January 29, 2016
Law360
By Lionel M. Lavenue; R. Benjamin Cassady; Christopher Moulder
In 2011, Congress passed the America Invents Act, a sweeping reform to the U.S. patent system. One of its goals was to address the large number of patent infringement lawsuits by providing new ways for parties to avoid "unnecessary litigation."1 Surprisingly, the AIA did little to stem the ever-increasing tide of patent litigation. In fact, from 2010 to 2013, the number of lawsuits increased 120 percent to a high of 6,114,2 with nearly a quarter filed in the Eastern District of Texas.3 And the filings in the first half of 2014 promise to match or surpass this new record.
In an attempt to stem the surge in patent litigation, in October 2013, Rep. Bob Goodlatte, RVa., introduced the Innovation Act as "the solution to the problem of abusive patent litigation."4 The act, however, stalled and died in Congress. But, in the middle of 2014, the U.S. Supreme Court decided two cases that, at least briefly, may have a noticeable effect on patent lawsuits.
In Octane Fitness,5 the Supreme Court rejected the Federal Circuit’s rigid interpretation of awarding attorneys' fees under 35 U.S.C. § 285 only in cases that were "objectively unreasonable" (similar to the standard for Rule 11) and left the determination up to the district courts to decide whether the case "stands out from others." As a result, the Supreme Court in Octane Fitness effectively implemented the feeshifting strategy of the Innovation Act.6 And, in Alice,7 the second case, the Supreme Court extended the twostep analysis of Mayo Collaborative Services v. Prometheus Laboratories Inc.8 for determining patent eligibility under 35 U.S.C. § 101. Alice allowed defendants to invalidate a significant number of patents that, according to some, "should never have been issued."9 The combined effects of these decisions initially appeared to reduce the number of patent suits to below 2012 levels.10
But the decrease in patent lawsuits in 2014 was shortlived. Indeed, the number of patent cases in 2015 nearly reached the record set in 2013,11 with the Eastern District of Texas increasing its share from 25 percent to over 40 percent.12 And, to the consternation of many patent reformers, nonpracticing entities accounted for 68 percent of the cases filed in the first half of 2015.13 In fact, of the 2,540 cases filed in the Eastern District of Texas in all of 2015, 1,968 (or 77 percent) of them were brought by "high volume filers" (those filing at least 10 cases per year).14
These numbers undoubtedly irritated some of the patent reformers, because, by some estimates, NPEs allegedly account for over $80 billion a year in lost wealth for defendants, with costs to defend ranging up to $5 million or more.15 But, although no less than six new bills were introduced in Congress in 2015 to combat all of this "abusive patent litigation," little action has occurred.16 Still, passage of the Innovation Act remains a goal of many patent reformers during the current congressional session.17
As one part of patent reformation, some reformers seek to reduce the role of the Eastern District of Texas in patent cases.18 As any patent defendant knows, the Federal Circuit’s 1988 decision in VE Holding19 effectively allowed NPEs to file cases almost anywhere in the country, which permitted them to select the most patentfriendly venues. Seeking to undo the expansion of venue in patent infringement actions that "robbed [§ 1400(b)] of all effect," and with a target squarely on the Eastern District of Texas, Rep. Goodlatte recently introduced a manager’s amendment to the Innovation Act.20 Rep. Darrell Issa, RCalif., strengthened the provisions on venue by offering his own amendment that would further tighten venue standards in patent cases, so that a patentee could file only in limited places.21 The final amendment, incorporating Issa’s amendment, primarily focused on establishing venue based on conduct by the defendant and the situs of a party, provided that situs is not "primarily for the purpose of creating venue."22 Thus, the amended bill directly attacks seemingly permissive venues perceived by some to be more favorable to patent owners. In fact, Rep. Issa used the Eastern District of Texas, and in particular Judge Rodney Gilstrap, as "proof" that Congress must act to "stop unreasonable venue shopping" in patent infringement cases.23
Indisputably, some patent reformers view the Eastern District of Texas as a patentfriendly venue with recent statistics showing favorable outcomes for patentees. For example, on awards of attorneys' fees post-Octane Fitness, in 2015, the Eastern District of Texas granted only 9 percent of such motions, as compared to 33 percent nationwide.24 And, on § 101 challenges, in 2015, the court granted (or partially granted) only 33 percent of all motions to find asserted patents ineligible, as compared to 64 percent nationwide.25 Thus, defendants in that court are statistically more likely to endure longer litigation because early motions under § 101 are more likely denied, and the recovery of attorneys' fees remains very limited.
