PalTalk Holdings, Inc. v. Valve Corporation

Filing 47

REPORT AND RECOMMENDATIONS- GRANTING 19 MOTION to Transfer Case to Western District of Washington. Please note that when filing Objections pursuant to Federal Rule of Civil Procedure 72(b)(2), briefing consists solely of the Objections (no long er than ten (10) pages) and the Response to the Objections (no longer than ten (10) pages). No further briefing shall be permitted with respect to objections without leave of the Court. Objections to R&R due by 10/30/2017. Signed by Judge Sherry R. Fallon on 10/13/2017. (lih)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
PALTALK HOLDINGS, INC.,
Plaintiff,
v.

VALVE CORPORATION,
Defendant.

)
)
)
)
)
)
)
)
)

Civil Action No. 16-1239-JFB-SRF

REPORT AND RECOMMENDATION
I.

INTRODUCTION
Presently before the court in this patent infringement action is the motion to transfer

venue pursuant to Rule 12(b)(3) of the Federal Rules of Civil Procedure and 28 U.S.C. §§
1400(b) and 1406, filed by defendant Valve Corporation ("Valve"). (D.I. 19) For the following
reasons, I recommend that the court grant Valve's motion to transfer venue to the Western
District of Washington.

II.

BACKGROUND
A. Parties
On December 16, 2016, plaintiff PalTalk Holdings, Inc. ("PalTalk"), a Delaware

corporation headquartered in Jericho, New York, filed the present patent infringement action
against Valve, allyging infringement of U.S. Patent Nos. 5,822,523 ("the '523 patent") and
6,226,686 ("the '686 patent") (together, the "patents-in-suit"). (D.I. 1 at ifif 1, 6-7) PalTalk was
incorporated in 2001 and is the owner of various patents regarding methods and systems for
communicating over networks. (Id. at if 1) PalTalk's predecessor-in-interest, HearMe (formerly
known as MPath Interactive Inc.), was a pioneer of technology allowing users to participate in

multiplayer games over the internet. (Id at ~ 5) PalTalk' s technology includes communications
through a group messaging server and the establishment of groups for online game play. (Id).
Valve is a Washington corporation headquartered in Bellevue, Washington. (Id at ~ 2)
Valve developed and published a multiplayer online battle arena ("MOBA") video game called
Defense of the Ancients 2 ("DOTA 2"). (Id

at~

22) DOTA 2 has gained worldwide popularity,

grossing in excess of $23 5 million in 2015, and exceeding 1 million peak simultaneous players in
many months. (Id.

at~~

23-24) Valve has servers supporting DOTA 2 throughout the United

States, including servers in Seattle, Washington and Sterling, Virginia. (Id. at if 25; D.I. 25, Ex.
B) Valve's server in Sterling, Virginia is maintained by a third-party contractor. (D.I. 25, Ex. C)

B. Patents-In-Suit
The '523 patent, entitled "Server-Group Messaging System for Interactive Applications,"
was issued on October 13, 1998 to MPath Interactive Inc. as the assignee of inventors Jeffrey
Rothschild, Marc Kwiatkowski, and Daniel Samuel. (D.I. 1 at if 6) The '523 patent is directed
to using a group messaging server to receive individual messages from each computer, which
simplifies the communications between computers by reducing the number of messages that each
· individual computer must send and receive. (Id. at if 12) The '686 patent, entitled "ServerGroup Messaging System for Interactive Applications," issued on May 1, 2001. (Id

at~

7) The

'686 patent is a continuation of U.S. Patent No. 6,018,766, which is a continuation of the '523
patent. (Id) The '686 patent claims forming a message group and maintaining consistency
between the computers within the group, thereby facilitating efficient communications between
host computers and reducing the burden of maintaining consistency between the host computers
within the message group .. (Id at if 13)

2

The patents-in-suit underwent an ex parte reexamination before the United States Patent
and Trademark Office ("PTO") on June 14, 2010. (Id at ifif 8-9) All claims of the '523 patent
were confirmed patentable without amendment, and an additional forty-one claims were added.
(Id at if 8) All but two claims of the '686 patent were confirmed patentable without amendment,

and an additional fifty-one claims were added. (Id at if 9) The remaining two claims were
canceled. (Id) The reexamination requests stemmed from ongoing litigation between PalTalk
and various other, companies in the Eastern District of Texas. (Id at ifif 10, 17) The litigations
resolved when each of the former defendants took licenses to the patents-in-suit. (Id)

C. Related Litigation
A related case, PalTalk Holdings, Inc. v. Riot Games, Inc., C.A. No. 16-1240-JFB-SRF
(the "Riot Games Litigation"), is currently pending before the court. 1 Both cases involve the
same patents-in-suit and are operating on a joint schedule for pre-trial purposes. (D.I. 15)

III.

LEGAL STANDARD
Generally, "venue provisions are designed ... to allocate suits to the most appropriate or

convenient federal forum." Brunette Mach. Works, Ltd v. Kockum Indus., Inc., 406 U.S. 706,
710 (1972). A party may move to dismiss a lawsuit for improper venue in accordance with Rule
12(b)(3 ), and the court must then determine whether venue is proper under the applicable
statutes. See Albright v. W.L. Gore & Assocs., Inc., 2002 WL 1765340, at *3 (D. Del. July 31,
2002). Under Rule 12(b)(3), it is Valve's burden to establish that venue is improper. See
Graphics Property Holdings Inc. v. Asus Computer Int'!, Inc., 964 F. Supp. 2d 320, 324 (D. Del.

