You Can’t Manipulate Venue!
August 19 2021
How many of the lawyers out there liked hypotheticals in law school? I did not, but this case prompted me to write one! So, for those of you who enjoy hypotheticals, here it is:
Company A, a North Carolina LLC, owns four patents. A new company is formed, Company B, a Texas LLC. Company B has the same corporate address in North Carolina and the same five shareholders as Company A. Company B conducts no business activities. About 20 days after Company B is formed, Company A assigns its four patents to Company B, with an agreement that gives Company B the rights to sue for patent infringement only in the district court for the Western District of Texas. (And assume that the Western District of Texas is a very fast and favorable court for plaintiffs in patent infringement cases.) About ten days after the assignment, Company B files two lawsuits for patent infringement in the Western District of Texas, alleging that the defendants sell mobile devices that use third party applications that infringe the patents. The defendants move to transfer the cases to the district court in the Northern District of California on grounds of convenience. They allege that the Western District of Texas is not the proper venue because most of the third-party applications were researched and developed in the Northern District of California, while none were developed in the Western District of Texas, and several witnesses and inventors were located in the Northern District of California, while none were in the Western District of Texas. Here’s the question: Should the district court for the Western District of Texas grant the motions to transfer?
If you said “yes,” you are right. But that is not what the district court did.
In In Re Samsung Electronics and LG Electronics, 2021 U.S. App. LEXIS 19522 (June 30, 2021), the plaintiff, Ikorongo Texas, filed separate lawsuits for patent infringement against Samsung and LG in the Western District of Texas. The lawsuits were filed a month after Ikorongo Texas was formed. Ikorongo Texas was a Texas LLC, but it had the same corporate address in North Carolina and the same shareholders as Ikorongo Technology LLC, a North Carolina LLC. Ikorongo Technology assigned its four patents to Ikorongo Texas about 20 days after Ikorongo Texas was formed. The assignment documents provided that Ikorongo Texas could only enforce the patents in the Western District of Texas. Ikorongo Texas conducted no business activities. Ikorongo Texas filed the two lawsuits ten days after receiving the assignment.
Samsung and LG each moved to transfer their cases to the Northern District of California. They contended that of the five allegedly infringing third party applications, three were researched and developed in the Northern District of California where the third parties conducted extensive business activities; none of the applications were researched and developed in Texas; the witnesses and evidence were located in the Northern District of California; two inventors were located in the Northern District of California; and no witnesses or evidence were located in Texas.
The district court for the Western District of Texas denied the defendants’ motions despite finding that most of the relevant factors weighed in favor of transferring the cases. The court found that Ikorongo Texas did not have the right to sue anywhere except in the Western District of Texas, so it could not have filed the lawsuits in California. On that basis, the court ruled that the defendants had not satisfied their burden for transfer.
The defendants filed petitions for writs of mandamus to the Federal Circuit Court of Appeals requesting the appellate court to order the district court to transfer the cases to the Northern District of California.
The Federal Circuit granted the defendants’ petitions and ordered the district court to grant the defendants’ motions to transfer the cases to the Northern District of California. The appellate court held that the district court had clearly abused its discretion in denying the motions. The Northern District of California was the proper venue for the cases. The district court should not have considered the conduct by Ikorongo Technology and Ikorongo Texas “aimed at manipulating venue.”
The appellate court explained that courts can disregard a party’s collusive or manipulative conduct to obtain jurisdiction, noting that Ikorongo Texas “seems to exist for the sole purpose of limiting venue to the Western District of Texas.” The court further emphasized: “The presence of Ikorongo Texas is plainly recent, ephemeral, and artificial – just the sort of maneuver in anticipation of litigation that has been routinely rejected.” The court explained that if the manipulative conduct was not considered, the suits could have been brought in the Northern District of California, and therefore should be transferred to that court.