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IP Litigation

Delaware Court Addresses Veil-Piercing Patent Venue Argument

October 22, 2018

IP Litigation

Delaware Court Addresses Veil-Piercing Patent Venue Argument

October 22, 2018

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In an October 18, 2018 decision, Chief Judge Leonard Stark (D. Del.) rejected Bristol-Myers and Pfizer Inc.’s (together, “BMS”) attempt to establish venue over defendant Mylan Pharmaceuticals Inc. (“MPI”) in the District of Delaware by imputing the Delaware residency of MPI subsidiary Mylan Securitization LLC to it based on an “alter-ego” relationship between them.[i]  Although the court found BMS’ alter-ego evidence insufficient, this holding is the latest in a series of decisions acknowledging the possibility of veil piercing for patent venue purposes.

West-Virginia based MPI had initially moved to dismiss the case for improper venue soon after the Supreme Court’s decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, which held that a corporate defendant “resides” only in its state of incorporation for purposes of determining venue in a patent infringement case.[ii]  The district court denied MPI’s initial motion without prejudice and ordered expedited venue-related discovery.  After eight months of limited discovery, MPI renewed its motion to dismiss.  BMS argued that the Delaware residence of Mylan Securitization, a wholly-owned limited liability accounts-receivable securitization entity set up for tax purposes, could be imputed to parent MPI under the first prong of § 1400(b) due to an alter ego relationship.  MPI countered that the residence and activities of a non-party affiliate were irrelevant because alter ego and/or veil piercing doctrines cannot supplement Section 1400(b), adding that even if these doctrines were relevant, BMS failed to meet its burden to pierce the veil.[iii]

The court’s analysis first noted that plaintiffs had the burden of establishing proper venue.[iv]  In deciding whether there was proper venue under Section 1400(b), the court “allow[ed] for the possibility that, for the purposes of venue in patent cases, there are circumstances under which it is appropriate to impute the residence of one entity to another entity — where there is an alter ego relationship or piercing of the corporate veil — and in those circumstances the law allows the Court to treat one entity as if it were a resident in a second district.”[v] The court further noted that under Third Circuit law (which governed the corporate-veil piercing analysis), the presumption of corporate separateness may only be overcome by a showing of fraud, injustice, or unfairness.[vi]

In finding that venue was improper, the court concluded that plaintiffs failed to meet their “heavy burden” to establish an alter ego relationship.[vii]  Plaintiffs presented evidence that Mylan Securitization: (1) is wholly-owned by MPI; (2) does not have its own employees, revenue, profits, Delaware tax filings, or facilities; (3) is represented by the same counsel as MPI in transactions with MPI; (4) has “tiny” costs of operations; and (5) shares one overlapping director with MPI may show a close corporate relationship.  But the court concluded that evidence did not show that corporate formalities were ignored or that anything improper occurred in setting up Mylan Securitization.[viii]  The court also held that further discovery was unwarranted because it “could amount to a fishing expedition, and might not soon end nor ever satisfy Plaintiffs.”[ix]  In granting MPI’s motion to dismiss, the court noted that the parties agreed that if the court did not find venue appropriate, it should dismiss, and not transfer, the case, because a related action was already pending in the Northern District of West Virginia.[x]

Although the opinion does not address whether a court can impute a physical location necessary to establish a regular and established place of business (REPB) under the under the second prong of § 1400(b) based on an alter-ego relationship, other courts have held it is indeed possible to pierce the veil and impute the REPB of a non-resident defendant’s alter-ego to the defendant.[xi]  Although BMS was unsuccessful, the opinion and similar decisions on veil piercing are useful for litigators seeking to impute residency or a REPB[xii] to a defendant for venue purposes.  Plaintiffs seeking to employ the alter ego doctrine should consider, when possible, including allegations in their complaint that match up with the veil-piercing/alter ego requirements under relevant Circuit law[xiii] and/or requesting venue-related discovery.[xiv]

[i] Bristol-Myers Squibb Company et al v. Mylan Pharmaceuticals Inc., No. 1:17-cv-00379-LPS, D.I. 70 (D. Del. October 18, 2018) (“Opinion”).

