Stopping the patent troll scam

If lawmakers want evidence of such abuse, they need look no further than the federal courts in the Eastern District of Texas. Patent trolls have shown a growing preference for bringing their lawsuits in this jurisdiction as they harass and threaten some of our economy’s most innovative job creators and financial service providers.

Like the explosion early last decade of asbestos lawsuits in Illinois’ rural Madison County or the brazen efforts by some judges in Philadelphia to attract multidistrict litigation plaintiffs from across the country, plaintiff-friendly court rules and the ultimate success rate of plaintiffs in East Texas have drawn an increasing and wildly disproportionate number of patent litigation tourists in recent years. At least one California-based troll has gone so far as to set up a nonprofit foundation within the district to which it transfers its patents for the sole purpose of filing lawsuits there.

According to a recent article by intellectual property lawyer James Pistorino, excluding so-called “false marking” cases, the troublesome Texas district’s new patent lawsuit filings in 2010 grew by 20 percent over the previous year. Its new cases outnumbered new cases in every other federal district and, in all, included 3,879 defendants — a 70 percent increase from 2009 and more than four times the next highest number for new defendants, 884, in the District of Delaware. Troubling, and perhaps most telling, is the fact that more than 25 percent of all defendants sued in new patent cases nationwide in 2010 were sued in this Texas district.

Privately, many defense attorneys who are critical of the jurisdiction point to local rule changes initiated by Judge T. John Ward and embraced by Judges Leonard Davis and David Folsom. These problematic rules in Texas have served to speed up trials, largely to the advantage of patent plaintiffs who enjoy both a rate of success and average award for damages there that are among the highest of all federal court districts.

But the problem with patent lawsuits is not confined to Texas. Caseloads have risen nationally, driven largely by litigation of so-called “business method” patents involving financial services, in particular. Harvard’s Josh Lerner has found that these patents are litigated at a rate 39 times greater than other patents. Section 18 of the pending patent legislation represents significant tort reform by specifically focusing on litigation against businesses that engage in or manage a routine financial activity, including invoicing, over-the-counter sales transactions and electronic payments.

Not surprisingly, the ever-aggressive plaintiff’s bar is bankrolling a major lobbying effort to strip Section 18 from the Senate-passed reform bill when it comes up for a vote on the House floor.  Although more could be done to rein in patent lawsuit abuse, Section 18 is a solid step forward and will benefit both economic growth and every consumer of financial services.

Fair-minded Americans agree that intellectual property rights must be enforced if the nation’s unique brand of entrepreneurial capitalism is to thrive in an increasingly competitive 21st century. But Congress cannot allow parasitic patent trolls to abuse the civil justice system. Senators should investigate the Eastern District of Texas when they consider nominees for two pending judicial vacancies there. In the meantime, the House should promptly pass patent reform legislation, with Section 18 intact. Both actions would serve to reduce the drag that patent trolls now impose on our economy. 

Tiger Joyce is president of the American Tort Reform Association, based in Washington, D.C.