Letter to Congress from 28 Law Professors & Economists Urging Caution on the VENUE Act

In July 2016, I discussed a letter from 45 professors arguing for statutory reforms to limit venue in patent infringement cases.  The letter focused on the “staggering concentration of patent cases in just a few federal district courts” and offered the the positive conclusion that such a concentration is “bad for the patent system.”  In the abstract, concentration of cases is not necessarily bad — here though, the particular arguable “badness” is that the high concentration of cases is in the Eastern District of Texas rather than Silicon Valley, New York, Chicago, or Delaware.

Now, a competing group of law professors has offered their suggestion – urging caution in terms of patent venue reform, especially with regard to the pending VENUE Act. Venue Equity and Non-Uniformity Elimination Act, S.2733, 114th Cong. (2016).   The proposed VENUE Act would allow patent actions to be brought only in judicial districts where:

  • the defendant has its principal place of business or is incorporated;
  • the defendant has committed an act of infringement of a patent in suit and has a regular and established physical facility that gives rise to the act of infringement;
  • the defendant has agreed or consented to be sued;
  • an inventor named on the patent conducted research or development that led to the application for the patent in suit; or
  • a party has a regular and established physical facility and has managed significant research and development for the invention claimed in the patent, has manufactured a tangible product alleged to embody that invention, or has implemented a manufacturing process for a tangible good in which the process is alleged to embody the invention.

Under the current statutory framework (as interpreted), venue is proper in any jurisdiction where the court has personal jurisdiction over the defendants.  For any large company operating in the US, this current approach leads to the results that venue for a patent infringement case is proper in any federal court across the country – including those located in the Eastern District of Texas.

The new letter argues that the venue limiting proposals are basically serving as a mechanism of weakening the power of patent holders: “The reality is that the major proponents of changing the venue rules are primarily large high-tech companies and retailers with an online presence sued in the Eastern District of Texas that would rather litigate in a small number of more defendant-friendly jurisdictions.”

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[Read the Full Letter]

Dear Chairman Grassley, Ranking Member Leahy, Chairman Goodlatte, and Ranking Member Conyers:

As legal academics, economists, and political scientists who conduct research in patent law and policy, we write to express our concerns about the recent push for sweeping changes to patent litigation venue rules, such as those proposed in the VENUE Act.[1] These changes would vastly restrict where all patent owners could file suit—contrary to the general rule that a plaintiff in a civil lawsuit against a corporate defendant can select any court with jurisdictional ties to the defendant.[2]

Given the recent changes in the patent system under the America Invents Act of 2011 and judicial decisions that have effectively weakened patent rights,[3] we believe that Congress should adopt a cautious stance to enacting additional changes that further weaken patent rights, at least until the effects of these recent changes are better understood.

Proponents of amending the venue rules have an initially plausible-sounding concern: the Eastern District of Texas handles a large percentage of patent infringement lawsuits and one judge within that district handles a disproportionate share of those cases. The reality is that the major proponents of changing the venue rules are primarily large high-tech companies and retailers with an online presence sued in the Eastern District of Texas that would rather litigate in a small number of more defendant-friendly jurisdictions.

Indeed, the arguments in favor of this unprecedented move to restrict venue do not stand up to scrutiny. Specifically:

