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Forum Shopping in the Eastern District of Texas

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07.16.2010 | Advisory

Over the past ten years, the small Texas city of Marshall (population under 24,000) has been the capital of patent litigation. The combination of a fast docket, rigid local patent rules that expedite discovery and slow claim construction, plaintiff-favorable juries, and a disdain for transferring cases to other districts has made the Eastern District and Marshall, Texas a favorite forum in which to bring patent infringement actions. Recent challenges to some of these perceptions, however, raise doubts as to whether the Eastern District is still the patent-friendly district it once was and whether the Eastern District’s popularity may now be waning.

Emergence of the Eastern District as a Patent Hotbed

Soon after Judge T. John Ward was sworn into the federal bench in 1999, patent filings in the Eastern District exploded. In 2002, 32 patent cases were filed in the Eastern District, but by 2006 that number had grown to 234 new patent cases. Over 300 new suits were filed in 2008.

One of Judge Ward’s first acts was to issue local patent rules that laid out strict guidelines and provided for early discovery deadlines. These early deadlines quickly pushed cases forward and forced defendants to spend time, effort, and money at a much earlier stage than in some other districts. Further, the guidelines made certain deadlines, such as the claim construction hearing and the trial date, largely immovable.  Plaintiffs entered the Eastern District knowing that defendants would be unable to continuously delay trial. As a result, the Eastern District became known as a rocket docket with fast moving cases. The quick turn around to trial and the early onset of potentially expensive discovery costs were also viewed by patent plaintiffs as promoting settlement of cases early rather than late; a result that many plaintiffs, especially patent “trolls,” prefer to a full-blown and expensive trial.

Despite promoting early settlement, facing a trial is a real possibility as the Eastern District sends the second highest percentage of cases to trial among common patent forums. Further, the jury pool likely to sit on these trials is largely pro-plaintiff. A recent study determined that over 90% of potential jurors in the district favor protecting inventions through patents, 76% say they “strongly favor” patent protection, and 25% believe that the USPTO “rarely or never” makes mistakes in awarding patents. This pro-plaintiff lean was demonstrated in Centocor, Inc. v. Abbott Laboratories (07-cv-00139, E.D. Texas)(Ward), where a jury awarded $1.67 billion in damages after a trial that lasted just one week.

Many defendants who find themselves in the Eastern District would prefer to have their case transferred to another forum. Historically, however, the judges of the Eastern District have been very reluctant to do so, only granting approximately 33% of transfer motions, while other districts see transfer motions granted at rates closer to 50%. Due to this low success rate, many attorneys have declined to file motions to transfer at all, even when a connection to the Eastern District appears lacking.

The Turning of the Tide

The surrounding environment that made the Eastern District of Texas a favorite place to bring patent suits may now have changed. While the Eastern District may have once been a rocket docket, the tremendous amount of patent cases brought in the district have bogged down the court. It now takes approximately 16 months for a case to be disposed of, ranking the Eastern District 28th among common patent districts, and it takes approximately 25 months for a case to go to trial, ranking the Eastern District seventh among its contemporaries. In contrast, it takes the Western District of Wisconsin approximately six months to dispose of a matter and eight months to bring the case to trial.

The percentage of plaintiff-favorable verdicts has also declined in recent years. Though plaintiff’s emerge victorious in a comparatively high 40.3% of cases that go to trial (relative to the country-wide average of 32.5%), that number has fallen from as high as 75% in the past. The Eastern District now ranks sixth among common patent forums, behind even its neighboring forum, the Northern District of Texas, and that district’s top-ranked 55.1% plaintiff win percentage.

