Prism Technologies v. PayPal

Filing 51

REPORT AND RECOMMENDATION that Cases Nos. 8:08CV195 and 8:08CV196 be deemed related cases pursuant to NEGenR 1.4; that PayPal's Motion to Transfer pursuant to 28 U.S.C. § 1404(a) 39 be granted, and that Cases Nos. 8:08CV195 and 8:08CV196 be transferred to the Northern District of California for all further proceedings pursuant to 28 U.S.C. § 1404(a). Ordered by Magistrate Judge F. A. Gossett. (CLS, )

IN THE UNITED STATES DISTRICT COURT F O R THE DISTRICT OF NEBRASKA P R IS M TECHNOLOGIES, LLC, P l a i n t i f f, vs. V E R I S I G N , INC., D efe n d a n t. P R IS M TECHNOLOGIES, LLC, P l a i n t i f f, vs. P A Y P A L , INC., D efe n d a n t. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

8 :0 8 C V 1 9 5 R E P O R T AND R E C O M M E N D A T IO N

8 :0 8 C V 1 9 6 R E P O R T AND R E C O M M E N D A T IO N

T h is matter is before the court pursuant to 28 U.S.C. § 636 and the referral of Judge S m ith Camp on the Motion to Transfer Pursuant to 28 U.S.C. § 1404(a) filed by defendant, V e ris ig n , Inc. ("VeriSign") in Case No. 8:08CV195 (Doc. 29), and the Motion to Dismiss, S ta y or Transfer pursuant to 28 U.S.C. § 1404(a) filed by PayPal, Inc. ("PayPal") in Case No. 8 :0 8 C V 1 9 6 (Doc. 39). The motions have been fully briefed. After careful consideration, I re c o m m e n d that the cases be deemed related pursuant to NEGenR 1.4 and transferred to the N o rth e rn District of California. I . BACKGROUND P r is m Technologies, LLC ("Prism") is a limited liability company organized under the la w s of the State of Nebraska. Its principal place of business is located in Omaha, Nebraska.

A c c o r d in g to its Vice President of Business Development and Licensing, Prism's business a c tiv i tie s include "consulting in and developing Internet security related technologies." VeriSign is a corporation organized under the laws of the State of Delaware. Its h e a d q u a rte rs is located in Mountain View, California. VeriSign's products are available to c u s to m e rs in the State of Nebraska. PayPal is a corporation organized under the laws of the State of Delaware. Its p rin c ip a l place of business is located in San Jose, California. PayPal does business in N e b ra s k a and has an office in La Vista, Nebraska. B. Prism's Complaints In Case No. 8:08CV195 (the "VeriSign action") Prism alleges that it is the owner by a ss ig n m e n t of United States Patent No. 5,745,574, "Security Infrastructure for Electronic T ra n sa c tio n s" (the "'574 Patent"), and that VeriSign has infringed the '574 Patent through its m a n u f ac tu re , sale or use of security certificates which infringe at least claims 1 and 18 of the '5 7 4 Patent. The '574 Patent was issued on December 15, 1995. The inventor was Sead M u f tic of Hasselby, Sweden. In Case No. 8:08CV196 (the "PayPal action"), Prism alleges that it is the owner by a ss ig n m e n t of United States Patent No. 5,850,442, "Secure World Wide Electronic C o m m e rc e Over an Open Network" (the "'442 Patent"), and that PayPal has infringed the '4 4 2 Patent through its manufacture, sale or use of security certificates which infringe at least c la im 38 of the '442 Patent. The '442 Patent was issued on March 26, 1996. The inventor w a s Sead Muftic of Hasselby, Sweden.

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B . VeriSign's Answer and Counterclaims (8:08CV195) V e riS ig n filed an answer (8:08CV195, Doc. 28) denying Prism's allegations of in f rin g e m e n t and raising 12 affirmative defenses. In support of its counterclaims, VeriSign n o te s that Prism filed the action against PayPal for infringement of at least claim 38 of the '44 2 Patent. Prism's allegation regarding "security certificates" refers to Secure Socket Layer (" S S L ") certificates, which are also known as "digital certificates." VeriSign alleges that it p ro v id e s core services to allow the Internet to function smoothly and reliably. The security so lu tio n s offered by VeriSign include, among other things, digital certificates. VeriSign is th e leading SSL Certificate Authority, enabling secure e-commerce and communications for W e b sites, intranets, and extranets. PayPal does not manufacture or sell digital certificates f o r customer operations. VeriSign states that it is the exclusive provider of the digital certificates used by its c u sto m e r, PayPal, in public commerce. VeriSign also provides digital certificates to many o th e r customers. Prism's allegation that PayPal's use of security certificates infringes the '442 p a te n t creates an actual controversy between VeriSign and Prism concerning whether V e riS ig n and/or its customers infringe any valid claim of the '442 patent based on, at least, th e use of VeriSign digital certificates. Pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, and the U n ite d States Patent Act, 35 U.S.C. § 1, et seq., VeriSign requests a judicial declaration that (1 ) it does not infringe any valid, enforceable claim of the '574 patent; (2) the '574 patent is in v a lid ; (3) neither VeriSign, nor any of its customers, infringe any valid, enforceable claim o f the '442 patent; (4) the '442 patent is invalid; and (5) the '442 patent is unenforceable. V e riS ig n alleges in its Counterclaim V that the '442 patent is unenforceable by virtue o f inequitable conduct, based largely on the applicant's failure to disclose prior art references -3-

