052 (N.D. Ill. Jan. 12, 2011).
3. Fed. R. Civ. P. 20(a)(2).
4. 7 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1652 (3d ed. 2011).
5. Rudd, 2011 WL 148052, at *3.
6. See, e.g., MyMail, Ltd. v. Am. Online, Inc., 223 F.R.D. 455 (E.D. Tex. 2004).
7. 35 U.S.C. § 299(a).
8. Id. § 299(b).
9. 157 Cong. Rec. S5429 (daily ed. Sept. 8, 2011) (stating that § 299 “effectively codifies current law as it has been applied everywhere outside of the Eastern District of Texas”).
10. See, e.g., Norman IP Holdings, LLC v. Lexmark Int’l, Inc., No. 6:12cv508, 2012 WL 3307942, at *4 (E.D. Tex. Aug. 10, 2012) (“In response to the AIA’s joinder provision, plaintiffs now serially file multiple single-defendant (or defendant group) cases involving the same underlying patents.”).
11. No. 1:11-cv-24201, 2012 WL 2339320, at *1–2 (S.D. Fla. June 19, 2012).
12. Id. at *2.
15. No. 5:11-cv-53, 2012 WL 2935450, at *2 (E.D. Tex. July 18, 2012).
17. No. 1:12-cv-20271, 2012 WL 3113932 (S.D. Fla. July 31, 2012).
18. Id. at *4.
23. In re EMC Corp., 677 F.3d 1351 (Fed. Cir. 2012).
24. Id. at 1353.
25. Id. at 1354.
26. Id. at 1356.
28. Id. at 1358.
30. Id. at 1359–60.
31. Id. at 1359.
32. See id. at 1357.
33. See, e.g., Phoenix Licensing, LLC v. Aetna, Inc., No. 2:11-cv-285, 2012 WL 3472973 (E.D. Tex. Aug. 15, 2012); Norman IP Holdings, LLC v. Lexmark Int’l, Inc., No. 6:12cv508, 2012 WL 3307942 (E.D. Tex. Aug. 10, 2012).
34. No. 11-084, 2012 WL 3150524, at *1–2 (D. Del. Aug. 2, 2012).
35. Id. at *2.
36. Id. at *3.