Like most jurisdictions, the Eastern District of Texas saw a spike in § 101 motions after Alice.26 In fact, the number of motions increased in 2015 to nearly four times that of 2014.27 Of those, 40 percent were motions to dismiss under Rule 12(b)(6), and nearly a quarter were for motions for judgment on the pleadings.28 This precipitous rise in early case motions, many of which could not be resolved with a more complete claim construction record, led Judge Gilstrap, who presides over about 17 percent of all patent cases in the country,29 to issue restrictive procedures in June 2015, requiring defendants to seek permission and show "good cause" before filing an early motion seeking to invalidate a patent under Alice (unless the motion was filed within two weeks of the court’s claim construction order).30
Before a motion seeking invalidity under § 101 before claim construction, the parties had to go through a letterbriefing process, a process the Eastern District of Texas uses for many different purposes. In this letterbriefing process, the accused infringer would submit an opening letter brief of no more than five pages. Afterwards, the patentee had 14 days to answer in no more than five pages. The accused infringer then had five days to file a threepage reply. No exhibits were permitted with any of the filings. Judge Gilstrap would then decide whether to allow full briefing on the issue based on the letter briefs, or he could hold a telephone conference, or he could hear oral argument before deciding to permit a complete § 101 motion. As permitted by statute, magistrate judges hearing cases on behalf of Judge Gilstrap also implemented this procedure.31
About five months later, however, Judge Gilstrap modified the process to simply require, before one side files a § 101 motion before claim construction, that counsel meet and confer to discuss whether any claim terms need construction.32 Lead counsel for each party must communicate either in person or telephonically "with no others advising, interjecting, or otherwise participating in such communication."33 The requirement seeks to highlight the seriousness of the process and increase the attention paid to it by the parties.34 If the parties disagree, within 10 days of the filing of the § 101 motion they must submit a joint letter limited to two pages from each side. Each side must present specifics surrounding the disagreement, including any claim terms the patentee wants construed and intrinsic support for the proposed construction.
Judge Gilstrap has also recently awarded attorneys' fees against eDekka,35 an NPE based in Plano, Texas. The plaintiff is a poster child for patentlaw reformers.36 In 2014 and 2015, eDekka filed 219 lawsuits, all in the Eastern District of Texas, claiming infringement of a single patent, U.S. Patent No. 6,266,674 ("the ’674 patent").37 That patent relates to storing and labeling information, and a majority of the lawsuits targeted online retailers offering a shoppingcart feature on their ecommerce websites. Judge Gilstrap consolidated the large number of cases in July 2015, and defendants immediately moved to dismiss for failure to state a claim, contending that the ’674 patent was directed to unpatentable subject matter under § 101 in view of Alice. Because the parties submitted, and the court considered, matters outside the pleadings, Judge Gilstrap converted the motions to dismiss into motions for summary judgment under Rule 56. Nonetheless, before claim construction, the court found that the ’674 patent was invalid under § 101.38
Although the court’s finding of invalidity before claim construction in the eDekka litigations is notable, the finding that the case was "exceptional" under 35 U.S.C. § 285 is even more striking. In 2014, the Eastern District of Texas denied all 13 requests for attorneys' fees under § 285 (a 100 percent rejection rate), and in 2015, the court granted only the single award against eDekka.39 In the eDekka case, Judge Gilstrap found the case exceptional for two reasons: (1) eDekka's case was objectively unreasonable; and (2) eDekka litigated in an unreasonable manner. Under the objectively unreasonable prong, Judge Gilstrap noted that the ’674 patent was "demonstrably weak on its face," and "rather than acknowledging the inherent weaknesses of the ’674 Patent, eDekka proffered completely untenable arguments to the Court throughout the section 101 briefing process and at the September 10, 2015 hearing."
