Court: District Court, E.D. New York; November 29, 2012; Federal District Court
Plaintiffs Philip A. Pecorino, Aldo Medaglia, and Sheward. Son. Sons, doing business as Visionart, initiated a patent infringement lawsuit regarding United States Patent No. 5,264,765, titled "Video Display Screen Cover." The Defendants, Farralane Lighting Audio and Video Systems Inc. and Vutec Corporation, filed motions to transfer the case to the Southern District of Florida and to dismiss the complaint for failure to state a claim. The court denied the venue transfer motion and partially granted the motion to dismiss.
The Plaintiffs, Pecorino and Medaglia, are New York residents and co-owners of the '765 Patent, which was issued on November 23, 1993. They licensed the patent to Visionart, incorporated in California. Farralane, based in New York, allegedly sells video display screen covers produced by Florida-based Vutec, which markets various projection screen products, including its ArtScreen line. The complaint alleges that both Defendants have engaged in activities related to the '765 Patent with knowledge of the Plaintiffs' rights. The court noted that the Defendants are represented by the same counsel and considered their motions together due to their similarities.
The Motion to Transfer Venue is based on 28 U.S.C. § 1404(a), allowing for the transfer of civil actions to enhance convenience for parties and witnesses and to serve the interests of justice. This statute aims to minimize waste and protect against unnecessary inconvenience and expense. The burden of proof rests with the movant, who must demonstrate the appropriateness of the transfer with clear and convincing evidence.
The analysis involves a two-part inquiry: first, whether the case could have been initiated in the proposed transferee court, and second, whether the transfer is justified considering the convenience of parties and witnesses and the interests of justice. Nine factors guide this second inquiry:
1. Convenience of the parties
2. Convenience of the witnesses
3. Relative financial means of the parties
4. Location of operative facts and access to evidence
5. Availability of process to compel witness attendance
6. Weight of the plaintiff's choice of forum
7. Calendar congestion
8. Familiarity of the forum with applicable law
9. Trial efficiency and overall justice considerations
The court exercises broad discretion in weighing these factors, with transfer motions evaluated on a case-by-case basis to ensure convenience and fairness.
The inquiry focuses on whether the action could be brought in the Southern District of Florida, the proposed transferee court. Venue for patent infringement actions is determined by 28 U.S.C. § 1400(b), allowing suits in districts where the defendant resides or where infringement occurs. A corporate defendant, like Vutec or Farralane, resides in any district where it is subject to personal jurisdiction. The court must assess if it has personal jurisdiction over these corporations based on Florida law and federal due process.
Vutec, incorporated in Florida with principal places of business in Pompano Beach and Coral Springs, satisfies both Florida's jurisdictional standards and federal due process. Conversely, BNE. SOUTH, not a Florida resident or business entity, can only be subjected to jurisdiction via Florida's Long Arm Statute. The plaintiffs concede that Vutec is subject to personal jurisdiction in Florida.
Farralane presents a more complex situation since it is a New York corporation domiciled in the relevant district. Vutec argues that Farralane is merely a "sham" defendant included to manipulate venue, asserting that Vutec did not sell any infringing products to Farralane. However, Farralane's counsel later concedes to Florida's personal jurisdiction and venue, though the plaintiffs argue this concession is inadequate at this stage of the proceedings.
Transfer of a case involving multiple defendants requires that all defendants were subject to personal jurisdiction in the proposed transferee court at the time the case was filed. This aligns with the precedent set in Posven, C.A. v. Liberty Mut. Ins. Co. Courts must consider the jurisdictional status at the time of filing, not subsequent actions such as a defendant consenting to jurisdiction. The Supreme Court in Hoffman v. Blaski established that if a plaintiff cannot sue in a district independent of a defendant's consent, then that district is not one where the action might have been brought. This principle is consistently followed in this Circuit, emphasizing that later consent from a defendant, such as Farralane, does not alter the initial jurisdictional assessment. The concept of "sham" or "shadow" defendants arises, particularly in the context of fraudulent joinder to evade removal to federal court. While case law on sham defendants in venue transfer motions is limited, it is analogous to fraudulent joinder cases. Courts assess whether a sham defendant's inclusion in a case is baseless, impacting the legitimacy of the removal process.
