The Imminent Outpouring from the Eastern District of Texas

The following guest post by Professor Paul Janicke ties-in with his new article published at: Paul M. Janicke, The Imminent Outpouring from the Eastern District of Texas, 2017 Patently-O Patent Law Journal 1. – DC

by Paul M. Janicke

When the Supreme Court reverses the Federal Circuit’s venue ruling in the TC Heartland case, a reversal widely expected, it will return patent venue to the time prior to 1988, when the residence of a corporation for patent venue purpose was limited to (i) a district within the state of incorporation, or (ii) a district where the corporation has a regular and established place of business and has allegedly committed an act of infringement. Presently pending in the Eastern District of Texas are 1,000+ patent cases. The number may go up or down a little before the Court’s ruling, but it’s not likely to change much in that short time.[1] My inquiry is: What will happen to those cases?  My analysis on this subject can be found at Paul M. Janicke, The Imminent Outpouring from the Eastern District of Texas, 2017 Patently-O Patent Law Journal 1..

The new venue statute upon which the Court will base its ruling became effective in January 2012. That means it applies to nearly all the cases now on the Eastern District’s docket, and the venue for hundreds of those cases was likely improper. Those defendants who are not Texas corporations and who lacked any regular and established place of business in Eastern Texas when suit was filed will be entitled to dismissal or transfer to a district that would have been proper under the new law, unless they have waived the improper venue defense. Let’s take a look at the groups of possibly affected defendants.

Local Merchants

Some defendants are local merchants in the Eastern District, accused of infringement only because they sell products made by others. Venue as to these merchants will be proper under either the old or new venue rules, so they are entitled to neither dismissal nor transfer. If the case against a merchant’s vendor is transferred, the merchant’s best bet is to seek a stay of the case against it. While stays are not particularly favored in the Eastern District, a situation like the present one has not likely been encountered before. It may work.

Active Players As Defendants

These are typically manufacturers of high-tech products or vendors of software. Computer-related technology is said to be the subject of over 90% of patent case filings in the district. Most of them lack any regular place of business in Eastern Texas, although we have found some 70 companies who employ 100 or more persons in the district and are defendants in pending patent cases there. Most of these businesses are in Plano, with a few in Beaumont. They too will have to stay put. It isn’t required that the place of business be related to the accused infringing activity.

The Many Other Defendants, And the Problem of Waiver

Those companies lacking a regular business location in the Eastern District will, for the most part, want to exit that district. Some may choose to stay there in order to effect a quick settlement or to show support for their beleaguered customers who have been sued in the district, but I estimate at least 800 will consider seeking a transfer. These break down into two roughly equal groups, those who have waived improper venue and those who have not. Waiver of this defense most typically occurs by failure to plead it in the answer or in an early motion under Rule 12. A sampling of pleadings in pending Eastern District patent cases reveals that in roughly 400 cases the main defendant did not plead improper venue or make a Rule 12 motion. (Note that this is a different subject from inconvenient venue, which is handled under a different statutory section and was sometimes pleaded in the answers.) It is understandable why the improper venue pleading was missing in so many cases: No one knew or even suspected until very recently that the venue rules had been changed by Congress in 2011, effective for all cases filed after January 2012. Good ethical lawyers know they shouldn’t plead a matter for which they have no legal or factual basis, and so they didn’t, and therein lies the waiver. Unfortunately, they cannot undo it by arguing “change in the law.” The change occurred in 2012.

The other group of defendants may have been insightful, but more likely were just following a form-book shotgun answer, and so they did plead improper venue in their answers. Answering this way is usually enough to preserve this defense, but not always. It has been held that taking discovery does not trigger a waiver, nor does proceeding to trial. It is thought that the corporate defendant who has pleaded the defense unsuccessfully has been forced to remain in the improper forum, so these litigation activities are not held against it. However, some courts have held that moving for summary judgment (unsuccessfully of course) is a different matter and does cause a waiver. You are not obliged to seek summary judgment, and you are invoking the court’s power. So some in the second group may find they too have waived.

For Those Exiting, Where Will They Be Sent?

