Tyler, Texas: Intersection of Patent Litigation Venue Abuse and Crony Capitalism?

Timothy Lee
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Posted: Feb 22, 2016 11:26 AM
Tyler, Texas:  Intersection of Patent Litigation Venue Abuse and Crony Capitalism?

Of all the threats to free markets, two of the most dangerous are today having an adverse impact on the justice and viability of our patent system. The concept of "venue" plays a critical role in our judicial system in ensuring fairness and due process for litigating parties. Furthermore, it is widely accepted that a company should not be able to attain business success through relationships with government officials alone. However, those who wish to abuse our current patent system for their own advantage are exploiting local laws and loopholes to undermine small businesses and the country’s economy as a whole.

My organization, the Center for Individual Freedom (CFIF), recently highlighted the importance of venue reform as part of broader patent litigation reform legislation currently before Congress, which we strongly support:

“[W]hile venue rules exist to preserve procedural due process, in practice venue abuse facilitates injustice and judicial abuse. That's because current federal law permits lawsuits to be filed almost anywhere, even though the central concept of venue aims to protect all parties against being forced to litigate cases in places unrelated to the laws, facts, and evidence at issue in the dispute. Consequently, plaintiffs forum-shop for districts notoriously hospitable to 'jackpot jury' awards or wrenching nuisance settlements from defendant parties simply hoping to avoid attorneys' fees and the time, resources and distractions inherent in battling burdensome claims. That abusive practice has fueled the problem of excessive litigation in the United States over the years, diverting countless resources from American innovation and investment.”

We've also consistently highlighted the perils of crony capitalism in its various forms, something that Americans of all political persuasions should oppose.

In the municipality of Tyler, Texas, we appear to witness an intersection between the two maladies of venue abuse and crony capitalism.

Specifically, a group labeled tyler4tech.com openly touts its status as home of the much-abused Eastern District of Texas federal court, as well as the jackpot jury awards obtained there, in its sales pitch for the town:

“Tyler serves as headquarters to the Eastern District of Texas federal court, a popular venue for patent cases due to its judicial expertise, plaintiff-friendly local rules, speedy dispositions, and principled jurors who understand the value of Intellectual Property (or "IP").”

Nobody understands and promotes the value of IP more than we at CFIF do. The problem, however, is that the Eastern District isn't noteworthy as a haven for IP, but rather as a haven for patent litigation venue abuse. In just five years between 2009 and 2014, the number of patent lawsuits filed in the U.S. more than doubled from approximately 2,500 to over 6,000. Incredibly, the Eastern District of Texas alone accounted for nearly one-third of all new patent cases in 2014 and 44% of all cases last year. Additionally, a single judge in the Eastern District named Rodney Gilstrap oversees 900 patent cases, nearly one-fifth of all patent cases in the country.

Those astonishing and telltale numbers are explained by several factors, including the Eastern District's plaintiff-friendly local rules of court, its tolerance of overly burdensome pretrial discovery, a disproportionate number of outsized damage awards, a particularly high success rate for plaintiffs and its disproportionately low number of cases allowed for transfer out of the district. Plaintiff attorneys concoct synthetic connections to the Eastern District of Texas in order to sustain lawsuits there, including such tactics as maintaining shell offices and warehousing documents there to convince judges to overrule motions to transfer venue to other districts.

All of that compellingly demonstrates the need for venue reform and patent litigation reform more generally. But it's particularly disappointing that a group would openly exploit venue abuse as a crony capitalist method of promoting for the town of Tyler, Texas.

Fortunately, a legislative remedy for that state of affairs exists. The Innovation Act, which constitutes the most effective patent litigation reform opportunity, passed the House of Representatives by a bipartisan 325 to 91 vote. The full Congress should quickly pass that bill, and we ask our supporters and activists across the nation to contact their elected representatives to demand that they vote accordingly. The victims of these unmerited patent infringement suits in the Eastern District of Texas deserve Congress’s protection from the abuses encouraged by officials in Tyler, Texas.