Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 1 of 13 VIRNETX INC and SCIENCE APPLICATIONS INTERNATIONAL CORPORATION, IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA Case No. 9:13-mc-80769-CIV-RYSKAMP/Hopkins vs. Plaintiffs, APPLE, INC., Defendant. PLAINTIFF VIRNETX, INC. S REPLY IN SUPPORT OF MOTION TO TRANSFER I. INTRODUCTION In opposing this Motion to Transfer, Joel B. Rothman and Schneider Rothman Intellectual Property Law Group PLLC (collectively Movants ) have ignored and misconstrued the arguments made by VirnetX in order to tell this Court that it does not have the authority to transfer the pending motion to quash. The Eleventh Circuit clearly vests broad authority in its district court judges to manage their docket and issue orders related to discovery. Other jurisdictions also clearly recognize the broad discretion of district courts to transfer motions to quash and for protective orders. Movants made no serious effort to challenge the complexity of the underlying litigation, which justifies this Court s exercising its discretion in this case. Instead, by telling the Court that it lacks the authority to transfer this matter to the Eastern District of Texas, Movants have ignored precedent in an effort to erect yet another smokescreen in the interest of preventing VirnetX from receiving the discovery to which it is entitled. Furthermore, Movants argument that the Eastern District of Texas does not have personal jurisdiction over Movants is inaccurate. In addition to specific jurisdiction based on actions 1
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 2 of 13 surrounding the dispute, Movants have consented to litigation in Texas by moving for a protective order. Finally, Movants will not suffer any hardship by the transfer of this case, and any inconvenience is far outweighed by the efficiency of transferring this matter to Chief Judge Davis, who is familiar with the underlying facts as they have developed over the past three years. II. ARGUMENT A. This Court Has the Discretion to Transfer a Motion to Quash. i. District courts have broad discretion to manage their docket and issue orders related to discovery. The Eleventh Circuit recognize[s] that district courts enjoy broad discretion in deciding how best to manage the cases before them. Chudasama v. Mazda Motor Corp., 123 F.2d 1353, 1366 (11th Cir. 1997); see also United States v. McCutcheon, 86 F.3d 187, 190 (11th Cir. 1996) (noting the broad discretion which is allowed a trial court to manage its own docket. ). It is well established that district courts have broad discretion over matters of discovery. Moore v. Potter, 141 Fed. Appx. 803, 807 (11th Cir. 2005). 1 The Eleventh Circuit is reluctant to overturn district court judges on such matters, and will not interfere with the district court s broad discretion unless a litigant can demonstrate that they have been materially prejudiced by the district court s decision. Rae v. Perry, 392 Fed. Appx. 753, 755 (11th Cir. 2010). Because this Circuit recognizes a district court s broad discretion, it is appropriate for this Court to grant VirnetX s Motion to Transfer. ii. That broad discretion includes the discretion to transfer an action related to subpoena-enforcement. In support of their argument that this Court does not have the discretion to grant this Motion to Transfer, Movants complain that VirnetX cites to a number of non-precedential 1 The Fifth Circuit has also recognized that district courts have broad discretion to manage their dockets. See Saqui v. Pride Cent. America, LLC, 595 F.3d 206, 211 (5th Cir. 2010) ( District court judges have broad discretion in managing their own dockets. ). 2
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 3 of 13 cases in its argument that this Court has the discretion to transfer the subpoenas to the Eastern District of Texas. See Dkt. No. 18 at 8. However, their hollow complaint comes only a single paragraph after Movants admit that no court in the Eleventh Circuit has directly addressed [this] issue. See Dkt. No. 18 at 7. When presented with an issue of first impression, courts in the Eleventh Circuit will consider the approach taken by courts sitting in other jurisdictions. See Comtran Grp. v. United States Dept. of Labor, 772 F.3d 1304, (11th Cir. 2013) (reviewing, inter alia, case law from other circuits ). The approaches of other courts are precisely what VirnetX has provided in this instance. Within the very cases Movants attempt to distinguish, [t]here is substantial support... for the proposition that the court from which a subpoena has issued has the authority to transfer any motion to quash... to the court in which the action is pending. Devlin v. Transp. Commc ns Int l Union, Nos. 95 Civ. 0742, 95 Civ. 10838, 2000 WL 249286, *1 (S.D.N.Y. Mar. 6, 2000). 