Patent litigation venue reform tips scales of justice against innovators

By Paul Morinville
March 24, 2016

injustice-scalesLast year around October, the infringer lobby began a public relations campaign placing countless articles and op-eds villainizing the Eastern District of Texas (ED TX) in publications across the country. This appears to be the first step in cannibalizing H.R.9, the Innovation Act, and S.1137, the PATENT Act, in an organized effort to pass individual provisions as standalone bills.

Readers of IPWatchdog are well aware that these so-called patent reform bills levy extraordinary damage on inventors. It should be obvious that there is no difference if the legislation is passed as a single bill or passed piecemeal as individual elements. The good news is the infringer lobby is providing an opportunity to show how the damage of each individual provision works to kill our economic engine.

A new patent reform bill addressing venue called the Venue Equity and Non-Uniformity Elimination Act of 2016 or the VENUE Act, S. 2733 has been introduced in the Senate, so we can start with this bill. Many current cases illustrate how patent reform changing venue would damage small inventors for the benefit of large multinational corporations.  One such case is Automated Tracking Solutions, LLC, v. The Coca Cola Company.

Automated Tracking Solutions (ATS) lays out the factors of venue transfer clearly in their reply brief to Coca Cola’s Motion to Transfer Venue, but I’ll summarize here. ATS is founded and headquartered in the Eastern District of Virginia (ED VA). Dr. Fred H. Sawyer is ATS’s founder, President and Chief Technical Officer, as well as sole inventor of the asserted patents. (Dr. Sawyer was interviewed by IPWatchdog here).

Dr. Sawyer, a decorated Vietnam war veteran who also worked on the Star Wars missile defense system in the 1980s, was born in Virginia. He and family have been in the state for his entire life. His inventions were conceived, reduced to practice and patented in the Eastern District of Virginia (ED VA). The first prototype is stored and maintained within the geographical footprint of the ED VA. All of the documents related to the invention and the patents are stored in the ED VA. This particular ED VA Court has already presided over eight separate lawsuits related to the patents-in-suit, and has already construed some claims in previous suits. The ED VA is intimately familiar with Dr. Sawyer’s patents, and this is without a doubt an appropriate place for him to pursue an infringer.

ATS filed its case on March 9, 2015. The ED VA has an average time to trial of around 11 months. Coca-Cola delayed filing its Motion to Transfer for seven months. On December 15, 2015, the Court then transferred venue to the Northern District of Georgia (ND GA), the district of Coca Cola’s headquarters in Atlanta, thus burning about nine months and, no doubt, tens of thousands of dollars in litigation costs.

The case would have gone to trial in ED VA by March 2016, which is less than three months after it was transferred. However, the ND GA takes about two years to get a case to trial, so doing the math, the transfer effectively permits an accused infringer to continue monetizing Dr. Sawyer’s patented inventions for two additional years without allowing Dr. Sawyer his day in court. Patents are time limited assets and those years do not come back.

A two-year delay to collect infringement damages can financially break many small companies, especially those founded and owned by inventors whose products become massively commercialized by large multinational corporations like Coca Cola. It also piles potentially hundreds of thousands of dollars of additional costs on the party least able to afford those costs thus increasing the likelihood of the small company’s financial collapse. In this case, the transfer also removed the litigation from the most logical courthouse to hear the dispute and moved it to the defendant’s home turf.

I have no idea how Dr. Sawyer is paying for this litigation or how his company is going to weather the financial damage caused by a change in venue, but it is easy to see how Coca Cola is going to handle it. According to Coca Cola’s Annual Report, Coca Cola generated over $80 billion in revenue in 2014. When a case is transferred, the financial damage falls almost completely on the patent holder who is invariably the least able to afford the financial damage, while the infringing multinational reduces costs and often extends the judgment day.

Despite being grossly unfair to small inventors, the courts are routinely transferring cases to a venue containing the headquarters of the infringing multinational corporation, as happened in this case. Often cases are moved thousands of miles requiring outside counsel, travel, additional motions and legal work and other costs. Often the new venue is not experienced in patent cases and may take years longer to conclude the litigation. Part of the strategy for defendants is to fight a costly war of attrition against independent inventors and small businesses. Eventually they will be forced to give up. That is why patent reform that impacts venue matters so much, it is about raising costs, tipping the scales of justice and beating innovators into submission using procedural rules.

