Netlist, Inc v. SK Hynix Inc – What Happened After the Federal Circuit’s Mandamus?

Yesterday Judge Albright issued a 17-page order denying Defendant SK hynix’s motion to transfer venue to the Central District of California (“CDCA”) or alternatively to the Austin Division of the Western District of Texas (“WDTX”). As we covered two days ago, the Federal Circuit issued mandamus relief to SK hynix holding that “the petition is granted to the extent that the district court must stay all proceedings concerning the substantive issues in the case until such time that it has issued a ruling on the transfer motion capable of providing meaningful appellate review of the reasons for its decision.” Well, Judge Albright quickly complied: he issued the 17-page order not six hours after holding a hearing yesterday morning on the motion to transfer. 

SK hynix filed its Motion to Transfer venue to the CDCA based on both the first-to-file rule and 28 U.S.C. § 1404(a), with an alternative request for a Section 1404 convenience transfer to the Austin Division of the WDTX. 

First-to-File Rule

Initially, Judge Albright questioned whether transfer under either the first-to-file rule or 28 U.S.C. § 1404(a) was proper because Hynix does not have a regular and established place of business (or indeed, any presence) in the CDCA. Thus, the present cases could not originally have been brought in the CDCA under the TC Heartland patent venue rule. Hynix argued that the first-to-file rule obviated the venue rule in Section 1400(b), but Judge Albright did not bite. Rather, the Court stated: “[i]n the absence of such legal authority, the Court will not extend the first-to-file rule to trump the venue requirements that the Supreme Court clearly set forth in TC Heartland.” Regardless, Judge Albright proceeded to discuss the three relevant factors under the first-to-file rule. 

Factor 1: Extent of overlap

Some patents asserted in Waco are from the same family as patents that were previously asserted in California, and claim construction, infringement, and invalidity analyses are likely to be identical. However, Judge Albright stated “this alone does not justify a transfer under the first-to-file rule.” Judge Albright also noted that the ‘523 patent asserted in the WDTX is “totally unrelated to any patent asserted in the California actions.” 

During the hearing on the motion, counsel for Hynix made the argument that the RAND royalty counterclaims pending in the California litigation would “substantially overlap” with the RAND royalty issues in the WDTX litigation. Countering this argument, counsel for Netlist argued that there aren’t any real RAND claims pending in the California cases because the PTAB had already invalidated both patents asserted in California through IPR proceedings. In the Court’s order, Judge Albright stated “[b]y representing that its RAND royalty claims are still pending in the California cases, Hynix seems to suggest it is willing to take licenses for invalidated patents. The Court is not in a place to judge Hynix’s business acumen, but it appears to the Court that Hynix keeps its RAND claims in the California cases solely to gain certain tactical advantages.” 

Thus, no dice for Hynix – Judge Albright found “no substantial overlap between the WDTX cases and the CDCA cases.”

Factor 2: Likelihood of conflict

Because the patents in the CDCA actions were invalidated by the PTAB, no enforceable patent claims exist in the CDCA actions at this time. Even if Netlist did successfully appeal an PTAB ruling, Judge Albright determined that the “WDTX actions involve different claims from different patents than the CDCA actions .” Thus, Judge Albright held that “any likelihood of conflict or risk of inconsistent adjudications would be attenuated, to say the least.”

Factor 3: Comparative advantage and the interest of each forum in resolving the dispute

Judge Albright also held this factor disfavors transfer under the first-to-file rule because: (1) the CDCA actions have been stayed since February 2018 and remain stayed; (2) the parties have not meaningfully litigated the CDCA actions; and (3) a stay is likely to remain in place for the foreseeable future. Oppositely, Judge Albright noted that the WDTX cases were actively and substantively litigated, as the Court has held three case management conferences and issued multiple standing orders. 

Thus, Judge Albright concluded that all factors under the first-to-file rule weighed against transfer. 

