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Automated Packaging Systems, Inc. v. Free-Flow Packaging International, Inc.

United States District Court, N.D. Ohio, Eastern Division

January 12, 2018




         Before the Court is the motion of defendant Free-Flow Packaging International, Inc. (“FPI”) to dismiss the amended complaint. (Doc. No. 73 [“Mot.”].) Plaintiff Automated Packaging Systems, Inc. (“APS”) opposes the motion (Doc. No. 76 [“Opp'n”]), and FPI has replied. (Doc. No. 79 [“Reply”].) The parties have filed numerous notices of supplementary authority and responses thereto in support of their respective positions on FPI's motion. (See Doc. Nos. 82-87, 93-96, 98-99.) On January 10, 2018, the Court held a hearing on the motion, and, at the conclusion of the hearing, it took the matter under advisement.

         I. Background

         APS is an Ohio corporation, with its principle place of business located in Streetsboro, Ohio, and is a “world leader in designing and manufacturing flexible bag packaging systems[.]” (Doc. No. 61 (Amended Complaint [“FAC”]) ¶ 2.) APS holds the patents to numerous inventions involving “webs used in . . . filling empty spaces in boxes” to facilitate the shipment of packages, including the six patents that are at issue in this action. (Id. ¶ 1.) FPI is a Delaware corporation, with its principle place of business in Freemont, California. (Id. ¶ 3.) FPI also “makes [and] sells . . . webs or pouches used for filling empty spaces in boxes and processes for inflating such webs or pouches.” (Id.)

         On September 11, 2014, APS brought suit against FPI in this judicial district, alleging patent infringement and seeking injunctive and monetary relief. (Doc. No. 1 (Complaint [“Compl.”]).) It represented both that “[v]enue is proper in this judicial district pursuant to 28 U.S.C. §§ 1391 and 1400(b)[, ]” and that FPI “regularly solicits business and maintains a persistent course of conduct by conducting business in the Northern District of Ohio.” (Compl. ¶¶ 7, 9.) APS answered the complaint and filed a counterclaim seeking declaratory judgment as to non-infringement and invalidity. (Doc. No. 11 (Answer).) In its answer, FPI “admit[ted] that venue is proper in this judicial district.” (Id. ¶ 9.)[1]

         The Court set dates and deadlines to govern the case, which it modified on several occasions at the request of the parties, and issued a protective order to facilitate discovery, all while the parties began the claim construction process. On January 28, 2016, APS moved to stay proceedings pending inter partes review. (Doc. No. 37.) FPI opposed a stay, and the Court referred the matter to the magistrate judge. After the matter was briefed, the magistrate judge granted the stay as of April 15, 2016. (Doc. Nos. 51, 53.) Following the rulings by the Patent and Trademark Office (“PTO”) on inter partes review, and the denial by the PTO of the request for reconsideration, the Court lifted the stay on January 13, 2017. (Minutes, dated 1/13/2017.)

         On June 23, 2017, FPI filed the present motion to dismiss. In support of the motion, FPI maintained that the Supreme Court's May 22, 2017 ruling in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S.Ct. 1514, 197 L.Ed.2d 816 (2017) rendered venue improper in this judicial district. (Mot. at 2706.[2]) Based upon the fact that FPI was incorporated in Delaware and had a “regular and established place of business” in Fremont, California, it suggested that the case must either be dismissed without prejudice or transferred to the Northern District of California. (Id. at 2715.) At the request of the parties, and within two weeks of the filing of the motion, the Court conducted a telephonic conference with counsel to discuss the motion and a potential discovery dispute identified by the parties. During the conference, the Court set a briefing schedule for the motion and proposed a mechanism for resolving the discovery dispute. (Minutes, dated 7/07/2017.) The Court further instructed the parties to continue with claim construction litigation, inasmuch as the parties would have to prepare for claim construction regardless of the venue in which the action was ultimately litigated.

         At the time of the telephonic conference, a second action involving these same parties was pending in California. In March 2017, FPI commenced a patent infringement action against APS in the United States District Court for the Northern District of California. In that action, FPI alleged that APS had infringed upon several patents relating to inventions similar to those at issue in the present action. On August 29, 2017, and upon the heels of the TC Heartland ruling, the California court granted APS' motion to dismiss for improper venue, as APS did not “reside” in the Northern District of California for purposes of 28 U.S.C. § 1400(b). See Free-Flow Packaging Int'l, Inc. v. Automated Packaging Sys., Inc., No. 3:17-cv-0183-SK, 2017 WL 4155347 (N.D. Cal. Aug. 29, 2017). On that say day (August 29, 2017), FPI commenced a similar action against APS in the Central District of California. A motion for a preliminary injunction, a motion to dismiss, and a motion to transfer followed. On November 2, 2017, the Central District of California entered an order transferring the action to the Northern District of Ohio pursuant to 28 U.S.C. § 1404(a). This transferred action is now on the docket of the undersigned, as the action is related to this lawsuit filed by APS. See Free-Flow Packaging Int'l, Inc. v. Automated Packaging Sys., Inc., No. 5:17-cv-2318-SL (Doc. No. 104 (Civil Minutes Order) at 1995; Doc. No. 109 (Order of Reassignment).)