To bolster the finding of litigating in an unreasonable manner, Judge Gilstrap specifically noted that the high number of similar lawsuits filed by eDekka "reflects an aggressive strategy that avoids testing its case on the merits and instead aims for early settlements falling at or below the cost of defense." Moreover, just two days before the hearing on the § 101 motions, Judge Gilstrap noted that eDekka offered "extraordinarily low" settlement offers. He concluded that eDekka merely exploited the high cost of patent litigation to extract nuisancevalue settlements from a high number of defendants.
In addition to movement in § 101 challenges and § 285 attorneys' fees in the Eastern District of Texas, it appears that changes may also be afoot there regarding stays pending validity challenges at the Patent Trial and Appeal Board at the United States Patent and Trademark Office. In May 2015, Judge Gilstrap issued a standing order specifically requiring that, "should a party to a pending motion for stay before this Court that is based on a petition for Inter Partes Review, Covered Business Method Review, or Post Grant Review learn of a decision by the Patent Trial and Appeal Board ("PTAB") granting or denying the petition upon which the request for stay has been made, that party should notify this Court within three (3) days of learning of the same."40 This standing order may be a bellwether of further changes in the district.
Admittedly, in 2014, Judge Gilstrap denied all motions to stay pending PTAB proceedings,41 and in 2015, he granted just two motions, or 9.5 percent.42 But Judge Gilstrap’s interest in the PTAB’s institution decisions indicates that he is highly interested in, and thus more open toward, staying cases, where an AIA challenge has been instituted, which is in line with other districts. In fact, in MemSmart Semiconductor Corp. v. AAC Technologies Pte. Ltd., No. 2:14CV1107JRG (E.D. Tex. July 10, 2015), Judge Gilstrap granted a stay after an institution decision, finding that "there is no indication here that [the party requesting the stay] has gamed the system created by the LeahySmith America Invents Act by treating the IPR process as a 'second bite at the apple' rather than the alternative to district court litigation that Congress intended."43
Further indicating a potential shift toward openness in granting motions to stay based on IPR proceedings (as opposed to CBM proceedings, for which the judges in the Eastern District of Texas commonly grant stays, based on the Federal Circuit’s decision in VirtualAgility Inc.44), at the Seventh Annual Patent Law and Policy Conference held on Nov. 6, 2015, at Georgetown University in Washington, D.C., Judge Gilstrap remarked that he now may be more inclined to stay cases pending AIA review if two conditions (both relating to judicial economy) are met.45 As the first condition, parties should file AIA challenges and corresponding motions to stay "promptly." Although Judge Gilstrap did not define "promptly," presumably parties should bring AIA challenges at least before the oneyear statutory deadline, and at most before significant discovery has begun in a case. (Although Judge Gilstrap did not provide a "rule of thumb," one possible rule of thumb is to file AIA challenges approximately on or before the deadline for invalidity conditions, especially as a defendant will have identified its prior art by the deadline of invalidity contentions.)
Judge Gilstrap mentioned that AIA challenges should minimize the resources the court must expend in the initial stages of the case, so seeking a stay early in the case becomes very important. As the second condition, parties should also seek AIA challenges to obviate the need for trial on the patent issues entirely, so if a successful AIA review will still leave some claims for the court to resolve, then a stay based on the AIA review will presumably serves little purpose from the court’s perspective, other than delay. Thus, AIA challenges at least should include all of the asserted patent claims, which will be known from the infringement contentions, which are required early in the case in the Eastern District.
Of course, the big unknown in the Eastern District is not the timing for the AIA review but the timing for the filing of a motion to stay. And, so far, there is little guidance. After all, if a defendant seeks AIA review at or near the deadline for invalidity contentions, then the PTO will not rule for six months, which will be near the deadlines for the Markman proceedings in the Eastern District. And, at that time, the plaintiff will likely argue that a stay is unwarranted. But, even then, if a defendant complies with the two conditions noted by Judge Gilstrap, then presumably, a stay pending the AIA proceedings will still be available at that time, especially as there would be no need for the Markman hearing or even a trial, until after the PTO has resolved the patent issues. Indeed, at the Georgetown conference, Judge Gilstrap noted that he did not wish to proceed to trial on patent claims, when the AIA proceedings could very well render the finding of the jury as ineffective.
