Suppliers’ Intervention In Retailer Suit Previews Post-T.C. Heartland Venue Disputes
On December 7, 2017, Judge Rodney Gilstrap of the United States District Court for the Eastern District of Texas (ED Tex.) granted motions by three suppliers to intervene in a patent lawsuit brought against retailer Wal-Mart in the Marshall Division of that district. Team Worldwide Corp. v. Wal-Mart, case no. 2:17-cv-235. The ED Tex. has been a notoriously popular district for patent suits for more than a decade, a period when patent suits typically could be brought in any district where the defendant was subject to personal jurisdiction. Earlier this year, however, the United States Supreme Court limited patent venue to districts (i) where the defendant corporation is incorporated, or (ii) where the defendant has a place of business and is alleged to have infringed. T.C. Heartland LLC v. Kraft Foods Group, 137 S.Ct. 1514 (2017). One result of the ruling was predicted to be an upswing in E.D. Tex. suits naming national retailers as the defendants instead of their suppliers, on the theory that the retailers would be subject to venue in that district even if their suppliers were not.
The plaintiff in this case, Team Worldwide Corporation (TWW), sued Wal-Mart in the ED Tex., alleging in its complaint that retailer Wal-Mart is infringing TWW’s patents by selling air beds made by Coleman Company and Intex Recreation, among other suppliers. Those suppliers each then filed a motion to intervene in the Wal-Mart suit pursuant to Fed. R. Civ. P. 24, arguing that an indemnifying supplier of the accused products is a “true defendant” in a patent-infringement action. The Court applied a traditional Rule 24 analysis and on December 7, 2017, granted the motions to intervene.
The intervention analysis was straightforward. Judge Gilstrap included two interesting footnotes in his opinion, however. In footnote 4, Judge Gilstrap pointed out that by intervening, the suppliers had waived the defense of improper venue, a defense each presumably would have had if TWW had named it as a defendant in the E.D. Tex. complaint. And in footnote 1, he observed that in their papers the suppliers “attempt to invoke the so-called ‘customer-suit exception’,” which gives a declaratory judgment action filed by a supplier precedence over even a first-filed infringement action against the supplier’s customer—even though, as he noted, in the present case only one action is pending.
The context for Judge Gilstrap’s footnotes about venue and the customer-suit exception is each supplier’s explicit, detailed statements in its motion papers that if intervention is granted, it will file a motion to sever the claims against it and to transfer those claims to its home court (the Northern District of Illinois for Coleman, and the Central District of California for Intex). In footnote 4, Judge Gilstrap wrote that these plans left him “puzzled,” in view of the waiver of the venue defense inherent in intervention (and, presumably, also in view of the lack of pre-intervention declaratory-judgment actions that he had pointed out in the earlier footnote).
One interpretation of these footnotes is that Judge Gilstrap intends to consider the suppliers’ forthcoming motions to transfer under the discretionary standard of 28 U.S.C. § 1404, rather than looking at the issue as one of improper venue under 28 U.S.C. § 1406. Under the discretionary standard, the judge will consider several convenience-related factors, including the potential judicial economy of having one court, not two or more, hearing TWW’s patent-infringement claims. However Judge Gilstrap chooses to exercise his discretion on the forthcoming transfer motions, his footnotes in this decision may provide important guidance to defendant retailers and suppliers attempting to move their cases away from the Eastern District of Texas.