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Symbology Innovations, LLC v. Lego Systems, Inc.

United States District Court, E.D. Virginia, Norfolk Division

October 1, 2017

SYMBOLOGY INNOVATIONS, LLC, Plaintiff,
v.
LEGO SYSTEMS, INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          Arenda L. Wright Allen United States District Judge

         In this patent infringement suit, two corporations hailing from distant states find themselves litigating in the Eastern District of Virginia. This sort of forum shopping in patent litigation has proliferated over the past thirty years. See Daniel Klerman & Greg Reilly, Forum Selling, 89 S. Cal. L. Rev. 241, 247-48 (2016). This practice has subjected defendants to litigation in distant forums largely unrelated to the alleged infringement and has given a few federal district courts, including the Eastern District of Virginia, inordinate power over the interstate market for innovation.[1] See Id. at 249-50, 280-81.

         Two recent decisions, TC Heartland, LLC v. Kraft Foods Group Brands, LLC, 137 S.Ct. 1514 (2017) and In re Cray, Inc., __ F.3d __, 2017 WL 4201535 (Fed. Cir. Sept. 21, 2017), have clarified that the permissible venues for patent litigation are narrower than has been allowed in recent practice, however. In the wake of these decisions, venue for this suit does not properly lie in the Eastern District of Virginia, and the interests of justice require that this action be transferred to the District of Connecticut pursuant to 28 U.S.C. § 1406(a).

         I. BACKGROUND

         Plaintiff Symbology Innovations, LLC ("Symbology") filed this suit against Defendant Lego Systems, Inc. ("Lego Systems") alleging patent infringement and seeking damages, attorneys' fees, costs, and further relief under 35 U.S.C. § 271. See Am. Compl. ¶ 1. A PACER search revealed that Symbology has filed approximately ninety such suits since 2015.[2] Despite the volume of litigation, a Westlaw search reveals that no reported or unreported decisions have been issued in any of these cases.

         A. Symbology's Patents

         Symbology owns four patents (Patent Numbers 7, 992, 773, 8, 424, 752, 8, 651, 369, and 8, 936, 190), each titled "System and Method for Presenting Information about an Object on a Portable Electronic Device." See Am. Compl. ¶¶ 10-11, 15-16, 20-21, 25-26. The patents relate to quick response codes ("QR codes"). See id.

         A QR code is an encoded image used to link printed material to digitally stored information. See 2 Harry M. Philo, Jr., Lawyers Desk Reference § 9:33 (10th ed.). It functions as an elaborate bar code that "consists of black modules arranged in a square pattern on a white background." Id.; see also Figure 1.

         (Image Omitted)

         To access information stored in the QR code, a consumer must have a QR code reader application ("app") installed on the consumer's smart phone. See Styer v. Prof I Med. Mgmt., Inc., 114 F.Supp.3d 234, 236 (M.D. Pa. 2015). When presented with a QR code, the consumer opens the app, which activates the smartphone's camera to scan the QR code. See James E. Cabral et al., Using Technology to Enhance Access to Justice, 26 Harv. J.L. & Tech. 241, 273- 74 (2012). The app then processes the QR code, decodes its message, and uses the encoded URL to access the online content sought by the consumer. Id

         Symbology's infringement claims concern a method for reading QR codes encoded with URLs.[3] See Am. Compl. ¶¶ 14, 19, 24, 29. The patents purport to cover particular methods for using a digital device to capture and process a QR code and using the decoded URL to access the associated website. See id.

         B. Lego Systems' Business and Contacts with the Forum

         Lego Systems is a Danish company incorporated in Delaware and headquartered in Enfield, Connecticut. Am. Compl. ¶ 3. Lego Systems creates and sells the popular Lego brand construction toys. See 1st Quaglia Decl. ¶ 3 (ECF No. 31-1); see also Nielson Decl. ¶ 3 (ECF No. 31-2). Lego toys are manufactured exclusively outside of the Commonwealth of Virginia. See 1st Quaglia Decl. ¶ 3. Lego Systems designs advertisements and packaging for its American products at its headquarters in Billund, Denmark and in Enfield, Connecticut. See Am. Comp. ¶ 37; see also 1st Quaglia Decl. ¶ 4.

         Some of Lego Systems' product packaging features QR codes. See, e.g., Am. Compl. ¶¶ 30, 52. Lego Systems does not make, generate, or otherwise create QR codes, nor does it make or offer for sale any software that detects and processes QR codes. 1st Quaglia Decl. ¶¶ 6-7. To generate, detect, and process QR codes, consumers must use third-party software. Id. ¶ 8. Symbology alleges that, by featuring QR codes on its boxes, Lego Systems induces shoppers to infringe on its patents. See Id. Symbology also alleges that Lego Systems directly infringed on its patents by using an app while internally testing the QR codes. See id.

         Although headquartered in Denmark and Connecticut, Lego Systems has several contacts with the Eastern District of Virginia. The company derives revenue from products sold in this District, holds promotional events here, is registered with the Commonwealth as a foreign corporation, and has a registered agent to accept service of process. See Supp. Resp. at 4; see also Pl's Exh. 2 (ECF No. 21-2). Symbology alleges that Lego Systems directly infringes and induces consumers to infringe on its patents in this District. See Am. Compl. ¶ 7.