The Second Circuit employs a 'no possibility' standard for determining fraudulent joinder, requiring defendants to prove, by clear and convincing evidence, either outright fraud in the plaintiff’s pleadings or that there is no possibility of a valid cause of action against a non-diverse defendant in state court. Most courts in this district strictly interpret this standard, where any potential for recovery, however minimal, counters claims of fraudulent joinder. While district courts typically avoid assessing the merits of the plaintiff's claims during jurisdictional inquiries, they may undertake some analysis when presented with sworn evidence indicating the claims lack substance.
Jurisdictions differ in their evidentiary standards for assessing fraudulent joinder, with the Third and Tenth Circuits allowing limited fact-finding, while the Fifth Circuit permits piercing only for discrete, undisputed facts. In contrast, the Fourth and Eleventh Circuits allow broader record reviews but emphasize that decisions should not address the merits of the case. Specific cases highlight this principle, such as Oplus Technologies, where a court severed a distributor from a patent infringement case to prevent venue manipulation, finding the distributor's involvement minimal. Similarly, in Encyclopaedia Britannica, Inc. v. Magellan Navigation, Inc., defendants sought to sever a co-defendant from the case and transfer it to another jurisdiction, underscoring the courts' focus on the appropriateness of venue and the validity of claims against joined defendants.
The court clarified that exceptions to the Hoffman rule under 28 U.S.C. § 1404(a) allow for case transfers even if the plaintiff could not have brought the exact case in the transferee district. Notable exceptions include instances where courts permit severance and transfer of claims against less than all defendants in multi-defendant suits, particularly when a defendant is only peripherally involved. The case of Siemens Aktiengesellschaft v. Sonotone Corp. supports this, indicating that a transfer may be justified to prevent injustice, regardless of venue issues with one defendant. The court highlighted that American TV's inclusion as a defendant appeared to be a strategy to prevent transfer, as its minimal role in the case rendered it a mere "shadow" party. The court noted that American TV did not contribute to the development of the infringing products and lacked significant involvement in the sale of those products. Additionally, Michael Farrell, President of Farralane, confirmed that Farralane purchases and resells equipment but has never engaged in the design or development of the products, nor has it dealt with any products from Vutec that could be relevant to the claims at issue.
Farralane's representative asserts that neither Farralane nor its employees were involved in the development or manufacturing of Vutec's products, including the ArtScreen line, and that they possess no relevant documents or knowledge pertaining to the case. Conversely, Louise Triano, married to Plaintiff Pecorino, details her inquiry into purchasing an ArtScreen, which led her to contact Vutec representatives. Despite this, the Court finds it unnecessary to determine if Farralane could be dismissed as a "sham" defendant for venue transfer analysis, as the relevant factors do not favor transferring the case.
In assessing convenience, the residence of parties is crucial. Plaintiffs Pecorino and Medaglia reside in New York, while Visionart, a California corporation, has agreed to litigate in New York due to its licensing agreement with the other two Plaintiffs. Thus, the Eastern District of New York is deemed more convenient for all Plaintiffs. Conversely, Defendant Vutec is a Florida corporation based in Broward County, arguing that traveling over 1,000 miles to New York would be burdensome, especially for its elderly president, who has health issues. The convenience of non-party witnesses is prioritized in the analysis, but party witness considerations remain relevant as well.
The Court expresses sympathy for Mr. Sinkoff but finds no evidence of his medical inability to travel. It notes that elderly litigants have previously managed travel burdens by opting for videotaped depositions, referencing cases such as Caputo v. Holland Am. Line, Inc. and Goldweber v. Harmony Partners Ltd. However, the Court determines that the Southern District of Florida is a more convenient forum for Vutec, given the travel challenges for its representatives. Although there are two plaintiffs residing in the current district and one consenting to jurisdiction, one defendant does not reside there. The Court emphasizes that distance does not inherently make a forum inconvenient if it is accessible via a few hours of air travel, as noted in Effron v. Sun Line Cruises, Inc. Moreover, transferring the venue should not merely shift the inconvenience from one party to another. The convenience of witnesses, particularly non-party witnesses, is highlighted as a critical factor in transfer decisions, with the burden on the party seeking transfer to identify key witnesses and outline their expected testimony. Ultimately, the presence of several parties in the current district slightly weighs against transfer.