to the examiner. The prior art references include U.S. Patent No. 5,509,071 issued to Petrie, J r., et al., U.S. Patent No. 5,497,421issued to Kaufman, et al., and prior art publications by th e named inventor, Sead Muftic, including but not limited to "Security architecture for d istrib u ted systems," Computer Communications, Vol. 17, No. 7 (July 7, 1994). C . PayPal's Answer and Counterclaims (8:08CV196) In its Answer (Doc. 38), PayPal denies Prism's allegations of infringement and raised 1 4 affirmative defenses. PayPal's Twelfth Defense alleges that the '442 Patent is

u n e n f o rc e ab le as the result of the applicant's failure to disclose prior art references to the e x a m in e r. The prior art references include U.S. Patent No. 5,509,071 issued to Petrie, Jr., e t al., U.S. Patent No. 5,497,421issued to Kaufman, et al., and prior art publications by the n a m e d inventor, Sead Muftic, including but not limited to "Security architecture for d istrib u ted systems," Computer Communications, Vol. 17, No. 7 (July 7, 1994).1 P u r s u a n t to the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, and the U n ite d States Patent Act, 35 U.S.C. § 1, et seq., PayPal requests a judicial declaration that (1 ) it does not infringe any valid, enforceable claim of the '442 patent; (2) the '442 patent is in v a lid ; and (3) the '442 patent is unenforceable. PayPal's Counterclaim III is based on the sa m e allegations as its Twelfth affirmative defense, i.e., that the patent applicant failed to d i sc lo s e material prior art references. I I . DISCUSSION P rism and PayPal ask that venue be transferred to the Northern District of California p u rs u a n t to 28 U.S.C. § 1404(a), which provides: "For the convenience of parties and

These allegations are the same as the allegations made by VeriSign in support of its Counterclaim V. -4 -

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w itn e ss e s, in the interest of justice, a district court may transfer any civil action to any other d is tric t or division where it might have been brought." The motion is governed by the law o f the Eighth Circuit. See, e.g., Biometics, LLC v. New Womyn, Inc., 112 F. Supp. 2d 869, 8 7 5 (E.D. Mo. 2000) (citing Winner Int'l Royalty Corp. v. Wang, 202 F.3d 1340 (Fed. Cir.), ce rt. denied, 530 U.S. 1238 (2000)). A . Where the actions "might have been brought" P r is m 's claims arise under the United States Patent Act, and this court has subject m a tte r jurisdiction pursuant to 28 U.S.C. § 1338. VeriSign's worldwide headquarters and principal place of business is located in M o u n ta in View, California. VeriSign employs approximately 2,700 people in the United S ta te s, 754 of whom are located in the Mountain View, California offices. VeriSign owns n o property in Nebraska and has no personnel employed in offices in the State of Nebraska. (D o c . 30-3 in 8:08CV195). The headquarters of PayPal is located in San Jose, California. PayPal purchases all o f its digital certificates from VeriSign. PayPal's operations relating to public digital c e rtif ic a te use are located at PayPal facilities in Northern California, Colorado, and Arizona, an d any of its employees who have knowledge of PayPal's use of digital certificates are lo c a te d in Northern California, Colorado, and Arizona. (Doc. 40-3 in 8:08CV196). VeriSign and PayPal have both demonstrated that they "reside" in the Northern D is tric t of California, and venue would be proper in the Northern District of California under 2 8 U.S.C. § 1400(b), which provides: "Any civil action for patent infringement may be b ro u g h t in the judicial district where the defendant resides, or where the defendant has c o m m itte d acts of infringement and has a regular and established place of business."