This leaves about 400 non-waived cases. The case law on improper venue cases shows a distinct judicial preference for transfers rather than dismissals. To what districts will these non-waived defendants be transferred? Whatever districts are chosen, we should bear in mind that some of the NPE plaintiffs may not wish to follow, due to the expense involved, so those cases may effectively end. For more serious plaintiffs, we do not know where the cases will go. It depends on subjective factors applicable to each case, but here are some possible options: (1) Choose a district that one or both parties ask for. (2) Select a proper district that has a number of patent pilot judges, the three largest being Northern Illinois, Southern New York, and Central California. (3)  Use history as a guide: In 1997, one year before the large influx to Eastern Texas began, the busiest patent districts were Northern California (172 filings), Central California (162 filings), and Northern Illinois (116 filings). In that year the number of patent cases filed in the Eastern District of Texas was: 10. We shall soon see.

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Professor of Law, University of Houston Law Center

[1] The case is set for argument March 27, with a decision very likely before the end of the Court’s term in June.

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Read the ArticleJanicke.2017.Venue

Prior Patently-O Patent L.J. Articles:

  • Mark A. Lemley, Erik Oliver, Kent Richardson, James Yoon, & Michael Costa, Patent Purchases and Litigation Outcomes, 2016 Patently-O Patent Law Journal 15 (Lemley.2016.PatentMarket)
  • Bernard Chao and Amy Mapes, An Early Look at Mayo’s Impact on Personalized Medicine, 2016 Patently-O Patent Law Journal 10 (Chao.2016.PersonalizedMedicine)
  • James E. Daily, An Empirical Analysis of Some Proponents and Opponents of Patent Reform, 2016 Patently-O Patent Law Journal 1. (Daily.2016.Professors)
  • Tristan Gray–Le Coz and Charles Duan, Apply It to the USPTO: Review of the Implementation of Alice v. CLS Bank in Patent Examination, 2014 Patently-O Patent Law Journal 1. (GrayLeCozDuan)
  • Robert L. Stoll, Maintaining Post-Grant Review Estoppel in the America Invents Act: A Call for Legislative Restraint, 2012 Patently-O Patent Law Journal 1 (Stoll.2012.estoppel.pdf)
  • Paul Morgan, The Ambiguity in Section 102(a)(1) of the Leahy-Smith America Invents Act, 2011 Patently-O Patent Law Journal 29.  (Morgan.2011.AIAAmbiguities)
  • Joshua D. Sarnoff, Derivation and Prior Art Problems with the New Patent Act, 2011 Patently-O Patent Law Journal 12 (sarnoff.2011.derivation.pdf)
  • Bernard Chao, Not So Confidential: A Call for Restraint in Sealing Court Records, 2011 Patently-O Patent Patent Law Journal 6 (chao.sealedrecords.pdf)
  • Benjamin Levi and Rodney R. Sweetland, The Federal Trade Commission’s (FTC) Recommendations to the International Trade Commission (ITC):  Unsound, Unmeasured, and Unauthoritative, 2011 Patently-O Patent Law Journal 1 (levi.ftcunsound.pdf)
  • Kevin Emerson Collins, An Initial Comment on King Pharmaceuticals: The Printed Matter Doctrine as a Structural Doctrine and Its Implications for Prometheus Laboratories, 2010 Patently-O Patent Law Journal 111 (Collins.KingPharma.pdf)
  • Robert A. Matthews, Jr., When Multiple Plaintiffs/Relators Sue for the Same Act of Patent False Marking, 2010 Patently-O Patent Law Journal 95 (matthews.falsemarking.pdf)
  • Kristen Osenga, The Patent Office’s Fast Track Will Not Take Us in the Right Direction, 2010 Patently-O Patent L.J. 89 (Osenga.pdf)
  • Peter S. Menell,  The International Trade Commission’s Section 337 Authority, 2010 Patently-O Patent L.J. 79
  • Donald S. Chisum, Written Description of the Invention: Ariad (2010) and the Overlooked Invention Priority Principle, 2010 Patently‐O Patent L.J. 72
  • Kevin Collins, An Initial Comment on Ariad: Written Description and the Baseline of Patent Protection for After-Arising Technology, 2010 Patently-O Patent L.J. 24
  • Etan Chatlynne, Investigating Patent Law’s Presumption of Validity—An Empirical Analysis, 2010 Patently-O Patent L.J. 37
  • Michael Kasdan and Joseph Casino, Federal Courts Closely Scrutinizing and Slashing Patent Damage Awards, 2010 Patently-O Patent L.J. 24 (Kasdan.Casino.Damages)
  • Dennis Crouch, Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases, 2010 Patently-O Patent L.J. 19 (2010)
  • Edward Reines and Nathan Greenblatt, Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II, 2010 Patently‐O Patent L.J. 7  (2010) (Reines.2010)
  • Gregory P. Landis & Loria B. Yeadon, Selecting the Next Nominee for the Federal Circuit: Patently Obvious to Consider Diversity, 2010 Patently-O Patent L.J. 1 (2010) (Nominee Diversity)
  • Paul Cole, Patentability of Computer Software As Such, 2008 Patently-O Patent L.J. 1. (Cole.pdf)
  • John F. Duffy, The Death of Google’s Patents, 2008 Patently O-Pat. L.J. ___ (googlepatents101.pdf)
  • Mark R. Patterson, Reestablishing the Doctrine of Patent Exhaustion, 2007 Patently-O Patent L.J. 38
  • Arti K. Rai, The GSK Case: An Administrative Perspective, 2007 Patently-O Patent L.J. 36
  • Joshua D. Sarnoff, BIO v. DC and the New Need to Eliminate Federal Patent Law Preemption of State and Local Price and Product Regulation, 2007 Patently-O Patent L.J. 30 (Download Sarnoff.BIO.pdf)
  • John F. Duffy, Are Administrative Patent Judges Unconstitutional?, 2007 Patently-O Patent L.J. 21. (Duffy.BPAI.pdf)
  • Joseph Casino and Michael Kasdan, In re Seagate Technology: Willfulness and Waiver, a Summary and a Proposal, 2007 Patently-O Patent L.J. 1 (Casino-Seagate)

