Last 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.