In Excelsior Designs, Inc. v. Sheres, the court emphasized that when evaluating witness convenience for venue transfer, it is essential to qualitatively assess the significance of the witnesses' testimony rather than simply counting them. Vutec has seven identified witnesses in the Southern District of Florida, including six current employees and one former employee, each expected to provide relevant testimony regarding the development, manufacturing, financial aspects, and operation of Vutec's ArtScreen products. Despite the witnesses' relevance supporting the transfer request, their status as primarily party-affiliated witnesses mitigates the weight of their inconvenience. Specifically, the inconvenience of party employees is considered less significant than that of non-party witnesses. Additionally, the former employee, while recognized as a non-party witness, is expected to have a greater willingness to attend trial compared to typical non-party witnesses.
The relevance of party-witnesses is acknowledged, though not deemed entirely significant. In patent infringement cases, courts prioritize witness testimony related to the technology, design, and development of the infringing product over aspects like supply and marketing. The testimony from Fuji U.S.A. is limited to marketing and sales, which is only pertinent after infringement issues are resolved. Critical witnesses in infringement actions are often those involved in the design, production, and sale of the disputed products. Courts emphasize the importance of individuals who can discuss the technology of the inventions claimed in the patents.
In the current case, only four witnesses from Vutec's ArtScreen line are expected to testify about the relevant technology. Farralane claims that the technology in question does not pertain to any Vutec products it has dealt with, resulting in an inability to identify relevant witnesses. The Plaintiffs have proposed two party-witnesses and two non-party witnesses. Pecorino and Medaglia will testify about the conception and prosecution of the '765 Patent, while non-party witnesses Kátz and Lerch will address re-examination proceedings and the patent's application and issuance, respectively. The locations and expected testimonies of the Plaintiffs' witnesses support New York as a more convenient forum.
The Plaintiffs argue their non-party witnesses will provide unique insights, contrasting with Vutec's non-party witness, Mr. Nguyn, whose testimony is seen as duplicative of Mr. Montero's. However, the Court finds that both engineers possess significant knowledge relevant to the case. Montero is expected to discuss the operation and installation of Vutec's ArtScreen, while Nguyn will address its design and development.
A significant portion of testimony regarding Vutec’s ArtScreen may be noncumulative and relevant to the Plaintiffs’ lawsuit, with witnesses located in New York for the Plaintiffs and South Florida for the Defendant, Vutec. The convenience of non-party witnesses is pivotal, as Vutec intends to call six party and employee witnesses, plus one former employee as a non-party witness. Four witnesses will address the design and technology of the product in question. Conversely, the Plaintiffs will present two party witnesses discussing the patent invention and two non-party witnesses related to prior litigation, all preferring to litigate in New York. The court finds this convenience factor slightly favors the Plaintiffs, opposing the transfer of the case.
The relative means of the parties are also considered, particularly given the disparity between individual Plaintiffs (a schoolteacher and a small business owner) and the corporate Defendant, Vutec, which has been operational for over 34 years and employs 120 people. For a transfer argument based on financial burden to be valid, adequate documentation must be provided. While Vutec presents declarations indicating that transporting several employee witnesses would impose considerable financial strain, their argument is weakened due to the lack of supporting documentation beyond these declarations. The court cites previous rulings emphasizing the necessity of concrete evidence to substantiate claims of prohibitive expenses related to litigation location.
