TikTok Transfer Gives Some Patent Defendants a Path Out of Texas

The Fifth Circuit’s decision to move a copyright lawsuit out of Texas will likely make it more difficult for patent infringement plaintiffs suing foreign entities to keep their cases in one of their favorite venues.

Video-sharing app maker TikTok Inc. succeeded last week in transferring a Chinese company’s lawsuit over allegedly stolen source code from one of the most popular venues for patent suits—Judge Alan D. Albright’s Western District of Texas courtroom in Waco—to Northern California, where the company employs an engineering team.

Though a copyright case, the ruling was at least partly aimed at the world of patent litigation, where legal questions routinely crop up around the test for moving such cases out of Texas federal courts.

The US Court of Appeals for the Fifth Circuit, which granted TikTok’s petition to force the transfer, indicated it was setting new precedent after refraining from doing so for more than a decade. It pointed to the Federal Circuit’s struggle to consistently apply an eight-factor test the Fifth Circuit created in 2008’s In re Volkswagen to balance the relative convenience of venues preferred by plaintiffs and defendants who seek to move them elsewhere.

District courts “within our circuit have been called on to apply Volkswagen in over 2,000 cases, and the Federal Circuit—which is bound by our law when certain procedural matters arise in patent cases—must review many of these decisions with little guidance from our court,” wrote Judge Jerry E. Smith for a three-judge panel in an opinion handed down on Oct. 31.

Several lawyers who reviewed the opinion said it will make it simpler for certain foreign defendants—especially those with large presences in Asia like TikTok parent ByteDance Ltd.—to avoid Texas courts.

For patent owners, the one-judge Waco Division has been among the most popular venues in the nation for infringement suits. Albright, who became the division’s presiding judge in 2018 after a career as a patent litigator, made Waco a hotbed after adopting rules designed to move cases quickly to trial and encouraging patent holders to file there. Tech companies, which are frequent targets of such suits, have often sought transfers and appealed Albright’s denials to the Federal Circuit through mandamus petitions.

“The Fifth Circuit’s opinion does clarify some important points of law governing transfer motions about which there had perhaps been differences of opinion between Judge Albright and the Federal Circuit,” said Paul Gugliuzza, a law professor at Temple University. “For instance, the Fifth Circuit’s opinion makes clear that California is ‘clearly more convenient’ than Texas for witnesses located in Asia—a point that will certainly be relevant in some patent disputes.”

Convenience

Albright had denied TikTok’s motion for a transfer and relied in part on finding that San Francisco or Waco would be equally convenient, or inconvenient, for “the key witnesses and the employee at the heart” of the IP theft claims, who reside in China.

Smith said that analysis didn’t add up: “In sum, the district court’s analysis of this factor should have ended with its recognition that ‘the bulk of relevant witnesses are in China.’”

“The convenience of witnesses who will have to travel significant distances regardless of how transfer is ruled on"—like those coming from abroad—"must still be given substantial weight,” Morrison and Foerster LLP patent lawyers Brian Nash and Regan Rundio wrote in a Monday blog post dissecting Smith’s opinion. They noted the ruling, in addition to helping out patent defendants in Asia, could also be a boon for “those in Europe seeking transfer to the East Coast.”

The Fifth Circuit ruling also has significant implications for cases involving source code evidence, which is at the heart of numerous patent disputes, according to several IP attorneys. Smith’s opinion, attorneys said, challenges a previous convention that such evidence was easily gathered and sent electronically and so didn’t provide defendants with much advantage in showing that a separate Volkswagen factor weighing “the relative ease of access to sources of proof” favored transfer

In TikTok’s case, source code was accessible for employees with security clearances located in China and California—in addition to a lone Dallas-area engineer who lived more than 100 miles north of Waco and outside of the Western District of Texas. The company thus argued this source of proof was more easily accessed in Northern California despite its 300-person office in nearby Austin.

Albright said this factor was neutral, neither favoring TikTok nor plaintiff Beijing Meishe Network Technology Co. But the Fifth Circuit panel ruled otherwise.

It concluded engineers in California had access to the source code and that Meishe offered “pure speculation” that one or more of TikTok’s Austin employees had similar access.

“As a practitioner, now I’m going to look at that fact and ask, ‘Is there a security clearance?’” in cases involving source code, said Jose Villarreal, a patent attorney and Austin-based partner at Baker Botts LLP.

Betty Chen, an IP partner in Desmarais LLP’s San Francisco office, said the opinion “underscores that restricted source code evidence ‘travels’ with the employees possessing the necessary security clearance to access it.”

“It limits a plaintiff’s ability to establish venue by contending that source code accessibility exists merely because a company could hypothetically grant any employee within the district the right security clearance,” she said.

Time to Trial

Smith’s opinion included some solace for Albright in a major point of contention between the Texas judge and the Federal Circuit. In justifying decisions to keep cases in his court, Albright has frequently pointed to trial dates already on the calendar. Defendants have countered that such dates are estimates and are often subject to change, so they shouldn’t be given much weight. The Federal Circuit has been receptive to that argument.

Smith, however, went the other way. In a footnote, he cited Albright’s belief that his court “can try the case faster than can the Northern District of California” and said TikTok hadn’t made a sufficient showing “to justify second-guessing a court’s view of its own docket.”

Mark Lemley, a patent lawyer and Stanford Law School professor, said he expects the decision will “overall strengthen” efforts to transfer cases out of the Western District of Texas, but the calendar footnote could be an obstacle.

“Judge Albright has been denying transfers based on completely unrealistic case schedules, and the Federal Circuit has recently held in several cases that time to trial doesn’t matter much” in transfer decisions, Lemley said. “That may be harder to sustain after TikTok.”

Fact Intensive

But the overall impact of Smith’s opinion may be limited by the fact-intensive, case-by-case nature of analyses under the Volkswagen test.

“I think it just another brick in the wall, adding more guidance to what has already been there,” Villarreal said. “I don’t see this case as a watershed event.”

Gugliuzza said it remains to be seen whether the impact will be significant or muted, even though the opinion “does clarify some important points of law” regarding transfer motions.

“Transfer disputes can be so case- and fact-specific—and the standard of appellate review is so high—it’s not a guarantee that the Fifth Circuit’s opinion will change things on the ground” in the Western District of Texas, “or even at the Federal Circuit,” he said.

The case is In re: TikTok, Inc., 5th Cir., 23-50575.