Marshall, Texas (150 miles east of Dallas and minutes from the Louisiana border) and its 23,935 residents enjoyed a booming economy since 2000 as a drove of attorneys, litigants, and other witnesses traveled to Marshall to fight over patents. However, the boom may come to a screeching halt.

Patent litigation underwent a quiet seismic shift while we were wrapping up Christmas and preparing to ring in the New Year. Overnight, the Federal Circuit instantly made the Eastern District of Texas a much less attractive venue for plaintiff patent-owners when, on Dec. 29, 2008, it issued a writ of mandamus ordering an Eastern District of Texas, Marshall Division court to transfer a case to the Defendant’s turf - the Southern District of Ohio.

In re TS Tech - The Genesis of Change

The genesis of these potential changes is the Federal Circuit’s decision to issue a writ of mandamus in In re TS Tech, ordering an Eastern District of Texas court to: (1) vacate its order denying the defendant’s motion to transfer venue; and (2) transfer venue to the District Court for the Southern District of Ohio. The Federal Circuit ruled that the Texas court clearly abused its discretion in applying Fifth Circuit law when the Texas court denied the accused infringer’s motion to transfer the case.

The Federal Circuit ruled that the Eastern District of Texas court made four crucial errors in assessing the public and private factors in its venue transfer analysis:

  • Gave too much weight to the Plaintiffs’ choice of forum: “Here, the district court weighted the plaintiff’s choice as a ‘factor’ against transfer and afforded [plaintiff’s] choice of venue considerable deference. In doing so, the court erred in giving inordinate weight to the plaintiff’s choice of venue.” In re TS Tech, Slip Opinion at 6.
  • Underestimated the costs and inconveniences of all the witnesses who would need to travel 900+ miles to attend trial. The inconvenience factor is directly proportional to the additional distance a witness needs to travel beyond 100 miles: “The district court’s regard of the 100 mile-rule constitutes a clear error. Furthermore, because the identified witnesses would need to travel a significantly further distance from home to attend trial in Texas than Ohio, the district court’s refusal to considerably weigh this factor in favor of transfer was erroneous.” Id. at 6.
  • Misapplied the ease of access to proof because the vast majority of physical evidence was closer to Defendant’s requested forum, and none of the evidence is located in Texas: “Because all of the physical evidence, including the headrests and the documentary evidence, are far more conveniently located near the Ohio venue, the district court erred in not weighing this factor in favor of transfer.” Id. at 7.
  • Misapplied the public interest factor in favor of having localized interest decided at home. The Texas court decided there was a local interest because some of the accused infringing products were in Texas. But the Federal Circuit disagreed on the basis that, because the accused infringing products were sold throughout the United States, Texas had no more connection to the suit than any other venue: “Here, the vehicles containing TS Tech’s allegedly infringing headset assemblies were sold throughout the United States, and thus, the citizens of the Eastern District of Texas have no more or less of a meaningful connection to this case than any other venue.” Id. at 8.

On the surface, In re TS Tech appears to be a relatively straightforward transfer of venue, but the Federal Circuit’s opinion will likely set in motion significant changes in patent litigation strategy, such as:

  • Potential exodus of patent suits from the Eastern District of Texas - increased transfers out of Texas along with decreased patent infringement filings in the District as plaintiffs seek venues where their cases are not subject to transfer.
  • Plaintiffs taking peremptory action to remain in Texas.

Exodus of Patent Suits From the Eastern District of Texas?

Will defendants rely on In re TS Tech in their attempt to transfer patent cases out of the Eastern District of Texas into their forum of preference? Most certainly. Will defendants succeed? Quite possibly. Historically, many cases filed in the Eastern District of Texas share the following similarities with In re TS Tech: (1) plaintiffs have no to little presence in the Eastern District of Texas; (2) defendants with no physical presence in the District except for the fact that their products are sold in the District; and (3) defendants’ witnesses will travel more than 100 miles to attend trial. As such, it should be increasingly difficult for Eastern District of Texas courts to readily issue denials on motions to transfer. Texas Courts should expect their decisions to be scrutinized by the Federal Circuit as defendants follow In re TS Tech’s lead and follow up with petitions for writ of mandamus if the district court denies the motion to transfer.

