Monday, May 22, 2017

Obituary: Eastern District of Texas Patent Troll Haven, 2003-2017

The patent troll haven in the U.S. District Court for the Eastern District of Texas (EDTX) died suddenly today.  The cause of death was a U.S. Supreme Court decision that destroyed the basis for filing patents suits anywhere in the country.  Trolls had flocked to EDTX after the local judges had made the venue extremely hospitable for patent plaintiffs.

Based in Marshall, Tyler, and Texarkana, EDTX began its life as a sleepy federal court serving its rural residents.  Marshall in particular was best known for its annual “Fire Ant Festival” and as the “Pottery Capitalof the World.”  Few if any of its farming and blue collar residents had ever invented anything, let alone heard of patents.

During the 1960’s, the EDTX court became popular for asbestos litigation.  By the late 1990’s, much of that litigation was resolved.  The large number of local plaintiff’s trial lawyers who worked on the asbestos litigation needed something new to do.  Fortunately, two events coincided to turn the court into the patent haven it became.  First, a 1990 decision by the Federal CircuitCourt of Appeals (overruled today by the Supreme Court) made it possible to sue corporate patent defendants anywhere in the country.  No longer could a defendant be sued only in its state of incorporation or principal place of business—a patent infringer could be sued anywhere its goods or services were sold.  In the modern Internet era, this was literally everywhere. 

Second, in 1999, local attorney T. John Ward was appointed to the EDTX bench.  Judge Ward soon realized that his fellow local attorneys could profit from the 1990 appeals decision.  He rewrote the local court rules to make EDTX very friendly to patent plaintiffs.  Cases would rarely be disposed of by summary judgment, but would instead come to trial quickly.  The rural Texas juries were made up of patriotic citizens who would defer to the government’s blessing of a patent grant.  Most defendants would settle rather than risk a trial, making the venue ideal for trolls trying to extort settlements for patents of dubious validity.  And if a case went to trial, patent plaintiffs won more often.

Judge Ward’s strategy was successful.  In 1999, only 14 patent cases were filed in EDTX.  By 2014, that number had grown to over 1,400 patent suits, making the EDTX the most popular district in the entire country for patent cases.  In 2015, 44% of all patent suits in the country were filed in the EDTX. This was despite the fact that few technology-based companies were located in the EDTX.  Local businesses boomed, especially those that served the trial industry, such as hotels and catering services. The court became so successful that it was featured in a 2015 John Oliver segment about patents.  One frequent patent defendant, Samsung Electronics, was even forced to curry favor with the local populace by building an ice rink in front of the Marshall courthouse—no small feat given east Texas weather.
By 2016, Judge Rodney Gilstrap (Judge Ward’s successor in the Marshall Division) had become “the busiest patent judge in the country.”  Judge Gilstrap presided over one quarter of the patent suits filed in the entire country.

EDTX was a particularly welcome haven to so-called “patent trolls.” The term was coined in the late 1990s to describe a patent owner who didn’t practice its patents, had no intention of practicing them, and whose sole business was to sue on patents to get licensing fees from companies with a real business. In many cases patent trolls hadn’t even filed the patents in question, but acquired them from third parties. EDTX became the forum of choice for trolls, but trolling got so out of hand that even the State of Texas urged the Supreme Court to do something.

All that changed with today’s Supreme Court decision.  Now, patent defendants can only be sued where they physically reside, such as their state of incorporation, or a place they do business and actually infringe the patent.  The EDTX has been eliminated as the forum of choice for patent plaintiffs, who now must file suit in a place with some connection to the alleged infringement.

EDTX is survived by numerous local trial lawyers, local businesses that had grown to service the trial industry, and patent trolls everywhere.  It’s unclear if memorial services will be held in Marshall, but celebrations will undoubtedly be held in Silicon Valley, California, and other technology centers.