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What?  Marshall, Texas?

What? Marshall, Texas?

It would be nice if lawyers didn’t have to call their clients and tell them that their company had been sued for patent infringement in the Eastern District of Texas (EdTX). “Where? Where’s that?” “What, you’ve never heard of Marshall, Texas?” you reply. “Never been to Tyler, Beaumont or Lufkin? Kind of quiet evenings after the sidewalks are rolled up, but your choice of BBQ rib joints is almost endless, and traffic isn’t a problem.”

As I’ve written before EdTX has evolved into a hotbed of patent litigation, although it has cooled a bit as of late. When you’re talking to a lawyer in Boston and you learn that he or she is heading to Texas, it’s a good bet that the destination is somewhere in the Eastern District. The EdTX has assembled some frightening statistics regarding number of patent cases (large) and the success rate of plaintiffs (high).

The lawyers in that part of the country joke that they used to do PI law (personal injury), and now they do IP law (intellectual property). But, everyone has known for a while that this couldn’t last forever, and that EdTX might lose its hold on patent litigation once W left office.

Indeed, the patent reform litigation just filed in the House and Senate has the EdTX in its crosshairs. The Senate bill states (excerpted):

A party shall not manufacture venue by assignment, incorporation, or otherwise to invoke the venue of a specific district court. Venue is only proper were (a) defendant is incorporated; (b) defendant has its principle place of business; (c) where the defendant is permanently located and has committed substantial acts of infringement; or (d) where the plaintiff resides if the plaintiff is a nonprofit or individual inventor. The court should transfer venue to avoid evidentiary burdens when transfer can be accomplished without causing undue hardship to the plaintiff.

If passed, a provision like this would cut into the patent litigation industry in EdTX, and the lawyers there might have to return to PI once the cases in their pipeline run out. That may make them sad, but it will make lawyers and companies in the rest of the U.S. quite happy.

EdTX Judge Says: Litigate Future Royalties as Part of Trial

We’ve been following the lower courts’ interpretation and application of eBay v. MercExchange since the case was decided by the Supreme Court in May 2006. In eBay the Court held that post-judgment injunctions were not “automatic” for successful patent plaintiffs, but rather that the trial court had to apply the traditional equitable test to determine whether an injunction or ongoing royalties were the appropriate remedy.

In June I gave a presentation at Massachusetts Continuing Legal Education on developments in this area in the two years since the decision. (Warning – the Powerpoint won’t make a lot of sense without the voice-over, but it gives some idea of the landscape).

As I discussed then, a constellation of issues was forming around the question of how to assess future royalties if it is determined that this was the appropriate remedy after final judgment. By then, of course, the jury has gone home. Was it up to the judge to determine the royalty? Would there be a new trial (jury or otherwise) on this issue alone? Would the pre-judgment royalty be used for future royalties (as some courts have done)?

Not surprisingly, a U.S. District Judge in the Eastern District of Texas has taken the first real “shot” at this issue. In early August Federal District Court Judge Clark issued an order in several cases, advising the parties that he expected the issue of future royalties to be tried with liability and past damages. He stated:

Should an injunction issue, a jury finding on a future royalty could be used to set a reasonable amount to be paid into escrow during the period of any stay which might be granted. If an injunction is not warranted, the jury verdict might be used by the parties as one factor in agreeing on a license, or by the court in arriving at an ongoing royalty rate for a compulsory license. In either case, time and expense can be saved by having the damages experts testify once, rather than hold a separate mini-trial on the issue of future damages post-verdict. This procedure would encourage the experts to keep their testimony about past and future damages logically consistent, and to give reasons for any differences.

Judge Clark explained that this procedure would not automatically result in an award of future damages in the amount advised by the jury (as described by the judge, the jury’s findings are not binding on the court), or be determinative in any way of the decision whether to issue an injunction or award future royalties.

Although this procedure would add another dimension of cost and complexity to a patent trial, it may make sense where there is a reasonable likelihood that future royalties (rather than a permanent injunction) will be the final remedy.

However, one would hope that a trial judge would not impose this procedure in cases where a preliminary determination concludes that the likelihood of future royalties is weak (for example, as in the case of direct competition between the patent holder and the defendant). It’s worth watching to see whether this approach catches on with other judges in the EdTX and in other districts, and if so how it evolves.

Damages experts must be sharpening their pencils and working overtime this summer ….