Patents and pugilism in the Piney Woods

Patents, which protect and encourage technological and scientific advance, and pugilism, “the sweet science,” seem to have more in common than one might suspect.  Floyd Mayweather, Jr. a professional boxer who is recognized as the best boxer of his generation, has quipped, “Everywhere I go, I will make a good payday. But we got to choose the right opponent and the right time and the right venue.”  That same quote could have come from a trial lawyer exploiting the current patent law to extort a settlement from an innovator. 

Nestled in the Piney Woods of east Texas is a town named Marshall.  This county seat, “The Gateway of Texas,” former railroad town and home of the United States District Court for the Eastern District of Texas now has a new distinction – as the largest venue for patent disputes in the country.  In fact, more than twice as many patent disputes are filed in this small town than in all the other federal court districts combined. One judge in Marshall actually hears about one in every five patent cases in the entire country. 

{mosads}This is the result of trial lawyers, partnered with patent trolls, choosing the right opponents and the right time and the right venue for their legal shakedowns.   

According to Law.com, venue is, “The proper or most convenient location for trial of a case. For civil cases, venue is usually the district or county which is the residence of a principal defendant, where a contract was executed or is to be performed, or where an accident took place.”  But because of the many federal district courts available, “venue shopping,” looking for the best place to file a lawsuit is common, and Marshall is that place for patent trolls and their trial lawyer friends.  

The town has become the go-to venue for the wrong reasons, primarily because judges in the district believes that patent cases are best decided by juries, despite the often mind boggling complexity.  The result is that risk of a defendant loss skyrockets, and hence the cost does as well.  Many also believe that juries are more likely to lean towards large judgments.  In the end, defendants would rather settle with the trial lawyer than gamble that a jury will understand the intricacies and technicalities of electrical engineering.  This may be a boon for the legal community of Marshall, but it is much less helpful for the future of innovation. 

Harm to innovation is costly to our economy, and to our way of life.  According to the Bureau of Economic Analysis about 40 percent of current U.S. economic growth tends to be attributed to intangible assets.  The Department of Commerce has had an innovation metrics committee, along with the BEA, has tried to identify the value of intangible assets. In absolute terms, intangible assets have accounted for approximately 4.5 percent of gross domestic product (GDP) during the post-WW II era, but in the last many years they have accounted for between 6.5 percent and 8.5 percent of GDP. 

The patent industries are critical to our global competitiveness in general, and particularly critical to those who drive our economy.  From small business to global corporations, our economy is being attacked by those who drain the value of the system.  Opportunists take a system designed to encourage innovation, and pervert it into a weapon that destroys the value of intellectual property whether attacking Walgreens, McDonald’s or even Petco.  Worse, the job machine of economy, small business, is most at risk as they are least likely to be able to afford to wage a legal fight no matter how meritorious, and are left with only being able to pay the demanded extortion.  Ultimately the increased costs for business owners are passed to the consumer in the form of higher prices. 

Congress needs to act.  While there are a number of patent reforms that should be done, addressing the issue of venue is a great place to begin.  Requiring that lawsuits be filed in a venue that bears a real relationship to the key legal issue should be priority.  Not only does that make sense, it would also be one more body blow, if not a knock-out punch, against the trolls of the Piney Woods.

Cleland is managing principal of Madery Bridge Associations.