Updated: Dec 3, 2020
In Re: Nitro Fluids L.L.C., Petitioner
October 28, 2020
In 2018, Cameron International Corporation asserted several patents against Nitro Fluids, LLC in the Houston Division of the Southern District of Texas. In early 2020—shortly after Judge Albright took the bench in the Western District of Texas in Waco—Cameron filed another lawsuit against Nitro Fluids in that district. This second suit concerned the same technology that was accused of infringement in the first suit, and otherwise contained issues that substantially overlapped with those presented in the original Southern District litigation.
Defendant Nitro moved to transfer the second-filed case to Houston, arguing that under Fifth circuit law, the “first-to-file” rule generally holds that where there are substantially overlapping issues presented in cases pending between the same parties in two different courts, the second-filed case must be transferred to the court where the first case was filed; the only exception to this rule is when there are “sufficiently compelling” reasons to keep the case in the second-filed court.
In his order denying the motion to transfer, Judge Albright agreed that there was substantial overlap in the cases pending in the two districts, and acknowledged that the first-to-file rule required him to transfer the case to Houston unless there were sufficiently compelling reasons to keep the case in Waco. The judge then considered the factors that courts typically look to when ruling on the more common motions to transfer under 28 USC §1404(a); these factors include as: access to sources of proof, cost of attendance for willing witnesses, judicial economy, administrative difficulties flowing from court congestion, and interest in having localized issues decided at home. Judge Albright concluded that some factors favored transfer, several others were “neutral”, and that the judicial economy and court congestion factors weighed “heavily” against transfer, because—in his view—the Western District would be able to decide the case more quickly. Having found that the balance of §1404(a) factors did not favor transfer to Houston, the judge ruled that “compelling circumstances exist in order to avoid application of the first-to-file rule.”
Nitro then petitioned the Federal Circuit for a writ of mandamus directing Judge Albright to either dismiss the Waco action, or transfer it to Houston.
The Federal Circuit granted Nitro’s petition in part. The panel began by noting that Judge Albright’s legal framework was sound, because: (a) the first-to-file rule must apply unless there are sufficiently compelling reasons to keep the case in the Western District of Texas; and (b) a standard §1404(a) balance of factors analysis may be used to determine whether such sufficiently compelling reasons exist. But where the district judge went wrong was in his conclusion that the first-to-file rule only applies when the balance of factors favors the first-filed court.
The panel said that there is a heavy presumption that the first-to-file rule will apply; and although there are exceptions to that presumption—such as where convenience factors strongly favor the second-filed forum—those exceptions are rare. Moreover, the Fifth Circuit and other courts of appeals squarely place the burden on the filer of the second suit (here, patent owner Cameron International) to establish that the first-to-file rule should not apply.
The Federal Circuit went on to explain that a typical 1404(a) transfer analysis gives deference to the party’s choice of forum. But where a party insists on having two substantially overlapping proceedings continue simultaneously in two different courts, that party is not granted the same level of deference; this is the case because when there are such overlapping, simultaneous litigations, it is likely that the second-filed court will interfere in the affairs of the first—such as by issuing contradictory claim construction rulings.
Although the Federal Circuit found Judge Albright had applied the wrong legal standard when he decided the first-to-file issue, the appeals court directed the judge to conduct further proceedings to “expressly resolve the critical issue of whether the balance of factors favors the second-filed court [the Western District of Texas].” Specifically, Judge Albright had found that two factors (the court congestion and practical problems factors) favored retaining the case, but did so without indicating that these two factors were important/compelling enough to warrant favoring the Western District.
Judge Albright also made clear errors in his assessment of these two factors. On the topic of docket congestion, he said that the case could be heard more quickly in his court than in Houston, but his analysis did not focus on whether there is “an appreciable difference in docket congestion between the two forums,” as the Federal Circuit’s July 2020 In Re Adobe decision requires.
The Federal Circuit also criticized Judge Albright’s analysis of the judicial economy factor. Specifically, the Texas judge said that “[t]he Court will not be performing duplicative work because the SDTX has not made significant progress in the Houston case”, and that “this Court has a patent-specific Order Governing Proceedings that is faster than the SDTX.” But because the first-to-file rule “places a premium on the importance of allowing one court to resolve substantially overlapping cases”, Judge Albright was “wrong to replace that preference with [his] own views on the importance of speed of resolution.”
This was not the end of the matter. The Federal Circuit suggested that—because patent owner Cameron had filed another litigation in the Western District against a different defendant—the District Court “may be on stronger footing” in its conclusion that the judicial economy factor might justify keeping the Nitro case in Waco. But because Judge Albright’s discussion of this other Western District case was incomplete (for instance, it did not mention the availability of multi-district procedures), the Federal Circuit sent the case back with instructions to perform a renewed analysis that more fully addresses the judicial economy issue.
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