T.S. ELLIS, III, District Judge.
This patent infringement suit was brought by the foreign owner of the patents in suit and its affiliated Virginia distributor. Defendant seeks first the threshold dismissal of the Virginia distributor for lack of standing, and then a transfer of venue pursuant to 28 U.S.C. § 1404(a) given that dismissal of the Virginia plaintiff. To remedy the standing deficiency, plaintiffs then, without leave of court, file an amended complaint alleging that subsequent to the filing of the complaint, the foreign owner of the patents in suit transferred ownership of the patents to its affiliated Virginia distributor. Defendant counters that the amended complaint is in fact a supplemental complaint, which may not be filed without a leave of court and that leave to do so should be denied as futile given that the Virginia distributor did not have standing when the original complaint was filed and a post-suit assignment cannot retroactively confer standing.
For the reasons stated from the Bench, and elucidated here, the motion to file the supplemental complaint is not futile and is appropriately granted as settled Federal Circuit precedent makes clear that where, as here, an original plaintiff has standing, that plaintiff may assign the patents in suit during the course of the litigation and the assignee then has standing to maintain the action. And because the transfer calculus weighs decisively against transfer, the motion to transfer must be denied.
Plaintiff, Heinz Kettler GMBH & Co., KG ("Heinz Kettler"), is a German corporation that manufactures children's ride-on vehicles, including various models of bicycles, tricycles, and scooters. Plaintiff,
On June 24, 2010, Heinz Kettler and Kettler International initiated the instant action by filing a complaint against Razor, alleging a single count of patent infringement. Specifically, the complaint alleges that Heinz Kettler is the sole owner of a group of patents that prevent children from over-steering ride-on vehicles. Comp. ¶¶ 11-12. According to the complaint, Razor unlawfully incorporated Heinz Kettler's patented technology into one or more of its tricycle models sold in the United States. Id. ¶ 13. Importantly, the complaint states that Kettler International is "Heinz Kettler's exclusive United States distributor of Kettler products." Id. ¶ 9.
On August 27, 2010, Razor filed a motion to dismiss Kettler International for lack of standing, contending that Kettler International lacked standing to sue for patent infringement because it was only the exclusive distributor of the patents in suit, and not an owner or exclusive licensee. On the same date, Razor also filed a motion to transfer venue, pursuant to 28 U.S.C. § 1404(a). According to Razor, once Kettler International is dismissed from the action, the interests of justice favor transferring the lawsuit to the Central District of California.
On September 9, 2010, plaintiffs responded to the motion to dismiss by filing, purportedly as a matter of right, an amended complaint, pursuant to Rule 15(a)(1)(B), Fed.R.Civ.P. The amended complaint drops Heinz Kettler as a plaintiff and alleges that Kettler International is the sole owner, by assignment, of the patents in suit. Specifically, the amended complaint alleges as follows:
First Amended Comp. ¶ 9. In conjunction with their amended complaint, plaintiffs filed a response to Razor's motion to dismiss, arguing that the motion to dismiss is moot because Kettler International is now the owner of the patents in suit.
On September 15, 2010, Razor filed a reply in support of its motion to dismiss, arguing that plaintiffs' "amended complaint" is actually a "supplemental complaint" because it sets forth a transaction or occurrence (i.e., the post-suit assignment) that occurred after the filing of the original complaint. Pursuant to Rule 15(d), a party may file a supplemental pleading only by leave of court. Razor argues that because Kettler International failed to comply with this requirement, the so-called "amended complaint" should be stricken as improper supplementation.
On September 17, 2010, plaintiffs filed a motion requesting: (i) leave to drop Heinz Kettler as a party plaintiff; and (ii) permission to supplement the allegations in the original complaint to include the fact that Kettler International is, by virtue of assignment dated September 1, 2010, the sole and exclusive owner of the patents at issue in this lawsuit.
The four motions at issue are: (1) defendant's motion to dismiss for lack of standing; (2) defendant's motion to transfer, pursuant to 28 U.S.C. § 1404(a); (3) defendant's motion to strike the amended complaint as improper supplementation; and (4) plaintiffs' motion to file a supplemental complaint. Each motion is separately addressed.
The crux of the motion to dismiss is Razor's contention that Kettler International, as the exclusive distributor of Heinz Kettler's products, lacks standing to sue for patent infringement. Razor is correct that Kettler International does not have standing to sue for patent infringement based solely upon the allegation in the original complaint that Kettler International is "Heinz Kettler's exclusive United States distributor of Kettler products." Under Federal Circuit law, an exclusive distributor may have co-plaintiff standing if it has the exclusive right to sell all products incorporating the patents in suit in the United States. See Mitutoyo Corp. v. Central Purchasing, LLC, 499 F.3d 1284, 1291 (Fed.Cir.2007). Yet, an exclusive distributor is not entitled to co-plaintiff standing where it has only the exclusive right to sell a particular company's products incorporating the patents in suit. Id. Here, although the initial complaint alleges that Kettler International is the exclusive distributor of Heinz Kettler's products in the United States, it does not allege that Kettler International is the exclusive distributor of all products incorporating the patents in suit. Thus, Kettler International does not meet the requirements for co-plaintiff standing as an exclusive distributor.
