EFF asks appeals court to “shut down the Eastern District of Texas”

The Electronic Frontier Foundation and Public Knowledge have asked a federal appeals court to make big changes to the rules governing venue in patent cases. The two public interest groups are seeking to file an amicus brief (PDF) which attacks the Eastern District of Texas as being one of the "most notorious situations of forum shopping in recent history."

The opportunity came up in a case where an Indiana company called TC Heartland was sued by Kraft Foods for infringing three Kraft patents on "liquid water enhancers." Kraft sued TC Heartland in Delaware; TC Heartland asked the judge for a transfer to Indiana, but was shot down.

TC Heartland has appealed the venue decision to the US Court of Appeals for the Federal Circuit, which handles all patent appeals. It's asking the court to overturn entirely a 1990 case that has made it easy for patent holders to sue in just about any district they choose.

And while the In re: TC Heartland case doesn't have anything to do with East Texas, the EFF and Public Knowledge are hoping to add their voices to the case to highlight the unique role of that judicial district, which has been a desirable venue for patent-holders for more than a decade now. It's been especially hospitable ground for non-practicing entities or "patent trolls," shell companies that just exist to hold patents and file lawsuits.

As the legal landscape has changed in recent years to make life tougher for trolls and easier for defendants, the geography of patent disputes has become even more skewed. The EFF/PK brief cites recent data from LexMachina that shows two Eastern District federal judges, Rodney Gilstrap and Robert Schroeder, handle nearly one in four patent cases nationwide. In the first half of this year, the district received 44 percent of all new patent cases. (Filings were down in the third quarter.)

In the view of the EFF and Public Knowledge, Congress intended to make patent venue more strict than the overall venue rule. Patent laws say cases can be brought only "in the judicial district where the defendant resides," or where the defendant has committed infringement and has a "regular place of business."

General venue laws have become more liberalized over the years. But the EFF argues that patent venue law shouldn't automatically follow that trend. They point to a 1957 Supreme Court case called Fourco Glass v. Transmirra Products, in which the high court found the patent venue rule was wholly separate. In a 1990 case called VE Holding Corp. v. Johnson Gas Appliance, the Federal Circuit found that the Fourco rule had been chipped away by later Congressional amendments.

The EFF/PK brief argues that isn't the case and urges the Federal Circuit to reconsider VE Holding, which they say has created an "absurd situation" of forum-shopping. To think that Congress intended to create that situation "blinks reality," they write, and it's those who can least afford it who are paying the price.

"Small companies, innovators, and end users are the ones least able to travel to a distant forum and learn the procedures of a new jurisdiction," write EFF lawyer Vera Ranieri and Charles Duan of Public Knowledge. "They are thus the ones most likely to succumb to undue settlement pressure made only greater by the ability of patent owners to forum shop."

Distant venue, tenuous links, high cost

The argument that the Eastern District of Texas is an unfairly tilted playing field is one that EFF has made before, pointing out the special requirements some Eastern District judges have installed, like requiring defendants to ask permission before filing motions for summary judgment. US District Judges Robert Schroeder and Rodney Gilstrap, who hear most of the district's patent cases, also "require the production of all relevant documents without regard to the needs of the case... and without request from the other side."

Unforgiving discovery schedules, combined with delays in hearing other motions, pressure defendants to settle cases, the brief argues. And the rules, "Although facially neutral," help patent trolls. Or as the brief more diplomatically puts it, they "give significant advantages to patent owners with minimal assets, dubious patents or infringement claims, or a goal of extracting undeserved settlements."

The brief highlights the case of Eclipse IP, which filed more than 100 lawsuits in the Central District of California, but shifted most of its litigation to East Texas within the last year. When a defendant moved to dismiss one of the Eastern District of Texas cases, Eclipse moved to strike it, saying it hadn't followed the local rules. Eclipse's motion was denied, but the defendant's motion "has remained pending for months—time enough for five defendants to settle."

In an interview with Ars Technica, EFF's Ranieri says she hopes the brief serves to highlight issues particular to East Texas that TC Heartland lawyers aren't in a position to write about, since their brief (PDF) is focused on errors made by the Delaware judge in their case.

"In the 1988 amendment, there's no indication that congress intended to overrule Fourco, or make the general venue statute apply instead of the specific patent statute," she points out. It's a close call, though. "There's very little to indicate whether congress considered [the amendment's] effect on patent venue," Ranieri says.

Residency requirement aside, companies can still be sued under patent law if they infringe in a district where they have a "regular and established place of business." That means companies with wide distribution, like those that sell cell phones in stores nationwide, aren't likely to get handed a "get out of Texas free" card any time soon. But for many companies with more tenuous links—like simply having a website that can be accessed from East Texas—a change in venue ruling could be a major relief from the headaches of proliferating patent cases.

Kraft Foods, which wants to keep its case in Delaware, must file a brief in opposition by November 9, and the Federal Circuit is likely to make a decision on the issue before the end of this year. Kraft has also opposed the filing of the EFF/PK amicus brief.