Plaintiffs assert that Pecorino and Medaglia, as a teacher and small business owner, possess significantly fewer resources than the mid-sized corporation Vutec, which impacts their ability to travel for legal proceedings. They argue that relocating the case to the Southern District of Florida would impose substantial financial and personal burdens, as they would need to cover transportation and lodging costs and suspend their jobs. In contrast, Vutec would only need to send a small number of employees to New York. However, both parties have failed to provide adequate documentation to substantiate their financial claims, relying mainly on a declaration from their attorney, Cameron S. Reuber. The Plaintiffs also contend that they would incur additional costs for local counsel in Florida, requiring extra time for training on the relevant technology and facts. This reliance on precedent from Neil Brothers is questioned, as the court indicated that the concern over hiring local counsel was overstated. Additionally, there is no evidence that the Plaintiffs' current counsel could not represent them pro hac vice in Florida. The arguments regarding increased legal expenses are deemed weak, especially considering the lack of proof of undue hardship, which diminishes the weight of this factor in the transfer analysis. The locus of operative facts is identified as a crucial consideration in venue transfer motions, focused on where the events giving rise to the claims occurred, highlighting its importance in determining the appropriate venue.
Consideration of the ease of access to sources of proof is critical in determining the locus of operative facts in patent infringement cases. Courts in the Second Circuit exhibit a split in authority regarding whether to focus on the patented product or the allegedly infringing product. Some rulings emphasize facts related to the design and production of the patented product, while others prioritize the location of the allegedly infringing product's design and development.
The Federal Circuit has reinforced that the location of the accused infringer's documents can favor transferring venue to that location, as evidenced in *In Re Genentech, Inc.*, where the majority of relevant evidence was held by the defendant. Judge Seybert's ruling in *Ratner v. Martel Electronics Corporation* highlighted that the location of the alleged infringing product's development is paramount, dismissing the plaintiff's claims about the location of their documents.
Several courts have concluded that the transferee forum is appropriate if design, development, and marketing of the allegedly infringing product occurred there and relevant parties reside in that location. This Court recognizes that both lines of precedent regarding loci of operative facts are valid and notes that multiple loci may exist due to the complexities of the claims involved.
In patent infringement cases, the locus of operative facts typically lies where the patent or allegedly infringing product was designed, developed, and produced. In this instance, the Patents-In-Suit were developed in New York, while the allegedly infringing products were produced in Hong Kong. Additionally, Vutec, the alleged infringer, operates out of Southern Florida, where all relevant documents and records are located. The court acknowledges that Southern Florida serves as a locus of operative facts due to Vutec's business activities there, including the presence of key personnel.
Conversely, New York is also identified as a locus of operative facts, as it is the location where the '765 Patent was conceived, prosecuted, and licensed. The court notes that the location where the allegedly infringing product was sold is also relevant, with both parties recognizing that approximately eight percent of Vutec's sales occurred in New York. However, the court emphasizes that sales figures alone do not establish a significant connection to the forum, particularly when products are sold in multiple states. The overall analysis indicates that both New York and Southern Florida are pertinent locations in determining the locus of operative facts for this case.
A minimal connection to New York is established by Vutec's sales of Art-Screen products, which account for less than three percent of its nationwide sales over the past six years. This small percentage does not suffice for venue purposes in New York, as it does not constitute a material connection. Both the Southern District of Florida and the Eastern District of New York are identified as loci of operative facts, rendering this factor neutral.
The court's ability to compel witness attendance is also addressed. Non-party witnesses can only be subpoenaed within the district or within 100 miles, and employee witnesses are generally compelled by their employment status. Of the identified witnesses, only Nguyn, a former Vutec employee from Southern Florida, qualifies as a non-party witness for 28 U.S.C. § 1404(a) purposes. Farralane expects to call only its president, who frequently visits Southern Florida. The Plaintiffs have two non-party witnesses, Katz and Lerch, who are subject to the court's subpoena power in New York but not in Florida. The Plaintiffs argue that transferring the case would hinder their ability to compel these witnesses, while Vutec contends that remaining in New York limits their ability to compel their former employee, Nguyn. However, neither party has provided evidence that their respective non-party witnesses would refuse to appear if the case were transferred, leading to speculation regarding their availability. The option of videotaping testimonies from unwilling witnesses is noted as an alternative.