[ii] 137 S. Ct. 1514 (2017). The patent venue statute provides that any civil action for patent infringement may be brought in the judicial district (1) where the defendant resides, or (2) where the defendant has committed acts of infringement and has a regular and established place of business. 28 U.S.C. § 1400(b).

[iii] Opinion at 4.

[iv] Id. at 2.

[v] Id. at 5 (citing Minn. Mining & Mfg. v. Eco Chem, Inc., 757 F.2d 1256, 1265 (Fed. Cir. 1985).

[vi] Id. at 7-8, 7 n.4.

[vii] The court also rejected BMS’s contention that venue in Hatch-Waxman actions are governed by § 1391, not § 1400(b).  Id. at 11-12.

[viii] Id. at 8-9.

[ix] Id. at 10.

[x] Id. at 4 n.2.

[xi] See, e.g., XR Communications, LLC d/b/a Vivato Technologies v. D-Link Systems, Inc., No. 8-17-cv-00596. D.I. 139 at 6-12 (C.D. Ca. Mar. 30, 2018) (finding that plaintiff failed to establish fraud from a failure to disregard the corporate form, as required under Ninth Circuit law, to establish an alter ego relationship and impute a REPB to defendant in the district); University of South Florida Research Foundation, Inc. v. AGFA Healthcare Corporation, No. 8-16-cv-03106, D.I. 71 at 9 (M.D. Fl. Dec. 29, 2017) (finding allegations were not sufficient to establish an alter ego relationship and support venue under the second prong of section 1400(b)); Tinnus Enterprises, LLC et al v. Telebrands Corporation, No. 6-16-cv-00033, D.I. 359 at 10-11 (Aug. 1, 2017 E.D.T.X) (finding venue proper for alter-ego of related defendant subject to venue in district); see also A Co. v. Consyne Corp., No. 75-0345, 1975 WL 21067, at *1 (S.D. Cal. Dec. 24, 1975) (“Based on the foregoing cases and the strong and convincing alter ego showing made by the plaintiff, the court is convinced that it is appropriate here to impute Consyne corporation’s established place of business in the Southern District to Ormco for purposes of patent venue under 28 U.S.C. 1400(b)”); Stanley Works v. Globemaster, Inc., 400 F. Supp. 1325, 1331 (D. Mass. 1975); Penntube Plastics Co. v. Fluorotex, Inc., 336 F. Supp. 698, 704 (D.S.C. 1971).

[xii] See, note 10, supra.

[xiii] See Wechsler v. Macke Int’l Trade, Inc., 486 F.3d 1286, 1295 (Fed. Cir. 2007) (“Since the alter ego issue is not unique to patent law, we apply the law of the regional circuit.”).

[xiv] See, e.g., Mallinckrodt IP et al v. B Braun Medical Inc., No. 1-17-cv-00365 D.I. 58 at 5-6 (Dec. 14, 2017 D. Del.) (“While B. Braun contends that ‘the record evidence shows that B. Braun does not have the required regular and established place of business in Delaware,’ the Court finds Plaintiffs’ theory — that the “places” of any B. Braun entity, including B. Braun affiliates, subsidiaries, parents, or alter egos, may be attributable to B. Braun for purposes of venue — is not frivolous and justifies some limited venue-related discovery.”).

Related Tags

veil piercing
patent venue
alter-ego relationship

Blog Authors

Betsy Flanagan | Principal

Betsy Flanagan is a Principal in the Twin Cities office of Fish & Richardson.  Her practice focuses on complex patent litigation, with an emphasis on life sciences, biotechnology and pharmaceutical litigation, including Hatch-Waxman litigation.  Betsy has worked on a variety of...

Ron Vogel | Associate

简体中文 한국어 Ron Vogel is a litigation Associate in the New York office of...

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