On February 25, 2014, the judges of the Eastern District of Texas created a second set of case management procedures for use in patent cases referred to as “Track B.”1 If you anticipate suing or being sued for patent infringement in the Eastern District, you should be familiar with the Track B procedures because they impose new expedited, mandatory disclosure obligations that are triggered by the filing of the defendant’s answer.

What is Track B?

Track B is a new case management track for patent cases in the Eastern District of Texas. Track A is the default case management track, and refers to the traditional schedule provided for in the Local Patent Rules or a particular judge’s standing model scheduling order.

When Does Track B Apply?

Track B applies to a case only if: (1) the parties jointly elect to apply the Track B procedures, or (2) the court enters an order sua sponte applying the Track B procedures. The general order describing Track B does not dictate when the court should impose the Track B procedures, leaving the decision to the discretion of each judge. We anticipate that judges will tend to impose the Track B procedures on cases involving small damages claims against a large number of defendants (e.g., serially filed cases involving patent assertion entities).

Key Differences from Track A Procedures

  • Quicker Schedule: The Track B procedures set a number of early deadlines that will occur in advance of the traditional scheduling conference. The quicker schedule is mostly accomplished by putting the parties to work well before the case scheduling conference is held. For quick reference, a chart is provided comparing the Track B schedule with the existing model schedules used by Judge Davis2 and Judge Gilstrap.3
  • Early Disclosure of Infringement Contentions, Licenses, and Settlement Agreements: Although licenses and settlement agreements must be produced under each judge’s discovery order, Track B accelerates this disclosure. A plaintiff must produce licenses and settlement agreements along with their infringement contentions within 14 days of defendant’s answer.
  • Early Mandatory Sales Disclosure: Within 30 days of receiving infringement contentions, the defendant must produce summary sales information for all accused products identified in the infringement contentions, as well as for “all reasonably similar products.” The summary sales information must indicate the quantity sold and the associated revenue.
  • Early Good-Faith Damages Estimate: Within 14 days of receiving the summary sales information, the plaintiff must file with the court a “good faith estimate of its expected damages, including a summary description of the method used to arrive at that estimate.” However, the estimate is not binding, and will not limit recoverable damages.
  • Expedited Invalidity Contentions: Invalidity contentions must be served within 14 days of receiving the early good-faith damages estimate. This deadline will fall approximately 60 days after the plaintiff serves its infringement contentions.
  • Immediate, Limited Discovery: The order permits 5 interrogatories, 5 requests for production, and 5 requests for admission per side. These limits may be modified by stipulation of the parties or by court order.

How Do the Track B Procedures Effect Litigation Strategy?

The Track B procedures present a mixed bag of advantages and disadvantages for plaintiffs and defendants. Aside from a quicker schedule and tweaks to the case management conference, the early mandatory sales disclosure, good faith damages estimate, and early production of plaintiff’s licenses and settlement agreements are likely to have the biggest impact on case management strategy.

Early Mandatory Sales Disclosure

For defendants, the early mandatory sales disclosure creates a new risk by shifting the burden of identifying infringing products from the plaintiff to the defendant. In an ordinary case, the plaintiff accuses products of infringement in its initial contentions, and supplements those contentions as it learns of other similar products during discovery. The defendant then produces sales data for the products identified by the plaintiff.

Under Track B procedures, the defendant has an obligation to examine the infringement contentions and proactively identify “reasonably similar products.” The court’s order explains that “reasonably similar products” are “other products that a party should reasonably expect to be accused of infringement of the asserted claims after a full opportunity for discovery.” This will be a difficult task for the defendant because plaintiffs and defendants can rarely agree on the reasonableness of infringement claims. Nonetheless, the defendant is left in the unenviable position of balancing its interest in narrowly construing the plaintiff’s infringement claims against the risk of sanctions imposed for an inadequate disclosure.

For plaintiffs, the early mandatory sales disclosure reduces the risk of settling the case early on. In an ordinary case, the plaintiff relies on the defendant’s representations of its relevant sales or publicly available information that the plaintiff is aware of. Under Track B, the plaintiff can be reasonably confident that it knows the extent of the defendant’s infringement.

Good Faith Damages Estimate

At first glance, the good faith damages estimate may not appear to present much of a risk to the plaintiff because the order makes clear that the estimate is “non-binding in that it will not serve to limit the damages a party may recover.” However, the damages estimate must be filed with the court, and therefore gives the court an early look at the amount in controversy. The damages estimate must also describe the method used to estimate damages. Therefore, the plaintiff must carefully draft the estimate to give itself room to adapt its damages theory to any facts it later learns in discovery, while taking care not to leave the court with the impression that the plaintiff’s claim is trivial or not well thought out.

A relatively low damages estimate will give defendants a new basis to argue for limitations on discovery. The order adopting Track B strongly suggests that the court is inclined to limit discovery in proportion to the plaintiff’s potential recovery. If this happens, it will be a significant change in Eastern District practice, where liberal discovery is routine.

Finally, a low damages estimate may prompt the court to shorten the schedule in a bid to lower overall litigation costs, or to apply additional pressure on the parties to settle the case. Neither action may prove popular with plaintiffs or defendants.

Early Disclosure of Licenses and Settlement Agreements

Finally, the early disclosure of licenses and settlement agreements will assist parties interested in settling a case early on. When a plaintiff and defendant are close to settling a case, the parties may want to exchange prior licenses and settlement agreements to confirm for the defendant that the terms of the settlement are reasonable (or, at least, that the terms are similar to those obtained by other parties). However, confidentiality clauses commonly found in license and settlement agreements prevent disclosure early in the case. Track B’s automatic order to produce such agreements, along with the automatic entry of a protective order in Track B cases, eliminates this common roadblock to an early settlement.

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On balance, the Track B procedures make the most sense in cases where the plaintiff’s potential recovery is relatively low in comparison to the costs of litigation. Plaintiffs and defendants should consider electing Track B procedures if they are close to settlement at the outset of the case, and the additional certainty of early damages discovery is likely to bring about settlement.

Table: Effect of Track B on Case Schedules

The Local Patent Rules provide the default schedule for Track A cases. However, most judges have promulgated their own schedules that override the default schedule. Under the model schedules published by Judge Davis and Judge Gilstrap, the deadlines are determined with reference to the scheduling conference (“S.C.”). In recent practice, Judge Davis and Judge Gilstrap have held conferences at 6 months and 4 months, respectively, from the time of defendant’s answer.

The table below illustrates the difference in speed between a Track B case and a Track A case under a Judge Davis model schedule and a Judge Gilstrap model schedule. For the purpose of calculating the Track B schedule, it is assumed that the parties will use the full time permitted to complete each task. For Track A cases, the table shows how the deadline is calculated under the applicable model schedule, and estimates the deadline with respect to the date that defendant’s answer is due.

Click here to view table.