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T h e court finds that these actions could have been brought in the Northern District of C a lif o r n ia . B. C o n v e n ie n c e of Parties & Witnesses

In general, the party seeking transfer bears the burden of establishing that the transfer s h o u ld be granted. See Terra Int'l, Inc. v. Mississippi Chem. Corp., 119 F.3d 688, 695 (8th C ir .), cert. denied, 522 U.S. 1029 (1997); Nelson v. Bekins Van Lines Co., 747 F. Supp. 532, 5 3 5 (D. Minn. 1990). The movant must make a clear showing that the balance of interest w e ig h s in favor of the movant. See General Comm. of Adjustment v. Burlington N. R.R., 895 F . Supp. 249, 252 (E.D. Mo. 1995); BASF Corp. v. Symington, 50 F.3d 555, 557 (8th Cir. 1 9 9 5 ). A transfer should not be granted if the effect is to merely shift the inconvenience f ro m one party to the other. Nelson, 747 F. Supp. at 535 (citing Van Dusen v. Barrack, 376 U .S . 612, 646 (1964)); General Comm. of Adjustment, 895 F. Supp. at 252; see generally F e re n s v. John Deere Co., 494 U.S. 516, 522-23 (1990). In order to prevail, the party s e e k in g the change of venue must show that its inconvenience strongly outweighs the in c o n v e n ie n c e the opposing party would suffer if venue were transferred. See Nelson, 747 F . Supp. at 535. In determining whether or not to transfer venue, the court must consider the three g e n e ra l categories of factors stated in § 1404(a); however, the court's evaluation of a transfer m o tio n is not limited to the enumerated factors. Instead, courts have recognized that such d e te rm in a tio n s require a case-by-case evaluation of the particular circumstances at hand and a consideration of all relevant factors. Biometics, LLC v. New Womyn, Inc., 112 F. Supp. 2d a t 875 (citing Terra Int'l, 119 F.3d at 691). Factors which courts have considered in deciding a motion to transfer under § 1404(a) include, under the "convenience" prongs, (1) the convenience of the p a rtie s, (2) the convenience of the witnesses­including the willingness of -6-

w itn e ss e s to appear, the ability to subpoena witnesses, and the adequacy of d e p o sitio n testimony, (3) accessibility of records and documents, (4) the lo c a tio n where the conduct complained of occurred, and (5) the applicability o f each state's forum law. Factors considered under the "interest of justice" p ro n g include (1) judicial economy, (2) the plaintiff's choice of forum, (3) the c o m p a ra tiv e costs to the parties of litigating in each forum, (4) each party's a b ility to enforce a judgment, (5) obstacles to a fair trial, (6) conflict of law is s u e s, and (7) the advantages of having a local court determine questions of lo c a l law. See Terra Int'l, 119 F.3d at 696. B io m e tic s, LLC v. New Womyn, Inc., 112 F. Supp. 2d at 875 n.4. VeriSign and PayPal urge the court to use a "center of gravity" analysis in determining th e proper forum for these cases. This analysis is commonly used in other jurisdictions, but h a s not been adopted, rejected, or even discussed by the Eighth Circuit. Thus, there is no b in d in g precedent either requiring or forbidding this court to use the "center of gravity" test. In Samsung SDI Co., Ltd. v. Matsushita Elec. Indus. Co., 524 F. Supp. 2d 628, 632 (W .D . Pa. 2006), the court considered a "center of gravity" approach in determining whether th e plaintiff's claim arose somewhere other than the plaintiff's chosen forum: " In patent infringement cases, the 'preferred forum is that which is the center o f gravity of the accused activity.'" Saint-Gobain Calmar Inc. v. National P r o d u c ts Corp., 230 F. Supp. 2d 655, 660 (E.D. Pa. 2002), citing, Renzetti Inc. v . D.H. Thompson, Inc., 1997 WL 230806 (E.D. Pa. 1997). "The 'center of g ra v ity' for such a claim is in the district court where the alleged infringement o c c u rre d . In finding that 'center of gravity,' a district court 'ought to be as c lo se as possible to the milieu of the infringing device and the hub of activity c e n t e re d around its production.'" Saint-Gobain, 230 F. Supp. 2d at 660, citing, R e n ze tti, 1997 WL 230806 at *9 and S.C. Johnson & Son, Inc. v. Gillette Co., 5 7 1 F. Supp. 1185, 1188 (N.D. Ill. 1983). "Appropriate considerations include th e location of a products development, testing, research and production [and] the place where marketing and sales decisions were made, rather than where lim ite d sales activity has occurred.'" id, quoting Ricoh Co., Ltd. v. Honeywell In c ., 817 F. Supp. 473, 482 n.17 (D.N.J. 1993).

