11/27/2013

In Re Nintendo: Fairness and Convenience Cannot Be Ignored When Considering Severance and Transfer of Forum


Category: Civil Procedure
 
 
 
By: Abby Lin, Contributor  
 
TitleIn re Nintendo Co., No. 151 (Fed. Cir. Sept. 25, 2013) (nonprecedential).
IssueJoinder/Severance: “[P]etitioners argue that UltimatePointer should not have been allowed to use Rule 18 […] to add claims involving products by other manufacturers and to use the mere presence of those claims to defeat Nintendo’s request that the retailers be severed to facilitate transfer.”
In re Nintendo, at *6.
Holding“Because we find that the district court erred in failing to first consider whether the retailer defendants should have been severed and whether transfer was appropriate prior to addressing whether the non-Nintendo claims could be joined under Rule 18, we grant the petition and remand for further proceedings.” In re Nintendo, at *12. “The fact that Rule 18 permits the joinder of certain claims does not answer the question of how those claims should be adjudicated. Again, fairness and efficiency must guide that inquiry.” Id. at *14.
 

Procedural History
UltimatePointer, L.L.C “filed two complaints in the United States District Court for the Eastern District of Texas… alleged that Nintendo Co., Ltd., Nintendo of America, Inc., and several retailers that sell Nintendo products, infringe[d] the [U.S. Patent No. 7,746,321] by ‘making, using, selling, offering to sell, and/or importing Nintendo Wii systems, games, controller, sensors, and related accessories [and also alleged the same for the U.S. Patent 8,049729.]”
In re Nintendo, at *2 ( text added).
“Petitioners [Nintendo] moved to [(1)] sever and stay the claims against the retailers, and transfer the case against Nintendo to the United States District Court for the Western District of Washington [citing Federal Rules of Civil Procedure Rule 18, and (2) sever all non-Nintendo product claims after Ultimate Pointer amended its claims to include infringement claims against the retailers based on their sale and offer for sale of Wii games and accessories created and manufactured by third party manufacturers.]” Id. at *2-3. “This district court denied all of the motions.”
Id. at *3.
“[Petitioners now] seek a writ of mandamus directing the district court to: (1) sever infringement claims involving hundreds of Wii games and accessories produced by approximates 35 companies other than Nintendo from those claims against Nintendo; and (2) consider their motion to sever and stay the claims against the retailers from those against Nintendo and to transfer the Nintendo claims to the United States District Court for the Western District of Washington.”
Id. at *2.
 
 
 
