- - Thursday, March 24, 2016

ANALYSIS/OPINION:

Last year, a company called Wetro Lan sued a small software company called Hacom LLC. Wetro Lan has no business other than patent litigation and its only asset is an expired patent on obsolete firewall technology. The inventor of that patent resides in Northern California. Hacom is based in Southern California. But where was the litigation filed? The Eastern District of Texas.

This story is hardly unusual. Nearly half of the nation’s patent lawsuits are filed in the Eastern District. In 2015, one Eastern District judge heard almost 30 percent of all patent cases for the entire country. That’s because under current law, patent owners have almost complete control over which federal district to file a case in.

If a new bill in Congress passes, no court will hear that large a share of patent cases. The VENUE Act was designed to address the problem of forum shopping — that is, patent owners filing litigation in whatever forum they think will give them the greatest advantage. Forum shopping lets patent owners exploit any differences between districts in their favor.

Historically, patent law sought to minimize this imbalance. At the district court level, the law required that patent suits be heard either in the district where the alleged infringement had taken place (provided that the defendant had a permanent place of business there) or where the defendant was headquartered. The law also addressed forum shopping in appeals: the Federal Circuit (the court that hears appeals of patent lawsuits) was set up, in part, to prevent parties on both sides from shopping for advantageous appellate law.

The current situation, however, is anything but balanced. In 1988, Congress passed a law that seemingly broadened venue for all civil trials, creating confusion about how to apply the rules in patent cases. Over the next few years, the Federal Circuit issued a series of opinions saying that a patent owner can file suit in any district in which the defendant’s products and services are available. For many patent cases, those rulings gave patent owners free reign to file in any district in the country.

It’s easy to see how that experiment has played out. In a number of ways — some subtle, some not so subtle — the Eastern District has gradually become the most attractive district in the nation for patent owners to sue in, particularly in the technology industry.

Eastern District judges have adopted nonstandard rules and practices that only serve to make patent cases more expensive and frustrating for defendants. The extra costs give patent owners leverage to push for a settlement of even the most meritless cases before a trial begins. When a case does go to trial, the patent owner has an elevated chance of winning. Without question, it’s the venue of choice for non-practicing entities (NPEs): companies that do nothing but amass technology patents and demand money from innovators.

Maybe you’ve heard the “This American Life” story on the district, with its haunting image of an office park full of empty offices for patent-holding companies. Or you saw John Oliver lampoon the ice-skating rink that Samsung had bought next door to an Eastern District courthouse where it just happens to face repeated patent suits. The business community of Tyler, Texas, even runs a website where it advertises the district’s “plaintiff-friendly local rules.” It’s easy to understand why the public might be skeptical about the system’s fairness.

The problem is not one district, though. If the Eastern District changed its practices tomorrow, then others might take its place. The problem is that giving patent owners complete control over the venue for a patent lawsuit can lead to a situation where courts — knowingly or not — adjust their procedures to make themselves more (or less) convenient or attractive for patent owners. The problem is not a few rogue districts, but a system that allows and incentivizes them to go rogue.

The VENUE Act would require the patent owner to file in a district where it makes sense — for example, where the defendant’s principle place of business is; where the patent owner has a working manufacturing facility; or where the invention was developed. In doing so, it would minimize courts’ ability to tailor rules in order to attract or dissuade patent lawsuits.

The VENUE Act is not a comprehensive patent reform bill. After it passes, the patent system will still be in need of major overhauls to reduce its strain on innovation. We can debate those changes when the time comes. The VENUE Act is simply about giving all litigants a fair trial — both defendants and plaintiffs — and restoring the public’s faith in a fair and impartial system.

We should all be able to agree on that.

Elliot Harmon is an activist at the Electronic Frontier Foundation, focusing on patent law and intellectual property issues.

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