  • Proponents for the VENUE Act argue that “[t]he staggering concentration of patent cases in just a few federal district courts is bad for the patent system.”[4] As an initial matter, data indicates that filings of patent lawsuits in the Eastern District of Texas have dropped substantially this year—suggesting a cautious approach until trends have stabilized.[5]
  • Contrary to claims by its proponents, legislative proposals like the VENUE Act would not spread lawsuits throughout the country. In fact, these same proponents have found that restricting venue in a manner similar to the VENUE Act would likely result in concentrating more than 50% of patent lawsuits in just two districts: the District of Delaware (where most publicly traded corporations are incorporated) and the Northern District of California (where many patent defendants are headquartered).[6] Instead of widely distributing patent cases across numerous districts in order to promote procedural “fairness,” the VENUE Act would primarily channel cases into only two districts, which happen to be districts where it is considered much more difficult to enforce patent rights.[7]
  • Proponents for the VENUE Act have argued that the Eastern District of Texas is reversed more often by the Federal Circuit than other jurisdictions, claiming that in 2015 the Federal Circuit affirmed only 39% of the Eastern District of Texas’s decisions but affirmed over 70% of decisions from the Northern District of California and District of Delaware.[8] These figures are misleading: they represent only one year of data, mix trials and summary judgment orders, and fail to take into account differences in technology types and appeals rates in each district. In fact, a more complete study over a longer time period by Price Waterhouse Coopers found that the Eastern District of Texas affirmance rate is only slightly below the national average for all districts.[9]
  • The Federal Circuit recently confirmed in In re TC Heartland (Fed. Cir. Apr. 29, 2016) that 28 U.S.C. § 1400(b) provides that a corporate defendant in a patent case—like corporate defendants in nearly all other types of cases—may be sued in any district in which personal jurisdiction lies. Constitutional due process requires a “substantial connection” between the defendant and forum.[10] Thus, contrary to its title and the claims of its proponents, the VENUE Act does not re-establish a “uniform” litigation system for patent rights by requiring substantial ties to the forum. Instead, the Act thwarts the well-established rule that plaintiffs can bring suit in any jurisdiction in which a corporate defendant has committed substantial violations of the law.[11]
  • The VENUE Act would raise costs for many patent owners by requiring them to litigate the same patent against multiple defendants in multiple jurisdictions, increasing patent litigation overall. In recent years, the America Invents Act’s prohibition on joinder of multiple defendants in a single lawsuit for violating the same patent has directly resulted in increased lawsuits and increased costs for patent owners.[12] Moreover, the VENUE Act would also result in potentially conflicting decisions in these multiple lawsuits, increasing uncertainty and administration costs in the patent system.
  • The VENUE Act encourages the manipulation of well-settled venue rules across all areas of law by the self-serving efforts of large corporate defendants who seek to insulate themselves from the consequences of violating the law. By enacting the VENUE Act, Congress would send a strong signal to corporate defendants that they can tilt the substantive playing field by simply shifting cases to defendant-friendly jurisdictions.

Innovators and their investors have long been vital to a flourishing innovation economy in the United States.  Startups, venture capitalists, individual inventors, universities, and established companies often rely heavily on patents to recoup their extensive investments in both R&D and commercialization.  We urge you to exercise caution before enacting further sweeping changes to our patent system that would primarily benefit large infringers to the detriment of these innovators and, ultimately, our innovation economy.

[Footnotes]

[1] S.2733, Venue Equity and Non-Uniformity Elimination Act of 2016,  https://www.congress.gov/114/bills/s2733/BILLS-114s2733is.pdf.

[2] See 28 U.S.C. § 1391(c)(2). See generally Ferens v. John Deere Co., 494 U.S. 516, 527 (1990) (“a plaintiff . . . has the option of shopping for a forum with the most favorable law”).

[3] These include, among others: (1) administrative procedures for invalidating patents created by the America Invents Act, which have had extremely high invalidation rates, leading one former federal appellate judge to refer to these procedures as “death squads,” and (2) several decisions by the Supreme Court and the Federal Circuit that have drastically curtailed patent rights for many innovators. See Adam Mossoff, Weighing the Patent System: It Is Time to Confront the Bias against Patent Owners in Patent ‘Reform’ Legislation, Washington Times, March 24, 2016, http://www.washingtontimes.com/news/2016/mar/24/adam-mossoff-weighing-the-patent-system/.

[4] Colleen Chien & Michael Risch, A Patent Reform We Can All Agree On, Wash. Post, June 3, 2016, https://www.washingtonpost.com/news/in-theory/wp/2015/11/20/why-do-patent-lawyers-like-to-file-in-texas/.