Changing venue not only increases the cost and likely increases the duration of a patent lawsuit but it creates uncertainty. As a result, the entire market of patent licensing is damaged and more specifically, the ability of small inventors to access the courts is damaged. If you are a typical small inventor, you need help from contingent fee lawyers and investors. If nobody can project whether or not a court will keep your case or transfer it thousands of miles away, then lawyers and investors cannot estimate the required investment and cannot know when that investment will be returned. Making all of this worse, since eBay v. MercExchange all but eliminated injunctive relief, it is not possible to estimate a damages award. Most lawyers and investors will not invest their own time and money into something if the required investment, timeframe for payback and damages cannot be reasonably estimated. They just go into other businesses where they can estimate these critical things.

The problem is compounded by the effects of the Leahy-Smith America Invents Act (AIA). Prior to the AIA, when an inventor had multiple infringers on the same patent, one case could be filed against all of the infringers at the same time in the same place. This made it difficult to transfer cases especially if the infringers were from different districts. The AIA required each case to be filed separately and function on its own. When you add the effects of the VENUE Act, courts may be forced to move one or more of these cases to a different court. This means that all of the cases could conceivably be in different courts.  Different rulings would certainly conflict. One court could define a claim one-way and another court define it different way altogether. One could invalidate a patent and another uphold it, which is far more likely than it might seem given the inconsistency and subjectivity of what it means to be patent eligible and non-obvious (35 U.S.C. 101 and 103). The cumulative effects of the AIA plus the VENUE Act will create chaos in the patent system.

It’s time for Congress and the courts to wake up to the fact that they have already dramatically and very negatively impacted the greatest economic engine ever devised: the U.S. patent system. It is time to turn the clock back, not make matters worse with more patent reform that will only make it harder for the most inventive among us to innovate.

The Author

Paul Morinville

Paul Morinville is Managing Director of US Inventor, Inc., which is an inventor organization working in Washington DC and around the US to advocate for strong patent protection for inventors and startups. Paul has been walking the halls of Congress knocking on doors and sitting down with hundreds of offices to explain the damage suffered by inventors due to patent reforms. Paul is an independent inventor with dozens of patents and pending patent applications in enterprise software. He is also CEO of OrgStructure, LLC, an early stage enterprise middleware provider in Northwest Indiana.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 25 Comments comments.

  1. staff March 24, 2016 8:44 pm

    ‘A new patent reform bill …called the Venue Equity and Non-Uniformity Elimination Act of 2016’

    plain English translation: legalize theft of small competitor’s inventions

    All these changes do is help legalize theft so large multinationals can rob and crush their small competitors. Then they can ship their remaining jobs overseas, or import more low wage country workers for their salt mine labor fields here. Don’t believe the lies of thieves. Just because they call it ‘reform’ doesn’t mean it is.

    For our position and the changes we advocate, or to join our effort, please visit us at https://aminventorsforjustice.wordpress.com/category/our-position/
    or, contact us at tifj@mail.com

  2. NoPatents March 25, 2016 9:19 am

    I can’t help but think that the smart entrepreneurial strategy for innovators is to only work on businesses that have sustainable advantages othet than patents. Warren Buffet and Bill Gates didn’t get rich by patenting anything.

  3. Paul F, Morgan March 25, 2016 11:00 am

    From reading this article one would have no clue to the source of the venue issue, which is that nearly half of all patent suits, and most troll suits, are being brought in the Eastern District of Texas, which is not near or convenient to almost anyone, or anything, unless perhaps the patent relates to cattle breeding?

  4. Paul Morinville March 25, 2016 12:32 pm

    Paul, the source of the media campaign on venue is the ED TX. That’s similar to the source of the media campaign to kill small inventors called a patent troll. Create a villain and then pass law to kill the villain.

    I ask, like I did on other patent reforms, what part of this bill is directed to fix the perceived problem of the ED TX?

    Why is it so broad that it makes it impossible for small inventors to defend their rights?

    And, importantly, why does it not address infringer friendly districts like ND CA or Delaware?

  5. PAUL MORGAN March 25, 2016 2:20 pm

    Nice Beltway try to equate patent trolls [PAEs] with representing the interests of small inventors. In very few of the patents acquired and sued on by PAEs do the inventors get a dime from the PAE suits or their settlements. Few inventors even got any money from the sale of the patents to the PAE. These are not contingent fee suits by inventors.
    I guess you are also hoping your readers will not ask why it is more convenient for small inventors or “their” attorneys to have to find a way to get to a small town in E.D. TEX than to a major city with good public transportation?

  6. Vera Ranieri March 25, 2016 4:22 pm

    Paul, the VENUE act would explicitly allow ATS to file in ED VA and would explicitly declare it an appropriate venue, if what you say regarding ATS is true.

