Patent trolls and multidistrict litigation: It’s complicated

May 10, 2013

One of the key anti-troll elements of the America Invents Act of 2011 was the patent reform law’s restrictions on joinder. After September 2011, patent owners could not file complaints that named multiple, otherwise unrelated defendants who happened to make use of the same IP. The idea was to make it more expensive for plaintiffs to bring and litigate patent suits, to prevent forum shopping and to limit trolls’ leverage. Conventional wisdom was that the new law’s joinder restrictions were going to lead to an uptick in requests for the Judicial Panel on Multidistrict Litigation to consolidate cases for pretrial proceedings. If plaintiffs could persuade the JPMDL to consolidate cases for pretrial proceedings – especially if they could direct consolidated litigation to sympathetic judges – they could take some of the sting out of joinder restrictions.

As usual, reality is more complicated. Prompted by a squib about a patent MDL at the Gibbons blog IP Law Alert, I went to the JPMDL’s site to see if, in fact, plaintiffs have flocked to the panel since patent reform. Here’s what I found. There are 19 active MDLs categorized as patent matters. Three of them are Hatch-Waxman litigation between brand and generic drugmakers, so I eliminated them from additional consideration. Of the remaining 16 consolidated proceedings, five preceded the effective date of the patent reform law. So in the 15 months since AIA, the MDL panel has consolidated 11 patent matters. That seems to be a higher rate for consolidating patent litigation than we saw before patent reform, but the JPMDL still considers far more product liability, consumer and antitrust matters than patent litigation.

And interestingly, it was defendants who moved for pretrial consolidation in seven of the 11 patent MDLs. Plaintiffs opposed the consolidation motions in all of those cases. Plaintiffs, meanwhile, brought four of the transfer motions, and defendants opposed all of them. In two of the four plaintiffs’ MDL attempts, patent holders requested that their cases be consolidated in the Eastern District of Texas, widely reckoned to be a plaintiff-friendly jurisdiction (otherwise known as a troll haven). The JPMDL agreed to consolidate both litigations but sent the matters to judges in other districts. The one patent MDL transferred to a judge in the Eastern District of Texas, In re Parallel Networks, was consolidated on a motion by defendants that was opposed by the plaintiff.

The unifying theme of these patent MDLs, in other words, is that there isn’t one, at least not yet. A few patent holders seem to believe they’re better off if the JPMDL consolidates their cases, especially in their favored district, but there hasn’t exactly been a rush to the panel by patent plaintiffs. Defendants are almost twice as likely as their opponents to request MDL consolidation, but when plaintiffs suggest it they’re opposed. (That could be, of course, because defendants don’t like the venue recommended by the plaintiffs.) The MDL panel, meanwhile, seems inclined to consolidate patent cases in the post-AIA reform era, but not if there’s opposition from both plaintiffs and some defendants, as in the ArrivalStar matter in 2011. And don’t expect the panel simply to rubber-stamp your suggestion for a presiding judge.

Defense lawyer Robert Stier of Pierce Atwood argued for consolidation in one of the two patent MDLs established last month. His clients – banks sued for allegedly infringing a patent that’s part of ATM systems – successfully moved for transfer to U.S. District Judge Sue Robinson of Delaware, who has previously found a related patent asserted by the same plaintiff to be invalid. (As you might expect in those circumstances, the patent holder opposed the MDL.) Stier told me that pretrial MDL consolidation is different from the rampant joinder eliminated by the patent reform law. For one thing, plaintiffs don’t control the venue in MDL proceedings. The MDL panel picks a presiding judge, after both sides have had a say. And MDLs are only consolidated for pretrial proceedings so plaintiffs don’t have the leverage they used to have when they’d bring multidefendant cases before East Texas judges known for speeding up discovery and rushing cases to trial before sympathetic juries.

By contrast, Stier said, the MDL process brings order to the process of claims construction by putting that crucial pretrial determination before a single judge. That way, plaintiffs lose the chance to pick off defendants who don’t want to expend the cost of litigation. “The nuisance value of the cases goes down,” Stier said.

Plaintiffs’ lawyer Marc Fenster of Russ August & Kabat, who represents IP owners in the newly ordered NeuroGrafix patent MDL, told me that patent holders haven’t made extensive use of the MDL process because they’ve figured out other ways to litigate groups of cases before a single judge. (The NeuroGrafix plaintiffs, for the record, opposed defendants’ MDL motion, but mostly, Fenster told me, because the patent holders didn’t want their cases to be transferred to the judge requested by defendants.) MDLs only come into play when cases are being litigated in more than one federal district. So some plaintiffs have incorporated in Delaware and sued there, where lots of patent defendants are also incorporated. The Delaware courts, Fenster said, make a practice of assigning related patent cases to the same judge, so, effectively, patent plaintiffs enjoy the benefit of litigating in a single proceeding.

Indeed, another client of Fenster’s firm, Parallel Iron, recently beat back an attempt by the defendant EMC to move its case from Delaware to Massachusetts, where EMC is headquartered. Parallel Iron is a non-practicing entity that sued more than a dozen companies over the same patent it asserted against EMC. All of the cases are proceeding before U.S. District Judge Gregory Sheet in Delaware. And according to a transcript of a hearing on April 25, that’s where EMC’s case will stay. Even if Parallel’s motive in setting up shop in Delaware was a bit suspect, the judge said, it doesn’t promote efficiency to send one case to Massachusetts and litigate 15 others in Delaware.

Patent plaintiffs – particularly those whose business model is to assert IP rights rather than make products – are all about streamlining the litigation process yet proceeding against as many defendants as possible. In the post-AIA era, that sometimes means filing multiple complaints in jurisdictions such as East Texas and Delaware. And sometimes, Fenster said, it means asking for consolidation through the MDL process. “It’s not universally pro-defendant,” he told me. “I’ve seen plaintiffs use MDLs to parallel the efficiency they used to achieve through joinder.”

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