By: Jeffrey G. Sheldon, Esq.
If you were asked to name the leading hubs of American invention, it is doubtful that Marshall, Texas, population 24,000, would make your list. Marshall is not a leafy suburb of Dallas, Houston or Austin, nor is it the site of any significant research facilities, corporate campuses or universities. The nearest city of any appreciable size is Shreveport, Louisiana.
Yet despite this unassuming appearance, Marshall is the home of an astounding number of aggrieved plaintiffs bringing patent lawsuits in federal court. Amazingly, the rural Eastern District of Texas is responsible for more patent lawsuits than any other judicial district in the country, with a total of more than 2,500 patent suits in 2015 — nearly 44% of all patent suits filed in the United States. The majority of those suits are brought in Marshall, where they are presided over by the local federal judge, James R. Gilstrap. Consequently, about ¼ of all patent litigation in the United States sits on the docket of a single judge, in a remote part of Texas near the Louisiana state line.
So what gives?
To begin with, the courts in the Eastern District have implemented a number of local rules that speed up litigation and favor resolution by trial (as opposed to summary judgment) — see here. Moreover, the percentage of jury verdicts favoring plaintiffs tends to be higher than the national average, with larger damage awards.
Since the Eastern District (and Marshall in particular) has cultivated a reputation as a plaintiff-friendly jurisdiction, it has become the home of a non-practicing entities (“NPE”), pejoratively but colorfully known in the patent community as “patent trolls.”
Patent trolls are not engaged in cutting-edge research. They do not design or manufacture fancy new smartphones, or pharmaceutical treatments, or airplanes, or rocket ships. Instead, the sole business purpose of patent trolls is to buy up often forlorn and unused patents – then sue companies for patent infringement.
Given that the troll business model is litigation, a favorable judicial venue is essential to the bottom line. And that’s where the plaintiff-friendly dynamics of Marshall, Texas come into play. According to the Federal Circuit, the appeals court that decides most patent cases, the venue rules applicable to patents allow suit to be brought wherever the defendant makes sales. Consequently, the vast majority of patent cases in Marshall are brought by “high volume plaintiffs,” that is, plaintiffs filing at least 10 patent cases annually, virtually all of which are NPEs or trolls. Thus innovative companies with substantially no employees, documents, or physical presence in Marshall, Texas find themselves repeatedly sued in an inconvenient, plaintiff-friendly jurisdiction.
Patent litigation – bringing into town legions of well-heeled out-of-town lawyers and experts – has become a major industry in Marshall. However, to the economy as a whole, this parasitic activity is harmful to innovation, with patent defendants in these cases diverting hundreds of millions of dollars away from research and development. See article here.
Relief may now be on the way. On December 14, the U.S. Supreme Court agreed to take up the case TC Heartland LLC v. Kraft Foods Group Brands LLC, Docket No. 16-341. At issue in this case is whether proper venue in patent cases should be construed narrowly, or whether venue should be construed more broadly as the Federal Circuit has done. The U.S. Supreme Court tends to reverse the majority of Federal Circuit cases it accepts for review. Moreover, just about everyone but the patent trolls agrees that the current patent venue rules are a travesty. Accordingly, we believe that the Supreme Court will be setting new venue rules that are more favorable to the companies that innovate and help make America’s economy vibrant. The Supreme Court’s decision may be adverse to the attorneys and businesses that have thrived in Marshall, Texas, but hopefully it will be a positive for our economy as a whole.