The court evaluated several factors regarding the transfer of a case. The plaintiffs' choice of forum is generally given considerable weight and should not be disturbed unless other significant factors favor the transfer. In this case, the plaintiffs include two residents of New York, making their choice more persuasive despite the defense's argument that it should carry less weight due to the non-residency of all plaintiffs. Only one factor was identified that favored transfer, indicating that the defendants did not sufficiently demonstrate that other considerations outweighed the plaintiffs' preference.
Docket conditions were also considered; evidence showed that the Southern District of Florida had significantly shorter trial times (17.2 months) compared to the Eastern District of New York (32.9 months), favoring transfer. However, since patent law is federal, both districts are equally capable of handling the case, rendering this factor neutral. Lastly, the interests of justice and trial efficiency did not strongly favor or oppose the transfer, as minimal discovery had occurred since filing the complaint nearly a year prior, with little investment of time or resources by the Eastern District of New York.
The court has determined not to transfer the case to Florida, despite the locus of operative facts and lesser calendar congestion in that district, as these factors are insufficient to override the plaintiffs’ choice of forum. The plaintiffs' limited financial means compared to the defendant, the ability to compel the attendance of the defendants' witnesses, and the quality of testimony from the plaintiffs' witnesses further support the decision against transfer. The burden of proof for transfer lies with the defendants, who have not provided compelling reasons for it. Consequently, the motion to transfer to the Southern District of Florida is denied.
Regarding the defendants’ motion to dismiss for failure to state a claim, the court will apply the Twombly standard, which requires a complaint to contain sufficient factual allegations for a claim to be plausible on its face. The court must accept the factual allegations as true and draw reasonable inferences in favor of the plaintiffs. Legal conclusions and conclusory statements do not suffice for a plausible claim. The court will only grant dismissal if it is convinced that the complaint cannot state any set of facts that would entitle the plaintiff to relief.
Under Federal Rule of Civil Procedure 12(b)(6), the standard for a motion to dismiss does not require a plaintiff to prove their case but to demonstrate an entitlement to present evidence supporting their claims. The Twombly standard applies to all civil actions, but its relevance in patent cases, especially for direct infringement claims, has generated differing opinions among courts. Form 18, which outlines the minimum requirements for a patent infringement complaint, necessitates an allegation of jurisdiction, ownership of the patent, details of the defendant's infringement, notification of infringement to the defendant, and a request for remedies. Rule 84 states that these forms are adequate under the rules, which has led to confusion about whether merely meeting Form 18's requirements is sufficient for stating a claim. While some courts maintain that complaints conforming to Form 18 adequately state a claim unless explicitly overturned by higher courts, others argue that the more stringent Twombly/Iqbal standard necessitates more detailed pleading than Form 18 provides. Despite this division, since the defendants have not contested the direct infringement allegations, the court finds it unnecessary to resolve the debate. The Federal Circuit has indicated that the sufficiency of a complaint for direct infringement should be evaluated against the specificity required by Form 18.
Defendants challenge three aspects of the Plaintiffs’ complaint: 1) induced infringement, 2) contributory infringement, and 3) willful infringement with a request for treble damages. It has been established that Form 18 does not apply to indirect infringement claims, which require a more rigorous standard under the principles set forth in Twombly and Iqbal, as indirect infringement includes additional elements beyond those in direct infringement.
For induced infringement under 35 U.S.C. § 271(b), a patentee must demonstrate that there has been direct infringement and that the alleged infringer knowingly induced that infringement with specific intent. The Plaintiffs have only alleged induced infringement against Defendant Vutec, asserting that Vutec was inducing infringement and had knowledge of the Plaintiffs’ patent rights. However, the complaint does not adequately allege that Defendants knew of the '434 Patent during the infringing activities, nor does it provide sufficient facts to infer such knowledge. Additionally, the Plaintiffs fail to plausibly plead that Vutec knowingly induced the infringement or had the specific intent to encourage another party’s infringement, which is necessary for a claim of induced infringement.
