Why the Innovation Act Needs To Freeze Out the Eastern District of Texas (Part 2 of 2)

The ice rink in Marshall, TX

The ice rink in Marshall, TX

In my last post, I told you about the Eastern District of Texas and why it’s such a popular venue for patent trolls. (You can read more about it in the article, “Forum Selling.”)

In this post, I want to tell you a key provision of the Innovation Act that will do something to address the problem of patent trolls overusing the Eastern District of Texas.

The current version of the Innovation Act has the following provision:

(b) VENUE FOR ACTION RELATING TO PATENTS.—

Notwithstanding subsections (b) and (c) of section 1391 of [Title 28], any civil action for patent infringement or any action for a declaratory judgment that a patent is invalid or not infringed may be brought only in a judicial district—

(1) where the defendant has its principal place of business or is incorporated;

(2) where 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;

(3) where the defendant has agreed or consented to be sued in the instant action;

(4) where an inventor named on the patent in suit conducted research or development that led to the application for the patent in suit;

(5) where a party has a regular and established physical facility that such party controls and operates, not primarily for the purpose of creating venue, and has—

(A) engaged in management of significant research and development of an invention claimed in a patent in suit prior to the effective filing date of the patent;

(B) manufactured a product that embodies an invention claimed in a patent in suit; or

(C) implemented a manufacturing process for a tangible good in which the process is alleged to embody an invention claimed in a patent in suit; or

(6) for foreign defendants that do not meet the requirements of paragraphs (1) or (2), according to section 1391(d) of this title.

How the venue provision will take cases out of the Eastern District of Texas

Patent trolls generally do two things to justify suing in the Eastern District of Texas: 1) identify some minimum amount of business the defendant conducts in the district, and/or 2) set up a dummy office in the district to create a connection.   The Innovation Act responds to both of the tactics.

First, the defendant has to have a stronger connection than just selling goods or having a website that’s available in the district. It has to be based in the district, has to have a substantial plant, factory, or other facility that manufactures the allegedly infringing good (or performs an allegedly infringing method), or has to have consented to being sued in the district.

Most of the companies who get sued in the Eastern District of Texas won’t meet these requirements. Apple, which is one of the most targeted companies, may provide access to iTunes in the Eastern District, but that won’t be enough to create venue there.

The alternative approach, which is for the patent owner to identify a connection to the district, will also be much less likely to create venue in the Eastern District. Currently, it’s been enough to have a sham office there.

Under the proposed venue provision, the original inventors have to have done the actual research that led to the patent, or the patent owner must have a substantial plant, factory, or other facility that uses the patent. An office with a mail drop will not count.

The bill also allows immediate appeals of a refusal to transfer venue. This means that if the Eastern District of Texas judges continue their pattern of keeping cases that they shouldn’t, the Federal Circuit can quickly intervene and require a transfer.

The venue provision is fair to patent owners

There’s a complaint coming from some opponents of patent reform, claiming that:

The new venue provisions in H.R. 9 go far beyond what is needed to ensure that patent cases are not brought in perceived “pro-plaintiff” judicial districts that lack any meaningful connection to the parties and claims involved in the action. It would threaten the ability of all patent owners to seek relief from infringement in their home districts where they have made enormous R&D and manufacturing investments, potentially forcing them to bring suit in a remote district in which they happen to have a small R&D or manufacturing facility. This would be the case even when the defendant is selling the infringing product in the district where patent owner conducts the bulk of its R&D and manufacturing and where the patent owner’s witnesses, documents and other evidence. [sic]

If one reads the actual language of the provision, the reaction to this complaint might well be confusion. The concern, as best I can decipher it, is that a company might not be using the patent it’s suing on in its favored location. Its home field advantage (e.g., where it employs the most people) might be in, say, Minnesota, but the manufacturing facility that manufactures the patented technology might be in Georgia.

That is, it’s supposedly unfair not to allow a patent owner to gain a strategic advantage by picking the forum it thinks will be the most favorable. There’s no other type of litigation where the plaintiff has so much opportunity to forum shop; while it’s understandable that some patent owners might not want to lose an advantage they’ve had, that’s hardly unfair.

The Bottom Line

The symbiotic relationship between patent trolls and the Eastern District of Texas has to be severed. That’s why it’s crucial that this venue provision be in the final bill.

  • Owen

    The current patent venue statute reads: “Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” 28 USC §1400 (b)

    Of course, the CAFC has exercised its legislative power to overturn that statute so now patent cases can be brought in any district of the plaintiff’s choice. (Note that no argument was made that the provision was illegal or unconstitutional; it was simply overturned.)

    Let’s hope that if we get a new one, the EDTX and CAFC won’t just overturn it by interpreting the physical facility provision to apply to a contract programmer with a laptop. Remember, EDTX judges have been shameless in favoring patentees and CAFC has already overturned this law once. Also, the most abusive patents are software based and crazily overbroad so a physical facility could easily be one guy running a website. A single hosting facility in EDTX could plausibly establish venue in all the classic cases of venue abuse. Defendants will have to persuade CAFC in appeals to overturn EDTX for abuse of discretion.

    It would be better just to re-adopt the existing statute, but then CAFC would continue to consider it overturned.

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