Bbc Intern. Ltd. v. Lumino Designs, Inc.

• Decision Date: 12 April 2006
• Docket Number: No. 05-CV-4179 (JFB)(ETB).,05-CV-4179 (JFB)(ETB).
• Parties: BBC INTERNATIONAL LTD., Plaintiff, v. LUMINO DESIGNS, INC., Defendant.
• Court: U.S. District Court — Eastern District of New York

Page 438

441 F.Supp.2d 438

BBC INTERNATIONAL LTD., Plaintiff, v. LUMINO DESIGNS, INC., Defendant.

No. 05-CV-4179 (JFB)(ETB).

United States District Court, E.D. New York.

April 12, 2006.

Christelette Angelika Hoey, John P. Moran, Tamara F. Carmichael, and Richard C. Hutchison of Holland & Knight LLP, New York, NY, for plaintiff.

Steven N. Davi of Farrell Fritz, P.C., Uniondale, NY, Philip P. Mann of The Mann Law Group, Seattle, WA, and Andrew Staes and Stephen Scallan of Staes and Scallan, P.C., Chicago, IL, for defendant.

MEMORANDUM AND ORDER

BIANCO, District Judge.

The defendant, Lumino Designs, Inc. (hereinafter "Lumino") has moved to alternatively transfer, stay or dismiss the instant suit, wherein plaintiff BBC International Ltd. (hereinafter "BBC") seeks a declaratory judgment of non-infringement and invalidity of a patent owned by Lumino, as well as damages for abuse of process resulting from Lumino's filing of an action against customers of BBC in the United States District Court for the Northern District of Illinois for an improper purpose. For the reasons stated below, the Court transfers the instant case to the Northern District of Illinois under the authority of 28 U.S.C. § 1404(a).

I. BACKGROUND

Lumino, a New York corporation, owns the rights and interests to United States Patent No. 5,743,616, entitled "LED Illuminated Image Display," (the "'616 patent"), issued on April 28, 1998. The `616 patent involves a light emitting diode (LED) surface which it claims to cover a "light up" feature that is used in children's footwear.<sup>1</sup> As part of its efforts to enforce the `616 patent, Lumino filed suit in the United States District Court for the Northern District of Illinois on June 24, 2005 (hereinafter referred to as the "Illinois Action") against a number of retailers that it alleges have infringed on its patent by selling shoes including the "light up" feature, including Target Corporation and Target Brands, Inc. (hereinafter collectively "Target"), Footstar, Inc. (hereinafter "Footstar"), the Stride Ride Corporation (hereinafter "Stride Ride") and the Kmart Holdings Corporation (hereinafter "Kmart").² In their answers, the defendants asserted affirmative defenses and counterclaims alleging non-infringement and patent invalidity.

BBC, a Delaware corporation, is a buying agent that facilitates the import and sale of shoes including the "light up" feature, which are manufactured in China and other Asian countries. BBC claims to have entered into separate agreements with Stride Ride, Target, and Footstar,³ under which they operate as a buying agent or subagent with respect to the procurement of footwear and apparel for the retailers. (Compl.¶¶9-12.)⁴ BBC acknowledges that it provides the retailers with many of the Lighted Shoe Products at issue in the Illinois Action. (Compl.¶8.) Under its agreements with the retailers, BBC is required to indemnify and hold them harmless from all claims, losses, expenses, damages, costs and attorneys' fees that they may incur by reason of any claims, litigation or allegations made against them with regard to copyright, patent and trademark rights arising from the purchase or sale of the Lighted Shoe Products. (Compl.¶13.)⁵

On September 1, 2005, BBC filed the instant action seeking a declaratory judgment that the '616 patent is invalid, or that the Lighted Shoe Products do not infringe the patent. Additionally, BBC seeks damages on an abuse of process claim, which alleges that Lumino filed the Illinois Action against its customers in bad faith to extort an unwarranted settlement.⁶

On November 8, 2005, Lumino amended its complaint in the Illinois Action to add patent infringement claims against BBC. Lumino also added a number of other retailers as defendants for selling Lighted Shoe Products, including Kohl's Corporation, Sears Roebuck and Co., Brown Shoe Company, Inc., and J.C. Penney Company, Inc.

Lumino moves to transfer, stay or dismiss the instant action, in favor of the Illinois Action, pursuant to Fed.R.Civ.P. 12(b)(3) and 28 U.S.C. § 1404(a). Further, Lumino moves to dismiss BBC's abuse of process cause of action for failure to state a claim for which relief may be granted, pursuant to Fed.R.Civ.P. 12(b)(6).

