Patent troll venue abuse must stop in the Eastern District of Texas

Photo by John Jordan

Imagine you are a patent troll, who asserts bad-quality patents or ones that don't cover what you claim. You count on defendants paying you off to avoid high legal defense costs. All you need is to avoid being dismissed quickly. Unfortunately for you, the Supreme Court has now made it easier to dismiss frivolous patent lawsuits. What do you do? 

For too many trolls, the answer has been to file suit in the Eastern District of Texas. This district has been by far the top venue for patent litigation. From April-June 2015, more patent cases were filed in the Eastern District than in all other federal courts combined.

One judge, Judge Rodney Gilstrap, presides over about 17 percent of all patent cases in the United States. Judge Gilstrap recently eliminated almost 170 cases filed by patent troll eDekka — but that's only about 10 percent of his caseload. The Eastern District as a whole has about 30 percent of all patent cases.

What makes trolls like this district? It's not just great barbecue or southern hospitality. Instead, it is both the perception, and reality, that the district is favorable to plaintiffs.

Historically, Eastern District patent cases have been propelled quickly toward high win rates and large damage awards favoring plaintiffs. But trolls do not need to have a meritorious case. In fact, trolls usually don't want their cases to go to trial-they don't want their crappy patents to be made worthless. Trolls just want to ensure that defense costs exceed their settlement demand.

A number of rules in the district tilt the playing field in the favor of plaintiffs.

For starters, where about 60 percent of venue transfer motions are granted nationally, two-thirds fail in the Eastern District. Even when transfer is granted, it's often delayed.

Judges in also delay ruling on other motions. In 2013, an Eastern District jury found my company, Newegg.com, guilty of infringing a patent we were sure was a bad patent and that we did not infringe. The jury awarded the plaintiff $2.3 million. We formally asked Judge Gilstrap, the presiding judge, four times to issue a judgment so we could appeal. After 20 months, we filed an unusual petition asking a higher court to intervene. That's what it took to get a simple ruling.

Eastern District judges rarely grant litigation stays, which would freeze legal defense costs, while they are waiting to rule. In some cases, they have ordered defendants to proceed with high-cost legal activity. Google recently also had to appeal to a higher court to avoid having to incur defense costs while waiting for a ruling. They won.

There are host of other anomalies in the Eastern District that help plaintiffs, too numerous to explain here in detail. However, a few bear mentioning.

For instance, two Supreme Court decisions in 2014, Octane Fitness and Alice Corp., made the standard for obtaining reimbursement of legal fees by defendants more reasonable and made dismissing bad patent suits easier. After Octane, defendants were able to recover legal fees at a 50 percent higher rate. Eastern District judges have yet to grant a single post-Octane defendant fee motion. After Alice, Judge Gilstrap created a rule requiring his permission — and an extra (and expansive) set of paperwork — just to file an "Alice" motion. No other judge in America does this. The district also grants only 27 percent of Alice motions vs. 71 percent nationally.

Why are things like that in the Eastern District? While I would caution against speculation, I would note some hard facts: In the district, both substantive and procedural law have been applied in a way that is fundamentally inconsistent with other venues. It is the dominant center of patent litigation without good reason. Plaintiffs file more cases there, and they try to keep them there.

Luckily, bills are making their way through Congress to try to curtail plaintiff venue shopping. The Innovation Act in front of Congress would require filing in the most suitable and fair venue rather than the most plaintiff friendly.

The Eastern District of Texas has had an inexplicably negative impact on our innovation economy. It is time for Congress to act to put an end to venue shopping abuse. Trolls should not be allowed to use the district to continue victimizing America's true innovators and entrepreneurs.

Lee Cheng

Chief Legal Officer, Newegg.com

@leechcheng

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