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

31 thoughts on “The Imminent Outpouring from the Eastern District of Texas

  1. The piece that really seems to go underdiscussed is how this will overload Delaware beyond its usual overloading. With Judge Robinson on senior status and set to fully retire this year, they are down to 3 district judges in a district that already needed 2-3 more judges. Delaware is already a very slow venue to litigate in. This is just going to exacerbate the issues.

    1. I’ve speculated that this is an underlying motivation behind the district court decision.

      There are a couple of ways they can address it. They can grant more 1404 motions. They can continue their practice of farming out cases to less busy 3d Circuit courts.

      And of course, it may be self-correcting to some extent. Plaintiffs would still get to decide whether to file in the state of residence / incorporation or where the alleged infringing activity actually happens. Since few Delaware corporations are actually located there, plaintiffs will have to choose their poison between the defendant’s home court and the increasingly crowded Delaware court. I suggest reading Prof. Janicke’s full article, the Chien & Risch article, and getting familiar with MDL procedures.

    2. I totally agree. This is a court that has a lot of things on its plate already. They really need more judges.

  2. Huh. Not 100 percent convinced the SCOTUS is going to reverse the CAFC. Maybe I will read this one and make a prediction.

  3. Thanks for the excellent and timely article.

    1. You are most welcome.

      PJ

  4. Assuming SCOTUS rules as you predict, parties facing the waiver issue would do well to argue that the change in law justifies allowing them to amend their answer to plead improper venue.

    We had a similar situation when the Supreme Court limited general personal jurisdiction in Daimler AG v. Baumann (2014). AFAIK, most courts allowed litigants, even those who had not raised the issue before, to raise it then if the new decision benefitted them.

    1. I agree. Even though the law here was changed by statute in 2011, as far as I know no one thought it applied to patent venue until the Heartland case came up. That should be a sensible reason to allow undoing of a waiver.