II. DISCUSSION

A. Applicable Law

Under 28 U.S.C. § 1404(a), "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." In considering a transfer under § 1404(a), a district court must consider both the private interests of the litigants as well as the public interests. See Gulf Oil v. Gilbert, 330 U.S. 501, 508, 67 S.Ct. 839, 91 L.Ed. 1055 (1947). Section 1404(a) is intended "to prevent waste of `time, energy and money' and `to protect litigants witnesses and [the] public against unnecessary inconvenience and expense.'"⁷ A ruling on a request to transfer under § 1404(a) is committed to the sound discretion of the trial judge. See Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988). Discretion is to be exercised "upon notions of convenience and fairness on a case-by-case basis."⁸ In determining whether to transfer venue, courts examine: (1) whether the action could have been brought in the proposed forum; and (2) whether the transfer would "promote the convenience of parties and witnesses and would be in the interests of justice."⁹

The parties do not dispute that this action could have been brought in the Northern District of Illinois. Rather, the parties focus on whether transfer would promote the interests of justice and the convenience of the parties. Although the Second Circuit has not catalogued all of the considerations that should be considered as part of a court's exercise of discretion, district courts in the circuit generally consider a number of factors, including:

(1) the convenience of the witnesses, (2) the convenience of the parties, (3) the locus of operative facts, (4) the availability of process to compel the attendance of unwilling witnesses, (5) the location of relevant documents and the relative ease of access to sources of proof, (6) the relative means of the parties, (7) the forum's familiarity with the governing law, (8) the weight accorded the plaintiff's choice of forum, and (9) trial efficiency and the interest of justice, based on the totality of circumstances.

In re Hanger Orthopedic Group, Inc. Securities Litig., 418 F.Supp.2d 164, 167 (E.D.N.Y.2006) (internal citations omitted); see also Dealtime.com v. McNulty, 123 F.Supp.2d 750, 755 (S.D.N.Y.2000) (collecting cases). The moving party, Lumino, bears the burden of making a showing that transfer is warranted in light of these factors. See O'Hopp v. ContiFinancial Corp., 88 F.Supp.2d 31, 34-35 (E.D.N.Y. 2000) (citing Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215, 218 (2d Cir.1978)).

B. First-to-File Principle

Although Lumino touches on many of the considerations enumerated above, the focus of their argument is that a transfer is appropriate because the Illinois Action is closely related to the instant action and the Illinois Action was filed first. It is well-settled that earlier-filed related lawsuits take precedence. Kahn v. General Motors Corp., 889 F.2d 1078, 1081 (Fed.Cir.1989) ("The general rule, and the rule in the Second Circuit, is that `as a principle of sound judicial administration, the first suit should have priority,' absent special circumstances.") (quoting William Gluckin & Co. v. Int'l Playtex Corp., 407 F.2d 177, 178 (2d Cir.1969)). Further, courts frequently exercise their authority under § 1404(a) to transfer litigation to other districts in which related suits are pending in the interests of efficiency and judicial economy. Wyndham Assoc. v. Bintliff, 398 F.2d 614, 619 (2d Cir.1968) ("[T]here is a strong policy favoring the litigation of related claims in the same tribunal in order that pretrial discovery can be conducted more efficiently, duplicitous litigation can be avoided, thereby saving time and expense for both parties and witnesses, and inconsistent results can be avoided.").¹⁰ There is no doubt that the Illinois Action and the instant action are closely-related; they both involve claims regarding the validity of the '616 patent, and if valid, whether the Lighted Shoe Products infringe upon that patent. Since the Illinois Action was filed first, it should take priority under the baseline rule.¹¹

C. Customer Suit Exception

Despite the fact that the Illinois Action was filed first, BBC claims that the instant declaratory judgment suit takes priority despite the general first-to-file rule, because of the "customer suit" exception which exists in patent cases. The exception applies where the first suit is an infringement suit against customers and the later-filed suit is a declaratory judgment action brought by the manufacturer of the allegedly infringing goods. Kahn, 889 F.2d at 1081; Gluckin, 407 F.2d at 178. Because courts have detected a high degree of forum shopping in patent cases, they have enacted this exception to protect the "manufacturer's presumed greater interest in defending its actions against charges of patent infringement; and to guard against possibility of abuse." Kahn, 889 F.2d at 1081 (citing Codex Corp. v. Milgo Elec. Corp., 553 F.2d 735, 737-38 (1st Cir.1977)). The manufacturer is generally the real party in interest, as it frequently has to protect its customers, often through indemnification agreements.

As a threshold matter, it is not plain that the customer suit exception applies in the instant case because BBC is a importer and reseller, and not a manufacturer of the allegedly infringing goods. Kash `N Gold, Ltd. v. ATSPI, Inc., 690 F.Supp. 1160, 1164 (E.D.N.Y.1988) (noting that where a declaratory judgment action was filed by "an importer, not a manufacturer, [...] the usual inference that its forum has an equivalent or stronger nexus...