In Re Nintendo of America, Inc. , 756 F.3d 1363 ( 2014 )

United States Court of Appeals
for the Federal Circuit
______________________
IN RE NINTENDO OF AMERICA, INC., MICRO
ELECTRONICS, INC., HASTINGS
ENTERTAINMENT, INC., GAMESTOP CORP., BEST
BUY STORES, L.P., BESTBUY.COM, LLC, KMART
CORPORATION, TARGET CORPORATION, AND
TOYS 'R' US-DELAWARE, INC.
______________________
2014-132
______________________
On Petition for Writ of Mandamus to the United
States District Court for the Eastern District of Texas in
Nos. 2:13-cv-00032-JRG and 2:13-cv-00289-JRG, Judge J.
Rodney Gilstrap.
______________________
STEPHEN R. SMITH, Cooley LLP, of Reston, Virginia,
for petitioner Nintendo of America Inc. With him on the
petition were LORI R. MASON, of Palo Alto, California, for
petitioner Nintendo of America Inc.; and JAY F. UTLEY,
Baker & McKenzie LLP, of Dallas, Texas for all other
petitioners including Nintendo of America Inc.
JAMES E. DAVIS, Ferguson, Braswell & Fraser, P.C., of
Plano, Texas, for respondent Axcess, LLC. With him on
the response were CASEY L. GRIFFITH and KELLY J.
KUBASTA, Klemchuk & Kubasta, LLP, of Dallas, Texas.
ROBERT S. SCHWARTZ, Constantine Cannon LLP, of
Washington, DC, for amicus curiae. With him on the brief
was ROSA M. MORALES.
2 IN RE NINTENDO OF AMERICA, INC.
______________________
ON PETITION
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Before NEWMAN, RADER, * and HUGHES, Circuit Judges.
NEWMAN, Circuit Judge.
ORDER
Nintendo of America, Inc. distributes its DS video
game systems to stores and online dealers, which retail
the gaming system either as a stand-alone product or
bundled with video games and other accessories. Secure
Axcess LLC brought this suit in the United States District
Court for the Eastern District of Texas, charging Ninten-
do and eleven retailer defendants (the “Retailers”) with
patent infringement. The district court denied the motion
of Nintendo and the Retailers to sever and stay the claims
against the Retailers, and transfer the separated action
against Nintendo to the Western District of Washington.
Nintendo and the Retailers filed this petition for a writ of
mandamus.
A district court is authorized to “transfer any civil ac-
tion 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). Where, as
here, it is unclear whether the entire action could have
been brought in the transferee venue, courts may sever
defendants for purposes of transfer. Fed. R. Civ. P. 21;
Wyndham Assocs. v. Bintliff, 398 F.2d 614, 618 (2d Cir.
1968). This court has granted writs of mandamus in
circumstances similar to those herein. E.g., In re Toyota
* Randall R. Rader vacated the position of Chief
Judge on May 30, 2014.
IN RE NINTENDO OF AMERICA, INC. 3
Motor Corp., 747 F.3d 1338 (Fed. Cir. 2014); In re EMC
Corp., 677 F.3d 1351 (Fed. Cir. 2012).
Nintendo coordinates the manufacture and marketing
of its products in the United States from its Redmond,
Washington campus, where it employs approximately 830
persons. Nintendo states that location is where key
executives work, sales and marketing decisions concern-
ing the accused products are made, and where it main-
tains documents relating to finance, sales, licensing,
contracts, advertising, and product development. Plaintiff
Secure Axcess is a company that acquires, licenses, and
enforces patents. While its executives work in various
parts of the country, Secure Axcess states that all of its
officers’ business cards list its principal place of business
in Plano, Texas, where it leased 200 square feet of office
space before filing its first infringement suit in the East-
ern District of Texas.
After Secure Axcess filed its complaint, petitioners
moved to sever and transfer the claims against Nintendo
to the Western District of Washington, where a substan-
tial portion of the witnesses and documents relating to
the litigation are located. Although two of the eleven
Retailers are headquartered in Texas, petitioners pointed
out that none maintained principal operations in the
Eastern District of Texas or had any information relating
to the development or design of the accused Nintendo
products. Petitioners further requested that the remain-
ing claims be stayed, pointing out that the Retailers had
stipulated that they would be bound by any judgment
rendered by the transferee court in the Nintendo litiga-
tion.