  5. Prof. Janicke –

    I have to take issue with your suggestion that no one knew about this before TC Heartland. This did not come out of thin air. I and others filed motions making this argument at least two years ago. I believe that the shared catalyst was footnote 2 in the December 2013 Supreme Court opinion in Atlantic Marine: “Section 1391 governs ‘venue generally,’ that is, in cases where a
    more specific venue provision does not apply. Cf., e.g., §1400 (identifying
    proper venue for copyright and patent suits).” link to supremecourt.gov

    1. I recognize that I am living dangerously by saying no one knew. However, the Supreme Court’s footnote doesn’t really address the issue. I think no one [again dangerously] disputes that Sec. 1400(b) is the special patent venue statute, and has been for a very long time. The issue now is whether or not the meaning of “resides” in that section is controlled, for corporations, by the definition of corporate residence in Sec. 1391.

      1. I’m not saying that Atlantic Marine answers the question. But for some of us, it did raise it, by suggesting that the Supremes saw 1400 as a “more specific venue provision” outside the scope of 1391. I don’t know who noticed it first — I believe that it was brought to my attention by James Pistorino, then at Perkins Coie — but those of us who had been at the front line in the venue battles saw it as another potential avenue of attack.

        Most of those motions were brought in TXED, where they typically languished. The first TXED decisions addressing the amendments to 1391 appear to have been issued in March 2016, by Judge Gilstrap in Saint Lawrence Communications LLC v. HTC Corporation, No. 2-15-cv-919, and by Judge Bryson in Script Security Solutions, LLC v. Amazon.com, Inc., No. 2:15-cv-1030.

        But an October 2015 opinion in TeleSign Corp. v. Twilio, Inc., by Judge Guttierez in the Central District of California, which relied not only on the August and September 2015 opinions in TC Heartland, but also four other opinions that “concluded that the [2011 Venue Act]’s amendment of 28 U.S.C. § 1391 did not undo the Federal Circuit’s decision in [VE Holding]” before TC Heartland was issued: TNR Indus. Doors, Inc. v. PerforMax Grp., LLC, No 13-13815, 2014 WL 2800750, at *3 n.3 (E.D. Mich. June 17, 2014); MLP Tech., Inc. v. LifeMed ID, Inc., No. 5:13-CV-00909, 2013 WL 6243943, at *2 n.1 (N.D. Ohio Dec. 3, 2013); Devicor Med. Prods., Inc. v. Biopsy Scis., LLC, No. CIV.A. 10-1 060-GMS, 2013 WL 486638, at *3 n.7 (D. Del. Feb. 7, 2013); Gro Master, Inc. v. Farmweld, Inc., 920 F. Supp. 2d 974, 987-89 (N.D. Iowa 2013).

        People knew. TC Heartland was not some freak lightning strike, unpredicted and unpredictable. Treating it as such disrespects the efforts of lawyers and clients who not only knew, but cared and fought to bring this to this point.

        1. Josh,

          Is that a bit of a double-edged sword in wanting “respect” for those who said something early (after really following the law) versus some type of “we didn’t believe you then, and since only now that someone else has said something, we should be able to act like you did not actually say anything back then”…?

          If so, one can easily see the (unintended) consequence of not listening to those who see things early and try to speak up.

          The disrespect you mention does not apply onlyto those you highlight in the immediate case, but would also apply to anyone questioning the consequences (intended or otherwise) of any judicial law making.

          And yes, this then doubly applies to those areas of law that judicial law making is suspect in the first place. Areas such as Constitutionally delegated areas for particular branches of law (statutory law) versus the desire of the more quick (or at least less people to influence) route of common law.

  6. Paul, assuming that you still running the valuable patent law case statistics studies at University of Houston Law Center, could you provide here a hotlink to those statistics for the benefit of readers here?

    1. We are no longer updating the site, http://www.patstats.org for cases after 2013. The site is still up for those interested in what was happening in the period 2000-2013.

  7. Professor Janicke,

    What about the scenario where you have multiple defendants being sued in the EDTX and which have different principal places of business and different states of incorporation?

    For example, NPE sues Washington Co, Delaware Co and California Co which also have their principal places of business in different locations.

    What happens then? I suspect, a whole lot of the 400 anticipated EDTX transferees you noted in your article will end up before the MDL panel (and good luck in trying to decipher their rationale for where they transfer cases) which will consolidate, for pre-trial purposes, those disparate defendants in one jurisdiction.

