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Patent venue, judicial assignment, & what it means for startups
Last month, Supreme Court Chief Justice John Roberts issued his annual report on the Federal Judiciary, in part highlighting growing concerns about judicial assignment of patent cases—concerns connected to a rapidly growing number of lawsuits being filed by so-called “patent trolls” in one court in Waco, Texas. This year the Judicial Conference of the United States will study the issue of how judicial assignment policies in federal trial courts are enabling plaintiffs to pick judges in a way that is driving up the volume of litigation and undermining confidence in the system. Importantly for startups, recent trends in patent litigation bear the hallmarks of a growing problem with abusive patent assertion. When patent venue law and judicial assignment policies are out of balance, it allows bad actors wielding low-quality patents to more easily threaten high-tech, high-growth startups with frivolous patent assertion. The Chief Justice’s attention to this concern is a welcome development, and hopefully this Judicial Conference study will be part of the solution to combating abusive patent threats against startups in Texas and across the U.S.
A brief primer on patent venue and judicial assignment.
As background to Chief Justice Roberts’ comments, it’s important you know a bit of patent venue law and how judicial assignments work. The federal court system is divided into 94 districts. In some places, there is one district per state (for example, Hawaii or Minnesota), and some states have multiple districts (for example, Virginia has an eastern and a western and Indiana has a northern and a southern district). And venue law informs which district(s) a startup can be sued in.
First, as we’ve explained, before 2017, scores of companies—including startups—were being hauled into court in the eastern edge of Texas, where plaintiff-friendly courts were popular with patent assertion entities (PAEs, or so-called “patent trolls”). But that year, the Supreme Court confirmed that a patentee-plaintiff should only be allowed to sue a domestic startup (or any company) accused of infringement in one of two places: (1) where the defendant resides—meaning where it is incorporated—or (2) where it has committed infringement and has a regular, established place of business. So, for the past five years, PAEs should not be allowed to sue startups in an East Texas court unless the company has a sufficient business presence in East Texas.
There are other factors courts are supposed to think about when deciding where patent cases proceed, though. For example, if one of the parties asks, the court can look at where the relevant documents, evidence, and witnesses are and whether court congestion or local connections to a dispute indicate it should be in one district court versus another. If a shell company based in New York files a patent suit there, but the accused infringer and all of its engineers are based in Arizona and the asserted-patent’s inventor is in southern California, it does not make sense to force all of those people to bounce back and forth across the country for a lawsuit—so the defendant can ask the NY court to transfer the case to a more convenient court in, e.g., Arizona or California.
Second, on judicial assignments, within each federal judicial district there are several judges—for example, the Northern District of California has nearly 20 judges and the Northern District of Georgia has 15. When a lawsuit is filed, it gets assigned to a specific judge, and districts differ on how they assign cases. For example, the Central District of California has a General Order for assignments—which is largely random, with a few exceptions—and it has a separate set of rules for patent case assignments. And some judicial districts are divided into divisions, so that cases are assigned to a judge in the division where the plaintiff files. This is the subject of Chief Justice Roberts’ remarks: some divisions only have one judge, which effectively means plaintiffs can pick those judges by filing in their divisions.
Increasing attention around forum shopping, venue, and judicial assignment.
Concerns about forum shopping in patent cases have percolated for years: plaintiffs (often PAEs) strategically file lawsuits in certain courts and before certain judges to increase their odds of a favorable outcome regardless of a case’s merit. And it has led to parallel concerns that courts and judges are crafting local rules to either attract or repel patent litigation, which can reduce public confidence in the legal system and lead to unevenness in the law. These concerns are not limited to patent law; for example, similar shopping can be seen in bankruptcies and “divisional judge-shopping” has been reported in immigration-related cases.
Right now, perhaps the highest profile example of these concerns can be seen in Waco, Texas—a division within the Western District of Texas, a district that stretches to El Paso and contains both Austin and San Antonio. There is one judge in the Waco division who was appointed in 2018, and, since he took the bench, patent litigation has exploded in the region. While only 34 patent cases were filed in the entire Western District in 2016, nearly 1,000 patent cases were filed there in 2021—a 2700 percent increase over five years. The Western District now accounts for up to 25 percent of all patent litigation in the nation, and over 80 percent of these cases are related to a PAE. These numbers are so stark, they are contributing to a nationwide increase in PAE litigation.