Legal Reasoning (Lourie, O’Malley, Reyna)
Background : Joinder Rules
FRCP Joinder Rules
Rule 18“Rule 18 – entitled ‘Joinder of Claims’ – provides that ‘[a] party asserting a claim, counter claim, or third party claim may join, as independent or alternative claims, as many claims as it has againat an opposing party.” FED. R. CIV. P. 18(a). Where, as here, a case involves multiple defendants, a plantiff may assert a claim under Rule 18 only if the defendants are properly joined in the first instance. See Intercom Research Assocs. Ltd. v. Dresser Indus., Inc., 696 F.2d 53, 57(7th Circ. 1982).
In re Nintendo, at *7.
Rule 21“As the Advisory Committee’s 1966 Note explains, ‘a claim properly joined as a matter of pleading need not be proceeded with together with the other claims if fairness or convenience justifies separate treatment.’ Accordingly, when determining whether claims permissibly joined should be severed for purposes of seeking transfer and a stay of proceedings, a court should consider whether it would be convenient or fair to keep the matters together. If inconvenience or unfairness is alleged to arise from the claims proceeding together, courts must exercise their discretion to decide whether the claims should be severed under Rule 21.”
Id. at *7 (internal citations omitted).
Rule 20“[However, because] Rule 21 does not provide a standard for district courts to apply in deciding whether parties or claims are misjoined … ‘courts have looked to Rule 20 for guidance.’”
Id. at *8(internal citations omitted).
Effect of AIA to Joinder Rules
Prior to AIA – Rule 20
Under Rule 20, which is entitled ‘Permissive Joinder of Parties,’ defendants may be joined in a single action only if:
(1) the claims against them are “with respect to or arising out of the same transaction, occurrence or a series of transactions or occurrences
(2) a “question of law or fact common to all defendants will arise in the actions.”
In re Nintendo, at *8(internal citations omitted).
AIA – 35 U.S.C. 299(a)
“Under the AIA . . . defendants in patent infringement cases may be joined 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 relation 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.
In re Nintendo, at *8-9.
Case at handUltimatePointer’s first complaint is under the AIA standard because it was filed before September 16, 2011. However, its second complaint was filed after September 16, 2011. “For [the Court’s] purposes, however, there is no difference in the analysis as to whether Rule 20 or section 299 governs.”
Id. at *8 n.1.
Proper Standard in Lieu of the Rules
Rule 20 Must Also Comport with Principles of Fairness“Given the permissive nature of the applicable rules, we have characterized these requirements [e.g. Rule 20’s two requirements] as necessary, but not sufficient conditions for joinder. See EMC, 677 F.3d at 1355. Consistent with that description, we have explained that ‘even if a plaintiff’s claims arise out of the same transaction and there are questions of law and fact common to all defendants,’ joinder may still be refused ‘in the interest of avoiding prejudice and delay, ensuring judicial economy, or safeguarding principles of fundamental fairness.’ Id. at 1360. In reaching the same conclusion, our sister circuits have likewise said that ‘a district court must examine whether permissive joinder would ‘comport with the principles of fundamental fairness’ or would result in prejudice to either side.’ Coleman v. Quaker Oats Co., 232 F.3d 1271, 1296 (9th Cir. 2000).”
In re Nintendo, at *9 (internal parenthetical information omitted).
District Court failed to address Fairness and Convenience“We find that the district court first should have addressed Petitioners’ First Motion to Sever and transfer the case against Nintendo to the Western District of Washington prior to assessing whether additional claims against the retailer defendants could be asserted under Rule 18. And the court should have exercised its discretion to determine whether fairness and convenience concerns weight in favor of severance and transfer, without regard to what Rule 18 might allow should severance and transfer not occur.”
Id. at *10-11.
Failure to Assess Proper Joinder is an Abuse of Discretion/Fairness
Fairness Requires assessment of Claims, during both pleading and post-pleading stages“The district court […] found that, because the defendants can be joined, Rule 18 permits joinder of claims wholly unrelated to the claims in the original complaint. In reaching this decision, the district court failed to conduct any inquiry into whether the claims should remain joined for post-pleading purposes […]. [I]n these circumstances, the failure to conduct a thorough assessment of whether these claims and defendants should remain joined is not a mere technicality[; it is an abuse of discretion.] In fact, this court has specifically recognized that the joinder of a large number of claims in cases such as this could deprive defendants of a ‘meaningful opportunity to present individualized defenses on issues such as infringement, willfulness, and damages because each defendant will have limited opportunities to present its own defense to the jury.’ EMC, 677 F.3d at 1355. That concern is perhaps even more compelling here given that the vast majority of the defendants are retailers who lack technical information regarding the accused products and have no control over the technology employed.”
In re Nintendo, at *10-11 (text added).
The fact that Parties MAY be joined does not mean that Parties SHOULD be joined“Although Rule 18 permits the joinder of claims, it cannot change the character of the relationship between the original parties for purposes of assessing severance and transfer. And, the district court cannot simply assume that the retailer defendants are properly joined and move directly to a Rule 18 inquiry. If, for example, the court finds that the claims against Nintendo products should be severed and transferred, then there is no reason to look to Rule 18.”
Id. at *11.
Transfer of Forum – Convenience and Connection
Legal Standard“A district court may transfer a civil action ‘[for] the convenience of parties and witnesses [and] in the interests of justice’ to any other district ‘where it might have been brought.’ 28 U.S.C. 1404(a). Rule 21 provides courts with considerable latitude to order severance solely for purposes of facilitating transfer. See, e.g. … Wyndham Assocs. V. Bintliff, 398 F.2d 614, 618 (2d Circ. 1968) (‘We believe that where the administration of justice would be materially advanced by severance and transfer, a district court may properly sever the claims against one or more defendants for the purpose of permitting the transfer of the actions against the other defendants[.]’).”
In re Nintendo, at *12 (text added).
District Court Failure to Consider 1404(a)“Because it based its rulings solely on whether joinder was permissible under Rule 20 and 18, the district court never analyzed whether this litigation has any meaningful connection to the Eastern District of Texas. In fact, the court never even mentions 1404(a) in its order. This approach to the motions before the court is contrary to the principle that a trial court must first address whether it is a proper and convenient venue before addressing any substantive portion of the case.”
Id. at *13.
Special Considerations for Retailers
“[Additionally, retailers] will have very little to offer in the way of evidence regarding the substantive aspects of the infringement case… we and other courts have all but said as much in the analogous context of the ‘customer suit exception,’ which endorses staying a case against a customer or retailer in light of the notion that the manufacturer is the ‘true defendant.’”
Id. at *13-14(internal citations omitted).
“Thus, to the extent that severing the parties, staying the cases against the retailers, and transferring the case against Nintendo could ‘prevent the waste of ‘time, energy and money’ and ‘protect litigants, witnesses and the public against unnecessary inconvenience and expense[,]’ we think petitioners’ First Motion to Sever and transfer must be given serious consideration.”
Id. at *14.
Conclusion
Petition granted. District court order vacated and directed to conduct further proceedings consistent with this opinion. “If, moreover after further proceedings, the district court finds that the parties should remain joined and the action against Nintendo should proceed in the Eastern District of Texas, the court must additionally consider whether fairness and convenience nonetheless warrant severance of the non-Nintendo product claims.” In re Nintendo, at *14.
 
 
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