         Lego Systems operates no retail stores in this District (or anywhere else). See 1st Quaglia Decl. ¶ 10. A subsidiary, Lego Brand Retail, Inc., operates Lego Store locations in at least thirty states, including three stores in Virginia. Id. Lego Systems and Lego Brand Retail are separate entities with separate corporate officers, records, finances, and assets. See Nielsen Decl. ¶ 4. They maintain separate general ledgers and prepare their own distinct financial reports. See Id. ¶ 5. The companies do not hold joint assets. See id.

         C. Procedural History

         On January 3, 2017, Symbology filed five patent infringement lawsuits in the Eastern District of Virginia. See Civil Action Nos. 2:17-cv-l, 2:17-cv-2, 2:17-cv-84, 2:17-cv-85, 2:17-cv-86. Only the instant suit remains pending. Originally filed in the Court's Richmond Division, this case was transferred to the Norfolk Division when the five suits were consolidated before the undersigned. See Feb. 8, 2017 Transfer Order (ECF No. 5).

         In lieu of filing a responsive pleading, Lego Systems moved to dismiss this action, challenging the sufficiency of Symbology's Complaint and, later, its Amended Complaint. See Mot. Dismiss Compl. (ECF No. 16); see also Mot. Dismiss Am. Compl. (ECF No. 25). Lego Systems also moved for a transfer of venue to the District of Connecticut under 28 U.S.C. § 1404(a), asserting the inconvenience of this forum. See Transfer Mot. (ECF No. 18).

         When advancing those motions, Lego Systems reserved its right to challenge the propriety of venue in this District pending the outcome of a patent-venue case in which the United States Supreme Court had granted certiorari. Transfer Mem. at 4 n.6 (ECF No. 19) (citing TC Heartland, LLC v. Kraft Food Brands Grp., LLC, 137 S.Ct. 614 (2016) (granting cert.)). When reserving the issue, Lego Systems errantly cited the inapplicable general venue statute (28 U.S.C. § 1391(c)) instead of the patent venue statute (28 U.S.C. § 1400(b)) or the provision governing improper venue challenges (28 U.S.C. § 1406(a)). See Id. However, the company also cited the Supreme Court's grant of certiorari in TC Heartland, clarifying that Lego Systems had intended to preserve the issue of improper venue pending the outcome of TC Heartland v. Kraft Food Brands Group, LLC. See id.

         While Lego Systems' Rule 12(b)(6) Motion to Dismiss and § 1404(a) Motion to Transfer remained pending, the Supreme Court issued its decision in TC Heartland, LLC v. Kraft Foods Group Brands, LLC, 137 S.Ct. 1514 (2017). The Supreme Court underscored that its 1957 decision interpreting the patent venue statute remains good law. See Id. at 1517 (citing Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957)). The Court also expressly reaffirmed Fourco's holding "that a domestic corporation 'resides' only in its State of incorporation for purposes of the patent venue statute." Id.

         This Court then ordered supplemental briefing on the venue issues presented by this case. See Supp. Br. Order at 1-3 (ECF No. 30). The parties were directed to advance all transfer arguments in their new briefing. Id. at 1 n.1. The Court also invited Lego Systems to argue the propriety of venue after the Supreme Court's decision in TC Heartland. See Supp. Br. Order at 3. Lego Systems briefed the issue in its Supplemental Memorandum. See Supp. Mem. at 6-11 (ECF No. 31). After the Court granted Symbology additional time to revise its responsive brief, the company filed an amended Supplemental Response, addressing both the improper venue and the inconvenient venue issues. See July 10, 2017 Min Order (ECF No. 33); see also Supp. Resp. (ECF No. 34). Lego Systems filed its Supplemental Reply. See Supp. Reply (ECF No. 35).

         The issues are now fully developed and ripe for resolution by the Court.[4] At this juncture, Lego Systems challenges venue in this District as either improper or inconvenient. If venue is deemed improper, the company requests that the Court dismiss this action or transfer it to the United States District Court for the District of Connecticut. In the alternative, if venue is deemed proper but inconvenient, Lego Systems seeks a transfer. In response, Symbology argues that venue is proper, that transfer is unnecessary, and that if transfer is necessary, the appropriate transferee forum is the United States District Court for the District of Delaware.

         II. LEGAL STANDARDS

         In patent infringement suits, the law of the United States Court of Appeals for the Federal Circuit applies to matters unique to patent law. Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356, 1359 (Fed. Cir. 1999) (en banc). However, when resolving procedural issues that are not unique to patent law, United States Court of Appeals for the Fourth Circuit law applies. See Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1564 (Fed. Cir. 1994).

         Two generally applicable federal statutes permit district courts to transfer a case to another venue. A district court can transfer venue under 28 U.S.C § 1406(a), when the venue is improper, or under 28 U.S.C. § 1404(a), when the venue is proper but inconvenient.