[5] See Michael C. Smith, “Hot But No Longer Boiling“ – EDTX Patent Case Filings Down almost Half; New Case Allocation and Procedures (No More Letter Briefing for SJ motions), EDTexweblog.com, July 21, 2016, http://mcsmith.blogs.com/eastern_district_of_texas/2016/07/edtx-patent-case-filing-trends-new-case-allocation-and-procedures.html.

[6] Colleen Chien & Michael Risch, What Would Happen to Patent Cases if They Couldn’t all be Filed in Texas?, Patently-O, March 11, 2016, https://patentlyo.com/patent/2016/03/happen-patent-couldnt.html. This study also finds that 11% of cases would continue to be filed in the Eastern District of Texas, concentrating nearly two-thirds of all cases in three districts. See id. The authors of this study are presently expanding their investigation to an enlarged data set, which will also capture additional aspects of the VENUE Act. Neither the data nor their results are available yet. However, we have no reason to believe that the expanded data or analysis will produce results other than what has already been shown: a high concentration of patent cases in a small number of districts.

[7] See PricewaterhouseCoopers LLP, 2015 Patent Litigation Study (May 2015) (“PWC Study”), http://www.pwc.com/us/en/forensic-services/publications/assets/2015-pwc-patent-litigation-study.pdf.

[8] Ryan Davis, EDTX Judges’ Love of Patent Trials Fuels High Reversal Rate, Law360 (Mar. 8, 2016), http://www.law360.com/articles/767955/edtx-judges-love-of-patent-trials-fuels-high-reversal-rate.

[9] See PWC Study, supra note 7 (finding an average affirmance rate of 48% for all districts, compared to an affirmance rate of 42% for the Eastern District of Texas).

[10] See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985).

[11] See generally Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947) (“[T]he plaintiff’s choice of forum should rarely be disturbed.”).

[12] See Christopher A. Cotropia, Jay P. Kesan & David L. Schwartz, Unpacking Patent Assertion Entities (PAEs), 99 Minnesota Law Review 649 (2014), http://www.minnesotalawreview.org/wp-content/uploads/2015/02/REVISEDSchwartzetal_MLR.pdf.

 

Dennis Crouch

About Dennis Crouch

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

25 thoughts on “Letter to Congress from 28 Law Professors & Economists Urging Caution on the VENUE Act

  1. The professors argue that the new proposed venue statute would limit jurisdiction to a few districts where most defendants reside or are incorporated. This is not true for normal patent litigation because venue is also appropriate where the inventors developed the technology. Thus, legitimate patent plaintiffs that employee inventors that develop real and usable technology can sue infringers where they reside against defendants that sell nationwide. This would be true for NPE universities, or small inventors that need a good plaintiff’s lawyer to help enforce their rights.

    The venue statute is directed to the patent troll model where the technology was developed in, for example, California, but the patent troll later buys the patent, sets up a shell corp in ED TX and sues there – where there is no real connection to the jurisdiction at all. It’s forum shopping plain and simple. Jurisdiction and venue were never designed to be manipulated in this way. While I’m sure the professors mean well, they are not witnessing the egregious forum shopping first hand. I firmly believe legitimate plaintiffs, both NPE and practicing, should have a right to their home forum – but it really has to be their home forum – not a fictitious construct to gain procedure advantage in an inconvenient forum.

    1. Rudy, restricting venue defendant’s corporate HQ also misses the target because the modern corporation spreads its facilities all across the map. R&D can be in one place, manufacturing another, sales in a third, both in the US and outside United States. Which forum is the most convenient should be the primary factor, and artificial barriers should not be put into the statute.

      1. Ned, I agree that even for defendants the point of venue is to find a logical place for the litigation – where real, not contrived, evidence exists and where local interests are implicated. My main point to the professors is that the pending legislation proposes that a plaintiff patent owner has the right to bring litigation where the technology is developed. Thus, all patent litigation will not need to be brought in a forum friendly to the defendants. I see nothing unfair about forcing rich investors in patent troll operations to either bring litigation either where the technology was really developed or a venue where the defendant has real ties. What needs to stop is the manipulation in which litigation is brought in a place deemed by plaintiffs to be friendly and with no connection to the litigation. In short, I can tell we mostly agree on this topic. Cheers.

