Much is lamented about the burden and costs that nuisance patent litigation imposes. Recently, with the Supreme Court agreeing to hear a case on restricting patent litigation venue, the problems of forum shopping by NPEs have come back into the spotlight. Limiting venue is one way that might reduce or discourage nuisance litigation by NPEs. But as some defendants quickly realize, even after successfully transferring venue out of so-called patent friendly jurisdictions, the fundamental problem of the lawsuit remains. You may now be in a court you think is favorable to you, but you still have to litigate what you may believe is a frivolous case.
For defendants that have a basis for venue in California courts, there is an additional option that can be utilized in tandem with a motion to transfer, which may have a more significant impact on the continued viability of the suit itself. California Code of Civil Procedure, Section 1030, provides that a defendant may move the court to require an out-of-state plaintiff to file an undertaking to secure an award of costs and attorney’s fees. The basic idea of the provision is to protect defendants from frivolous lawsuits by out-of-state entities that may be judgment-proof. It therefore gives teeth to potential sanctions and fee-shifting awards by forcing the plaintiff to make a financial commitment in order to continue the litigation. Your “run-of-the-mill” NPE will not likely be able to do so. At a minimum, this may alter the economic dynamics to the point where continuing the litigation is not feasible for the NPE.
Section 1030 has two requirements: (1) the plaintiff “resides out of the state, or is a foreign corporation;” and (2) “there is a reasonable possibility that the moving defendant will obtain judgment.” If the court orders an undertaking, the plaintiff has 30 days (or as ordered by the court) to post the bond. If the plaintiff fails to comply, the action “shall be dismissed.” Notably, the Ninth Circuit has held that this California state code is applicable to and may be followed by the federal courts in California. Consequently, this bond provision may be used in patent cases.
Based on our survey, this bond provision has not been used as much as one might have expected given the number of patent cases filed in California federal courts. But Section 1030 could be an effective weapon against a broad range of NPE-styled patent lawsuits. In the next series of posts, we will take a look at the few patent cases in which this provision has been raised and outline practical examples of how Section 1030 may be effectively utilized by California companies sued by NPEs in other states.
Part two of our series continues here.