Finally, the Federal Circuit has recently acted to reign in the worst abuses of discretion regarding denial of motions to transfer. In 2008, the Federal Circuit reviewed the mandamus petition of In re TS Tech1. The court overruled the Eastern District and ordered the district to transfer the case, in part because there were no witnesses, parties, or evidence located in the forum. A short time later, the Federal Circuit ordered the Eastern District to grant transfer in In re Genetech2, holding, among other things, that the Eastern District improperly relied on its “central location” between participants on the West and East coasts. In late 2009, the Federal Circuit next decided In re Hoffman-La Roche Inc.3 and In re Nintendo Co.4 In Hoffman, the court again rejected the Eastern District’s refusal to transfer while also noting that the shipment of 75,000 pages of documents to the Plaintiff’s attorney in Texas in anticipation of litigation was an attempt to manufacture a Texas connection and manipulate venue, and that such manipulation is viewed unfavorably. In Nintendo, the Federal Circuit again held that the “centralized location” of the Eastern District was an improper consideration.

As a result of these developments, the Eastern District appears to have lost some of its luster for patent plaintiffs. In the Fall of 2008, the rate of new patent cases filed in the Eastern District fell from 15.5 suits per month to 7.5 suits per month. The Eastern District, which had been the first in the number of patent case filings in 2008, fell to fifth in 2009. Additionally, by early 2009, the number of motions to transfer venue filed by defendants had increased by 270%.

Shift in Tactics for Patent Plaintiffs

The Eastern District is still one of the most popular patent districts, and patent plaintiffs who choose the Eastern District have changed their tactics to attempt to keep the cases from being transferred. In response to increased scrutiny over the Texas connections to these patent lawsuits, plaintiffs have used such tactics as incorporating or opening an office in the Eastern District, pre-selecting experts and other witnesses that are local, or including de minimis local defendants in the patent suit such as local “mom and pop” companies.  

Despite the language of Hoffman denigrating forum manipulation, these tactics have not elicited much response from the courts. The Eastern District recently rejected a defendant’s argument that a case should be transferred because the plaintiff moved its location from Michigan to Texas in order to manipulate venue. The court declined to “scrutinize the litigants business decisions” in order to determine whether this move served a business purpose or was a mere tactic to manipulate venue. Similarly, the Federal Circuit, in a nonprecedential order, denied a writ for mandamus despite stating that the plaintiff’s status as a “Texas entity,” formed two months prior to suit and headquartered in the office of its litigation counsel, was “not entitled to significant weight.” The court reasoned that the defendant had failed to show that the proposed forum was more convenient.  

In one instance, however, the court severed local Texas defendants from the case and transferred the rest of the matter to the Northern District of California when it became apparent that the Texas defendants were added in an attempt to keep the matter in the district.  The circumstances of this case, however, show that it may be a potential outlier. The case was pending when TS Tech was decided, and the plaintiff seemingly acknowledged that it had amended the complaint to add local parties specifically to avoid the implication of TS Tech. A plaintiff who includes local Texas companies from the beginning of the suit will likely find it easier to avoid this same fate, so long as claims against those local companies appear nonfrivolous.
    
Future of Patent Litigation in the Eastern District

Over the past decade, the Eastern District has been one of the most popular forums among patent plaintiffs for bringing suit. Though it can no longer be considered a rocket docket by virtue of its own success in attracting numerous law suits, and a plaintiff’s chance of success at trial has slightly diminished over time, the Eastern District remains the fifth most popular destination for plaintiffs.

The real danger to the Eastern District’s continued dominance is the Federal Circuit’s recent crack down on abuse of discretion in denying motions to transfer when cases have little connection to the district. While this increased scrutiny will, no doubt, preclude the filing of many cases that have no pretense of any connection to Texas, inventive plaintiff’s attorneys have already adjusted to this new landscape by devising ways to manufacture such a connection. So far, these new methods have avoided judicial scrutiny, and it seems likely that patent plaintiffs will continue to choose to forum shop in the Eastern District of Texas.

1In re TS Tech USA Corp (Fed. Cir. 2008).
2In re Genetech, Inc. (Fed. Cir. 2009).
3In re Hoffman-La Roche Inc., 541 F.3d 1115 (Fed. Cir. 2008).
4In re Nintendo (Fed. Cir. 2010).

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.
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