    The interesting question in my mind is which jurisdiction that will be? Likely, most defendants will want NDCA because of that jurisdiction’s perceived friendliness to tech companies. In contrast, I assume NPE’s will argue that the EDTX is the best jurisdiction (e.g. because the court has familiarity with the patents, faster time to trial, etc).

    At a minimum, plaintiffs should anticipate another 3-6 month delay in their cases as motions for transfer to the MDL panel are filed and as the MDL panel holds hearings/issues orders.

    B

    1. With the AIA, is such a grouping of defendants (for the NPE plaintiff) even possible?

      1. The AIA only blocks the joinder in a single civil action, and for trial w/o consent. In practice, all related cases in a district are consolidated for pretrial purposes. There are a lot of them.

    2. Bemused, I think you are overlooking the anti-joinder provision of the AIA, which was intended to prevent multi-defendant suits which were preventing venue transfers.

      1. Paul/Anon: I’m not overlooking the anti-joinder provisions of the AIA. I’m speaking to the scenario where an NPE has sued multiple defendants (regardless of whether its in a single suit or in different suits) on the same patent(s). As a practical matter, the EDTX and Delaware (and I suspect, most other jurisdictions) will consolidate these cases for pre-trial purposes.

        In other words, my hypothetical applies for both multi-defendant singles cases and multi-defendant/multi-case scenarios.

        1. Yes, but that later consolidation would not preclude proper [and un-waived] venue considerations for different defendants

          1. In any case, how likely is a consolidated case to be consolidated in E.D.TX?

          2. If you mean consolidation in the district court, you are right; each non-waived defendant has a right to exit an improper forum. But the likelihood is that they will nonetheless end up in a single forum a guests of the JPML. There is no venue restriction for that transferee district. And history shows that the transferee district, while theoretically only for pretrial purposes, is nearly always the end of the line for patent cases. Summary judgment — far more common than trials — is regarded as a “pretrial” matter, as is a Markman order. Many defendants opt to join; others settle. Etc.

        2. assuming 35 usc 299 rules this scenario, it would seem that different proper venues when considered as separate defendants would be a big mark against joinder, since merely infringing the same patent is explicitly not enough to justify joinder. The “questions of fact common to all defendants” is the “it depends” factor and Judges get to do what they want of course, so long as they play their word games correctly. It’s the american way. I would hope that even if joinder were permitted, you’d still be limited to one of the otherwise proper venues, and not “edtx because they have an ice rink out front”.

          1. Section 299 has little effect here. The proscription is against joining parties in a single complaint, not against handling them together pretrial.

            My guess is that the JPML will not send batches of cases back to ED Tex, because those judges will still have a large patent docket.

          2. The anti-joinder provision (appears) to make a definitive statement against selecting the forum based on “ease to plaintiff.”

            Of course, this still begs the question (or is it the answer? 😉 ) that a nation-wide item somehow does not carry with it a nationwide venue.

            (and projecting into the future of a One World Order, I can’t wait to see just where a suit will need to be brought…

      2. See my last reply. The cases are routinely consolidated for pretrial purposes. Last year Judge Gilstrap disposed of scores of pending cases with a small number of summary judgment grants.

    3. You are right that many of the now-joined cases are apt to get split up, as different defendants have different locales for their regular places of business. I also agree the MDL process is apt to set in (and once it sets in, history shows it is actually the end of the road).

      My past research on the JPML for patent cases shows that the panel often chooses the judge based on docket availability of a particular judge. For example, they have chosen the District of Maryland sometimes — not known for a lot of patent cases or for a preference toward one side or the other. Another factor they consider is the locale of the most advanced case, on the theory that the judge in that case is best equipped to handle the batch.

      The chief judge of the JMPL calls up their proposed judge and asks if he or she is willing to take on the task. I am told that refusals are rare.

      1. I think we are all squared away. There is a venue constraint on where the ED Tex sends a particular defendant. But there is no venue constraint on where the JPML sends batches of cases for “pretrial” handling.

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