2 It is well established that it is within the discretion of the district court that issued the subpoena to transfer motions involving the subpoena to the district in which the action is pending. 9A Wright & Miller, Federal Practice and Procedure, 2463.1 (3d Ed.). 3 Even the cases cited in Movants opposition recognize that district courts have exercised their inherent discretion to transfer this type of motion in the past. 4 While these courts ultimately 2 See also In re Digital Equipment Corp., 949 F.2d 228, 231 (8th Cir. 1991) ( While the [subpoena issuing court] initially has exclusive jurisdiction to rule on the objections, it may in its discretion remit the matter to the court in which the action is pending. ); In re Subpoena of American Nurses Association, 788 F. Supp. 2d 444, 445 (D. Md. 2011) ( While Rule 45 does not expressly provide for transfer, an issuing court has the discretion to transfer a subpoenaenforcement action to the court that is handling the underlying litigation. ). 3 In their opposition, Movants curiously quote only the sentence immediately preceding this one from Wright & Miller, ignoring that the very source it relies upon acknowledged that district courts are vested with such discretion to transfer these types of motions. 4 See In re Sealed Case, 141 F.3d 337, 343 (D.C. Cir. 1998) ( [O]ther courts have suggested that the [Advisory Committee] Note implies the existence of a transfer power for all discovery 3
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 4 of 13 concluded that the particular case before them did not merit such a transfer, they recognized that many courts have exercised their discretion to transfer similar discovery motions to the court presiding over the underlying litigation. This Court has broad discretion to manage its docket and Movants have cited no binding precedent that suggests otherwise. Thus, it is clear that this Court has the authority to grant VirnetX s Motion to Transfer. iii. The underlying litigation is highly complex and this Court should exercise its broad discretion and transfer the matter to the Eastern District of Texas. Movants concede that transfer under Rule 45 is appropriate when the transferee court is plainly better situated to resolve the discovery dispute. In re Subpoena of American Nurses Association, 788 F. Supp. 2d at 445; see also Dkt. No. 18 at 8. In doing so, however, Movants improperly focus their analysis regarding complexity on the motion to quash itself, contending that it is not an extraordinary motion. See Dkt. No. 18 at 9. The focal point for determining complexity, however, is the totality of circumstances surrounding [the underlying] litigation. In re Schneider Nat t Bulk Carriers, 918 F. Supp. 272, 274 (E.D. Wisc. 1996). 5 Movants state that VirnetX has provided no facts to support the contention that the 417 and 855 Matters are sufficiently complex to justify transfer, but that is simply inaccurate. disputes involving nonparties, including motions to quash subpoenas. ); Dow Chemical Canada, Inc. v. HRD Corp., 2010 WL 2680641 (S.D. Tex. July 2, 2010) ( [C]ourts have upheld an issuing court s authority to transfer a discovery motion to the district where the underlying action is pending. ); Westernbank Puerto Rico v. Kachkar, No. M8-85 X3 (PART 1), 07-1606 (ADC- BJM), 2009 WL 856392, at *2 (S.D.N.Y. Mar. 27, 2009) ( [T]here seems to be substantial case law that supports a court s authority to transfer a discovery motion to the district where the underlying litigation is pending. ). 5 See also Central States, Southeast and Southwest Areas Pension Fund v. Quickie Transport Co., 174 F.R.D. 50, 51-52 (holding that the transferee court was in a superior position to decide this discovery dispute in part because [t]he underlying action is factually complex. )(emphasis added); Bank of Texas v. Computer Statistics, Inc., 60 F.R.D. 43, 45 (S.D. Tex. 1973) ( The ultimate issue, the reasonableness or oppressiveness of the proposed discovery, requires understanding and consideration of the entire lawsuit.... ) (emphasis added). 4
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 5 of 13 VirnetX has provided facts, and when those facts are compared to the circumstances that justified a transfer in Bank of Texas v. Computer Statistics, Inc., VirnetX has more than met the burden of demonstrating legal and factual complexity. See 60 F.R.D. 43, 45 (S.D. Tex. 1973). In Bank of Texas, the court approved a transfer based on the fact that the judge presiding over the underlying litigation had participated in considerable pretrial and discovery activity during the almost two years which have elapsed [since he received the case]. 