UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
April 12, 2006
BBC INTERNATIONAL LTD., PLAINTIFF,
LUMINO DESIGNS, INC., DEFENDANT.
The opinion of the court was delivered by: Joseph F. Bianco, District Judge
MEMORANDUM AND ORDER
The defendant, Lumino Designs, Inc. (hereinafter "Lumino") has moved to alternatively transfer, stay or dismiss the instant suit, wherein plaintiff BBC International Ltd. (hereinafter "BBC") seeks a declaratory judgment of non-infringement and invalidity of a patent owned by Lumino, as well as damages for abuse of process resulting from Lumino's filing of an action against customers of BBC in the United States District Court for the Northern District of Illinois for an improper purpose. For the reasons stated below, the Court transfers the instant case to the Northern District of Illinois under the authority of 28 U.S.C. § 1404(a).
Lumino, a New York corporation, owns the rights and interests to United States Patent No. 5,743,616, entitled "LED Illuminated Image Display," (the "`616 patent"), issued on April 28, 1998. The `616 patent involves a light emitting diode (LED) surface which it claims to cover a "light up" feature that is used in children's footwear.*fn1 As part of its efforts to enforce the `616 patent, Lumino filed suit in the United States District Court for the Northern District of Illinois on June 24, 2005 (hereinafter referred to as the "Illinois Action") against a number of retailers that it alleges have infringed on its patent by selling shoes including the "light up" feature, including Target Corporation and Target Brands, Inc. (hereinafter collectively "Target"), Footstar, Inc. (hereinafter "Footstar"), the Stride Ride Corporation (hereinafter "Stride Ride") and the Kmart Holdings Corporation (hereinafter "Kmart").*fn2 In their answers, the defendants asserted affirmative defenses and counterclaims alleging non-infringement and patent invalidity.
BBC, a Delaware corporation, is a buying agent that facilitates the import and sale of shoes including the "light up" feature, which are manufactured in China and other Asian countries. BBC claims to have entered into separate agreements with Stride Ride, Target, and Footstar,*fn3 under which they operate as a buying agent or subagent with respect to the procurement of footwear and apparel for the retailers. (Compl. ¶¶ 9-12.)*fn4 BBC acknowledges that it provides the retailers with many of the Lighted Shoe Products at issue in the Illinois Action. (Compl. ¶ 8.) Under its agreements with the retailers, BBC is required to indemnify and hold them harmless from all claims, losses, expenses, damages, costs and attorneys' fees that they may incur by reason of any claims, litigation or allegations made against them with regard to copyright, patent and trademark rights arising from the purchase or sale of the Lighted Shoe Products. (Compl. ¶ 13.)*fn5
On September 1, 2005, BBC filed the instant action seeking a declaratory judgment that the `616 patent is invalid, or that the Lighted Shoe Products do not infringe the patent. Additionally, BBC seeks damages on an abuse of process claim, which alleges that Lumino filed the Illinois Action against its customers in bad faith to extort an unwarranted settlement.*fn6
On November 8, 2005, Lumino amended its complaint in the Illinois Action to add patent infringement claims against BBC. Lumino also added a number of other retailers as defendants for selling Lighted Shoe Products, including Kohl's Corporation, Sears Roebuck and Co., Brown Shoe Company, Inc., and J.C. Penney Company, Inc. Lumino moves to transfer, stay or dismiss the instant action, in favor of the Illinois Action, pursuant to Fed. R. Civ. P. 12(b)(3) and 28 U.S.C. § 1404(a). Further, Lumino moves to dismiss BBC's abuse of process cause of action for failure to state a claim for which relief may be granted, pursuant to Fed. R. Civ. P. 12(b)(6).
