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


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  • icon
    ThatDevilTech (profile), 21 Mar 2016 @ 3:54pm

    While I am all for the reform.....

    Beating the deadhorse about the skating rink is stupid to me. The skating rink existed BEFORE Samsung and it will be there after Samsung.

    I'm all for them fixing a broken system though. The companies don't do anything for the local economy. They don't employ anyone, except maybe the lawyers. If they wanted to actually put a legitimate office IN the area and employ more than one person and actually contribute to the economy of the area, I'm all for that.

    But quit with the skating rink reference. It's old and has no impact on the story really. The skating rink was there prior to the patent trolls.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 21 Mar 2016 @ 4:26pm

    Another direction for patent reform: A patent is only considered valid if the entity holding the patent is actively making use of it in a commercial or developmental manner, or is making use of an equivalent process in such a manner.

    reply to this | link to this | view in chronology ]

    • icon
      R.H. (profile), 22 Mar 2016 @ 8:50am

      Re:

      That's not the best idea. From my understanding of your statement, someone who comes up with an invention and patents it but, can neither afford to bring it to market himself nor find investors, would have his patent invalidated. That sounds like something potential investors could use against the inventor in negotiations. For example, "We'll just wait until your patent is invalidated for disuse and work with someone else if you don't sign your rights over to us for a pittance."

      Also, filing lawsuits looking for money is a commercial use. Even if it's a distasteful one.

      reply to this | link to this | view in chronology ]

  • identicon
    Quiet Lurcker, 21 Mar 2016 @ 4:44pm

    As memeory serves, the local rules in that district are weighted heavily in favor of the plaintiffs in these cases. Effective legislative change likely isn't going to happen. If that's the case, then how about changing the local rules so plaintiffs have a tougher time there?

    reply to this | link to this | view in chronology ]

  • identicon
    anon, 21 Mar 2016 @ 7:11pm

    The guest post is by Profs. Chien and Risch, not Rantanen.

    reply to this | link to this | view in chronology ]

  • icon
    shane (profile), 22 Mar 2016 @ 8:14am

    The issue is not where the lawsuit lands. It's why we allow lawsuits at all of this nature.

    We need to separate IP abuse issues from the larger issue of so called "tort reform" which is basically just a bunch of corporate lawyers trying to engineer a system more beneficial to oligopolies.

    reply to this | link to this | view in chronology ]

  • identicon
    staff, 22 Mar 2016 @ 6:00pm

    lies and more lies

    'Small towns in East Texas have become hosts to parasitic lifeforms known as "Non-Practicing Entities" -- shell companies whose only product/service is litigation'

    Really? ...parasitic lifeforms'??

    The patent system now teeters on the brink of lawlessness. Call it what you will...patent hoarder, patent troll, non-practicing entity, shell company, etc. It all means one thing: “we’re using your invention and we’re not going to stop or pay”. It’s a pure red herring by large invention thieves and their paid puppets to kill any inventor support system. As Mark Twain said, 'truth is not hard to kill, and (that) a lie well told is immortal'. Those who use the amorphous phrase 'patent troll' expose themselves as thieves, duped, or doped and perpetuate the lie.

    For the last several years the Chinese and large multinationals have been ransacking and looting small American entities taking everything they can carry. Those are the same multinationals who when they cant export jobs, import workers and artificially inflate their employed Americans. The fact is, many of the giant multinationals and their puppets who defame inventors in this way themselves make no products in the US or create any American jobs and it is their continued blatant theft which makes it impossible for the true creators to do so. Invention thieves well know many inventors lack the resources to enforce their patent rights so their only recourse is to sell to or partner with others who do have the resources. Otherwise, large invention thieves just thumb their noses at you and steal at will.

    Prior to the Supreme Court case eBay v Mercexchange, small entities had a viable chance at commercializing their inventions. If the defendant was found guilty, an injunction was most always issued. Then the inventor small entity could enjoy the exclusive use of his invention in commercializing it. Unfortunately, injunctions are often no longer available to small entity inventors because of the eBay decision so we have no fair chance to compete with much larger entities who are now free to use our inventions -in other words, steal. Essentially, large infringers now have your gun and all the bullets. Worse yet, inability to commercialize means those same small entities will not be hiring new employees to roll out their products and services. And now those same parties who killed injunctions for small entities and thus blocked any fair chance at commercializing now complain that small entity inventors are not commercializing. They created the problem and now they want to blame small entities for it. What dissembling!

    For our position and the changes we advocate, or to join our effort, please visit us at https://aminventorsforjustice.wordpress.com/category/our-position/
    or, contact us at tifj@mail.com

    reply to this | link to this | view in chronology ]

  • identicon
    Guy who studies this stuff, 24 Mar 2016 @ 12:37pm

    Aargh, noooo! Seriously, people, think these things through. If you make it illegal for an inventor who's had his idea stolen by a giant corporation to sue that giant corporation, except in that giant corporation's backyard, who benefits? No inventor could afford that. It's simply the end of justice for patent holders. Now let's say that inventor lives in Santa Clara already. But that lets off the hook every corporation that isn't, because legal efficiency drops to zero as he has to hire either a separate law firm for every venue or pay for the overhead, and again he can't afford that. And it might even let off the Santa Clara big shots, since they're not incorporated there (again, NV & DE.) I would literally hold a picket sign against these kinds of changes; they're just inhumane, and again, whom do they benefit? A big corporation the reader 'just knows' must be innocent? Do readers even know who pays for these articles, or those on JD Supra or Ars Technica or other always-pro giant corporations and anti-inventor sites? It's just comical.

    Now, as to the comments. First, the suggestion that patents be invalidated if they're not brought to market: then what stops these corporations from just stalling? Second, East Texas is pro-plaintiff. Check the stats. It's not true. East Texas became big primarily because Judge Davis could read source code. Secondarily because he and others wouldn't throw things out of court that involved "findings of fact." Meaning if it's a legal question, they'll rule. But if it's a debate of fact, it must go to a jury, and Texas was one of the only places that obeyed that rule strictly. I've met all these guys, that's how they are. If you read anything written by or for actual judges, you'll see they say these articles are PR pieces and not based on the reality, which is that IP abuse is very rare. Third, don't mix IP abuse with tort reform. Yes, good one. Fourth, "lies and more lies." Absolutely right. That is how anyone in this industry, even the defense lawyers when they're off the mic, talks. Patent trolls are specter created by PR companies and that's it. I'm not saying they don't exist, just that no one here can point me to one, and even if they could, the first question of whether there's anything that should be done about it is a real question that no legal scholar thinks is settled.

    reply to this | link to this | view in chronology ]


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