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With Kafkaesque Flourish, the Eastern District of Texas Penalizes Parties for Following the Rules

DEEPLINKS BLOG
August 26, 2015

With Kafkaesque Flourish, the Eastern District of Texas Penalizes Parties for Following the Rules

In the wake of the Supreme Court’s June 2014 decision in Alice v. CLS Bank, most courts have been quickly and efficiently getting rid of patents that improperly claim “abstract ideas.” In Alice, the Supreme Court held that “abstract ideas,” without more, were unpatentable under 35 U.S.C. § 101. According to one source, at least 150 patents have had claims invalidated as “abstract” since Alice. Those accused of infringing these invalid patents have regularly filed motions to dismiss at the outset of a case, having the issue heard before too much time and energy is spent. Courts have, for the large part, embraced these “Alice motions” and invalidated abstract patents as soon as practicable.

But one district court seems determined to buck this trend. Unfortunately, it is also the court where over 44% of this year’s new patent cases were filed: the Eastern District of Texas.

As we recently detailed, in the Eastern District of Texas the party accused of infringement needs permission to file an Alice motion at the beginning of the case (despite Federal Rules that say the contrary). This has the effect of delaying what could be a quick and efficient resolution of the case, causing the parties to continue with a case that may well end with an invalidated patent. For a defendant, this can mean high discovery costs that effectively force it to settle.

An Eastern District of Texas order from last week perfectly illustrates this problem. In that case, a group of pharmacies and grocery stores is being sued by a patent owner with a family of patents relating to processing discounts. These patent claims appear to be vulnerable to a challenge under Alice.

Following the Eastern District of Texas’s unconventional rules, the defendants filed a letter asking permission to file their Alice motion. Given the potential for wasted time, effort, and money, the defendants very shortly thereafter filed a motion for a stay of the case while the court decided the issue of whether the asserted patent claims are invalid under Alice. The patent owner did not oppose the motion to stay. Presumably the patent owner also recognized that it was more efficient to hear the issue at the outset, without incurring costs that may prove to be wasted if the Alice motion is granted.

The court refused to stay the case. This is the entirety of the reasoning (with emphasis added):

On August 4, 2015, Defendants filed an Unopposed Motion to Stay Discovery and Continue All Deadlines Pending Resolution of Statutory Subject Matter Issues (ECF 24). Defendants filed a letter brief on July 23, 2015, requesting permission to file a Motion for Judgment on the Pleadings for invalidity of the patents in suit under 35 U.S.C. § 101. Defendants assert that a stay of this case pending resolution of the § 101 issues will avoid unnecessary expense and resources if they are permitted to file their motion and it is granted. Notably, however, the dispositive motion has not yet been filed. Stopping the forward progress of this case before the motion is even filed or considered is counterproductive. The statutory subject matter issues Defendants seek to raise will be considered in due course.

This seems practically Kafkaesque: the parties don’t get a stay because they haven’t filed a motion that the court itself prevented them from filing.

Incredibly, later that same day the court gave the defendants permission to file their Alice motion. In summary: no stay because no Alice motion (because the defendants followed the court’s rules and filed a letter asking permission instead of a formal motion) but now there’s going to be an Alice motion but no stay.

We’re glad to see the court allowed the defendants to file their Alice motion (even though we don’t think permission is needed in the first place), but we’re disappointed the court chose to impose unnecessary costs that no party wanted. This outcome makes no sense and seems to be a product of the Eastern District of Texas’s peculiar and likely improper rules.

This was just one decision by one judge in the Eastern District of Texas. But as a recent paper explains, collectively the rules and practices of the Eastern District of Texas are a form of “forum selling” that works to disadvantage patent defendants and privilege patent trolls. Congress needs to act. We need venue reform now.  

 

 

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