        1. Rudy, but the law will not permit transfer to a forum where it could not be brought. Hoffman v. Blaski, 363 U.S. 335, 80 S. Ct. 1084, 4 L. Ed. 2d 1254 (1960). Thus restricting the number of venues where a defendant can be sued in the first place restricts even defendants from requesting transfer to forum convenient to the defendant.

          That makes no sense.

          The problem with ED of Tex is their delay in deciding transfer motions, and their heavy bias against transfer. THAT is the problem that we need to address.

          The venue solution is ultimately going to harm defendants to the extent one is really searching for a convenient forum from the point of view of defendant’s witnesses. The legislation makes no effort at all to tie venue to witnesses and evidence as opposed to places of incorporation (think Delaware where there are typically no ties to the defendant) or to their HQ’s. But neither of these necessarily have anything to do with the location of evidence and witnesses.

          What does the legislation say about companies like Seagate PLC, incorporated in Ireland? Venue would still be proper nationwide, not so?

          The whole affair is ill thought out.

    2. The simplest reform would be a mandatory rule that transfer motions would have to be heard before anything else, including discovery on the merits. That would allow defendants to get out of the ED Tex without damage if there is a more convenient forum.

  2. Guess where this junk is being asserted?

    1. A process which comprises the steps of:

    encoding at least one personal identifier onto a user interface media [i.e. set up an interface requiring a particular user ID];

    displaying a prompt on said user interface media for the at least one personal identifier which requires a match of the at least one personal identifier encoded on the user interface media [i.e. ask the user to enter their user ID];

    encoding at least one password onto a data storage media [i.e. encrypt or otherwise password-lock a file];

    encoding the at least one password from the data storage media onto the user interface media [i.e. set up the user interface so it can check if the password is correct]; and

    displaying a prompt on the user interface media for entering the at least one password which requires a match of the at least one password from the data storage media with the at least one password encoded on the user interface media [i.e. require users to enter their passwords into the interface].

    More here:

    link to goo.gl

    1. The fact is that “anon”, “Curious”, “bemused”, and the other echo chamber hacks who flail against this mythological “infringers lobby” are a group of dishonest and/or ign0rant hacks endless deserving of ridicule and scorn.

      If these cl0wns didn’t exist, you’d almost want to make them up for the entertainment value they provide.

      The EDTX evolved to cater to a tiny group of entitled b0ttom-feeding patent attorneys who seem to believe they are both the most persecuted and the most important people who ever lived. They’ll never st0p complaining. And they’re completely full of s h – t. But we have to pay attention to them! They’re so very serious, after all. Like the Republican party and its rightwing constellation of “freed u m luvvers”, they’re the True Patriots. It’s not about the money. It’s all about the Constitution and “innovation.” Sure it is! Because they’re very very serious people.

      1. The fact is that “anon”, “Curious”, “bemused”, and the other echo chamber hacks who flail against this mythological “infringers lobby” are a group of dishonest and/or ign0rant hacks endless deserving of ridicule and scorn.

        LOL _ says the guy who is always watching the field of rye for those he deems to be “unworthy” and is elated over Clinton (never mind where her money and support come from) as the liberal elite candidate…

        Like the Republican party and its rightwing constellation”

        the irony is devastating – coming as this does from this blog’s closest thing to the Trump personality.

        And nothing like topping it with the poker tell of “very serious.”

        Malcolm is a parody of himself – every bit as much as Trump is. A mirrored version of the liberal elite side.

        (maybe instead of focusing so much on that self-deigned “deserving of scorn” you spend more time on – like – the actual substantive legal issues….)

