by Dennis Crouch
In re Samsung Electronics Co., LTD (Fed. Cir. 2021)
The Federal Circuit has again granted mandamus and ordered Judge Albright to transfer two cases case out of his W.D.Tex. court to a more convenient forum (N.D.Cal.).
The underlying actions were filed by a patent holding company known as Ikorongo Texas LLC against Samsung and LG Electronics. As explained below, the owners of Ikorongo Texas formed the company as an attempt to solidify venue in W.D.Texas and avoid the case being transferred for inconvenient forum.
Ikorongo Texas is owned by five-individuals led by patent agents Hugh Svendsen & Sarah Svendsen. The five also own a separate company known as Ikorongo Technology LLC. The asserted patents were previously fully owned by Ikorongo Tech. However, before suing, Ikorongo Tech geographically divided the patent rights. In particular, the company assigned all rights in the patents relating to the WDTX back to the five-individuals. At that point, the five individuals owned all rights to sue and collect damages associated with infringement occurring in the “specific counties” covered by WDTX. The five individuals then created the new company Ikorongo Texas and assigned their WDTX rights to the company. Ikorongo Texas then sued Samsung and LGE. The following day, Ikorongo Texas amended its complaint to also add Ikorongo Tech as a co-plaintiff so that collectively they could seek damages for the full USA. Ikorongo Texas is a Texas LLC (corporate registration in Texas), but its owners and managers all reside in North Carolina.
The defendants in the lawsuit admitted that venue was proper in WDTX, even under the high bar for proper venue created by 28 U.S.C. § 1400(b). But, the defendants argued that N.D.Cal. is a better, more convenient venue, and requested transfer. Even if venue is proper, a defendant may still complain that that the forum is inconvenient and request a change of venue. The statute:
For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.
28 U.S.C. § 1404(a). A court has discretion as to whether to transfer a case, but should look to the convenience of the parties, convenience of the witness, and also the interest of justice. In addition, the court may only transfer a case to a district where venue and personal jurisdiction are proper (“where it might have been brought”).
Judge Albright refused to transfer the case to California — holding that Ikorongo Texas would not have had proper venue to sue in the state. In patent cases venue is only proper against a US corporate defendant if either (1) the defendant is incorporated within the state or (2) the infringement occurred within the district and the defendant has a regular place of business in the district. The defendants here are incorporated in NY & Delaware, and the infringement alleged by Ikorongo Texas was only in WDTX. Thus, no proper venue.
On mandamus, the Federal Circuit has rejected that analysis — rejecting this “collusive” attempt to avoid the transfer on convenience grounds.
Ikorongo Texas is plainly recent, ephemeral, and artificial—just the sort of maneuver in anticipation of litigation that has been routinely rejected. . . . [T]he district court disregarded the pre-litigation acts by Ikorongo Tech and Ikorongo Texas aimed at manipulating venue.
Slip Op. The court then disregarded the creation geographic division and ordered transfer (after also finding that the convenience factors clearly weigh in favor of transfer and refusing to transfer would be an abuse of discretion).
The decision here has a limiting feature–that Ikorongo Texas was formed for the sole purpose of manipulating venue. I wonder what the courts would say about Apple closing its store in E.D.Tex.
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I’ll note also that the case might have turned out differently if Ikorongo Tech had not been added to the case.
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The decision does not rely in direct on-point precedent, but instead relies heavily upon precedent in in the context of subject matter diversity jurisdiction. Miller & Lux, Inc. v. E. Side Canal & Irrigation Co., 211 U.S. 293, 305–06 (1908). In that case, a California corporation had formed a separate Nevada corporation and transferred property rights to the Nevada Corp in order to create diversity jurisdiction. The Supreme Court said No. One problem with this analogy is that there is a particular statute barring collusive incorporation in order to create diversity jurisdiction:
A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court.
28 U.S.C. § 1359. Although also statutory, diversity jurisdiction has an express constitutional basis whereas convenient-forum is entirely statutory. That distinction has historically offered courts to – at times – distinguish between the two in their analysis and interpretation. The opinion does not delve into why the linkage is appropriate here.