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IP Alert: Federal Circuit Reaffirms Standard for Severance and Transfer

May 7, 2012

In a decision dated May 4, 2012, the U.S. Court of Appeals for the Federal Circuit issued a ruling relating to severance and transfer of civil actions in In re EMC Corporation, Decho Corporation, and Iomega Corporation. The EMC decision is important especially for patent infringement cases filed before September 16, 2011, which is when the joinder provisions of the Leahy-Smith America Invents Act took effect.

In 2010, plaintiff Oasis Research LLC filed a complaint for patent infringement in the Eastern District of Texas. The complaint named 18 defendants. It was filed before the effective date of the joinder provisions of the America Invents Act, which has made it more difficult to join defendants in a single case. Eight of the defendants sought a writ of mandamus from the Federal Circuit to direct the district court in Texas to sever the claims against them and transfer the claims to district courts in other states.

Federal Rule of Civil Procedure 20, Permissive Joinder of Parties, provides that joinder of defendants is proper if (1) the claims against them are “with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences” and (2) “any question of law or fact common to all defendants will arise in the action.”

At the district court, the magistrate denied the defendants’ motions to sever and transfer, holding that “[c]laim validity, claim construction, and the scope of the four patents . . . are questions common to all Defendants in this case.” The magistrate also found that the claims “ar[ose] out of the same transaction, occurrence, or series of transactions or occurrences” because the accused services were “not dramatically different.” The district court adopted the magistrate’s findings and conclusions.

The Federal Circuit reversed, determining that the district court had applied an incorrect standard in analyzing the joinder question. The Federal Circuit held that the magistrate’s decision that the accused services were “not dramatically different” was inconsistent with Rule 20. Specifically, the Federal Circuit criticized the district court’s “not dramatically different” analysis, noting that this analysis seemed “to require little more than the existence of some similarity in the allegedly infringing products or processes, similarity which would exist simply because the same patent claims are alleged to be infringed.” 

The court then provided specific guidance on the requirements for joinder of defendants in a single action, holding that a “logical relationship” test is required. This test is satisfied, the court held, if there is “substantial evidentiary overlap in the facts giving rise to the cause of action against each defendant.” The infringement claims “must share an aggregate of operative facts.”

Based on the above analysis, the court granted the mandamus petition in part, and directed the district court to reconsider the defendants’ motions for severance and transfer.

The EMC case is significant for multidefendant cases filed before September 16, 2011. The import of EMC to cases filed after that date is uncertain, however, because the court expressly declined to indicate that its analysis should apply to the requisite analysis under the joinder provisions of the America Invents Act.

For more information on this decision, please contact Fitch Even partner Alison Aubry Richards, the author of this alert.

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