A. Applicable Law
Under 28 U.S.C. § 1404(a), "[f]or the convenience of 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." In considering a transfer under § 1404(a), a district court must consider both the private interests of the litigants as well as the public interests. See Gulf Oil v. Gilbert, 330 U.S. 501, 508 (1947). Section 1404(a) is intended "to prevent waste of `time, energy and money' and `to protect litigants witnesses and [the] public against unnecessary inconvenience and expense.'"*fn7 A ruling on a request to transfer under § 1404(a) is committed to the sound discretion of the trial judge. See Steward Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988). Discretion is to be exercised "upon notions of convenience and fairness on a case-by-case basis."*fn8 In determining whether to transfer venue, courts examine: (1) whether the action could have been brought in the proposed forum; and (2) whether the transfer would "promote the convenience of parties and witnesses and would be in the interests of justice."*fn9
The parties do not dispute that this action could have been brought in the Northern District of Illinois. Rather, the parties focus on whether transfer would promote the interests of justice and the convenience of the parties. Although the Second Circuit has not catalogued all of the considerations that should be considered as part of a court's exercise of discretion, district courts in the circuit generally consider a number of factors, including:
(1) the convenience of the witnesses, (2) the convenience of the parties, (3) the locus of operative facts, (4) the availability of process to compel the attendance of unwilling witnesses, (5) the location of relevant documents and the relative ease of access to sources of proof, (6) the relative means of the parties, (7) the forum's familiarity with the governing law, (8) the weight accorded the plaintiff's choice of forum, and (9) trial efficiency and the interest of justice, based on the totality of circumstances.
In re Hanger Orthopedic Group, Inc. Securities Litig., 2006 WL 466485, at *2 (E.D.N.Y. Feb. 28, 2006) (internal citations omitted); see also Dealtime.com v. McNulty, 123 F. Supp. 2d 750, 755 (S.D.N.Y. 2000) (collecting cases). The moving party, Lumino, bears the burden of making a showing that transfer is warranted in light of these factors. See O'Hopp v. ContiFinancial Corp., 88 F. Supp. 2d 31, 34-35 (E.D.N.Y. 2000) (citing Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215, 218 (2d Cir. 1978)).
B. First-to-File Principle
Although Lumino touches on many of the considerations enumerated above, the focus of their argument is that a transfer is appropriate because the Illinois Action is closely related to the instant action and the Illinois Action was filed first. It is well-settled that earlierfiled related lawsuits take precedence. Kahn v. General Motors Corp., 889 F.2d 1078, 1081 (Fed. Cir. 1989) ("The general rule, and the rule in the Second Circuit, is that `as a principle of sound judicial administration, the first suit should have priority,' absent special circumstances.") (quoting William Gluckin & Co. v. Int'l Playtex Corp., 407 F.2d 177, 178 (2d Cir. 1969)). Further, courts frequently exercise their authority under § 1404(a) to transfer litigation to other districts in which related suits are pending in the interests of efficiency and judicial economy. Wyndam Assoc. v. Bintliff, 398 F.2d 614, 619 (2d Cir. 1968) ("[T]here is a strong policy favoring the litigation of related claims in the same tribunal in order that pretrial discovery can be conducted more efficiently, duplicitous litigation can be avoided, thereby saving time and expense for both parties and witnesses, and inconsistent results can be avoided.").*fn10
There is no doubt that the Illinois Action and the instant action are closely-related; they both involve claims regarding the validity of the `616 patent, and if valid, whether the Lighted Shoe Products infringe upon that patent. Since the Illinois Action was filed first, it should take priority under the baseline rule.*fn11
C. Customer Suit Exception
Despite the fact that the Illinois Action was filed first, BBC claims that the instant declaratory judgment suit takes priority despite the general first-to-file rule, because of the "customer suit" exception which exists in patent cases. The exception applies where the first suit is an infringement suit against customers and the later-filed suit is a declaratory judgment action brought by the manufacturer of the allegedly infringing goods. Kahn, 1081 F.2d at 1081; Gluckin, 407 F.2d at 178. Because courts have detected a high degree of forum shopping in patent cases, they have enacted this exception to protect the "manufacturer's presumed greater interest in defending its actions against charges of patent infringement; and to guard against possibility of abuse." Kahn, 889 F.2d at 1081 (citing Codex Corp. v. Milgo Elec. Corp., 553 F.2d 735, 737-38 (1st Cir. 1977)). The manufacturer is generally the real party in interest, as it frequently has to protect its customers, often through indemnification agreements.
