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Forum shopping in U.S. courts: do your homework first

|Written By Julius Melnitzer

In December 2009, a U.S. federal appeals court upheld a US$290-million verdict by a Texas jury against Microsoft Corp. for wilfully infringing a patent held by Toronto-based i4i Inc., a document collaboration firm.

‘Conducting an analysis of the available jurisdictions can be complicated and time-consuming. But in many cases it’s worth the effort,’ says Stephen Maddex.

Microsoft had used computer code embraced by the patent in its 2003 and 2007 versions of Word, its popular word-processing software.

Following the jury’s verdict, the presiding district court judge awarded i4i the $290 million and restrained Microsoft from selling versions of Word that contained the offending code. Microsoft has since eliminated the feature.

“There are some places in the U.S, including eastern Texas where this case was tried, in which any plaintiff with a reasonable case almost always wins,” says Stephen Maddex of Lang Michener LLP who attended law school in the United States and practised as a commercial litigator in Houston for eight years before returning to Canada in 2008.

“It demonstrates that the key to winning in the U.S. is to determine the nature of your jury by picking your venue before you file suit.”

A single federal court district, for example, might straddle several counties, but the results could be different depending on where a trial takes place.

“The first Vioxx trial was in Brazoria County, just south of Houston, which is known as very plaintiff-friendly,” Maddex recalls. “The jury made a large award, and the plaintiff wasn’t even from Texas.”

Similarly, venues east of Houston are in the plaintiffs category, while Houston proper is considered very conservative. So is Dallas, but again venues south and east of the city tend to favour plaintiffs.

It is not, however, as if forum shopping is a total free-for-all south of the border.

“Firstly, plaintiffs must find a state or states with jurisdiction over the defendant,” says Ann Schofield Baker, a Canadian practising in New York City who heads McKool Smith’s copyright and trademark litigation

department.

“Then they have to establish that there is some kind of nexus between the venue they want and the litigants or the dispute.”

Under U.S. law, plaintiffs can sue in any state where a defendant is resident or otherwise maintains sufficient contacts.

Defendants, however, have the protection of the constitutional right to due process, which protects people’s liberty interest in not being subject to the binding judgments of a forum with which they have established no meaningful contacts.

“It is in plaintiffs’ best interest to determine what jurisdictions may be available and then select the state that provides the greatest advantage,” Maddex says.

“But states with which defendants have only random, fortuitous or attenuated contacts will not be enough. They must be substantial and purposeful and directed towards the forum.”

By contrast, Canadian law demands that a suit be filed in the jurisdiction with the closest “real or substantial connection” to the dispute.

“In that sense, there is generally only one appropriate jurisdiction in which to file the dispute,” Maddex says.

And quite apart from the demographics of juries, the U.S. legal system is extremely diverse, so there can be wide disparities in substantive laws and procedural rules.

“Each potential jurisdiction could have its own advantages and disadvantages, including the costs of litigating there, the right to proceed in federal court or state court, the relative speed of litigation, and a whole variety of other factors that could have an important impact on the outcome of the case,” Maddex says.

If a state has jurisdiction, and the plaintiffs have chosen their venue, the defendant can file a motion to transfer on the basis that there is a venue that is “clearly more convenient.” The realities of today’s world, however, mean that several venues can be equally or close to equally convenient, making success on a transfer motion difficult.

The Canadian company likely best known for falling prey to the vagaries of forum shopping by U.S. plaintiffs is Research In Motion Ltd., the Waterloo, Ont.-based makers of the ubiquitous BlackBerry.

NTP Inc., a U.S. patent troll, claimed RIM had infringed its patents. The company filed its claim in the U.S. District Court for the Eastern District of Virginia in November 2001.

The jurisdiction is known as a “rocket docket” for the speed with which it brings cases to trial regardless of their complexity. That makes eastern Virginia a favourite for plaintiffs, particularly in patent disputes.

Eastern Virginia didn’t disappoint NTP. The trial began barely a year after the company sued RIM. NTP put 16 claims from five patents before the jury. Seventeen days later, the jury found in favour of NTP, ruling RIM’s patent infringement was wilful.

On Nov. 21, 2002, the jury assessed damages at US$23 million plus a royalty on BlackBerry sales in the United States. The case eventually settled when RIM agreed to pay $612.5 million to NTP.

RIM’s vulnerability has a lesson: while Canadian defendants may be relatively helpless to deal with forum shopping by U.S. plaintiffs, Canadian plaintiffs suing in the U.S. can use the same tactics against U.S. defendants.

“But it’s very important that no foreign attorney do a venue analysis without involving an experienced U.S. trial counsel,” Baker says. “You need to know the rules of the game before you play.”

Maddex is of similar mind.

“Conducting an analysis of the available jurisdictions can be complicated and time-consuming,” Maddex notes. “But in many cases, it’s worth the effort.”

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