Another potential defendant benefit of transfer may be a reduction in the damage award. Juries in the Eastern District of Texas award fairly high damages, with the median damage award from 1995-2007 was $19,689,237. See PricewaterhouseCoopers, A Closer Look * 2008 Patent Litigation Study: Damages, awards, success rates and time-to-trial (2008). There are only a handful of jurisdictions with higher damages award including Colorado ($27,339,621), Eastern District of Virginia ($25,431,763), Eastern District of Pennsylvania ($22,148,019); and New Jersey ($21,634,708). Id. Further, by transferring the case a defendant also may increase its overall odds in prevailing in the lawsuit. From 1995-2007, the Eastern District of Texas ranked 2nd in plaintiff success rate at trial of 71.9%. Id. In re TS Tech will no doubt provide defendants with additional ammunition to try to transfer cases from the Eastern District of Texas to defendants’ respective home courts and, based on the Federal Circuit’s reasoning in In re TS Tech, defendants may well succeed.

And plaintiffs, are a resourceful lot. They may seek alternative plaintiff-friendly venues where there cases are not subject to transfer. The District of Delaware should be an attractive forum to a plaintiff because many of the technology companies are incorporated in this District. A defendant technology company seeking the legal benefits of incorporation would have a hard time arguing that Delaware, while beneficial for the purposes of incorporation, is not convenient for resolving the patent dispute. Further, from 1995-2007, the District of Delaware is reasonably fast with a median time of 1.89 years to trial. Id. The median trial time in Delaware is comparable to the Eastern District of Texas’s median trial time of 1.79 years. Id. However, it now appears that plaintiffs that choose to litigate in Delaware may go to trial quicker than had they filed in the Eastern District of Texas. In August 2008, a Magistrate Judge for the Eastern District of Texas commented that cases filed after August 2008 would be set for trial 3.25 - 3.5 years from the date of the filing of the compliant. Plaintiffs may also be attracted by the 62.5% success rate of patent-owners litigating in Delaware. Id. The one downside to filing in the District of Delaware is that the plaintiff risks obtaining a much smaller damages award. The median damages award of $8,691,600 is 55.6% less than the median damages award of $19,689,237 in the Eastern District of Texas. Id.

Plaintiffs Taking Peremptory Action to Remain in Texas

Plaintiffs may take peremptory steps to boost their odds of retaining their case in the Eastern District of Texas. For example, plaintiffs may name a Texas company (incorporated in Texas or having a physical presence in Texas) as a defendant in attempt to sway three of the four critical factors in In re TS Tech towards the Plaintiff.

First, a Texas company likely brings to the suit Texas witnesses that will travel locally to attend trial. This serves to distinguish the situation from In re TS Tech where all of the defendant’s witnesses were greatly inconvenienced due to the more than 900 miles of travel required to attend trial.

Second, naming a Texas company in the suit likely introduces critical evidence to the patent dispute that is located in Texas. In In re TS Tech, the vast majority of the physical evidence was located outside the Eastern District of Texas. Thus, the more physical evidence key to the dispute that a Plaintiff can cite to as being located in Texas, the more likely the case will remain in the District.

Third, naming a Texas company should weigh against transfer by putting a plaintiff in better position to advocate that Texas has a real interest in resolving the dispute locally. In re TS Tech concluded that Texas had no more connection to the suit than any other venue because the accused infringing products were sold throughout the United States. Thus, the Federal Circuit held that this factor did not weigh against a transfer of venue.

In sum, In re TS Tech creates opportunities for defendants and some challenges for plaintiffs. While it remains to be seen how drastically In re TS Tech alters the landscape of patent litigation in the Eastern District of Texas, for now, plaintiffs preparing to file in the Eastern District of Texas and defendants recently sued in the district should consider how In re TS Tech impacts their case and what actions should be taken. One thing is almost certain, more motions to transfer venue from the Eastern District of Texas will be filed in 2009 than in 2008. And that may have an impact on the 2009 economic forecast in Marshall, Texas.