February 20, 2012 Articles

Joinder Limitations in the America Invents Act: Big Change?

While section 299 does not change the standard for joining multiple defendants in one suit, its impact will be felt, given its prominent placement in the patent laws.

By Chandran B. Iyer and Ryan M. Corbett

The newly enacted America Invents Act (AIA) is the most radical change to U.S. patent laws in 60 years. One of the more significant aspects of this act is the addition of section 299, titled "Joinder of parties." This provision, which took effect immediately on the enactment of the AIA, sets forth the circumstances under which accused infringers may be joined in a single patent infringement suit and when they may not.

New Joinder Rule
Section 299(a), in relevant part, provides:

parties that are accused infringers may be joined in one action . . . only if

(1) any 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) questions of fact common to all defendants or counterclaim defendants will arise in the action.

(emphasis added). In other words, section 299 delineates two conditions that must be satisfied before accused infringers may be joined in a single civil action. Specifically, different accused infringers can be joined in one case if the relevant questions of fact are common to all accused infringers and either the right to relief is asserted against the accused infringers jointly or severally or if one of the asserted causes of action is with respect to or arises 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.

In addition, section 299(b) also contains a specific joinder prohibition.

(b) ALLEGATIONS INSUFFICIENT FOR JOINDER.—For purposes of this subsection, accused infringers may not be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, based solely on allegations that they each have infringed the patent or patents in suit.

Specifically, joinder of accused infringers is expressly prohibited if it is based solely on allegations that each defendant has infringed the asserted patent(s).

It should be mentioned, however, that section 299 is not compulsory in that an accused infringer may "waive the limitations set forth in this section with respect to that party." See § 299(c).

One noticeable exception to the new joinder provision is that it does not apply to Hatch-Waxman litigations (also called abbreviated new drug application or ANDA litigations)—in other words, allegations of infringement under 35 U.S.C. § 271(e)(2). This specific carve-out in section 299 would allow plaintiffs in ANDA cases (typically branded drug makers) to join multiple defendants (typically generic drug makers) in a single lawsuit, even though each generic manufacturer would be sued for marketing, offering to sell, or selling their own generic version of the branded drug. In other words, generic drug makers can be sued in one lawsuit, even though the asserted cause of action is not with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences.

Interpretation of the New Joinder Rule
Although the new joinder standard in the AIA has gotten much attention, it is worth noting that the section 299 standard is nearly identical to the permissive joinder standard set forth in Rule 20 of the Federal Rules of Civil Procedure. In fact, like section 299, Rule 20 also provides that persons may be joined as defendants in one action 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.

In other words, the joinder provision of Rule 20 sets forth two conditions that are substantively identical to the conditions set forth in section 299. Accordingly, practitioners trying to anticipate how section 299 will be applied by courts need only look at how courts have interpreted Rule 20. In fact, many accused infringers in patent cases have already used Rules 20 and 21 for severing defendants from multiple-defendant patent suits on the basis that the defendants have been misjoined. While ruling on the accused infringer's misjoinder motion, courts have interpreted the scope of the phrase "arising out of the same transaction, occurrence, or series of transactions or occurrences."

For example, in May 2011, Judge Alsup from the U.S. District Court for the Northern District of California ruled that the eight defendants named by the plaintiff patent holder were misjoined because the alleged infringement did not arise from "related activities." See EIT Holdings, LLC v. Yelp!, Inc., 2011 U.S. Dist. LEXIS 64034, at *2–3 (N.D. Cal. May 12, 2011). In EIT Holdings, the court noted that the unrelated defendants operate different accused websites that implement different functionalities through different software and that the plaintiff had not alleged any conspiracy or that any defendant induced another to infringe. See id. at *3–5. Although the accused products in EIT Holdings contained completely different software that allegedly performed the infringing acts, the fact that unrelated products may contain the same component that performs the alleged infringing act may not be sufficient to establish joinder.

Likewise, in another recent order, the U.S. District Court for the Northern District of California found that five defendants were misjoined even though the defendants' accused products included the same processor that performed the allegedly infringing acts. See Optimum Power Solutions, LLC v. Apple Inc., 2011 U.S. Dist. LEXIS 106436 (N.D. Cal. Sept. 20, 2011). In Optimum Power Solutions, the defendants' accused computers all contained Intel processors that were allegedly the basis for the plaintiff's infringement claims. See id. at *4–5. According to the plaintiff, the fact that the accused products shared a common processor that allegedly performed the infringing acts was sufficient to join the defendants. See id. at *7. The court disagreed, noting that the shared processor may establish a question of law or fact common to all defendants, but does not establish that the defendants' infringement involved the same transaction, occurrence, or series of transactions or occurrences. See id. at *10–11.

In light of, among others, Optimum Power Solutions and EIT Holdings, it appears that the Ninth Circuit defines "same transaction, occurrence, or series of transactions or occurrences" very narrowly to require a high degree of factual commonality underlying the claims before multiple parties can be joined as defendants in one lawsuit. See Coughlin v. Rogers, 130 F.3d 1348, 1350 (9th Cir. 1997).

