If Venue Restrictions Are Reinstated, Where Would All The East Texas Patent Lawsuits Go?

from the would-they-even-be-filed-at-all? dept

Patent reform is a constant legislative topic, even though what passes for reform generally tends to be heavily-watered down by the time it moves out of the House or Senate. One of the most abused areas of patent litigation is venue selection. Small towns in East Texas have become hosts to parasitic lifeforms known as "Non-Practicing Entities" -- shell companies whose only product/service is litigation.

Colleen Chien and Michael Risch, guest posting at PatentlyO, suggest eliminating venue shopping might be a compromise parties involved in patent reform might be able to unite behind. Presumably, this means legislators, rather than patent trolls, who aren't going to be willing to give up the "home field" advantage that easily. The problems with the current venue-shopping system are laid out by Chien and Risch in this sentence.

Although the reasons that plaintiffs flock to Eastern Texas and a few other districts are contested, we believe that a system that incentivizes skating rinks outside of courthouses to curry favor with local juries is far less defensible.

Forcing litigants to base their venue on something more than a dusty, unoccupied East Texas office with their name on the door can likely be achieved by rolling back changes the federal court system made in 1988 in response to Congress' alterations to the general venue law.

Petitioners now argue under a variety of theories that the restrictions in 28 U.S.C. § 1400(b) in effect be reinstated, and given greater effect. Other than our concerns about the end result, we take no position at this time on the legal merits of any particular argument. In any event, it’s not our opinion that matters. If the Federal Circuit agrees, patent venue would revert to either (1) defendant’s residency (place of incorporation) or (2) a combination of infringing acts plus a regular-place-of-business.

If this were to occur, how much would it change the face of patent trolling? Chien and Risch run the numbers and finds that a great many cases would be exiting the favorable East Texas court system.

[W]e find that though approximately 30% of “cases” would have been able to be filed as they were, 70% of them would not have able to be filed as is. While 8% could have been filed where the plaintiff had filed before, in 62% of cases, plaintiffs would have to file in a jurisdiction they had never filed before, though 41% of the time, a jurisdiction preferred by other plaintiffs of the same time was available.

As is to be expected, the narrowing of site selection would hit non-practicing entities the hardest.

[We] find that the rule change would have a greater impact on NPE plaintiffs (26% would have been able to file in the same district vs. 40% of OpCos) than OpCo plaintiffs, but that many OpCos – about 50% – would also have had to file outside of their past venues.'

Some trolls would be able to continue to use East Texas courts simply because some defendants actually operate in that area -- mostly retailers. But -- all else being equal -- the East Texas district would no longer be host to a large percentage of patent lawsuits.

Chien and Risch then looks into where these cases would end up. As is to be expected, most of the action would head to Delaware or California's Northern District, simply because of the number of companies incorporated in these two areas. Delaware has for years offered both low corporate taxes and a streamlined court system specifically for handling corporate law disputes. Northern California is, of course, the home to many tech companies -- frequent targets of trolls wielding vague software patents.

Even if reinstating the special rule would still leave 11% of cases in the East Texas system, this would be a great improvement over the current state of affairs. If the first half of 2015, 44.4% of patent lawsuits were filed in this district, almost all of them by plaintiffs who produce nothing more than paychecks to patent lawyers.

While there have been some encouraging signs recently that indicate East Texas judges are perhaps tiring of being patsies for aggressive trolls, the district continues to host more than its fair share of patent litigation. Seeking to get out ahead of changes in filing procedures that would require greater specificity in claims made by patent plaintiffs, entities (most them non-practicing) filed 851 lawsuits in a single month (November 2015) -- more than half of which landed in the East Texas court system.

Filed Under: east texas, jurisdiction shopping, patent trolls, patents, venue restrictions