© 2015 The Texas Lawbook.
By Jeff Bounds
(March 27) – As has been the case for most of the last decade, the number of new patent case filings is on pace to rise in the first quarter of 2015 in the Eastern District of Texas.
But an increasingly popular avenue for dealing with patent disputes administratively appears to be siphoning legal work away from what is currently the busiest forum in the country for settling squabbles over the ownership of inventions.
Through March 16, the Eastern District saw a total of 421 new patent case filings, according to Lex Machina, a Menlo Park, Calif.-based supplier of legal data. That is more than the district saw in the entire first quarter of 2014, when 370 new cases were filed, Lex Machina data show.
But in the bigger scheme of things, the seemingly unending wave of patent litigation in the Eastern District may have crested last year.
The 1,425 new patent filings in the Eastern District for 2014 was actually down a touch from 2013’s total of 1,495, Lex Machina data shows. That marked the first time since the 2007-09 economic bust that Eastern District new filings shrank during a calendar year.
That coincided with a nationwide shrinking in new cases in district courts. All told, 5,012 new patent cases were filed across the U.S. district court system in 2014, compared to 6,082 in 2013.
A big reason why fewer patent fights are winding up in court appears to be the Patent Trial and Appeal Board.
Opened in September 2012, the arm of the U.S. Patent and Trademark Office offers several types of administrative proceedings that parties can use to contest the validity of a given patent outside of court.
McCombs said the U.S. system for resolving patent disputes is moving to a two-tier approach. When lawsuits arise, most defendants will increasingly seek to halt the judicial proceedings and then go to PTAB for an administrative decision about the validity of the patents in question, he said.
“The PTAB is thorough and technically trained, unlike juries,” McCombs said. That “appears to be leading to more predictable results” from the PTAB process.
Decisions by the administrative patent judges – who typically work in panels of three – can be appealed to the Federal Circuit, the intermediate appellate branch whose jobs include reviewing patent matters . “Early indications are (PTAB) decisions are being upheld on appeal,” McCombs said.
No one-to-one relationship
Owen Byrd, the Chief Evangelist and General Counsel at Lex Machina, notes the lack of a one-to-one relationship between the rise of PTAB proceedings and the cresting of the wave last year of new patent cases in both the Eastern District and nationwide.
PTAB proceedings, Byrd said, can happen both before parties go to court or during district court fights, which can be halted while the validity questions work their way through the administrative channels.
Still, Byrd notes, “filings in PTAB are increasing dramatically. That may be having an affect on the number of cases brought in district court.”
Through March 16 of this year, some 348 PTAB proceedings were filed, compared to 233 for the entire first quarter of 2014, Lex Machina data show. In total, the number of new PTAB proceedings more than doubled last year – to 1,680 – compared to 796 in 2013, the first full year when the agency began its administrative contests.
Adam Sanderson, a partner at Dallas-based Reese Gordon Marketos LLP, said the advent of PTAB is having a significant impact on the filing and resolution of patent cases in district courts.
“Every patent litigator, whether the plaintiff or defendant, must recognize that even though a case may be initially filed in district court, the real fight may occur in front of the PTO, and the PTO could invalidate the patent before the district court or jury ever gets a chance to weigh in on the merits,” Sanderson said.
The biggest impact of PTAB on new patent lawsuits is probably on small patent owners, who are having more difficulty finding plaintiff lawyers to take their cases on a contingency basis, according to Bill Munck, founder of Dallas-based Munck Wilson Mandala.
Most plaintiff lawyers want to work on any parallel PTAB proceedings to be on an hourly or flat rate, rather than as part of the contingency fee, according to Munck, who chairs the firm’s intellectual property practice group.
“When a PTAB review is used by defendants, settlement seems to be reached faster and for lower amounts than was previously expected,” Munck said. “A PTAB trial is not a proceeding that the patent owner can ‘win’ – that is, all they can do is avoid losing the patent, and a civil trial is still necessary to obtain a money judgment or injunction.”
In addition, the PTAB trial process “favors the challenger,” with lower burdens of proof, looser claims construction rules and limited discovery, Munck noted.
“This positions even contingent fee cases more favorably for early and cheap settlement.”
Work-heavy cases left for the bench?
Michael Smith, a partner in the Marshall office of Siebman, Burg, Phillips & Smith, said that even if PTAB does not stem the tide of new patent cases in the Tyler-based jurisdiction, the agency has “an outsized effect on the types of cases that involve more work by the court.”
If plaintiffs have patents that face “serious risk” of being nixed in a PTAB proceeding, they may opt not to file infringement proceedings in court in the first place, Smith said.
On the flip side, some PTAB proceedings can be pricey, and so defendants in court cases may skip the administrative route altogether if the plaintiff is asking for a tiny sum to settle the case, Smith said.
“Where the plaintiff only seeks a small amount and asserts numerous claims, the PTAB is not really an option because the filing costs alone would greatly exceed the cost of settlement,” Smith said. “The smaller cases that fit that profile tend to settle early … so those cases do not require a great deal of work from the court anyway.”
Gilstrap nation’s busiest patent judge, again
Even if PTAB removes only court cases that are smaller or that require less time from judges, that might still be welcome news to the Eastern District bench.
U.S. District Judge Rodney Gilstrap of Marshall, for instance, has 785 open patent cases before him, the most in the country, according to Lex Machina data.
And in Texarkana, U.S. District Judge Robert William “Trey” Schroeder III, whom the U.S. Senate confirmed in December to fill the seat of the retiring David Folsom, already has his plate full. Schroeder, who turns 49 this year, already has responsibility for 424 patent cases, Lex Machina number show.
By way of comparison, Schroeder’s patent caseload alone is already more numerous than that of any single judge in the U.S. District of Delaware, which has the second busiest patent docket after the Eastern District, according to Lex Machina.
It’s not an accident that so many patent cases wind up on the Eastern District docket. Thom Tarnay, a partner in the intellectual property section of the Dallas office of Sidley Austin LLP, said the Eastern District has the greatest number of patent suits filed against large numbers of defendants – say, 20 to 30 or more – of any jurisdiction in the country.
The plaintiffs in those cases like the efficient approach to case management that Eastern District judges take, Tarnay said.
“These judges are experts at handling a lot of cases,” he said. “They don’t allow the volume (of their caseloads) to bog the courts down or delay schedules.”
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