Thus, although Congress has not changed the patents laws recently, even with the proposals aimed squarely at the Eastern District of Texas, things are definitely changing in that court. The eDekka case sends an important signal — that invalidating abstract patents under § 101 and the awarding of attorneys' fees to aggrieved defendants in baseless cases are now precedented in the world’s busiest patent venue. And, with the recent decisions in Alice and Octane Fitness, and the congressional attempts to reform the patent system, the most popular venue for patent cases in the country is reflecting the a selfcorrection of some of the perceived abuses of the patentenforcement system also occurring in many other districts. It might not be the legislative victory that the socalled patent reformers wanted, but they may nonetheless have helped achieve their goal in incrementally changing the patent system after all.
Endnotes
1"President Obama Signs America Invents Act, Overhauling the Patent System to Stimulate Economic Growth, and Announces New Steps to Help Entrepreneurs Create Jobs," The White House, Office of the Press Secretary (Sept. 16, 2011), https://www.whitehouse.gov/thepressoffice/ 2011/09/16/presidentobamasignsamericainventsactoverhaulingpatentsystemstim
2 Lex Machina 2015 EndofYear Trends (Jan. 7, 2016), https://lexmachina.com/lexmachina2015endofyeartrends/.
3 Daniel Nazar & Vera Ranieri, "Why Do Patent Trolls Go to Texas? It’s Not for the BBQ" (Jul. 9, 2014), https://www.eff.org/deeplinks/2014/07/whydopatenttrollsgotexasitsnotbbq.
4 Press Release: Goodlatte, Defazio, Issa, Nadler, Smith, Lofgren, Eshoo Introduce Patent Litigation Reform Bill, (Feb. 5, 2015), http://judiciary.house.gov/index.cfm/2015/2/goodlattedefazioissanadlersmithlofgreneshoointroducepatentlitigationreformbill (quoting Representative Eshoo).
5 Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1755 (2014).
6 IPNAV, "Feeshifting in Patent Litigation: The Impact of Octane v. Icon," available at http://www.ipnav.com/blog/feeshiftinginpatentlitigationtheimpactofoctanevicon/.
7 Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2350 (2014).
8 Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012).
9 James Bessen, "Why Supreme Court’s Alice ruling doesn’t solve patent troll problem" (Nov. 12, 2014), http://thehill.com/blogs/congressblog/ technology/223656whysupremecourtsalicerulingdoesntsolvepatenttroll.
10 Alison Haddock Hutton and S. Neil Anderson, "Octane and Highmark: One Year Later" (Sept. 3, 2015), http://apps.americanbar.org/litigation/committees/intellectual/articles/fall20150915octanehighmarkoneyearlater. html. According to Lex Machina, the number of patentinfringement suits fell to 5,070 in 2014, below the 5,454 filed in 2012. See supra note 2.
11 Id.
12 See supra note 2.
13 Lisa Shuchman, "After a Dip, Patent Litigation Is on the Rise, Corporate Counsel" (July 14, 2015), http://www.corpcounsel.com/id=1202732070747/.
14 See supra note 2.
15 Ken Seddon, "How GCs Can Become Heroes In The War Against Patent Trolls" (Jan. 11, 2016), http://www.law360.com/articles/743385/howgcscanbecomeheroesinthewaragainstpatenttrolls.
16 Lionel M. Lavenue, R. Benjamin Cassady, Michael Liu Su, "2015 Is Almost Over—What Happened to Patent Reform?" (Dec. 18, 2015), http://www.law360.com/articles/738706/2015isalmostoverwhathappenedtopatentreform. To date, members of the current Congress have proposed six bills on patent reform. They include: (1) the Innovation Protection Act (H.R. 1832); (2) the Demand Letter Transparency (DLT) Act (H.R. 1896); (3) the Targeting Rogue and Opaque Letters (TROL) Act (H.R. 2045); (4) the Support Technology and Research for Our Nation’s Growth (STRONG) Patents Act (S. 632); and the two bills taking center stage—(5) the Innovation Act (H.R. 9); and (6) the Protecting American Talent and Entrepreneurship (PATENT) Act (S. 1137). Id.
17 See Besson, supra note 9; Larry Downes, "Why Congress Needs to Pass the Innovation Act This Time" (Mar. 9, 2015), https://hbr.org/2015/03/whycongressneedstopasstheinnovationactthistime; Lee Cheng, “Patent troll venue abuse must stop in the Eastern District of Texas” (Oct. 8, 2015), http://www.tribtalk.org/2015/10/28/patenttrollvenueabusemuststopintheeasterndistrictoftexas/.