    I’m not sure then, I understand why that case shows the VENUE Act would be “grossly unfair to small inventors”?

  7. Edward Heller March 25, 2016 5:35 pm

    Paul@3, do you agree or disagree that a patent owner needs the ability to have his patent litigated in a neutral forum where there is no pro-defendant bias whatsoever?

  8. Gene Quinn March 25, 2016 6:56 pm

    Vera-

    The law already should have allowed ATS to sue and keep the lawsuit in EDVA, but it was still transferred. One of the ways the EDVA maintains its status as a rocket docket is by transferring complex cases. It would be interesting to see if the EDVA judges change their view with the new law if it gets enacted.

    The thing Paul does not touch on, but I will soon write about myself, is the reality that the EDTX is one of the few district courts were patent owners are actually given a fair chance. It is wonderful to say that it is unfair to be hauled into Texas to have to fight and that the fight should be in a more convenient location. The truth, however, is that these big companies wouldn’t be complaining if the EDTX were like virtually every other district court and offered an inhospitable forum for patent owners. So it is at least a little disingenuous to say that it is not fair to have to fight in the EDTX because it is favorable to patent owners when no such concern is raised about how unfair it is for patent owners to have to fight these battles in the other 93 federal districts, most of which are various degrees of openly hostile to patent owners.

    -Gene

  9. Edward Heller March 25, 2016 7:10 pm

    Gene@8, truth.

  10. Anon March 25, 2016 7:23 pm

    Reprinted here (from the “No Place for Blatant Forum Shopping” thread):

    If you really want to fix a “problem,” there are a few mandatory steps.

    The first of which is to clearly understand what the “problem” is.
    To assist in that endeavor, employing a proper root cause analysis (along the lines of the Five Why’s) – and not dismissing certain factors is critical.

    As perhaps underlying the animus the author is seeing (but not perhaps being direct enough), a certain district being more “pro-patent” may be nothing more than that district just not being as anti-patent as other options.

    Other items that the district is being accused of: any such unfair practices of evidence or discovery, should likewise NOT be dismissed.

    If a district is artificially inflating costs, then such should be on the table for verification and remedy.

    But we should not be polly-anna about the general anti-patent fervor that holds sway currently.

    (additional emphasis added)

  11. Vera Ranieri March 25, 2016 7:47 pm

    Gene,

    You say: “EDTX is one of the few district courts were patent owners are actually given a fair chance.”

    Ok, let’s unpack this a little.

    The way venue is currently set up allows the patent holder to have almost complete discretion as to where to file. This in turn, can incentivize courts to act in certain ways: they can enact certain rules to dissuade filing in that district if they “hate” patent cases (as you seem to suggest happens) or they can enact certain rules to encourage filing in that district if they “like” patent cases (as the scholarly research on EDTex suggests happens). If you take much of the discretion away from parties (on either side) courts aren’t then incentivized to set local procedures that either discourage or encourage filing in their district. Instead, they will just see the cases that the law says should be there. Will this end up with some patent owners in front of judges that don’t like patents? Probably. But it will also mean defendants in front of judges that like patents. More importantly though: it will minimize the public perception that justice is dolled out based on where you file, not the merits of your case (something it appears we both believe is a problem).

    So venue reform can actually help with what you perceive is a problem: “dislike” of patent cases. It can also help with what I perceive as a problem: “like” of patent cases.

    As a side note: here are some of the EDTex-unique rules that make it “fair” for patent owners:
    – Mandatory turnover of all relevant documents without any consideration of proportionality
    – No summary judgment filings unless explicitly given permission by the court
    – No 101 motions to dismiss without first meeting and conferring with the other side
    – No moving to stay pending a motion to transfer or motion for summary judgment

    Normally, these “rules” are things that are not dealt with by district court judges’ standing orders. Instead, they are controlled by the Federal Rules. Yet this court has rules that are contrary to the Rules. Moreover, the judges’ rules were put in place without a notice and comment period and without consideration of various sides’ interests, contrary to FRCP 83.

    If, as you contend, these rules are required to give patent owners “fairness”, then the proper procedure would be to have these rules adopted by the Federal Judiciary. (I would be surprised if they adopted these rules, especially the discovery rule, given recent changes to the FRCP, but that’s why we have notice and comment: so we can hear every side and understand various interests).

    The solution is not, as it currently is, allowing judges to unilaterally impose restrictions on parties’ rights that are afforded to them under the Federal Rules, in order to encourage (or discourage) patent filings.