         On November 22, 2017, the Court conducted a telephonic status conference with counsel to discuss whether FPI wished to continue to prosecute the pending motion to dismiss, now that the California action was also pending in this Court. Counsel for FPI advised the Court that defendant still desired the Court to rule on its motion to dismiss. (Minutes, dated 11/22/2017.)

         II. Patent Venue and Waiver Law

         It would be a considerable understatement to suggest that the legal landscape surrounding the issues of venue and waiver in patent cases has been in a state of flux for the last several months. The Court begins with what remains unchanged. The patent venue statute, 28 U.S.C. § 1400(b), provides: “Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” Because the venue requirement is regarded as a “privilege” afforded to defendants, the privilege may be surrendered “by failure to assert [an objection] seasonably, by formal submission in a cause, or by submission through conduct.” Neirbo Co. v. Bethlehem Corp., 308 U.S. 165, 168, 60 S.Ct. 153, 84 L.Ed. 153 (1939) (citation omitted); see also 28 U.S.C. § 1406(b) (“Nothing in this chapter shall impair the jurisdiction of a district court of any matter involving a party who does not interpose timely and sufficient objection to the venue.”).

         A motion to dismiss for improper venue is governed by Fed.R.Civ.P. 12(b)(3). A Rule 12(b)(3) motion must be raised either in a motion made before responsive pleading or as part of a responsive pleading. Fed.R.Civ.P. 12(b), 12(h)(1). Otherwise, the defense is waived, unless the defense was not available at the time a motion to dismiss or responsive pleading is filed. See Fed. R. Civ. P. 12(h)(1). The burden of establishing venue falls on the plaintiff, but the court draws all reasonable inferences and resolves all factual disputes in the plaintiff's favor. JPW Indus., Inc. v. Olympia Tools Int'l, Inc., No. 3:16-cv-3153-JPM, 2017 WL 4512501, at *2 (M.D. Tenn. Oct. 10, 2017) (citations omitted); see Stuebing Automatic Mach. Co. v. Gavronsky, No. 1:16-CV-576, 2017 WL 3187049, at *3 (S.D. Ohio June 12, 2017) (quoting Centerville ALF, Inc. v. Balanced Care Corp., 197 F.Supp.2d 1039, 1046 (S.D. Ohio 2002)); Audi AG & Volkswagen of Am., Inc. v. Izumi, 204 F.Supp.2d 1014, 1017 (E.D. Mich. 2002) (citations omitted) (collecting cases).

         As set forth above, in May 2017, the Supreme Court issued its decision in TC Heartland. That decision affirmed the 1957 decision in Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 226, 77 S.Ct. 787, 1 L.Ed.2d 786 (1957), and rejected the Federal Circuit's 1990 decision in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (1990), announcing that the patent venue statute (28 U.S.C. § 1400(b)), not the general venue statute (28 U.S.C. § 1391(c)), defines where a domestic corporation “resides.”[3] Accordingly, following the ruling in TC Heartland, a “civil action for patent infringement” against a domestic corporation may be brought in the judicial district where the defendant [is incorporated], or where the defendant has committed acts of infringement and has a regular and established place of business. TC Heartland, 137 S.Ct. at 1521.

         In the wake of the ruling in TC Heartland, district courts were flooded with motions challenging venue in patent cases. Two lines of cases quickly emerged addressing the question of whether the defendants bringing these motions had waived their right to challenge venue, or whether the waiver provision of Rule 12(h) was inapplicable because the venue argument was “unavailable” prior to TC Heartland based on the long-standing precedent of VE Holding. See Maxchief Investments Ltd. v. Plastic Deve. Grp., LLC, No. 3:16-cv-63, 2017 WL 3479504, at *3 (E.D. Tenn. Aug. 14, 2017) (collecting cases from both lines). On November 15, 2017, the Federal Circuit resolved the split of authority by holding that “TC Heartland changed the controlling law in the relevant sense: . . . before the [Supreme] Court decided TC Heartland, the venue defense now raised [by these defendants] was not ‘available, ' thus making the waiver rule of Rule 12(g)(2) and (h)(1)(A) inapplicable.” In re Micron Tech., Inc., 875 F.3d 1091, 1094 (Fed. Cir. 2017).