         A. Transfer Under S 1406(a) Based on Improper Venue

         The Court considers Lego Systems' improper venue challenge as a motion under Federal Rule of Civil Procedure 12(b)(3), the proper mechanism for defendants seeking to raise an objection to improper venue. See W.Va. Chamber of Commerce v. Browner, 166 F.3d 336, 1998 WL 827315, at *4 n.6 (4th Cir. 1998) (table).

         When evaluating the propriety of venue under Rule 12(b)(3), a district court may examine facts outside the complaint to determine whether its venue is proper. See 14D Charles A. Wright et al., 14D Federal Practice and Procedure § 3826 & n.30 (3d ed.) (collecting cases). Although a plaintiff need not plead venue, courts "consider to be true any well-pleaded allegations of the complaint that bear on venue, unless contradicted by defendant's affidavit evidence." Id. & nn.3-4, 28-29 (collecting cases). If the plaintiff presents countervailing affidavits, the court can hold an evidentiary hearing to assess credibility and make findings of fact. See id & n.32; accord Hancock v. AT&T Co., 701 F.3d 1248, 1261 (10th Cir. 2012).

         When a defendant challenges venue under Rule 12(b)(3) in the Fourth Circuit, the plaintiff bears the burden of establishing that venue is proper.[5] See, e.g., Smithfield Packing Co. v. V. Suarez & Co., 857 F.Supp.2d 581, 584 (E.D. Va. 2012); Colonna's Shipyard, Inc. v. City of Key W., 735 F.Supp.2d 414, 416 (E.D. Va. 2010); Dunham v. Hotelera Canco S.A. de C.V., 933 F.Supp. 543, 550 (E.D. Va. 1996). The weight of this burden varies with the nature of the parties' dispute.

         "To survive a motion to dismiss for improper venue when no evidentiary hearing is held, plaintiff need only make a prima facie showing of venue." Mitrano v. Hawes, 377 F.3d 402, 405 (4th Cir. 2004). "In assessing whether there has been a prima facie venue showing, [courts] view the facts in the light most favorable to the plaintiff." Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355, 365-66 (4th Cir. 2012) (citations omitted). The plaintiff faces a heightened burden when an evidentiary hearing is held, and must prove venue by a preponderance of the evidence. See Gulf Ins. Co. v. Glasbrenner, 417 F.3d 353, 355 (2d Cir. 2005); see also 14D Federal Practice and Procedure, supra, § 3826 & nn.32-33.

         B. Transfer Under § 1404(a) Based on Inconvenient Venue

         Alternatively, § 1404(a) "allows a court where venue is proper to transfer a case to a more convenient forum." See HollyAnne Corp. v. TFT, Inc., 199 F.3d 1304, 1307 (Fed. Cir. 1999). A transfer under § 1406(a) is available when there is a legal defect in the initially selected forum. Id. Conversely, a § 1404(a) transfer is available only when the initial choice of forum is legally sound but the location's impracticality warrants a transfer to ensure the convenient and efficient resolution of the dispute. See Martin v. Stokes, 623 F.2d 469, 473-74 (6th Cir. 1980).

         When seeking a convenience transfer under § 1404(a), "[t]he movant bears the burden of showing that transfer is proper." JTH Tax, Inc. v. Lee, 482 F.Supp.2d 731, 736 (E.D. Va. 2007). Whether to transfer a case under § 1404(a) is committed to the discretion of the district court. See Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29-30 (1988). "[U]nless the balance is strongly in favor of the defendant, the plaintiffs choice of forum should rarely be disturbed." Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947). "Rarely, however, is not never." In re Nat'l Presto Indus., 347 F.3d 662, 664 (7th Cir. 2003) (Posner, J.).

         III. ANALYSIS

         Lego Systems asks the Court to determine whether the Eastern District of Virginia is the proper venue for this suit. If venue does not lie, Lego Systems requests that the Court either transfer or dismiss this suit under § 1406(a). If venue lies here, the company requests that the Court nevertheless transfer this action to a more convenient forum under § 1404(a). Because venue is improper, the Court will transfer this action under § 1406(a), and does not reach the § 1404(a) issue.

         Because venue is a somewhat abstract concept, the Court begins with the building blocks of the doctrine. "Venue rules are concerned with the proper geographic location for litigation of a civil action." Moore's Federal Practice § 110.01 [1] (3d ed.). These rules "seek to channel lawsuits to an appropriately convenient court, given the matters raised and the parties involved in an action." Id. (citing Leroy v. Great Western United Corp., 443 U.S. 173, 185 (1979)). Because of this, "[v]enue is a waivable personal privilege of defendants." Cobalt Boats, LLC v. Sea Ray Boats, Inc., __ F.Supp.3d __, 2017 WL 2556679, at *2 (E.D. Va. June 7, 2017) (citing Leroy v. Great W. United Corp., 443 U.S. 173, 180 (1979)).

         "Federal venue statutes govern the venue of all civil actions brought in the federal district courts." Id. § 110.01 [2]. The proper venue for any given federal lawsuit is determined by the general venue statute, a special venue statute, or the general venue statute supplemented by a special venue statute. See Id. § 1101.01[3][a]-[b]. Intellectual property lawsuits are exclusively governed by special venue rules, found in 28 U.S.C. ...


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