  12. PAUL MORGAN March 25, 2016 7:52 pm

    Gene, another article on WHY E.D.TX gets nearly half of all patent suits would be welcome. But interestingly, lately it is not because more patent owners who go to trial there win there. There has been a roughly 50% defendant win rate in jury trials there recently [even before some Fed. Cir. reversals of patent owner wins] and in 2013 defendant wins were 90% of patents going through trial. But few cases actually go through trial there as compared to the vastly larger number of new suits filed there.
    My impression, from what I hear or read, is that the E.D.TX “settlement” rate [mostly defendant pre-trial payments to escape litigation costs] remains very high. This is allegedly due in large part to the refusal of the two overloaded E.D.TX judges to even allow the submission, much less consideration, of most dispositive motions until near the trial date. [Except, very recently, two 101-Alice based motions treated as S.J. motions in two mass-defendants cases] That is, most dispositive motions will not even be considered until after all the usual unrestricted discovery, the cost of which discovery to defendants is a major reason to pay a settlement. Discovery is very costly for large company defendants and insignificant in cost for most PAEs. Especially if not stayed even for a declared IPR. I would love to see some objective research on this subject. Simply claiming that all 93 other district courts are anti-patent is not a credible explanation.

  13. Edward Heller March 25, 2016 8:07 pm

    11. May I respectfully point out that Paul Morgan did not answer my question at 7.

  14. PAUL MORGAN March 25, 2016 8:30 pm

    Ned, a silly question does not need answering. Obviously BOTH parties deserve fair, expeditious and lower cost patent trials.

  15. Paul Morinville March 25, 2016 9:57 pm

    Paul @ 5. Beltway attempt? I am far from a lobbyist or inside the beltway politician. Read some of my posts and that is clear. For obvious reasons, you failed to answer even one of my questions. Unfortunately, you retreat to making an ad hominem attack by bunching me into the Beltway.

    I am an inventor and like all inventors I am subject to real world effects to changes in venue law. While these changes are intended to strike at the nefariously misleading patent troll cartoon character, which you refer to as a PAE, these changes apply directly to me.

    As for your comment “Few inventors even got any money from the sale of the patents to the PAE.” It is not possible to sell a patent without some sort of compensation. Your description is that of a gift.

    Read the bill. I moved in the last 16 years since I invented and patented my inventions and the bill only allows me to file a suit in that original location. I would not be able to file a suit in a courthouse within 1100 miles from my home.

    If I sold my patents to someone else who would file a suit against an infringer, they would only be able to file where I invented it. Unless I sell the patents to my next door neighbor, their cost of litigation will be much higher than mine. I think this will make sense to you: If my asset is worth more to me than it is to you, I can’t sell it to you without taking a loss. That is exactly what this legislation does.

    Here is my argument to the poor multinational corporations who feel so slighted by a couple of good ole Texas judges who still believe we have a constitutional responsibility to uphold patent rights in a timely manner. The EDTX is a fair forum and it is fair to both sides. It may be the last fair forum in a sea of anti-patent courts, but that does not change the fact that it is a fair forum. All the facts that surround the narrative of EDTX is unfair are compared to other forums and most other forums are unfair.

  16. Paul Morinville March 25, 2016 10:09 pm

    Paul @ 11.

    If you believe that “Simply claiming that all 93 other district courts are anti-patent is not a credible explanation.” is true, then you must also believe that claiming EDTX is pro-patent by comparing it to the other 93 districts is not credible.

    Correct?

  17. Paul Morinville March 25, 2016 10:15 pm

    Vera @ 6.

    My article was intended to use a real world example of the costs of a venue change to the party that can least afford it. To Gene’s point @ 8, the courts don’t follow the law now. This of course means any conclusions we come to are not based in reality, but are really just fun discussion instead. Here are two very real problems.

    I moved in the last 16 years since I invented and patented my inventions and the bill only allows me to file a suit in that original location. I would not be able to file a suit in a courthouse within 1100 miles from my home.

    If I sold my patents to someone else who would file a suit against an infringer, they would only be able to file where I invented it. Unless I sell the patents to my next door neighbor, their cost of litigation will be much higher than mine. If my asset is worth more to me than it is to you, I can’t sell it to you without taking a loss. That is exactly what this legislation does.

  18. Anon March 25, 2016 10:23 pm

    The bias of Paul Morgan is well established.

    Sadly, it is not a good or even “balanced’ thing.

  19. Gene Quinn March 26, 2016 10:10 am

    Paul-

    You say: “Simply claiming that all 93 other district courts are anti-patent is not a credible explanation.”

    Not sure why you need an article to tell you what you know. From your comment it seems like you perfectly understand the situation even if you don’t want to acknowledge it.

