12/04/13

Futurewei v. Acacia Research: First-to-File Forum Rule Determines Fate of Same Co-Pending Cases Filed One Day Apart


Category: Civil Procedure 
 
 
 
 By: Jesus Hernandez, Blog Editor/Contributor  
 
TitleFuturewei Tech., Inc. v. Acacia Research Corp., No. 2013-1090 (Fed. Cir. Dec. 3, 2013).
Issue"[In view of co-pending litigation in Texas and California,] [t]he [Central District of California] court [i] dismissed count 11[, that Huawei was a third party beneficiary,] for failure to state a claim." Futurewei Tech., Inc. at *6 [text added]. "As to [ii] count 16, […] the court reasoned that, under Federal Rule of Civil Procedure 13(a), this count is a compulsory counterclaim to the claims in the Texas case and therefore must be brought in that case." Id. at *5. "Huawei appeals the district court’s dismissal of counts 11 and 16 of the complaint." Id., Inc. at *6.
HoldingWe affirm the dismissal of those counts, but we rely on the first-to-file rule, concluding that […] counts 11 and 16 both belong in the Eastern District of Texas [because: [i] interpreting count 11 as a declaratory judgment action, the substantive issues of that count are already being litigated in Texas; and [ii] count 16 amounts to a counterclaim that should be litigated in the same forum as overarching substantive claims].
Id. at *6 (text added).
 

Procedural History"On April 3, 2012, SmartPhone [, an assignee of Acacia/APA,] sued Huawei, which makes mobile handsets and tablets, in the Eastern District of Texas, alleging that certain Huawei products infringe the five patents. […] The next day, April 4, 2012, Huawei brought the present action against SmartPhone, Acacia Research, and Access in the Central District of California." Futurewei Tech., Inc. at *3 (text added, internal citations omitted). Huawei Device USA Inc. and Futurewei Technologies, Inc. (collectively, “Huawei”) appeal [the Central District of California's] dismissal of their complaint.
Futurewei Tech., Inc. at *2.
 