As a threshold matter, it is not plain that the customer suit exception applies in the instant case because BBC is a importer and reseller, and not a manufacturer of the allegedly infringing goods. Kash `N Gold, Ltd. v. ATSPI, Inc., 690 F. Supp. 1160, 1164 (E.D.N.Y. 1988) (noting that where a declaratory judgment action was filed by "an importer, not a manufacturer, [. . .] the usual inference that its forum has an equivalent or stronger nexus to the litigation than the forum of a customer action is not justified"); Ciba-Geigy Corp. v. Minnesota Mining and Manuf. Co., 439 F. Supp. 625, 630 (D.R.I. 1977) (noting the importance of distinguishing manufacturers and suppliers as critical in determining whether or not the customer suit exception should apply); but see Rhode Gear U.S.A. v. Frank's Spoke N. Wheel, Inc., 225 USPQ 1258, 1259 (D. Mass. 1985) (holding that an importer could be considered to be in the shoes of a manufacturer for the purposes of the customer suit exception). Witnesses to the manufacture of the Lighted Shoe Products have to come from China and other Asian countries, and there is no significant difference in burden by travel to Chicago as opposed to New York.
In any event, although the Illinois Action otherwise bears the basic hallmarks of a customer suit, the exception is inapplicable because BBC did not properly file its declaratory judgment action in its home forum. Codex, 553 F.2d at 738 ("a manufacturer's declaratory judgment action, in its home forum, at least if brought no later than promptly after a customer action, should take precedence over a mere customer action in a jurisdiction in which the manufacturer could not be sued") (emphasis added); Emerson Elec. Co. v. Black and Decker Manuf. Co., 606 F.2d 234, 240-41 (8th Cir. 1979) (same); see also A.P.T., Inc. v. Quad Envtl. Technologies Corp., Inc., 698 F. Supp. 718, 722 (N.D. Ill. 1988) (rejecting application of the customer suit exception in part because the forum in which the declaratory judgment action was filed was not a home forum to the plaintiff manufacturer in that action). This limitation on the customer suit exception is sensible-although a manufacturer may have a strong interest in protecting its customers, it should not have unfettered discretion to file a suit anywhere that would trump the baseline rule which gives priority to suits which are filed first. A defendant manufacturer should not be able to use a rule that has been crafted for the explicit purpose of deterring forum shopping to pick a district in which a patent suit will proceed that is not its home forum. Although BBC may have been located in New York at one point, it has been a Delaware corporation and has moved its operations out of the state for a number of years, so the Eastern District of New York is not its home forum.
In addition, the customer suit exception does not apply because BBC could have been sued for infringement in the Northern District of Illinois. Codex, 553 F.2d at 738 ("a manufacturer's declaratory judgment action, in its home forum, at least if brought no later than promptly after a customer action, should take precedence over a mere customer action in a jurisdiction in which the manufacturer could not be sued.") (emphasis added); see also Emerson Elec., 606 F.2d 234, 240-41 (8th Cir. 1979) (same); Rhode Gear, 225 USPQ at 1260 (noting that the customer suit exception is inapplicable if evidence existed that the declaratory judgment plaintiff could be sued in the customer lawsuit forum); see also Ciba-Geigy, 439 F. Supp. at 629 (discussing importance of the element of customer suit exception requiring that the manufacturer could not be sued under the patent venue statute, 28 U.S.C. § 1400(b) in the district in which the initial customer action was brought). This is not a case in which the patent-holder has tried to avoid the limitations of the patent venue statute by suing a party with lesser interest in a forum in which the party in interest could not be sued because BBC was, in fact, successfully added to the lawsuit and will have its day in court in the Illinois Action. In sum, based upon the factors set forth above, this Court concludes that the customer suit exception does not apply to give precedence to the instant declaratory action lawsuit.*fn12
D. Forum Shopping
BBC also argues that the first-to-file principle should not apply here, alleging that Lumino's decision to file suit in the Northern District of Illinois was solely motivated by forum shopping.*fn13 Other courts have noted the existence of a "special circumstance" justifying departure from the first-to-file rule exists where "forum shopping alone motivated the choice of the situs for the first suit." Gluckin, 407 F.2d at 178. "Forum shopping occurs when a litigant selects a forum with only a slight connection to the factual circumstances of his action, or where forum shopping alone motivated the choice." Rivera Trading Corp. v. Oakley, Inc., 944 F. Supp. 1150, 1158 (S.D.N.Y. 1996) (internal citation omitted). In making its argument, BBC highlights the fact that Lumino is a New York corporation, that evidence of infringement was obtained through the purchase of shoes in New York, and that none of the five original customer defendants were Illinois corporations or have their primary place of business there.