The stringent standard used by the Ninth Circuit for joining defendants in one patent case has also been adopted by courts in other jurisdictions. For example, in Phillips Electronics v. Contec Corp., the U.S. District Court for the District of Delaware found that two defendants were not properly joined where they sold different accused products manufactured by different third parties, even though the accused products were sold to the same customer. See Phillips Elecs. N. Am. Corp. v. Contec Corp., 220 F.R.D. 415 (D. Del. 2004). The foregoing cases from two of the busiest patent dockets in the country demonstrate that courts have started to require a plaintiff to meet a very high standard for joining multiple, unrelated defendants in one patent case. This trend will certainly continue with the enactment of section 299.

Furthermore, the legislative intent behind the AIA also provides some support for the proposition that section 299 will require the plaintiff in a patent case to put forth a strong showing of factual commonality before multiple defendants are allowed to remain in one suit. More specifically, the legislative history of the act explicitly states that the new joinder provision legislatively abrogates the interpretation of Rule 20(a) taken by some jurisdictions in cases such as MyMail, Ltd. v. America Online, Inc., 223 F.R.D. 455 (E.D. Tex. 2004), in which joinder was found proper simply on the basis that the accused products were similar and were alleged to infringe the same patent, but otherwise unrelated. See H.R. Rep. No. 112–98, pt. 1, at 55 n.61. Moreover, given the common belief that the new joinder provision may have been enacted in part to stop nonpracticing entities (NPEs) from suing multiple defendants in a single lawsuit, a more stringent joinder standard was most likely contemplated by Congress. In fact, prior to passage of the act, Congress heard testimony from multiple witnesses decrying NPEs' allegedly abusive practice of naming dozens of defendants in a single lawsuit to extort settlements over questionable patents. See, e.g., Review of Recent Judicial Decisions on Patent Law: Hearing Before the Subcommittee on Intellectual Property, Competition, and the Internet of the House Committee on the Judiciary, 112th Cong. 68–69 (2011) (statement of John Boswell, Senior Vice President and General Counsel, SAS Institute).

One unintentional consequence of requiring a high degree of factual commonality is that, while limiting the number of defendants that may be sued at one time by an NPE, the new joinder provision also unfairly limits the ability of practicing entities to efficiently seek a remedy against multiple infringers. For example, a small company that owns a patent and practices the invention claimed in that patent would be at a disadvantage if its patent is being infringed by several of its larger competitors because of the increased cost of being forced to sue each infringer separately. Unfortunately, there may be no other way for such an entity to enforce its patent rights.

Maintaining Judicial Efficiency and Economy
One issue that the AIA fails to contemplate is the effect of having multiple lawsuits involving the same patent(s). In other words, what happens when a plaintiff is required to file multiple lawsuits against various defendants on the same patent, as opposed to naming the different defendants in one lawsuit? Under this scenario, it is entirely possible for one plaintiff to litigate an infringement case involving one patent in different venues across the country. This could, in turn, result in duplicative discovery—such as discovery on conception, reduction to practice, and other issues pertinent to an inventor—and contradictory claim constructions from different courts. In such an instance, how can judicial economy and efficiency by achieved? One option to circumvent this inefficiency is to enter into a multidistrict litigation (MDL) proceeding.

Litigating patent cases in an MDL setting is not uncommon. To enter into an MDL proceeding, the moving party must show that there are "one or more common questions of fact" between the civil actions pending in various venues, that the transfer "will be for the convenience of parties and witnesses," and that the transfer "will promote the just and efficient conduct" of the actions to be consolidated. See 28 U.S.C. § 1407(a). Moreover, although the MDL statute expressly requires common questions of fact, the MDL panel may also consider common questions of law, such as claim construction, when it applies this standard. See, e.g., In re Cygnus Telecomm. Tech., LLC, Patent Litig., 177 F. Supp. 2d 1375 (J.P.M.L. 2001).

Also, although section 1407 does not specifically set forth how the appropriate forum for an MDL action is determined, the MDL panel has offered its own guidance on the issue. In particular, the MDL panel has chosen a venue based on several factors, such as the venue where the majority of the actions are pending; the actual location of the patentee, defendants, and witnesses; the venue of the first-filed action; and the docket backlog in various forums. Using these factors, it is entirely possible for the MDL panel to select a venue that is not contemplated by any of the parties. This fact should certainly be considered before an MDL proceeding is sought.

Conclusion
The joinder provision in the AIA, section 299, has received much attention. However, section 299 is nearly identical to the existing Rule 20, which patent defendants have successfully used to sever themselves from multi-defendant cases. As a result, while section 299 does not change the existing standard for joining multiple defendants in one lawsuit, its impact will certainly be felt given its prominent placement in the U.S. patent laws.

Keywords: litigation, intellectual property, joinder, America Invents Act, multidistrict litigation


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