But the fact that Kettler International does not have standing to sue for patent infringement based on its status as an exclusive distributor does not finally resolve the standing issue. Under Federal Circuit law, an assignee has standing to sue for patent infringement in its own name. See Aspex Eyewear, Inc. v. Miracle Optics, Inc., 434 F.3d 1336, 1340 (Fed. Cir.2006). The only potential limitation on an assignee's standing is that an assignee may not sue for damages for infringing
Razor argues that the amended complaint filed on September 9, 2010 should be stricken because the "amended complaint" is actually a "supplemental complaint" and Kettler International did not request permission to file its supplemental complaint pursuant to Fed.R.Civ.P. 15(d). Razor's motion to strike is now moot because Kettler International filed a motion requesting leave to file a supplemental complaint on September 17, 2010.
Plaintiffs have filed a motion requesting permission to supplement their original complaint to include the fact that Kettler International is currently the owner, by assignment, of the patents in suit. Supplemental pleadings are governed by Rule 15(d) of the Federal Rules of Civil Procedure. The rule states as follows:
Fed.R.Civ.P. 15(d). Supplemental pleadings are "[s]o useful ... and of such service in the efficient administration of justice that they ought to be allowed as of course, unless some particular reason for disallowing them appears." New Amsterdam Cas. Co. v. Waller, 323 F.2d 20, 28-29 (4th Cir.1963). Recently, the Fourth Circuit clarified that the standard for granting leave to supplement a pleading is "nearly identical" to the standard governing whether to grant a motion to amend. Franks v. Ross, 313 F.3d 184, 198 n. 15 (4th Cir.2002). Thus, a motion to supplement a pleading "should be denied only where `good reason exists ... such as prejudice to the defendants.'" Id. (quoting Walker v. United Parcel Serv., 240 F.3d 1268, 1278 (10th Cir.2001)).
Here, Razor is correct to refrain from arguing that granting plaintiffs leave to file a supplemental complaint will cause prejudice. The supplemental complaint does not add new claims, nor does it change the nature of the single claim being asserted against Razor. Indeed, the supplemental complaint alleges precisely the same claim for patent infringement that was alleged in the original complaint. The supplemental complaint's only effect is to replace one plaintiff, Heinz Kettler, with a different plaintiff, Kettler International, at an early stage in the litigation process. Making this change does not require Razor to expend substantial, if any, resources for additional discovery, and it does not otherwise undercut Razor's ability to prepare an appropriate defense to the patent infringement claim.
Instead of arguing prejudice, Razor contends that the supplemental complaint is futile because Kettler International did not have standing when the original complaint was filed, and a post-suit assignment does not retroactively confer standing. Razor is correct that Federal Circuit authority clearly establishes that standing cannot be conferred retroactively. See
This issue is easily resolved because, under well-established Federal Circuit authority, a patent owner may assign patent rights during the course of a patent infringement suit, and the subsequent assignee then has standing to maintain the action. For example, in Mas-Hamilton Group v. LaGard Inc., 156 F.3d 1206, 1210-11 (Fed.Cir.1998), the counterclaim plaintiff, La Gard, Inc. ("La Gard"), asserted a patent infringement claim against Mas-Hamilton Group ("Mas-Hamilton"). After the district court concluded that there was no infringement, La Gard filed an appeal. Subsequent to filing its appeal, La Gard assigned its patent rights to Masco Corp. ("Masco"). Thereafter, Mas-Hamilton filed a motion to dismiss for lack of subject matter jurisdiction. According to Mas-Hamilton, La Gard no longer had standing to sue for patent infringement because it assigned its rights to Masco, and Masco did not have standing because it was not the legal owner of the patent at the time of the alleged infringement. Id. at 1210. In denying the motion, the Federal Circuit noted that a proper plaintiff, La Gard, filed both the counterclaim and the appeal. Id. at 1210-11. The court further noted that La Gard made a valid assignment of all its patent rights to Masco, including the right to sue for past infringement. Id. Under these circumstances, the Federal Circuit concluded that Masco did not lack standing on appeal. Id.
Here, a plaintiff with Article III standing, Heinz Kettler, filed suit for patent
Because Kettler International has standing to maintain the patent infringement suit in the Eastern District of Virginia, the facts and circumstances of this case do not warrant transfer to the Central District of California. Pursuant to 28 U.S.C. § 1404(a), "[f]or the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought."
