CAFC OKs Transfer Despite Forum Selection Clause


In a non-precedential opinion issued October 18, 2013, the Federal Circuit issued a decision that calls into question the overall utility of forum selection clauses in contractual relationships. In fact, Eli Lilly lost its bid to have its dispute with Genentech and City of Hope heard in the Northern District of California despite a forum selection clause in the governing contract that stated the parties would litigate any dispute in the Northern District of California. See In re Eli Lilly and Co. 

Eli Lilly petitioned for a writ of mandamus directing the United States District Court for the Northern District of California to vacate its order transferring this case to the United States District Court for the Central District of California. In its order granting Genentech’s motion to transfer, the district court noted that the trial judge in the Central District of California had presided over four cases involving the same family of patents at issue. The district court further noted that another trial judge in the Northern District of California had recently transferred a case brought by one of Eli Lilly’s business partners that involves the same patent and product to the Central District of California, citing the expertise the trial judge had gained through these prior lawsuits.

The trouble, however, was that there was an agreement between the parties that contained a forum selection clause stipulating that the Northern District of California would be the venue of any dispute between the parties. The District Court considered this but noted that the forum selection clause in the contract was largely for the benefit of Genentech, given that its headquarters are in the Northern District of California. Thus, it seems the district court gave the forum selection clause less weight because, among other reasons, it was Genentech that requested the case be transferred.

However, the Court never really reached the question of whether transfer was appropriate; the standard was stacked against Eli Lilly. The Federal Circuit, per Judge Reyna (with Judges Newman and Prost joining), explained the lofty standard in these word:

On mandamus, we review an order transferring a case under 28 U.S.C. § 1404(a) for a clear abuse of discretion. In re TS Tech USA Corp., 551 F.3d 1315, 1319 (2008). We consider a determination a clear abuse of discretion if there is no “rational and substantive legal argument [that] can be made in support of the rule in question[.]” In re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985). Thus, we will disturb the district court’s transfer order only if we are convinced that it produced a “patently erroneous result.” TS Tech, 551 F.3d at 1319.

The Federal Circuit explained that deference to the District Court determination was “particularly appropriate in the present case given the Central District of California’s prior familiarity with the patents and opportunity to resolve two cases involving the same product and patents.” Citing Cont’l Grain Co. v. The FBL-585, 364 U.S. 19, 26 (1960) for authority.

The Federal Circuit concluded: “In light of the persuasive evidence that transfer here would more efficiently allocate resources among the trial courts, we are not prepared to hold transferring this case was an abuse of discretion.”

I can’t say that I disagree with this ruling since the Central District of California has already conducted discovery, claim construction, and ruled on motions for summary judgment involving the same family of patents. Nevertheless, there is something deeply troublesome about an agreement between parties being essentially nullified because of convenience of the courts.


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