July 9, 2014 | By Daniel Nazer and Vera Ranieri

Why Do Patent Trolls Go to Texas? It’s Not for the BBQ

There is a lot in our current patent system that is in need of reform. The Patent Office is too lax in granting patents. Federal Circuit case law has consistently favored patentees. Another part of this problem is the forum shopping by patentees that leads to a disproportionate number of cases being filed in the Eastern District of Texas.

Back in 2011, This American Life did a one-hour feature called “When Patents Attack!” The story included a tour of ghostly offices in Marshall, Texas, where shell companies have fake headquarters with no real employees. For many people, it was their first introduction to the phenomenon that is the Eastern District of Texas, a largely rural federal court district that has somehow attracted a huge volume of high-tech patent litigation.

The Eastern District of Texas is still number one for patent cases. Last year, there were just over 6,000 patent suits filed in federal courts around the country. One in four of those cases (24.54% to be exact) were filed in the Eastern District of Texas. But why do patent plaintiffs, especially trolls, see it as such a favorable forum? Partly, the district's relatively rapid litigation timetable can put pressure on defendants to settle. But other local practices in the Eastern District also favor patentees. And, in our view, they do so in a way that is inconsistent with the governing Federal Rules, and work to mask the consistent refusal by the courts in the Eastern District to end meritless cases before trial.

The podcasting patent troll litigation provides a recent case study. EFF is currently fighting the patent troll Personal Audio at the Patent Office, where we’re arguing that U.S. Patent 8,112,504 (the “podcasting patent”) is invalid. But Personal Audio is also involved in litigation against podcasters and TV companies in the Eastern District of Texas. We’ve been following that case, and unsurprisingly, the defendants there are also arguing that the podcasting patent is invalid. Specifically, the defendants are arguing that earlier publications and websites describe the system for “disseminating media content” that Personal Audio says it invented.

Recently, something happened in that case that we thought deserved notice: the defendants were denied the opportunity to have the judge rule on summary judgment on this issue. This deserves a bit of explanation: generally, parties go to trial to have their rights decided by a jury. But the Federal Rules provide the parties the right to get “summary judgment” (i.e., a decision from the judge) where there is no “genuine dispute as to any material fact.” To be clear, this doesn’t mean the parties have to agree on all the facts. What it means is that where the only disputes are not genuine (e.g., there isn’t enough evidence to support an argument) or not material (e.g., the resolution of the dispute would not change the outcome) summary judgment should be granted.

Unfortunately, the podcasting defendants in Texas weren’t even given this opportunity. You see, in the Eastern District of Texas, judges require parties to seek permission to file a motion for summary judgment. That is, unless and until the judge lets you file your motion (even if it is clear as day that you’re going to win), you’re going to trial. The defendants in Texas sought that permission, but in a one-sentence order, their request was denied. (Note: The judge is allowing the defendants to file summary judgment on other issues, namely non-infringement and license).

Why this is important is that according to Federal Rules of Civil Procedure 56, defendants have a right to file a summary judgment motion and to have that motion decided. But in the Eastern District of Texas, the judge’s “rule” effectively denies them these rights, which we think is contrary to the law. Furthermore, this requirement likely masks the true value of the already low grant rate of summary judgment. A recent study found that judges in the Eastern District of Texas granted only 18% of motions for summary judgment of invalidity. (In contrast, the grant rate nationwide is 31%.) Considering that the study did not include instances where the defendant wasn’t allowed to file summary judgment in the first place, we wouldn’t be surprised if the true grant rate were much lower, and thus even further out-of-whack with the national average.

So why don’t parties challenge the judge’s rule? We don’t know for sure, but we have a good guess. And it has to do with the fact that a single judge in the Eastern District had over 900 patent cases assigned to him in 2013.

Patentees and defendants (and of course, their lawyers) are often "repeat players," meaning they will be in front of the same judge on many different occasions in different cases. It’s easy to see how telling a judge his rules are invalid may not be the best thing to do when you’re usually trying to get him to agree with you. Given the volume of high-stakes litigation there, no one wants to be unpopular in Eastern District of Texas. (Indeed, of all the ice rinks in all the towns in all the world, why would patent heavyweight Samsung sponsor a rink directly in front of the courthouse in Marshall?) Another reason that this type of rule may not get challenged is that it’s just not worth it. Even if you get to file your summary judgment motion, that doesn’t mean that the judge will actually rule in a timely fashion (thus saving the expense of preparing for an unnecessary trial) or that you’ll win. By the time you get to the point of appeal, you have many more important issues that you want the appeals court to consider. In the end, the parties are just stuck with the judge’s rules and cases that should be decided quickly and early are left to languish.

And for patent trolls, this is a good thing. A plaintiff that doesn’t have its weak case quickly and cheaply rejected increases its settlement pressure and keeps its patent alive longer. In contrast, a defendant, faced with the possibility of significant trial costs, will more likely succumb to settlement pressure in order to get the case to go away at the least cost. Thus patent trolls, who are often asserting extremely broad and likely-invalid patents, are incentivized to file in the Eastern District of Texas knowing that there’s another hurdle an accused infringer has to overcome in order to win the case.

To be clear, local rules like those in the Eastern District violate the rights of both plaintiffs and defendants. By either refusing to rule on summary judgment or delaying a ruling right until the eve of trial, both sides incur significant costs. But it is easy to see how this would have a larger impact on those accused of infringing patents, especially in cases where the damages are less than the cost to go to trial.

We sympathize with judges who are trying to manage busy dockets. Understandably, the Court does not want to be faced with frivolous motions, or with five motions from both sides. But the court has other methods of dealing with these issues (for example limiting page length or allowing only one brief on all issues). What the court is not entitled to do, however, is prevent the parties from filing at all.

With respect to the podcasting patent, we’ve linked to the parties’ papers on this issue here (defendants’ letter requesting permission to file a motion), here (Personal Audio’s response), and here (defendants’ reply letter). You can make up your own mind, but, in our view, Personal Audio made no showing of any genuine or material dispute. The Federal Rules, properly applied, do not allow a party to survive summary judgment with such weak and unsupported arguments.

The defendants in the podcasting case may still win a motion for summary judgment of non-infringement, but unfortunately that could leave Personal Audio free to sue others. But because of the judge’s order, if the current defendants in Texas want to invalidate the podcasting patent, they’re going to have to go to trial. It is unfair and irregular procedures like these that make the Eastern District of Texas such a popular destination for patent trolls. As part of any true patent reform, this kind of forum-shopping incentive needs to end.


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