East Texas Loses Lure For Patent-Infringement Lawsuits

Jun 2, 2017

Write it down: TC Heartland v. Kraft Foods, a case that could reshape patent fights for years to come. It might also mean big changes for some small federal courthouses in East Texas.

Since the 1990s, East Texas has been the venue to some of the biggest patent fights in the world. That's because of three factors. The first is a 1990 appeals court decision that allowed the venue for a patent case to be wherever someone had been infringed. That is, a company could be sued wherever it had done any business with the product in question – buying, selling, shipping, whatever. Even in Marshall, Texas.

The second factor is T. John Ward, the then-sitting judge in Marshall for the Eastern District of Texas.

"My understanding, or at least so goes the lore, [is] that he decided to have his law clerks – and he decided himself – to become versed in patent law," said David Henry, a patent attorney who teaches patent law at Baylor University.

"[He created] some local patent rules, which ultimately became the foundation of many other federal districts across the country."

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The rules sped up patent trials. Ward limited courtroom presentations with timers. He set limits on how long filings could be and strictly adhered to the calendar. The combination set up what came to be known as the “rocket docket.”

Within 10 years, Henry said, the number of patent cases in Marshall increased more than tenfold.

“I flew in and out of the Marshall Airport a number of times for different patent cases, and you would see jets from companies all over the world there for patent cases," he said. "It was really a staggering phenomenon.”

Federal judges in nearby Tyler and Longview noticed the uptick and the economic benefit. They set up similar rules, bringing more cases to the Eastern District.

The third factor is the jury pool in the area, which is generally seen by patent attorneys as sympathetic to property rights. Henry estimated that 40 percent of patent cases last year were filed in the Eastern District.

"You're going to have, I suspect, a huge shift in patent-infringement cases from the Eastern District of Texas to the District of Delaware."

But last week, the Supreme Court reaffirmed a 1957 decision, ruling that lower courts should use an older, specific federal statute for patent suits when determining where a company resides. As a result, a company can be sued only where it is registered or where it has a regular and established place of business.

"You know, unless they were formed in Texas, not very many corporations are incorporated in Texas. And actually, most Texas corporations are incorporated in Delaware," said John Allison, a business professor at the University of Texas.

This is a game changer for intellectual property suits, he said.

"So, you’re going to have, I suspect, a huge shift in patent-infringement cases from the Eastern District of Texas to the District of Delaware.”

And, so TC Heartland v. Kraft Foods – a case between two food conglomerates over flavored powder that can be added to a bottle of a water – may leave a bitter taste in East Texas for years to come.