Scholars have identified rules and norms adopted in Waco that allow this single-judge division to attract patent suits. And on multiple occasions, an appeals court has found the judge is retaining cases that should be transferred to other districts. This has also created substantial congestion in the court, where it would be impossible to schedule timely trials for all patent cases, not even accounting for all the other types of cases that a federal court is supposed to hear. This has created situations where parties are forced to pay the judge’s private technical advisors and almost all non-patent cases are deferred to Magistrate Judges—officers appointed by federal district court judges to handle proceedings, usually certain preliminary or pre-trial proceedings.
Late last year, Senators Leahy (D-Vt.) and Tillis (R-N.C.) sent a letter to Chief Justice Roberts flagging their concerns about forum shopping in patent litigation. The Senators focused on patent litigation and the single-judge Waco division, explaining: “We believe this creates an appearance of impropriety which damages the federal judiciary’s reputation for the fair and equal administration of the law. Worse still, such behavior by plaintiffs can lead individual judges to engage in inappropriate conduct intended to attract and retain certain types of cases and litigants.”
In January, Chief Justice Roberts committed the Judicial Conference would take up the issue. He explained how “[t]wo important and sometimes competing values are at issue. First, the Judicial Conference has long supported the random assignment of cases and fostered the role of district judges as generalists capable of handling the full range of legal issues. But the Conference is also mindful that Congress has intentionally shaped the lower courts into districts and divisions codified by law so that litigants are served by federal judges tied to their communities.” The Conference has been asked to issue a report this spring.
What this means for startups.
Venue in patent law matters. As the Chief Justice noted, our federal judiciary is organized so that local courts can evaluate cases of local import. But when parties find ways to strategically maneuver or manipulate the rules in their favor, it can (and has) created breeding grounds for abusive patent suits targeting domestic startups. Combatting that gamesmanship and forum shopping is an important component of protecting high-tech, high-growth startups from meritless cases that force them to waste time and money and could put them out of business altogether.
Some PAEs benefit when courts make it easier to assert invalid patents or allow them to drag out (and drive up the cost and risk of) cases that are weak on the merits. If a judge is unwilling to consider early challenges to low-quality patents, or if it adopts rules that prevent startups from asking the patent office to take a second look at likely-invalid patents, that means lawsuits involving those patents can continue for years instead of wrapping up quickly (and for less money). Which in turn means bad actors looking to leverage low-quality patents for nuisance value settlements have a better shot in front of those judges. And it creates problematic incentives for more assertion of invalid patents, because with the scales tipped against (even wrongfully) accused infringers, the business of assertion becomes more lucrative.
Forum shopping fits right into this strategy: if and when PAEs can seek out certain judges, they can pick the playing field that works best for their goals—catching domestic innovators, like startups, in the cross-hairs. And if judges want to attract patent cases, they know what rules to adopt. While patent venue laws are, in part, supposed to bring a relevant local perspective to resolving disputes—with PAEs, they can just set up shell companies in Texas to create an artificial local interest, and use that hook to file where they stand to gain the most.
At Engine, we talk a lot about patent quality. The U.S. patent system needs to focus on issuing and enforcing valid patents (and only valid patents)—which is important to support startups and innovators and to increase confidence in our patent system. A big piece of that involves quality at the U.S. Patent and Trademark Office. But the federal judiciary has a critical role to play towards those goals of patent quality and confidence. Startups need confidence that their patents are valid but they also need to know that invalid patents will not be enforced against them, that they won’t have to waste a lot of time and money defending against invalid patents or paying to settle frivolous infringement allegations. Yet if certain judges and certain courts are willing to allow meritless cases asserting low-quality patents to drag on, the whole system suffers.
Disclaimer: This post provides general information related to the law. It does not, and is not intended to, provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