18 Elliot Harmon, "For Patent Trolls, Location Is Everything" (Oct. 13, 2015), https://www.eff.org/deeplinks/2015/10/patenttrollslocationeverything. See also Downes, supra note 17; Cheng, supra note 17.
19 VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).
20 Gene Quinn & Steve Brachmann, "Strict venue provisions for patent litigation added to Innovation Act" (June 11, 2015), http://www.ipwatchdog.com/2015/06/11/strictvenueprovisionsforpatentlitigationaddedtoinnovationact/ id=58625/.
21 Id.
22 Id.
23 Id.
24 According to Docket Navigator as of December 29, 2015. The statistics include motions to dismiss, motions on the pleadings, and motions for summary judgment.
25 Id.
26 Lionel M. Lavenue, et al., "New E.D. Tex. Procedural Hurdle for Early AliceBased Dispositive Motions" (Sept. 25, 2015), http://www.finnegan.com/resources/articles/articlesdetail.aspx?news=ca27900f01e945f4a14edf31d0d66c69.
27 See supra note 26.
28 Id.
29 See Cheng, supra note 17.
30 See Lavenue, supra note 26; Ryan Davis, "Judge Gilstrap Requires Permission to File Alice Motions" (June 9, 2015), http://www.law360.com/articles/665542/judgegilstraprequirespermissiontofilealicemotions.
31 See supra note 26.
32 Kevin Penton, "Judge Gilstrap Rewrites Rules for Alice Motions In Texas" (Nov. 12, 2015), http://www.law360.com/articles/726270/judgegilstraprewritesrulesforalicemotionsintexas; Standing Order Regarding Motions Under 35 USC § 101 and Accompanying Certifications, http://www.txed.uscourts.gov/cgibin/ view_document.cgi?document=25257.
33 Standing Order Regarding Motions Under 35 USC § 101 and Accompanying Certifications 12.
34 Id.
35 eDekka LLC v. 3Balls.com, Inc., No. 2:15CV541 JRG, 2015 WL 9225038 (E.D. Tex. Dec. 17, 2015).
36 Erin Coe, "EDekka Tops List of Repeat Patent Plaintiffs in 2014" (Mar. 2, 2015), http://www.law360.com/articles/625882/edekkatopslistofrepeatpatentplaintiffsin2014.
37 eDekka, 2015 WL 9225038, at *1.
38 eDekka LLC v. 3Balls.com, Inc., No. 2:15CV541 JRG, 2015 WL 5579840 (E.D. Tex. Sept. 21, 2015).
39 Statistics derived from Docket Navigator as of December 31, 2015.
40 Standing Order Requiring Notice of Relevant Determinations from Related Proceedings in Cases Assigned to United States District Judge Rodney Gilstrap; available at: http://www.txed.uscourts.gov/cgibin/ view_document.cgi? document=25003.
41 Michael Loney, "PTAB Proceedings The Most StayFriendly Courts" (Sept. 25, 2014), http://www.managingip.com/Blog/3384203/PTABproceedingsthemoststayfriendlydistrictcourts. html.
42 Docket Report, available at http://docketreport.blogspot.com/2015/08/motionstostaydistrictcourtcases. html.
43 Charles Bieneman, "Stay Granted Based on Inter Partes Review Petition Filed Four Months Before Patent Lawsuit," The Software Intellectual Property Report (July 29, 2015), http://swipreport.com/staygrantedbasedoninterpartesreviewpetitionfiledfourmonthsbeforepatentlawsuit/
44 See VirtualAgility Inc. v. Salesforce. com, Inc., 759 F.3d 1307 (Fed. Cir. 2014) (encouraging district courts to stay litigation pending CBM review).
45 The Honorable Rodney Gilstrap, District Judge for the Eastern District of Texas, Remarks at the Georgetown Law and the Berkeley Center for Law and Technology Seventh Annual Patent Law and Policy Conference (Nov. 6, 2015). All Content © 20032016, Portfolio Media, Inc.
Originally printed in Law360 (www.law360.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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