60 F.R.D. at 45. Chief Judge Davis has been presiding over the 417 and 855 Matters for over three years and through two jury trials. This is far in excess of the pretrial and discovery activity considered sufficient in Bank of Texas. Tellingly, Movants completely ignore this comparison and analysis. Rather than engaging in a substantive response, Movants rest their argument on their own declaration that the facts put forth by VirnetX are not credible. See Dkt. No. 18 at 9. But the fact remains that, in a similar case, transfer was granted when the underlying litigation had not progressed to nearly the same point of the 417 and 855 Matters. Because the 417 and 855 Matters are factually complex and have been developing over the course of three years, [t]he questions raised in [the motions to quash and the responses are more easily] answered by a judge thoroughly familiar with all of the facts of the case. Bank of Texas, 60 F.R.D. at 45. Accordingly, it is appropriate for this Court to grant VirnetX s Motion to Transfer. B. The Eastern District of Texas Has Personal Jurisdiction over Movants. i. The dispute in this case arises from specific contacts with the Texas. Specific jurisdiction exists when a defendant has purposefully directed his activities at residents of the forum... and the litigation results from alleged injuries that arise out of or relate to those activities. Id. at 472-473 (quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414) (1984)). As previously briefed, Movants filed petitions for inter partes review of patents owned by VirnetX. VirnetX received final judgment against Apple for $368.2 5
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 6 of 13 million for Apple s past infringement, pre- and post-judgment interest, and post-verdict damages. See Dkt. No. 18-1 at 2. After petitioning the United States Patent and Trademark Office for inter partes review but before the inter partes reviews have been instituted Joel Rothman, Vice President of New Bay, reached out to VirnetX to request ten percent of that final judgment in return for dropping the petition for inter partes review. The final judgment issued by Judge Davis is enforceable in the Eastern District of Texas and the subpoenaed parties are purposefully and directly attempting to interfere with that judgment. Movants filed the petitions for inter partes review with full knowledge that the purpose of the petitions was to extract money in an attempt to reduce VirnetX s recovery from Apple in the 417 Matter. The petitions for inter partes review were the nexus for VirnetX s decision to serve subpoenas on Movants and the other parties because VirnetX had to explore collateral estoppel issues arising in the ongoing district court litigation. Because this dispute arises directly from an attempted interference with judgment from the Eastern District of Texas, jurisdiction is proper in the Texas. ii. By moving for a protective order under Fed. R. Civ. P. 26(c), Movants have consented to a transfer to the Eastern District of Texas. When a protective order is sought for document production, the Federal Rules of Civil Procedure require that motion to be brought in the court where the main action is pending. FED. R. CIV. P. 26(c)(1); see also Central States, 174 F.R.D. at 52 n.3 (E.D. Pa. 1997). The Rule authorizes the alternative of filing in the court where the deposition is to be taken only when a deposition is involved. FED. R. CIV. P. 26(c)(1). But it is an alternative, and a motion for a protective order can still be filed in the court where the main action is pending. Id. Moving for a protective order in the court where the deposition is to be taken, however, does not preclude an eventual transfer to the court where the main action is pending. When a subpoena requests a deposition, a [c]ourt is not precluded from transferring [a motion for a protective order] to the 6
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 7 of 13 Court in which the main action is pending by the fact that Rule 26(c) allows the action to be commenced [in the court from which the subpoena issued]. Bank of Texas, 60 F.R.D. at 45. In this case, Movants have initially chosen the alternative of filing their motion for a protective order in the district where the deposition is to be taken. See Dkt. No. 1 at 1, 14-15. But the case law is clear that courts have the discretion to transfer these types of motions to the court where the underlying litigation is taking place. The Notes of the Advisory Committee on Rules, 1970 Amendment, explicitly anticipate this possibility, stating that [t]he court in the district where the deposition is being taken may, and frequently will, remit the deponent or party to the court where the action is pending. Advisory Committee Notes, FED. R. CIV. P. 26(c) (emphasis added). In fact, it was not until 1970 when the Rule even allowed nonparties to move for protective orders in the district in which the deposition was proposed to be taken. Socialist Workers Party v. Attorney General of United States, 73 F.R.D. 699, 700 (D. Md. 1977). That change was not intended to take away from the Court