The Complaint fails to provide adequate factual support for a reasonable inference that Defendants induced anyone to use the allegedly infringing device. While it acknowledges Vutec’s knowledge of the '765 Patent, mere knowledge is insufficient to establish liability for indirect infringement, which necessitates a plausible claim of direct infringement of the '078 Patent. The Complaint does not demonstrate that Defendants specifically intended for their customers to infringe the '078 Patent or that they were aware of the infringement. Although Plaintiffs argue that Vutec's sale of allegedly infringing products constitutes induced infringement, the lack of allegations regarding specific intent leads the Court to agree that the claim against Vutec for induced infringement is unsubstantiated. Consequently, the motions to dismiss this claim are granted. Vutec and Farralane also contest that Vutec sold any video display covers, but this factual dispute is not appropriate for resolution at this stage. Regarding contributory infringement under 35 U.S.C. § 271(c), a plaintiff must allege direct infringement, knowledge of the patent, that the component has no substantial non-infringing uses, and that it is a material part of the invention. Induced infringement requires knowledge that the acts being induced constitute patent infringement. Thus, for contributory infringement, there must be evidence that the alleged infringer knew the component was designed for a patented and infringing combination.
In Aro Mfg. Co. v. Convertible Top Replacement Co., the court clarifies that for contributory infringement claims, a substantial non-infringing use is defined as one that is not unusual, impractical, or experimental. The focus is on whether accused products can be used for non-infringing purposes. Plaintiffs allege that Farralane sold potentially infringing products from Vutec, raising direct infringement claims. However, without evidence of direct infringement, no contributory infringement claim can exist. Furthermore, while the complaint suggests knowledge of the patent, it lacks necessary details about the components involved, specifically failing to identify any material part of the invention. The plaintiffs argue that the screen sold by Vutec is a component of the invention as it is used with televisions; however, the complaint does not assert that the screen has no substantial non-infringing uses. Consequently, the motion to dismiss the contributory infringement claim is granted.
Regarding willful infringement, recent district court cases reveal inconsistencies in requirements post-Twombly and Iqbal. Generally, it is essential for complaints to allege facts indicating direct infringement and the defendant's knowledge of the patent's existence. Past cases illustrate that mere awareness of a patent's notoriety or direct notice of infringement claims can support willful infringement claims.
A plaintiff must allege facts supporting a good faith belief in willful infringement when filing a claim, as established by In re Seagate Tech. LLC. However, Vutec does not provide authority for requiring specific factual allegations regarding this belief. The court indicates that only allegations of direct infringement and knowledge of the patent are necessary at the pleading stage. While a patentee must ultimately prove willful infringement with clear and convincing evidence, this standard applies to evidence, not the initial pleading.
The plaintiffs assert that their claims for indirect and willful infringement are alternative theories of relief, contending that adequate pleading of direct infringement suffices to support their claims. They cite Rule 8(d)(2), which allows for multiple alternative claims within a single count, and reference a precedent case where an alternative statement was deemed sufficient. Vutec, however, characterizes the claims as a "hybrid claim" and argues that alternative claims can still be dismissed if they do not establish a cause of action. The court emphasizes that Rule 8(d)(2) allows for the inclusion of contradictory claims and provides flexibility in plea structure, aiming to resolve cases based on the merits rather than procedural technicalities.
Rule 8(d) allows plaintiffs to plead claims in the alternative, even if the legal theories are inconsistent. Plaintiffs are not required to choose between theories of direct infringement, inducing infringement, and contributory infringement but must plead each theory adequately and independently. Each alternative theory must sufficiently state a claim, with factual allegations raising the right to relief above a speculative level. The court dismissed one alternative claim due to insufficient factual support. The defendants argued that combining claims into a single cause of action invalidated the complaint, but as long as the required elements for direct infringement are met, the combination is acceptable. The plaintiffs requested to submit a proposed amended complaint, which the court will not consider until the defendants can respond to it. The induced and contributory infringement claims are dismissed without prejudice, allowing the plaintiffs to file an amended complaint within 20 days. The court denied the defendants' motion to transfer venue and granted in part and denied in part their motion to dismiss, allowing the plaintiffs to amend their complaint accordingly.
