Although patent reform is not a partisan issue, it has divided those who write and think about the patent system for a living. This year, 51 law and economics professors wrote a letter to Congress pointing to the “large and increasing body of evidence” supporting legislative patent reform. Weeks later, 40 professors shot back, expressing “deep concerns with the many flawed studies.”
We aren’t saying who is right, because one of us signed the second letter and the other authored a number of the contested studies. One of us joined the Obama administration to support patent reform, and the other opposes it.
But there is one issue upon which we — and most stakeholders — agree: The staggering concentration of patent cases in just a few federal district courts is bad for the patent system. We believe that changing where patent lawsuits can be filed will solve many of the problems in the debate.
[Other perspectives: Patents are supposed to encourage innovation. Without reform, they’ll do the opposite.]
In the first half of this year, almost half of all patent cases were initiated in the East District of Texas — and it’s not because they like the BBQ. Under a 1990 Federal Circuit court ruling, defendants can be sued in any district they sell their products, which is basically anywhere. According to a forthcoming paper by John Allison of the University of Texas at Austin, Mark Lemley of Stanford University and David Schwartz of Northwestern University, non-practicing entities — pejoratively referred to as “patent trolls” — bring a majority of the patent cases decided in the Eastern District. The issue is not limited to trolls, however: Kraft Foods Group is a plaintiff in Delaware in a current case on this issue.
The reasons patentees flock to Eastern Texas — and a few other district courts — are debated. Patentees say they get a fairer hearing, while defendants argue that procedural hurdles are stacked against them. Regardless of who is right, if plaintiffs favor a particular venue over another, it shows that there’s a problem with the system.
Even assuming courts resolve disputes with maximum efficiency and fairness, being sued in an otherwise distant location can dramatically increase the costs for defendants. For parties with limited funds, it often makes more sense to settle than to fight, even in weak cases.
Granted, the situation is good for local businesses in Texas. The Fairfield Inn even reportedly bought a subscription to PACER, the docket system for federal courts, so it can market its rooms to lawyers. But it’s doubtful that a situation in which litigators spend a disproportionate amount of time and money worrying about the location, rather than the merits, of a dispute is best for the patent system as a whole.
To be clear, having a choice of where to file lawsuits is not a bad thing — it creates competition in the court system and allows time and experience to be leveraged. Furthermore, forcing patentees to file suit where defendants are located can also be costly, especially for small companies that hold patents. However, national media stories — such as the empty Texas offices rented by patentees and the skating rink sponsored by Samsung just outside the courthouse to curry favor with local juries — are evidence of the waste and damage done to the reputation of the U.S. patent system.
In some sense, however, the situation we are in is an anomaly. For nearly 90 years, it was settled law that special rules limiting venue governed patent lawsuits. Congress changed the general venue law in 1988, and the Federal Circuit interpreted this – rightly or wrongly – as removing the special rule’s restrictions.
Congress changed the general venue law again in 2011, to language similar to — but not exactly like the pre-1988 law. What these changes mean are being questioned in a mandamus petition filed by John Duffy of the University of Virginia in a case in Delaware — Kraft Foods Group Brands v. TC Heartland. This is an excellent opportunity to address where patent lawsuits can be filed, and we urge the court to take it.
If the court doesn’t fix the problem, Congress can, at least in theory. Congress is considering a number of reform proposals that would impact the attractiveness of certain venues. However, the political process of getting legislation passed is treacherous and subject to lobbying by special interests. The unitary nature of our patent system — not only across industries but also business models — makes it legitimately challenging to determine the best package of reforms for all. While we do not presume to have the answer, we believe that effort should be directed to finding it.
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