in which the action is pending the power to determine all issues with regard to the granting of protective orders sought by non-parties, regardless of whether or not such non-parties are citizens or residents of the district in which the Court, in which the action is pending, sits. Id. Indeed, even nonparty deponents can be required to litigate motions for protective orders in the court supervising the underlying action. Petersen v. Douglas County Bank & Trust Co., 940 F.2d 1389, 1391 (10th Cir. 1991). Transfer of a nonparty s discovery dispute is based on the exercise of the district court s inherent discretion and, at the very least, is appropriate in situations where the nonparty has moved for a protective order under Rule 26(c). Byrnes v. Jetnet Corp., 111 F.R.D. 68, 70 n.2 (D. Md. 2002). The Federal Rules of Civil Procedure and a large body of case law clearly accept the notion that transfer to the court of the underlying case is a possibility when nonparties move 7
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 8 of 13 for a protective order. Thus, by moving for a protective order in their Motion to Quash, Movants consented to the possibility of litigating in the Eastern District of Texas. 6 iii. Transfer of the motion does not require the nonparty s consent. Movants claim that none of VirnetX s cases involved transfer of a motion to quash over a nonparty s objection. See Dkt. No. 18 at 8. That statement is inaccurate and misleading. Transferring a motion to quash over a non-party s objection is precisely what the court did in Central States. See 174 F.R.D. at 52 n.3 (referencing Defs. Mem. In Opp. To Pls. Mot. To Transfer ). 7 The court in In re Schneider also transferred a motion to quash subpoenas over objection of the nonparty witnesses. See 918 F. Supp. at 273-275 ( Central States filed a Motion to Transfer, which petitioners responded to on February 20, 1996. ) (emphasis added). 8 Each of these cases was cited by VirnetX in its Motion to Transfer. An objection to the motion to transfer by the nonparty does not prevent the transferee court from exercising jurisdiction once jurisdiction has been passed by the transferor court. Accordingly, VirnetX s Motion to Transfer should be granted. 6 The Advisory Committee Notes to Rule 45 state that Rule 45(c) was not intended to diminish rights conferred by Rules 26-37 or any other authority. FED. R. CIV. P. 45, Advisory Committee Notes, 1991 Amendment, Subdivision (c). One right conferred by Rule 26 is the authority of the district court to transfer a pending motion for a protective order to the court presiding over the underlying action. The reference to Rule 26 in the Advisory Committee Notes to Rule 45 supports the argument that when the underlying litigation is complex, the court presiding over the underlying litigation should decide questions related to the scope of discovery. See U.S. v. Star Scientific, Inc., 205 F. Supp. 2d 482, 485 (D. Md. 2002). Transfer, therefore, while appropriate in light of Movants motion for a protective order, would be appropriate even if Movants had not moved for a protective order and had limited their motion to a motion to quash. 7 In doing so, the court in Central States paid special notice to the fact that the defendants had moved for a protective order, the implications of which are discussed in further detail below. 174 F.R.D. at 52 n.3; see also Peterson, 940 F.2d at 1391 (specifically noting that [t]he motion filed by [defendant] was also styled as a motion for a protective order pursuant to Rule 26(c). ). 8 See also Peterson v. Douglas County Bank & Trust Co., 940 F.2d 1389 (10th Cir. 1991) (denying appeal by nonparty of an order transferring a motion to quash and motion for protective order when nonparty had no notice or opportunity to object to the transfer in the lower court). 8
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 9 of 13 iv. Movants due process rights would not be violated by a transfer. As discussed above, the Eastern District of Texas has personal jurisdiction over Movants. Furthermore, Movants would not suffer any hardship by transfer of this case. In a case cited by Movants, the Seventh Circuit recognized that transfer of this type of motion does not necessarily require parties to incur the burden of travel. In re Orthopedic Bone Screw Prods. Liability Litig., 79 F.3d 46, 48 (7th Cir. 1996). Movants can file motions in the Eastern District of Texas electronically. See id. (noting counsel can send motions to the transferee court on paper). It is well recognized that modern communication and transportation have made defending a lawsuit in a foreign tribunal less burdensome. ATEN Intern. Co. Ltd. V. Emine Tech. Co., Ltd., 261 F.R.D. 112, 120 (E.D. Tex. 2009). Thus, transfer would not violate Movants due process rights. Furthermore, Movants ignore that three separate motions to quash are pending in three separate jurisdictions. The briefing in each separate action is substantially identical and transfer would allow Chief Judge Davis to make a single ruling on these motions. Transfer would not only be more efficient, but would promote judicial uniformity by allowing Chief Judge Davis to make a single ruling. Thus, the efficiencies gained by a transfer would far outweigh any limited burden upon Movants and the equities actually compel transfer to the Eastern District of Texas. 