         In reaching this conclusion, the Federal Circuit left open the possibility that a district court could still rely on its inherent powers and standard procedural devices to find a waiver of a venue challenge in order to facilitate “the just, speedy, and inexpensive resolution of disputes” in accordance with Rule 1 of the Supreme Court's decision in Deitz v. Bouldin, __U.S.__, 136 S.Ct. 1885, 195 L.Ed.2d 161 (2016).” Id. at 1100. The Court warned that such authority “must be exercised with caution” and that such an exercise should “rest on sound determinations of untimeliness or consent (‘submission, ' in the language of Nierbo). But [it] generally [left] to future cases the task of elaborating on when such determinations may soundly be reached and what other considerations, if any, might be relevant within the Dietz framework.” Id. at 1101. Accordingly, the court remanded the action before it to the district court to consider “such properly raised non-Rule 12(h)(1)(A) arguments that Micron has forfeited its venue defense and, if there are no such sound arguments, to consider the merits of venue under § 1400(b).” Id. at 1102.

         III. Discussion

         APS concedes that the Federal Circuit, in Micron, resolved the question of whether the defense to venue-that a corporation only “resides” in the place of its incorporation, for purposes of 28 U.S.C. § 1400(b)-was “available” prior to the Supreme Court's ruling in TC Heartland. (Doc. No. 94 at 5264.) Thus, APS has abandoned its waiver argument under Fed.R.Civ.P. 12(h)(1). (Id.) Nevertheless, it insists that there remain “several non-Rule 12 bases for finding waiver” under this Court's inherent powers. (Id. at 5265.) First, it notes that FPI has repeatedly admitted that venue was proper in this judicial district. (Id.) Second, APS highlights the fact that the parties “have been litigating this case for over three years and are nearly finished with Markman briefing.” (Id. at 5266.) Third, APS references the recent transfer of the California case to this Court and draws attention to Judge Fitzgerald's transfer order wherein he opined that “the parties would benefit if they both proceeded in the same court.” (Id., citing Civil Minutes Order at 2004.)

         A. Possible Waiver of Venue Argument as Untimely

         Initially, APS argues that FPI's venue objection is still untimely because “on three separate occasions” FPI affirmatively admitted that venue was appropriate. These admissions, APS continues, are markedly different than those in Micron wherein the patent defendant merely omitted the venue argument from an early Rule 12(b) motion. (Id. at 5265.) APS also stresses that FPI still has not moved to amend its answer to challenge venue. (Id.)

         APS' argument misses the mark. All of FPI's “admissions” regarding venue were made at a time when the objection it now asserts was unavailable. That was the gist of the Federal Circuit's holding in Micron. Functionally and practically, it makes no difference whether FPI remained silent or affirmatively conceded that venue was proper, as existing binding precedent from the Federal Circuit rendered any challenge to the validity of venue futile and effectively rendered FPI “admissions” regarding venue accurate under existing law. Either way, the fact remains that, given binding circuit precedent, there was no defense available until after the ruling in TC Heartland.

         As such, it is important to focus on FPI's conduct “post-TC Heartland.” See, e.g., Intellectual Ventures, 2017 WL 5630023, at *3 (“In light of this instruction in Micron [that the forfeiture inquiry should at least start with an examination of the ‘time from which the defense becomes available to when it is asserted'], the Court begins by examining Defendants' conduct after TC Heartland was decided.”) (quoting In re Micron, supra). Within one month of the TC Heartland ruling, FPI moved to dismiss the complaint for want of venue. Under these circumstances, the Court finds that FPI did not unreasonably delay, or wait until it became “convenient or advantageous” for it to reap the benefits of the benefits of the Supreme Court ruling.[4] Compare Intellectual Ventures II LLC v. FedEx Corp., 2:16-CV-0098-JRG, 2017 WL 5630023, at *3 (E.D. Tex. Nov. 22, 2017) (waiver where defendants waited until “a few days after their [inter partes review] petitions were denied and more than two months after TC Heartland was decided” to seek dismissal for improper venue); with Valspar Corp. v. PPG Indus. Inc., No. 16-cv-1429 (SRN/SER), 2017 WL 3382063, at *4 (D. Minn. Aug. 4, 2017) (no waiver where defendant “applied to amend [the complaint and dismiss for improper venue] as soon as reasonably possible” within weeks of TC Heartland decisions); Ironburg Inventions Ltd. v. Valve Corp., No. 1:15-CV-4219-TWT, 2017 WL 3307657, at *3 (N.D.Ga. Aug. 3, 2017) (no waiver for intentional delay where defendant filed its motion to transfer “a little over a month after TC Heartland was decided”).

         APS also posits that a finding of waiver is appropriate because of the length of time the case has been pending in this Court, coupled with the fact that the related California case was recently transferred to this Court. (Doc. No. 94 at 5266.) It notes that the Court is “already familiar with the parties and technology” and underscores the fact that Judge Fitzgerald recognized that the parties would benefit from litigating both cases in the same forum. (Id.) However, while Judge Fitzgerald commented on the possible convenience of litigating in one forum, he also acknowledged that a ...

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