Convenience Transfer under 28 U.S.C. 1404(a)

As noted above, before Judge Albright reached the “convenience factors,” the Court held that “Hynix has not met its burden to establish that the present WDTX actions could initially have been brought in CDCA.” Judge Albright reasoned that because Hynix has no presence (i.e., a regular and established place of business) in the CDCA, Netlist could not have filed the present cases in the CDCA under the TC Heartland patent venue rule. Hynix’s only argument was that the California actions “establish[ed] that all parties have ‘consented’ to venue in that district.” Judge Albright found Hynix’s argument unpersuasive because: (1) Netlist objected to Hynix’s motion to transfer—indicating Netlist does not consent to the CDCA venue; and (2) there is “no mandatory or persuasive authority to show that by filing suits in CDCA pre-TC Heartland, Netlist has automatically consented to venue in [the CDCA] for any following suits involving different patents.” 

Although Judge Albright found that Hynix did not meet the threshold requirement for transfer under Section 1404(a) (that a case could be brought in the transferee venue), he went on to analyze the convenience factors, anyway. 

Relative ease of access to sources of proof

Judge Albright found this factor weighs slightly against transfer because: (1) as a foreign corporation, SK hynix Inc. keeps its documents in Korea, and sources of proof could also be in Austin (where SK hynix America has an office) or in San Jose, California (where it is headquartered); and (2) there are no sources of proof in CDCA. 

Availability of compulsory process to secure the attendance of witnesses

Despite the fact that the inventor of the asserted patents and Netlist’s former chief licensing officer allegedly live in California, the Court found this factor was neutral. The Court based its reasoning on the fact that Hynix failed to show that either witness was unwilling to testify, and that both witnesses voluntarily participated in related ITC actions, which occurred in Washington, D.C. 

Cost of attendance for willing witnesses

The Court was unpersuaded by Hynix’s argument that it is easier for its party witnesses in Korea to travel to the CDCA than to the WDTX. Because reaching either district would require both flying (to Los Angeles and Dallas, respectively) and driving to the courthouse (Santa Ana and Waco, respectively), the Court did not find the California travel cheaper than traveling to Texas. Judge Albright even stated: “[i]f anything, the hotels in Waco are cheaper on average than in Santa Ana.” Finally, Judge Albright ignored Hynix’s argument that it would cost less for Netlist’s party witnesses to travel to the CDCA court, as Netlist is headquartered in Irvine, California because “when Netlist filed its actions in this Court, it has already taken consideration of such potential costs.” Thus, the Court found this factor neutral. 

All other practical problems that make the trial of a case easy, expeditious and inexpensive

Judge Albright found this factor weighed against transfer because: (1) the two patents that were the subject of Hynix’s motion were invalidated by the PTAB and will not be further litigated in the CDCA; (2) the parties have not meaningfully litigated the CDCA actions; (3) there is no evidence when the stay will be lifted or that the cases will be stayed if transferred to the CDCA. On the other hand, Judge Albright noted the cases have been actively litigated in the WDTX and the case has been set for both Markman and trial. 

Administrative difficulties flowing from court congestion

No surprise here—the Court found this factor disfavored transfer because the case can be tried faster in the WDTX and the California cases have been stayed for three years. 

Local interest in having localized interests decided at home

Although Netlist’s headquarters is located in CDCA, Judge Albright found this factor weighs against transfer because Hynix “maintains an office in Austin and provides support to one of its largest American customers in this District,” and Hynix has no presence in the CDCA. Additionally, Judge Albright noted that “the fact that Hynix is willing to transfer the present actions to the Austin Division of this District indicates that Hynix is aware of the localized interest in litigating the present actions in this District.” 

(Those filing motions to transfer pursuing transfer to the Austin Division as alternative relief would do well to keep this point in mind!)

Intra-District Transfer

In denying Hynix’s alternative relief to transfer to the Austin Division, the Court noted that “[i]t is well-settled that trial courts have even greater discretion in granting intra-district transfers than they do in the case of inter-district transfers.” The Court briefly dismissed Hynix’s request relief because “Hynix has not offered any persuasive showing that litigating the present actions in Austin would be clearly more convenient than in Waco.” Judge Albright also relied on the fact that the Austin courthouse is closed due to the Covid-19 pandemic and there is no indication when it might open, concluding that “this case can only move forward in the Waco courthouse in the near future.”

Another interesting point: in the last paragraph of the order, the Court sua sponte reconsidered its previous decision to delay the Markman hearing and subsequent scheduling. Instead, the Court moved up the Markman date to March 1, 2021 and the trial date to July 6, 2021 (which was moved up from December 2021).