2013) (internal citations omitted).
1

No motion to transfer venue is pending in the Riot Games Litigation. Valve indicates that
DOTA 2 "was developed completely independently of Riot Games' League of Legends game."
(D.I. 21 at if 8)

3

In patent infringement actions, venue is proper "in the judicial district where the
defendant resides, or where the defendant has committed acts of infringement and has a regular
and establfshed place of business." 28 U.S.C. § 1400(b); see TC Heartland LLC v. Kraft Foods

Grp. Brands LLC, 137 S. Ct. 1514, 1516 (2017). In Fourco Glass Co. v. Transmirra Products
Corp., the Supreme Court concluded that a domestic corporation "resides" only in its state of
incorporation for purposes of§ 1400(b). 353 U.S. 222, 229 (1957). The Supreme Court recently
reaffirmed the decision in Fourco, concluding that a corporation resides only in its state of
~ncorporation.

IV.

TC Heartland, 137 S. Ct. at 1520.

DISCUSSION
As a preliminary matter, the parties agree that venue in Delaware is improper under the

Supreme Court's recent ruling in TC Heartland LLC v. Kraft Food Group Brands LLC, 137 S.
Ct. 1514 (2017). Instead, the parties' dispute centers on whether the case should be transferred
to the Western District of Washington or the Eastern District of Virginia. (D.I. 25 at 1; D.I. 28 at
2) The parties do not dispute that venue would be proper in the Western District of Washington,
where Valve resides. (D.I. 25 at 3; D.I. 28 at 2) However, they disagree as to whether the
Eastern District of Virginia is a regular and established place of business sufficient to establish
venue. (D.1. 25 at 8-10; D.I. 28 at 2)
Pursuant to 28 U.S.C. § 1406(a), a court may, in the interests of justice, transfer a case
where the original venue is improper to a district where venue would be proper. 2 Jumara v. State

2

The Third Circuit has not established a specific set of factors for transfer under § ·1406(a).
Courts in this district have applied the§ 1404(a) Jumara factors to the§ 1406(a) analysis. See,
e.g.,Am. High-Income Trustv. AlliedSignal Inc., C.A. No. 00-690-GMS, 2002 WL 373473, at
*4 (D. Del. Mar. 7, 2002). Applying the Jumara factors to the instant case to determine the most
appropriate venue presents a unique circumstance because neither proposed venue is within the
Third Circuit. Regardless, application of the Jumara factors further supports the court's
4

Farm Ins. Co., 55 F.3d 873, 878 (3d Cir. 1995). The decision to transfer a' case lies within the

broad discretion of the district court. Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988).
Considering the record before the court, the interests of justice favor transferring the action to the
Western District of Washington, where Valve resides and where the record supports a connection
to the events in issue. (D.I. 21 at if 2) DOTA 2 and its source code were created by a Valve team
in Washington, and are maintained there by Valve employees. (Id at if 4) All Valve employees,
officers, and directors involved in the development of DOTA 2 work in Washington. (Id)
Given the weight of the evidence supporting Valve's ties to the Western District of
Washington, and Valve's comparatively tenuous ties to the Eastern District of Virginia, I
recommend that the court grant Valve's motion to transfer venue to the Western District of
Washington. This ruling makes no factual findings or legal conclusions as to the significance of
Valve's third-party contracts for server locations in Virginia, and whether those contracts and
server locations are sufficient to constitute a regular and established place of business. Even if
the court were to conclude that the Virginia servers constituted a regular and established place of
business and both venues were proper, the evidence weighs in favor of transfer to the Western
District of Washington for the reasons previously stated.

V.

CONCLUSION
For the foregoing reasons, I recommend that the court grant Valve's motion to transfer

venue to the Western District of Washington. (D .I. 19)
This Report and Recommendation is filed pursuant to 28 U.S.C. § 636(b)(l)(B), Fed. R.
Civ. P. 72(b)(l), and D. Del. LR 72.1. The parties may serve and file specific written objections
recommendation, given Valve's state of incorporation, the location of its principal place of
business, the location of most of its ~mployees, and the location of the accused product's
development.
5

within fourteen (14) days after being served with a copy of this Report and Recommendation.
Fed. R. Civ. P. 72(b)(2). The objections and responses to the objections are limited to ten (10)
pages each. The failure of a party to object to legal conclusions may result in the loss of the right
to de novo review in the District Court. See Sincavage v. Barnhart, 171 F. App'x 924, 925 n.1
(3d Cir. 2006); Henderson v. Carlson, 812 F.2d 874, 878-79 (3d Cir. 1987).
The parties are directed to the court's Standing Order For Objections Filed Under Fed. R.
Civ. P. 72, dated October 9, 2013, a copy of which is available on the court's website,
http://www.ded.uscourts.gov.

Dated: October 13, 2017

6