Although courts have historically applied the "forum shopping" exception to the first-tofile rule, the concern underlying that exception has been largely, if not entirely, addressed by the establishment of the United States Court of Appeals for the Federal Circuit, which retains exclusive jurisdiction to adjudicate appeals of patent cases from federal district courts. See 28 U.S.C. § 1295(a)(1). Congress conveyed this jurisdiction over patent cases for the purpose of curbing forum shopping concerns. Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 820 (1988) ("When Congress passed the Federal Courts Improvement Act in 1982 and vested exclusive jurisdiction in the Court of Appeals for the Federal Circuit to resolve appeals of claims that had arisen under the patent laws in the federal district courts, it was responding to concerns about both the lack of uniformity in federal appellate construction of the patent laws and the forum-shopping that such divergent appellate views had generated."). Although BBC points to language from old opinions that describe a phenomenon of forum shopping in patent cases because of a perception that the Second Circuit has a hostile attitude towards patent holders,*fn14 those cases preceded the advent of the Federal Circuit. BBC has failed to cite a single case where a court has trumped the first-to-file principle through a finding of forum shopping since 1982.*fn15
In any event, assuming arguendo that the "forum shopping" exception still exists in full force, the Court finds that BBC has failed to demonstrate that Lumino's motivation for filing suit in the Northern District of Illinois was solely based upon notions of forum shopping. Although other forums may admittedly have stronger connections to the instant lawsuit, Lumino correctly points out the fact that it had the ability to bring suit in Chicago based on the applicable venue statutes, 28 U.S.C. §§ 1400(b), 1391(c), because each of the defendants are national corporations which have a regular and established place of business there. Since the infringement action involved multiple corporate defendants located at various locations throughout the country, Lumino has represented to the Court that it sought to select a convenient, central location for all parties to avoid costly venue disputes. Although this strategy may ironically have backfired, based on the current venue dispute, the Court does not believe that there is a sufficient basis to conclude that their decision to file suit in the Northern District of Illinois was solely motivated by forum shopping.
E. Other Transfer Factors
Although this Court concludes that the customer suit exception does not apply to rebut the usual presumption that the earlierfiled Illinois Action takes precedence, that does not conclude the inquiry into whether a transfer is appropriate; the other factors regarding convenience to the parties and the interests of justice must also be considered as well.
The analysis of other factors also leans in favor of transferring the instant action to the Northern District of Illinois. New York is a slightly more convenient forum for parties and witnesses because Lumino is a New York corporation. However, the strength of this factor is mitigated by the fact that Lumino chose the Northern District of Illinois as a forum, and so the production of relevant witnesses and evidence in that district should not be problematic. Familiarity with the governing law counsels the selection of the Northern District of Illinois as the appropriate venue because BBC has filed an abuse of process claim regarding Lumino's actions in filing the Illinois Action, and Illinois state law governs the resolution of that issue.*fn16 Finally, it would be more efficient to proceed in the Northern District of Illinois because the retailer defendants are parties in that suit, and discovery may be necessary for them with regards to damages issues in the instant suit.*fn17 BBC and several of the Illinois Action retailer defendants share the same representation, and it does not serve the interests of efficiency to conduct discovery separately.*fn18 Moreover, resolution of the instant case will not dispose of all the issues at hand in the Illinois Action, and accordingly, that action would need to continue.*fn19
Finally, as discussed supra, the pendency of related, first-filed litigation is an important factor that favors transfer to the Northern District of Illinois.*fn20 This factor is often decisive in a number of cases where the convenience factors are inconclusive. See Codex, 553 F.2d at 739 (citing Pesin v. Goldman, Sachs & Co., 397 F. Supp. 392 (S.D.N.Y. 1975)). It is important to avoid duplicative litigation and prevent inconsistent judgments. There is a significant overlap of issues, and allowing two actions to proceed in parallel would require the involvement of two courts, where one would be sufficient.*fn21 A transfer of the instant case will help reduce the waste of time, effort and money on the part of parties and witnesses that maintaining two related cases in separate fora would require.*fn22
In sum, after careful consideration of all the relevant factors and the totality of the circumstances, including preventing the unnecessary expense and waste of judicial resources by having two closely related cases proceed in parallel in two separate districts, this Court concludes that this case should be transferred. Because the Court is transferring this case, the Court has not ruled on Lumino's motion to dismiss BBC's abuse of process claim.
Accordingly, the Clerk of this Court shall TRANSFER this case to the United States District Court for the Northern District of Illinois, pursuant to 28 U.S.C. § 1404(a).