 
Legal Reasoning (Reyna, Mayer, Taranto)
Background
Counts on Appeal
Count 11Count 11 is entitled “Enforcement of Rights as a Third-Party Beneficiary,” but neither count 11 nor the prayer for relief expressly asks for a declaratory judgment that Huawei has that status. Rather, based on section 2.1’s protection of Access’s customers [as articulated in an exclusive license agreement], count 11 alleges that the parties to the agreement intended Huawei to benefit from the agreement, that SmartPhone is bound by section 2.1 as assignee, and that there is “an actual and justiciable controversy . . . concerning the rights of Huawei as a third-party beneficiary.”
Futurewei Tech., Inc. at *4 (text added)).
Count 16Count 16, when read with the prayer for relief, seeks a declaratory judgment that Acacia Research and SmartPhone are acting as corporate alter egos.
Id. at *4.
First-To-File Forum Rule
[General Rule] When two actions that sufficiently overlap are filed in different federal district courts, one for infringement and the other for declaratory relief, the declaratory judgment action, if filed later, generally is to be stayed, dismissed, or transferred to the forum of the infringement action. Merial Ltd. v. Cipla Ltd., 681 F.3d 1283, 1299 (Fed. Cir. 2012). This “first-to-file” rule exists to “avoid conflicting decisions and promote judicial efficiency.” Id. But the rule is not absolute; exceptions may be made if justified by “considerations of judicial and litigant economy, and the just and effective disposition of disputes.” Elecs. for maging, Inc. v. Coyle, 394 F.3d 1341, 1347 (Fed. Cir. 2005) (internal quotation marks omitted).
Id. at *6-7 (text added).
[Exceptoins] Justification for an exception may be found in “the convenience and availability of witnesses, [the] absence of jurisdiction over all necessary or desirable parties, . . . the possibility of consolidation with related litigation, or considerations relating to the real party in interest.” Genentech, Inc. v. Eli Lilly & Co., 998 F.2d 931, 938 (Fed. Cir. 1993). Resolution of whether the second-filed action should proceed presents a question sufficiently tied to patent law that the question is governed by this circuit’s law. Elecs. for Imaging, 394 F.3d at 1345-46.
Id. at *7.
(i) Count 11 Should be Litigated in the First-Filed Forum because the substantive issues of that count are already being litigated there
Allegation of Third-Party Beneficiary are already at Issue in Texas[…] Huawei has said that its status as a third-party beneficiary can matter for two purposes: to invoke the license agreement’s section 2.1 to protect it against the allegations it is in- fringing the five patents; and to invoke the agreement’s section 9.1, regarding forum selection. Those provisions of the license agreement are already at issue in the first- filed Texas action, or readily could be. In that action, Huawei has raised an affirmative defense that, as an Access customer, it is “licensed and/or impliedly licensed to practice the asserted patents.” […] Huawei can litigate its status as a third-party beneficiary in support of its positions in that action.
Futurewei Tech., Inc. at *7-8 (internal citations omitted).
Litigating in First-Filed Jurisdiction Avoids Duplication of Work [T]here is likewise no doubt that keeping the issue in the Texas case will serve key objectives of the first-to-file rule, including minimization or avoidance of “duplication of effort, waste of judicial resources, and risk of inconsistent rulings that would accompany parallel litigation.”
Id. at *9 (internal citation omitted).
No Exceptions ApplicableFinding an exception to the first-to-file rule here is unsupported by any substantial countervailing considera-tions. Huawei has not shown that judicial or litigant interests in economy favor allowing count 11 to proceed in this second-filed declaratory-judgment action. Indeed, Huawei is a Texas corporation and has its principal place of business in Texas. At this point, moreover, with the dismissal of counts 1-10 no longer disputed, the non- infringement and invalidity issues will be litigated in the Texas case, unless that case is transferred.
Id. at *9.
Choice of Law ConcernsChoice of law may affect a transfer analysis, but the possibility of having to decide a California-law question is not enough, in the present posture of this case, to support an exception to the first-to-file rule.
Id. at *10
(ii) Count 16 Should be Litigated in the First-Filed Forum because it amounts to a counterclaim that should be litigated in the same forum as overarching substantive claims.
Counterclaim tied to Litigation in TexasThat count also is directly related to Huawei’s affirmative defense in the Texas litigation that it has rights to practice the five patents under the license agreement between Access and Acacia Research’s wholly owned subsidiary APAC. It makes no sense for this count to be adjudicated as a stand-alone claim in California while the relevant, substantive claims to which it directly relates are being litigated in Texas. Indeed, SmartPhone’s status as an alter ego to Acacia Research matters only insofar as it affects substantive rights found elsewhere—here, the rights being litigated in Texas.
Futurewei Tech., Inc. at *10-11
Dicta: FRCP R. 13 Analysis Supports ConclusionA logical relationship exists when the counter- claim arises from the same aggregate set of opera- tive facts as the initial claim, in that the same operative facts serve as the basis of both claims or the aggregate core of facts upon which the claim rests activates additional legal rights otherwise dormant in the defendant. Pegasus Gold, 394 F.3d at 1196. Here, the logical rela- tionship is strong: the license agreement gives rise to Huawei’s alter-ego claim, to SmartPhone’s affirmative right to enforce the patents in the Texas case, and to Huawei’s defense in that case that it may practice the patents as an Access customer—a defense that undergirds Huawei’s standing to seek a declaratory judgment on the alter-ego issue in the first place.
Id. at *11-12.
Conclusion
Huawei appeals the district court’s dismissal of counts 11 and 16 of the complaint. We affirm the dismissal of those counts, but we rely on the first-to-file rule, conclud- ing that, like counts 1-10, counts 11 and 16 both belong in the Eastern District of Texas. The district court did not rely on this ground for counts 11 and 16, but in the cir- cumstances here, we are not precluded from doing so.
Id. at *6.
 
 
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