The Federal Circuit recently confirmed that district courts must still exercise discretion in deciding motions to sever where the heightened joinder requirements of the AIA are satisfied.
In In re Nintendo, Co.¸ __ Fed. App’x __ (Fed. Cir. Sept. 25, 2013) (nonprecedential), UltimatePointer, LLC sued Nintendo and numerous video game retailers in the Eastern District of Texas alleging infringement of two patents directed at an interactive laser pointer.
The defendants filed a motion to sever the claims against the retailer defendants and to transfer the case against Nintendo to the Western District of Washington on the grounds that the resolution of the claims against Nintendo would dispose of the case altogether. The plaintiff then served its preliminary infringement contentions, which accused other non-Nintendo products (also sold by the defendant retailers). In response, the defendants filed a second motion, asking the Court to sever all claims involving non-Nintendo products and to stay or dismiss the case against the retailer defendants with respect to those products.
The district court denied the defendants’ first motion to sever as moot in view of the second. The plaintiff then amended its complaint to add the non-Nintendo infringement claims. At this point the defendants sought reconsideration of the district court’s decision denying the first motion to sever on the basis that, when it was filed, Nintendo was the only real party in interest and that the Court had failed to consider the merits of the first motion to sever the case in this posture.
You still with me? Good.
The district court then denied the motion for reconsideration. The court also denied the second motion to sever on the premise that the defendants were properly joined in the original complaint and, therefore, Rule 18 of the Federal Rules of Civil Procedure allowed the plaintiff to join as many other claims (related or otherwise) that it might have.
The defendants filed a writ of mandamus, arguing that Rule 18 cannot be a “springboard” with which to add unrelated claims while also using those unrelated claims to avoid severance to facilitate transfer. In a (non-precedential) opinion authored by Judge O’Malley that included some strong criticisms of the lower court, a panel of the Federal Circuit agreed.
The opinion boils down to the rejection of circular logic applied by the lower court. First, the panel observed that Rule 18 liberally permits the joinder of new claims against existing parties, but only where the existing parties are properly joined in the first place. A district court may not relieve itself of its duty under Federal Rule 21 to exercise discretion in determining whether original claims should be severed simply because it finds that later-added claims may be properly joined. In particular, while agreeing with the lower court that the liberal joinder requirements of Federal Rule 20 and the more stringent requirements of the AIA (35 U.S.C. §299(b)) were met, the panel emphasized that these are “necessary, but not sufficient conditions for joinder” and that joinder may still be refused “in the interest of avoiding prejudice and delay, ensuring judicial economy, or safeguarding principles of fundamental fairness.”
The real error was that the district court did not consider these factors before finding the first motion to sever “moot.” Borrowing from the Seventh Circuit Court of Appeals, Judge O’Malley reminded the lower court that a “[f]ailure to exercise discretion is not exercising discretion; it is making a legal mistake.”
Finally, in addition to a succinct and yet inevitably mind-numbing discussion of the interplay between Federal Rules of Civil Procedure 18, 20, 21 and the Joinder Provision of the AIA, the decision also includes certain noteworthy policy statements (read dicta).
First, the panel observed that the fact that the defendants were “retailers who lack technical information regarding the accused products and have no control over the technology employed” favored severance because it would have limited the ability of each defendant to mount a defense. The panel also analogized the case to the “customer suit exception” which endorses staying a case against a customer or retailer where the manufacturer is the “true defendant.”
The takeaway here is that even an alleged infringer who finds himself properly joined under the AIA’s heightened standard should still carefully consider whether a motion to sever is appropriate. Especially where disposing of the plaintiff’s claims against another defendant could simplify or eliminate remaining issues in the case, such a defendant just might benefit from a healthy dose of discretion.