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P r is m previously sued VeriSign in the District of New Jersey and observes that V e riS ig n did not ask that the New Jersey case be transferred to the Northern District of C a lif o rn ia . While that may be true, it does not negate the possibility that in this particular m a tte r it would be more convenient for VeriSign to litigate in California. "Each case must b e judged on its own practicalities. A corporation does not forfeit its right to claim greater c o n v e n ie n c e in another forum because it is large or because it has litigated here in the past." G e m in i IP Tech., LLC v. Hewlett-Packard Co., 2007 WL 2050983 at *2, Case No. 07-C-205S , (W.D. Wis., July 16, 2007). The characteristics and development of the security certificates marketed and sold by V e riS ig n will be the focus of this litigation. The allegedly infringing products were all d e v e lo p e d by VeriSign in the Northern District of California. VeriSign owns no property in N e b ra s k a and has no personnel employed in offices in the State of Nebraska. While PayPal does business in Nebraska, its operations relating to the use of public d ig ita l certificate use are located in Northern California, Colorado, and Arizona. Prism's business activities are conducted in Nebraska, but it is an assignee of the p a te n ts in suit and had no role in developing any of the inventions. VeriSign has provided e v id e n c e that Prism has published the following "mission statement" on the internet: P r is m Technologies LLC is dedicated to the management, licensing and a c q u is itio n of technology fundamental to Internet security and e-commerce. O u r areas of expertise include: # Internet Security # Digital Rights Management # Secure E-Commerce P rism 's mission is to maximize the economic value of Internet security te c h n o lo g y and patents. We have developed proprietary processes for the e f f icie n t and cost-effective analysis of patent strength, scope and economic -8-

p o te n tia l. This analysis results in the formulation of a management and lic e n sin g strategy. We are assisted in the successful execution of this strategy b y a leading law firm and licensing partner. (D o c . 38-3 in 8:08CV195). T h e inventor, Sead Muftic, reportedly resides in the State of Maryland. (Doc. 35-3 ¶ 11 in 8:08CV195). He has no connection to Nebraska. The initial assignee of the patents in suit is identified on the first page of each patent as "Entegrity Solutions Corporation, San Jo se , Calif." The court is advised that Entegrity Solutions Corporation now has its corporate h e a d q u a rte rs in the State of New Hampshire. (Doc. 35-3 ¶ 12 in 8:08CV195). Apparently, th e attorneys who prosecuted the patents in suit on behalf of Dr. Muftic and Entegrity S o lu tio n s Corp. reside in Florida and/or Washington, D.C. and have no connection to N e b ra sk a . As the court noted in Biometics, LLC v. New Womyn, Inc., 112 F. Supp. 2d at 876, th e patent prosecution records could be easily transported or could be obtained from the U.S. P a te n t Office. On the record presented, it does not appear that the Nebraska forum is particularly c o n v e n ie n t for any of the parties. The inventions and activities that are the subjects of these la w s u its have no relationship to the State of Nebraska. None of the witnesses who will give su b sta n tiv e testimony reside in Nebraska. The allegedly infringing products were all d e v e lo p e d by VeriSign in the Northern District of California, and the employees of VeriSign w h o are likely to be called as witnesses are located in the Northern District of California. M a n y of PayPal's relevant witnesses are also located in the Northern District of California. C o n sid e rin g all the factors discussed by the parties, the court concludes that it would b e more convenient for the parties and the witnesses, and it would be in the interests of ju s tic e , to try these cases in the Northern District of California rather than in the District of N e b ra sk a . The court further finds that VeriSign and PayPal have shown that their

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in c o n v e n ie n c e in defending these cases in Nebraska strongly outweighs the inconvenience th a t Prism would suffer if venue were transferred to the Northern District of California. I T THEREFORE IS RECOMMENDED: 1. T h a t Cases Nos. 8:08CV195 and 8:08CV196 be deemed related cases pursuant

to NEGenR 1.4; and 2. T h a t VeriSign's Motion to Transfer Pursuant to 28 U.S.C. § 1404(a) (Doc. 29 in

C a se No. 8:08CV195), and PayPal's Motion to Transfer pursuant to 28 U.S.C. § 1404(a) (D o c . 39 in Case No. 8:08CV196) be granted, and 3. T h at Cases Nos. 8:08CV195 and 8:08CV196 be transferred to the Northern

D istrict of California for all further proceedings pursuant to 28 U.S.C. § 1404(a). D A T E D November 7, 2008. B Y THE COURT: s / F.A. Gossett U n ite d States Magistrate Judge

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