January 22, 2016

Time to Reform the Leading Forum for Patent Abuse

ACSblog Symposium on Patent Law Reform, Daniel Nazer

by Daniel Nazer, Staff Attorney and Mark Cuban Chair to End Stupid Patents, Electronic Frontier Foundation
*This post is part of the ACSblog Symposium on Patent Law Reform.
If you got sued for patent infringement in 2015, chances are pretty good that you were sued in the Eastern District of Texas. An astonishing 2,514 patent lawsuits – or 44 percent of the national total – were filed there this year. Over 1,500 of these cases were filed before a single judge: Judge Rodney Gilstrap. While patent suits have clustered in Eastern Texas for nearly a decade, this year saw an unprecedented concentration. This extreme forum shopping raises important questions about procedural fairness and due process.
Why are so many patent cases filed in the Eastern District of Texas? It’s not for the barbecue. And it’s not because the remote, largely rural district is a technology hub. Rather, it’s because local rules and practices make the district attractive to patent plaintiffs. More specifically, local practices make the district very attractive to companies – known as patent trolls – whose sole business model is to buy patents and sue.
For example, the Eastern District of Texas judges that most frequently hear patent cases have standing orders requiring parties to submit letter briefs asking permission to file for summary judgment. This makes it harder for defendants to avoid a costly trial. A recent study found that judges in the district granted only 18 percent of motions for summary judgment on the basis of patent invalidity. (In contrast, the grant rate nationwide was 31 percent.) Considering that this study did not include cases where the defendant wasn’t even permitted to file for summary judgment in the first place, it follows that the true grant rate in the Eastern District of Texas is even lower.
In addition to the inconvenience of litigating in a distant forum, local rules make discovery more expensive. The local discovery order in patent cases requires parties to automatically begin producing documents before the other side even requests them. This practice ‒ which, in EFF’s view, is not consistent with the Federal Rules ‒ particularly burdens patent defendants. That is because unlike shell company patent trolls, operating companies need to search and produce a huge volume of documents. These burdensome discovery practices create pressure to settle weak cases and thus attract trolls to the district.

Earlier this year, Judge Gilstrap even went as far as requiring defendants to ask permission before filing a motion to dismiss based on the Supreme Court’s decision in Alice v. CLS Bank. The court has subsequently backed away from that stance. But Judge Gilstrap’s standing order still imposes additional hurdles on patent defendants that intend to file a motion to dismiss. On the substance, the district has granted far fewer motions to dismiss than other federal courts.
In addition to local rules that favor patent trolls, the Eastern District of Texas also supports the troll business model by delaying rulings on motions to transfer. With so many cases filed without any meaningful ties to the district, defendants will often have a strong motion to transfer. The problem, however, is that the court frequently waits many months before ruling on these motions. In the meantime, defendants are stuck litigating in a remote forum where the local rules make discovery especially expensive. The Federal Circuit recently issued a stern order finding that an Eastern District magistrate judge had “arbitrarily refused to consider the merits” of a transfer motion. Yet the court continues to delay rulings on motions to transfer. Ultimately, all of these idiosyncratic practices have created a forum where abusive litigation thrives.
The local litigation boom creates business for hotels, restaurants, trial graphics services, copying, expert witnesses and, of course, lawyers. John Oliver has described apparent attempts by technology companies to curry local favor, such as an ice skating rink sponsored by Samsung that happens to be directly in front of the Marshall courthouse. This American Life toured an office building in Marshall, Texas, and found eerie hallways of empty offices that serve as the “headquarters” of patent trolls. These distortions hurt the image of the federal courts as a fair and neutral decision maker.
How can we restore fairness and ensure that patent suits are filed in forums that have meaningful ties to the dispute? Reform could come from Congress or the courts. The most recent draft of the Innovation Act before the House includes a strong venue provision that would effectively end forum shopping. But legislative reform has stalled in recent months. A mandamus petition currently before the Federal Circuit, if successful, could also limit forum shopping.
Even strong venue reform won’t fix all of the problems with the patent system. As long as the United States Patent and Trademark Office keeps issuing a torrent of broad and vague software patents, trolls will find ways to tax innovators. But regardless of one’s views about the patent system as a whole, everyone should agree that a single federal district with idiosyncratic local practices should not dominate patent litigation. We need venue reform to restore sanity.