      2. MM, just because Republicans say they are for freedom implies that the Democrats are in favor of slavery.

        Now ask you in all seriousness, Malcolm, are you in favor of slavery?

  3. Anything with Colleen Chien’s name on it is judicial activism. Her papers and articles in the popular press are a national disgrace.

  4. The really important difference between N.D. CA and E.D.CA is not what this letter alleges. [Note, for example, that Apple has certainly had D.C. success in enforcing its patents in N.D. CA.] The important difference is that the N.D. CA requires both parties to show that they have a case, and specifying what it is, up front, rather than allowing unrestrained discovery costs on undefined infringement allegations right up to trial dates years later, forcing many companies to settle just to avoid millions in legal costs.
    Too bad the professors did not devote some effort to something more constructive.

    1. Paul, you identify the local rules in the ED of Tex. as the culprit. As I suggested before, the Patent Pilot Program might consider moving to stage 2 to require the adoption of the ND Cal rules everywhere.

        1. Paul, but if, as you say, the reason people flock to the ED Tx. is because of their rules, fixing the rules will fix the reason people flock to that jurisdiction.

          Also, there are judges in Delaware as well that require one to obtain permission to file a motion. I think it has to do with docket load.

    2. P.S. I was going to fix my “E.D. CA” typo, but decided to leave it as as a good accidental joke. since E.D.TX has effectively become the Eastern District of California for so many California high tech firms sued there, even though the documents, witnesses and attorneys are all in N.D. CA. [Which is what venue is supposed to be about, not which district is supposedly better for one side or the other.] Even in that [irrelevant to venue principles] regard, the actual patent owner win rate for the very few defendants willing to pay E.D. TX discovery and other legal costs through trial and appeal [rather than “settle”] is not that good any more. See the statistics regularly reported on Michael Smith’s E.D. TX blog. E.g., in April 2014 it reported on “..the 2013 patent verdicts in the Eastern District of Texas and found that Eastern District juries rendered verdicts in favor of accused infringers [defendants] in 10 out of 14 cases, and split evenly at one for each side in the two invalidity–only trials.”

      1. But Paul, restricting venue choices makes moving a case to the most convenient forum harder. I know for a fact that Seagate, HQ’ed in Cupertino, has very few researchers there. Most are in Minnesota or in Colorado. These are the guys who are both inventing and designing infringing products.

        Manufacturing is abroad. Sales are international. All US courts are convenient for these witness provided good Airport connections.

          1. Paul, that is beside point as forum non conveniens only permits transfer to a court where a case might have been brought. Limiting the number of fora to a very few might actually work against transferring cases to a convenient forum.

            A salutary new rule (from Congress) might not to change the venue statute, but to require timely transfer motions to be heard and decided before discovery, etc.

  5. In the abstract, concentration of cases is not necessarily bad — here though, the particular arguable “badness” is that the high concentration of cases is in the Eastern District of Texas rather than Silicon Valley, New York, Chicago, or Delaware.

    As I pointed out on the previous thread, if the problem is that (any) one district is doing something “bad,” the answer is to correct that district and then make sure the correction is spread throughout the system.

    What the earlier group of professors wanted though was NOT that.

    It still isn’t.

  6. The problem isn’t venue law per se (although it’s an issue), it’s that the Federal Circuit’s applied a watered down version of the Supreme Court’s personal jurisdiction law. If nothing else, they have made clear in cases like Nicastro that there is no nationwide personal jurisdiction under the stream of commerce theory merely because you intend to sell products nationwide. But the Federal Circuit has blown that off and opened to door to de facto nationwide personal jurisdiction.

      1. Not if a single patent trial court was set up by Congress. But Congress most certainly did NOT set up E.D. TX as the intended primary patent trial court for this country.

  7. The reason we are having trouble with venue is that the SCOTUS has made patent law all equity. A district court judge can now do whatever they want.

    1. You get it? Now people are choosing which king/queen to have decide their case instead of which venue is more appropriate to have a judge apply the law.

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