9 Accordingly, this Court should grant VirnetX s Motion to Transfer. C. The Discovery VirnetX Seeks Is Highly Relevant. The scope of discovery under Federal Rule of Civil Procedure 26 is a broad one, and parties are permitted to obtain discovery regarding any nonprivileged matter that is relevant to any party s claim or defense.... FED. R. CIV. P. 26(b). The subpoenaed parties are undoubtedly related to one another, and they do not deny those relations. These parties have 9 See Bank of Texas, 60 F.R.D. at 46 (inconvenience of transfer is negligible when compared to the benefits of transferring the motion to a judge familiar with the complex underlying matter). 9
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 10 of 13 engaged in a shell game designed to hide their relationships to one another and to any parties funding their inter partes reviews. It is unclear how a four month old corporation with no business activities can pay its attorneys fees. Movants are clearly receiving some type of funding, and it is not impossible that their financiers have connections to Apple sufficient to invoke collateral estoppel. Movants denied receiving direct funding from Apple, but their denial is carefully worded. This does not rule out the possibility that persons connected to Movants are receiving funding from Apple or its affiliated entities regardless of Mr. Rothman s lack of personal knowledge. The nature and extent of such financial relationships directly relate to collateral estoppel under 35 U.S.C. 315(e)(2). In their motion to quash briefing, Movants claim that discovery related to collateral estoppel is irrelevant because Apple is already collaterally estopped from challenging the validity of the patents that are the subject of New Bay s IPR petitions. See Dkt. No. 15. Apple certainly disagrees and has pleaded both the affirmative defense of invalidity and a counterclaim seeking declaratory judgment of invalidity of the patents at issue. 855 Matter, Dkt. No. 77 at 20, 23. Whether Apple is collaterally estopped from challenging the validity of VirnetX s patents based on a prior judgment is irrelevant to whether Apple is collaterally estopped under 315(e)(2). Movants essentially argue that because VirnetX has one defense, it is not entitled to discovery on another defense. This, of course, ignores the Rule that VirnetX may obtain discovery regarding any nonprivileged matter that is relevant to any party s claim or defense. FED. R. CIV. P. 26(b)(1) (emphasis added). The question of collateral estoppel under 315 directly relates to potential claims and defenses in the main action and is therefore relevant under Rule 26. III. CONCLUSION For the foregoing reasons, VirnetX respectfully requests that this Court grant the Motion 10
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 11 of 13 to Transfer. Dated: September 20, 2013 Respectfully submitted, s/devin S. Radkay Devin S. Radkay Florida Bar No. 41976 E-mail: dradkay@gunster.com Gunster Yoakley & Stewart PA 777 S. Flagler Drive, Suite 500 East West Palm Beach, FL 33401 561-655-1980 Telephone 561-655-5677 Facsimile and Bradley W. Caldwell Texas State Bar No. 24040630 Email: bcaldwell@caldwellcc.com Jason D. Cassady Texas State Bar No. 24045625 Email: jcassady@caldwellcc.com John Austin Curry Texas State Bar No. 24059636 Email: acurry@caldwellcc.com Daniel R. Pearson Texas State Bar No. 24070398 Email: dpearson@caldwellcc.com Hamad M. Hamad Texas State Bar No. 24061268 Email: hhamad@caldwellcc.com CALDWELL CASSADY CURRY P.C. 1717 McKinney, Suite 700 Dallas, Texas 75202 Telephone: (214) 810-4705 Facsimile: (214) 481-1757 ATTORNEYS FOR VIRNETX INC. 11
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 12 of 13 CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing Reply in Support of Motion to Transfer was served by electronic filing on September 20, 2013 with the Clerk of the Court using CM/ECF on all counsel or parties of record identified on the Service List below. s/devin S. Radkay Devin S. Radkay 12
Case 9:13-mc-80769-KLR Document 19 Entered on FLSD Docket 09/20/2013 Page 13 of 13 SERVICE LIST Case No. 9:13-mc-80769-CIV-RYSKAMP/Hopkins David H. Lichter dlichter@hlglawyers.com Mark E. Stein mstein@hlglawyers.com Higer Lichter & Givner 18305 Biscayne Blvd., Suite #302 Aventura, FL 33160 Telephone: 305-933-9970 Fax: 305-356-7556 JAX_ACTIVE 3350427.1 13