The first factor in the transfer analysis is the plaintiffs choice of forum. That choice is typically entitled to "substantial weight," especially where the chosen forum is the plaintiffs home forum or bears a substantial relation to the cause of action. See Koh v. Microtek Int'l Inc., 250 F.Supp.2d 627, 633 (E.D.Va.2003). Here, plaintiffs' choice of forum is entitled to substantial weight because the Eastern District of Virginia is Kettler International's home forum. Kettler International is a Virginia corporation and its principal place of business is located in Virginia Beach. Moreover, all of Kettler International's employees, including the directors and employees with information relevant to the patent infringement suit, are located in Virginia.
Razor argues that Kettler International's home forum should not receive deference because Kettler International is not a
The second factor is convenience to the parties, which typically requires courts to consider factors such as the "ease of access to sources of proof, the costs of obtaining witnesses, and the availability of compulsory process." Lycos, Inc. v. TiVo, Inc., 499 F.Supp.2d 685, 693 (E.D.Va.2007) (quoting Samsung Elecs. Co. v. Rambus, Inc., 386 F.Supp.2d 708, 717 n. 13 (E.D.Va.2005)). At least one court in this district has noted that "[w]hen plaintiffs file suit in their home forum, convenience to parties rarely, if ever, operates to justify transfer." JTH Tax, Inc., 482 F.Supp.2d at 738. Moreover, transfer is not appropriate where it will only serve to shift the balance of inconvenience from one party to the other. See Prod. Group, Int'l, Inc. v. Goldman, 337 F.Supp.2d 788, 799 (E.D.Va.2004).
Here, Razor argues that the Eastern District of Virginia is an inconvenient forum because its offices, employees, and relevant documents are all located in California. However, the Central District of California is an inconvenient forum for Kettler International to pursue its claim because its principal place of business, employees, and relevant documents are located in Virginia. Thus, this factor does not weigh in favor of transfer because it will only serve to shift the balance of inconvenience from Razor to Kettler International.
The third factor is the convenience to the witnesses of litigating in either venue. The party asserting witness inconvenience "has the burden to proffer, by affidavit or otherwise, sufficient details respecting the witnesses and their potential testimony to enable the court to assess the materiality of evidence and the degree of inconvenience." Koh, 250 F.Supp.2d at 636. Courts give "greater weight ... to the potential inconvenience of witnesses whose testimony is central to a claim and whose credibility is also likely to be an important issue." Lycos, 499 F.Supp.2d at 693. On the other hand, courts give less weight to the witness convenience factor
Kettler International has identified multiple witnesses that it contends will be inconvenienced by transferring this case to the Central District of California. Specifically, Kettler International alleges that two of its employees, both of whom reside in Virginia, have information relevant to this dispute. In addition, Kettler International states that a Heinz Kettler employee, who resides in Germany, also has potentially relevant information. Finally, Kettler International asserts that the attorneys who prepared and prosecuted the relevant patent applications are located in Virginia.
On the other hand, Razor has identified multiple witnesses that it argues will be inconvenienced by litigating this matter in the Eastern District of Virginia. Specifically, Razor alleges that three of its employees, all of whom reside in California, have pertinent information relating to the development, engineering, or technical aspects of Razor's products. Razor also asserts that two other California residents, the son of Razor's president and an outside consultant, were both involved in the design and development of the allegedly infringing product. The inconvenience to these witnesses, all of whom are either Razor's employees, related to Razor's employees, or Razor's paid consultants, merits little weight in the transfer analysis because Razor has failed to show that compulsory process is needed to obtain their testimony.
Razor also argues that it may need to take discovery from at least one other company that is located in California. According to Razor, in January 2008, plaintiffs entered into a settlement agreement with Friendly Toys Corporation ("Friendly Toys"). Pursuant to that agreement, plaintiffs granted a license to the patents in suit to Friendly Toys, and in return, Friendly Toys agreed to pay a royalty to plaintiffs for the life of the patents. Based on its status as a licensee, Razor contends that Friendly Toys is likely to have information relevant to damages issues in this case. Because it is unlikely that Friendly Toys will voluntarily travel to Virginia to testify on Razor's behalf, the need for compulsory process to obtain testimony from this non-party witness weighs in favor of transfer.
The final factor in the transfer analysis is the interest of justice. This factor "encompasses public interest factors aimed at systemic integrity and fairness." Byerson v. Equifax Info. Servs., LLC, 467 F.Supp.2d 627, 635 (E.D.Va.2006) (internal quotation marks and citations omitted). The most prominent elements of systemic integrity are judicial economy and the avoidance of inconsistent judgments. Id.
On balance, the relevant factors do not weigh strongly in favor of transfer. As an initial matter, plaintiffs' decision to file suit in the Eastern District of Virginia is entitled to substantial deference because this District is Kettler International's home forum. Moreover, while some documents and witnesses are located in California, other documents and witnesses are located in Virginia and Germany. Finally, there is nothing in the record to suggest that the interest of justice militates in favor of transfer. Thus, Razor has not satisfied its burden of proving that transfer is warranted in this case.
An appropriate Order has already issued.