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October 15, 2008

In re Volkswagen AG, 5th Cir, No. 07-40058 (October 10, 2008)

On Friday October 10, in a split 10-7 en banc decision, the 5th Circuit issued a writ of mandamus ordering Eastern District Judge John Ward to transfer a product liability case against Volkswagen to Dallas, where the car crash in the underlying case took place.  Judge T. John Ward, who is generally credited with helping establish Marshall Texas as the plaintiffs' go-to patent venue, had denied Volkswagen's motion to transfer, even though neither the parties nor the evidence in the case were tied to the Eastern District of Texas.  The car company argued that the proper venue should be the district where the crash took place.  The majority wrote that "the district court clearly abused its discretion and reached a patently erroneous result," when it denied Volkswagen's efforts to have the case moved.

While on its surface a ruling about venue in a products liability case involving a family suing over design defects in the Volkswagen Golf after a fatal auto accident on a Dallas freeway this en banc decision may have significant implications for the patent infringement lawsuits regularly filed in what has come to be known as the country's most plaintiff-friendly venue.  Indeed, the Eastern District of Texas had more patent cases filed there last year than any other district in the nation.  Moreover, until now, once patent cases were filed there, they would usually stay.  According to the research firm Legal Metric's study analysis of 17 years of rulings on contested transfer motions in patent cases, the Eastern District of Texas granted only 33.1 percent of those motions which is the second-lowest rate in the nation, next to the District of Minnesota.  In the proposed patent reform legislation that stalled last year in Congress, reform of the venue provisions for patent cases was a very hot topic.

Significantly in the Volkswagen AG decision, in reversing Judge Ward's denial of Volkswagen's motion to transfer, the 5th Circuit majority rejected Judge Ward's rationale that the citizens of Marshall had an interest in the product liability case because the product is available there as well - an argument that has frequently been used with great success against defendants' transfer motions in patent cases.  In rejecting this argument the majority wrote:  "Indeed they do not, as they are not in any relevant way connected to the events that gave rise to the suit ...In contrast, the residents of the Dallas Division have extensive connections with the events that gave rise to the suit."  The case has attracted attention from IP lawyers across the country.  For example, the American Intellectual Property Law Association had filed an amicus curiae brief in favor of having the case transferred.

The 5th Circuit majority also rejected the argument that a plaintiff’s choice of forum is an independent factor within the forum non conveniens or the Section 1404(a) analysis.  While it noted that the plaintiff’s venue choice is taken into account in a Section 1404(a) determination where the defendant bears a “significant burden” of showing good cause for a transfer, it held that this can be overcome in circumstances where the transferee forum is more convenient:

This “good cause” burden reflects the appropriate deference to which the plaintiff’s choice of venue is entitled.  When viewed in the context of § 1404(a), to show good cause means that a moving party, in order to support its claim for a transfer, must satisfy the statutory requirements and clearly demonstrate that a transfer is “[f]or the convenience of parties and witnesses, in the interest of justice.” Thus, when the transferee venue is not clearly more convenient than the venue chosen by the plaintiff, the plaintiff’s choice should be respected.  When the movant demonstrates that the transferee venue is clearly more convenient, however, it has shown good cause and the district court should therefore grant the transfer."

What the full impact will be of this decision on patent cases in the Eastern District of Texas remains to be seen.  However, defendants certainly now have new hopes on the future success of their motions to transfer patent cases from the Eastern District of Texas, and plaintiffs may now have to think twice before selecting Marshall as their choice of where to file. 
Today’s Blogger:  James W. Morando

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