    -Gene

  20. Gene Quinn March 26, 2016 10:25 am

    Vera-

    You say: “More importantly though: it will minimize the public perception that justice is dolled out based on where you file, not the merits of your case (something it appears we both believe is a problem).”

    That would be wonderful. Will you or your organization start to support that policy position across the board and take issue with the many federal district courts that are openly hostile to patent owners too? Or is the public perception about location being outcome determinative only a problem where patent owners are perceived to have a procedural advantage? If you are going to start complaining about the district courts judges that are hostile to patent owners count me in. Until then, however, this feels like just a thinly veiled attempt to further erode the rights of patent owners.

    As for your point about the EDTX doing things their way, that is a concern no doubt. But it is also a concern when a federal judge follows the FRCP to the letter of the law and parties file dispositive motions and there is no ruling for many years, or even a decade or more, which happens. To pretend that this type of behavior only happens in the EDTX or that it is limited to patent cases is simply not accurate.

    I personally think there is something wrong with 1 judge having 15-20% of the patent lawsuits filed in the United States. But like so many other solutions offered by infringers the venue solution doesn’t actually fix the problem that you identify. Changing the venue rules for the entire country is asinine when the problem is with 1 district court. If the problem is with that 1 district court then pass legislation that forces that district court to conduct litigation the way you want them to. The answer isn’t to mandate a venue change on all 94 federal district courts. That is a 3rd grade disciplinary approach. It smacks of an alternative agenda, and it isn’t calculated to succeed.

    On some level I guess I should be glad that those pushing for more patent reform are so tone def and don’t have the foresight to see what it is that you really should want or how you could achieve it.

    -Gene

  21. Paul F. Morgan March 26, 2016 11:25 am

    to Paul Morinville:
    Paul, we are talking at cross-purposes because you are talking about private [individual] inventors who had owned their patents. But the vast majority of inventors are employed inventors who’s inventions were owned by the company they were employed by. Likewise, those are most of the patents being sued on by NPEs in ED TX. Sold by the employer [or a bankruptcy court] to an NPE. The inventor gets nothing out of that.
    If, as you say, patents still owned by private inventors are precluded from bringing suit on them in the inventors domicile district, that is indeed a legitimate complaint, not related to the intent of this legislation, that should be addressed before this legislation is enacted. What specific language is the problem that you think needs to be fixed?

  22. Vera Ranieri March 26, 2016 12:52 pm

    Gene – you say ” If the problem is with that 1 district court then pass legislation that forces that district court to conduct litigation the way you want them to”

    The problem is not with one district court. The problem is the incentive structure that the current system sets up. If EDTex were to stop its practices tomorrow, another district could rise up and take its place.

    Again: this incentive structure can work to both cause the problem you perceive with courts being “openly hostile” to patent owners and the one I perceive with courts being the opposite. I am unclear why you don’t see that.

  23. Paul Morinville March 26, 2016 2:05 pm

    Paul Morgan, those who assign their patents to their company were if fact paid. Not much and I think that many inventors are ripped off by these contracts. However that opinion is not relevant to venue. They sold those rights willingly so we’re compensated for them.

    That means the company who purchased them paid for them and has the right to do what they wish with the patents.

    One major reason for selling patents is to fund the expansion of other lines of business particularly when the company is not planning to exploit the patents. Thus selling patents fuels job growth both in the company and in other companies who can now use the patents to expand their businesses.

    I’ve sold some of mine to do exactly that.

    The bill is harmful in its entirety. It changes to much in the favor of infringers. No provisions favor inventors and the market of companies who buy patents and therefore create an economic market for patents thus driving capital to small inventors.

  24. Alistair MacCabe April 9, 2016 12:25 pm

    If you read the ATS v Coke Order, in this age where judicial procedures are king, not justice, ATS’s Attorney did an atrocious job in challenging Coke’s Motion which allowed the Court to find all the loopholes in ATS’s argument to give the ruling to Coke. These days, justice is almost always trumped (pun intended) by procedure. If one is procedurally inept or mistaken, then one almost always looses.

  25. Paul Morinville April 9, 2016 2:03 pm

    Alistair, I took my article almost verbatim from ATS’s response to the change of venue by Coca Cola. I’m not a lawyer, but I read the venue provisions and the case, and I think ATS’s reply directly hits all of the legal points necessary keep the case in ED VA according to the law.

    If you believe that “ATS attorney did an atrocious job in challenging Coke’s Motion”, please help me understand why. I suspect you have not read it and/or you do not understand the law.