The district court denied the motion. Noting Secure
Axcess’ assertion it could obtain a higher royalty against
the Retailers in light of “higher retail prices and the
retailers’ practice of bundling the accused systems with
video games and other accessories,” the district court
4 IN RE NINTENDO OF AMERICA, INC.
determined that it should not sever the claims because
“Plaintiffs should be allowed to pursue Nintendo and the
Retailer Defendants simultaneously for an award of
damages, even though it may only collect once.” Secure
Axcess, LLC v. Nintendo of Am. Inc., No. 2:13-cv-32, 2014
WL 986169, at *5 (E.D. Tex. Mar. 7, 2014). Having decid-
ed against severance, the district court held that the
request for transfer must be denied. Id. at *6.
When a patent owner files an infringement suit
against a manufacturer’s customer and the manufacturer
then files an action of noninfringement or patent invalidi-
ty, the suit by the manufacturer generally take prece-
dence. Spread Spectrum Screening LLC v. Eastman
Kodak Co., 657 F.3d 1349, 1357 (Fed. Cir. 2011); Katz v.
Lear Siegler, Inc., 909 F.2d 1459, 1464 (Fed. Cir. 1990).
This “customer-suit” exception to the “first-to-file” rule
exists to avoid, if possible, imposing the burdens of trial
on the customer, for it is the manufacturer who is gener-
ally the “true defendant” in the dispute. Codex Corp. v.
Milgo Elec. Corp., 553 F.2d 735, 737-38 (1st Cir. 1977).
While the circumstances of this case differ from those
of the customer-suit exception, we agree with the district
court that the same general principles govern in that
Nintendo is the true defendant. However, unlike the
district court, we do not think that this preference “tem-
pers” transfer pursuant to § 1404(a). Secure Axcess, 2014
WL 986169, at *3. Their goals are not at cross purposes;
the customer-suit exception, Rule 21, and § 1404(a) are all
designed to facilitate just, convenient, efficient, and less
expensive determination. See Fed. R. Civ. P. 1; Van
Dusen v. Barrack, 376 U.S. 612, 616 (1964) (Section
1404(a) serves to “prevent the waste ‘of time, energy and
money’ and ‘to protect litigants, witnesses and the public
against unnecessary inconvenience and expense . . . .’”)
(citation omitted); Katz, 909 F.2d at 1464.
IN RE NINTENDO OF AMERICA, INC. 5
Petitioners argue persuasively that granting this mo-
tion would resolve these claims more efficiently and
conveniently. Indeed, the district court recognized that
“the issues of infringement and validity are common to
Nintendo and the Retailer Defendants” and that if Secure
Axcess were to collect royalties from Nintendo, this would
preclude suit against the Retailers. Secure Axcess, 2014
WL 986169, at *4-5. Moreover, the record reflects that all
of Nintendo’s identified witnesses reside in the transferee
forum or would find travel to and from that venue signifi-
cantly more convenient; no witness was identified as
residing in the Eastern District of Texas.
Secure Axcess maintains that its choice of forum is
entitled to deference because it is filing in its “home
venue.” However, decisions granting transfer have looked
beyond the connection of the parties with the transferor
venue when the disparity of convenience is so marked as
to outweigh the plaintiff’s right to choose the forum. See,
e.g., In re Microsoft Corp., 630 F.3d 1361, 1364 (Fed. Cir.
2011); In re Hoffmann-La Roche Inc., 587 F.3d 1333, 1336
(Fed. Cir. 2009). So too here, there is a “stark contrast in
relevance, convenience, and fairness between the two
venues.” In re Nintendo Co., 589 F.3d 1194, 1198 (Fed.
Cir. 2009).
Secure Axcess nonetheless contends that severance
should be denied so that it may pursue, and have its
choice of, the highest royalty rate among the defendants.
This argument is outweighed, as in Katz, where we held
that “[a]lthough there may be additional issues involving
the defendants in [the customer] action, their prosecution
will be advanced if [the plaintiff] is successful on the
major premises being litigated in [the manufacturer
litigation], and may well be mooted if [the plaintiff] is
unsuccessful.” 909 F.2d at 1464. This reasoning is simi-
larly applicable here, for Secure Axcess has no claim
against the Retailers unless the infringement claims
against Nintendo are resolved in favor of Secure Axcess.
6 IN RE NINTENDO OF AMERICA, INC.
Severance and transfer are appropriate “where the
administration of justice would be materially advanced . .
. .” Wyndham Assocs., 398 F.2d at 618. Since Nintendo’s
liability is predicate to recovery from any of the defend-
ants, the case against Nintendo must proceed first, in any
forum. The benefits of trying the case against Nintendo
in the Western District of Washington are indisputable.
We conclude that the district court should have exercised
its discretion to grant the petition.
Accordingly,
IT IS ORDERED THAT:
The district court order denying the motion to sever,
transfer, and stay is vacated, and the district court is
directed to grant petitioners’ motion.
FOR THE COURT
June 25, 2014 /s/ Daniel E. O’Toole
Date Daniel E. O’Toole
Clerk of Court