The Town That Trolls Built
"Do you know about the recent Supreme Court patent decision?" I asked Shawne Somerford, the proprietor of Blue Frog Restaurant and Catering in Marshall, Texas. She laughed. "Is there anybody in Marshall who doesn’t know about that patent case?" she replied.
The case in question is TC Heartland v. Kraft Foods. On Monday, the Court ruled unanimously that patent holders suing corporations can't just go hunting for a friendly court, as they've long been able to do. Instead they have to file in districts where the company is incorporated or where it has an established place of business. This is bad news for patent trolls, a.k.a. non-practicing entities, which make no products but brandish patents to sue companies for infringement.
And it's also bad news for the trolls' long-time venue of choice, the eastern district of Texas, where thousands of patent cases are brought each year — 2,500 in 2015 alone! — 95 percent of which are initiated by non-practicing entities, according to Robin Feldman, a professor at the University of California's Hastings College of the Law. The eastern district includes Tyler (population 101,000) and some patent lawsuits are filed there. But most are filed in Marshall (population 24,000), an out-of-the-way town on the eastern edge of Texas, just 20 miles from Shreveport, Louisiana. Indeed, an astonishing 25 percent of all patent litigation in the U.S. is filed in Marshall. It’s not too much to say that patent litigation is the engine that drives Marshall’s economy.
"At any given moment, there are six to ten teams of lawyers staying in Marshall," said Nathaniel Polish, of Daedalus Technology Inc., who often serves as an expert witness in patent disputes. Because the hotels, which are usually full, don’t have restaurants, locals have started cooking and catering businesses. Others serve as couriers. There has been a construction boom to create more office space. "There is a whole industry catering to the legal teams," said Polish. "They bring in a lot of money."
Before the explosion of patent lawsuits, Marshall was, like many small towns, barely hanging on, its days as a railroad and oil hub long past. Though it had a district courthouse, it was too small to even have much crime — which is exactly what appealed to Texas Instruments back in 1992 when it sued Micron Technology for patent infringement in Marshall instead of in its hometown of Dallas, where the courts were clogged with drug cases.
Texas Instruments, which had a large patent portfolio, needed a place where it could get to trial quickly. That's almost always to the advantage of plaintiffs. When the case settled within two years, with Micron agreeing to pay royalties, Texas Instruments kept bringing cases in Marshall.
By the early 2000s, Marshall had become notorious in patent circles for its "rocket docket," rules designed by a now-retired judge named T. John Ward to move patent cases along quickly. "He limited the number of pages lawyers could file in their motions, set strict timetables for hearings, and used a timer 1 to rein in lawyers’ presentations in the courtroom," Texas Monthly wrote in 2014. 2 "The procedures are set up for cases to go to trial," said one patent lawyer I spoke to. 3
Between 2001 and 2006, plaintiffs won 18 straight verdicts in Marshall, according to Texas Monthly. The combination of the rocket docket and a jury pool that seemed sympathetic to patent trolls — perhaps seeing them as little guys fighting big corporations — caused companies to seek settlements more often than not. This also amounted to a victory for the trolls because it meant that the companies were agreeing to pay them.
It also caused the American Tort Reform Association to label the eastern district of Texas one of its "judicial hellholes." (Among its complaints: "The court is viewed as favorable to so-called 'patent trolls' by refusing to dismiss meritless claims early in litigation, thereby providing claimants with greater settlement leverage.") It noted that one judge in Marshall, Rodney Gilstrap, presided over some 17 percent of all patent cases in the entire country.
In recent years, defendants have fared better in Marshall. Last year, according to Michael Smith, a Marshall lawyer who blogs about patent cases, plaintiffs barely won half of the cases that went to trial. Eastern district judges even set aside three jury verdicts in favor of plaintiffs, which Smith, in his blog, described as something that rarely happens. It probably didn’t hurt the corporate defendants that Samsung, whose lawyers are frequent visitors to Marshall, built the town an ice skating rink a few years ago. It sits directly in front of the courthouse.
On the other hand, in a case tried before Judge Gilstrap in 2015, a patent troll called Smartflash LLC won a $533 million verdict against Apple; it was overturned on appeal two months ago. And the rocket docket and all the other quirks that have made Marshall a patent-troll haven were hardly going away. As one lawyer put it to me, "In Marshall, the plaintiff is the customer."
When I asked Somerford, the owner of the Blue Frog restaurant, whether she was worried about the effect of the Supreme Court ruling on her business, she acknowledged that she was. "I don’t think it will put us out of business," she said, "but it will definitely affect our business. Catering is 50 percent of my business, and that is all related to trials."
But another Marshall resident, Samuel F. Baxter, a lawyer who often serves as local counsel in patent cases, disagreed. Asked how the loss of patent cases would affect Marshall, he said gruffly, "Not much." ("And you can quote me on that.")
He may be right. For one thing, patent trolls are already searching for ways to get around the decision. For another, it turns out that the Marshall courthouse is becoming a favored venue for a different kind of litigation that pits the little guy against big corporations: whistleblower lawsuits. All they need now is their own rocket docket.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
His timer of choice was a chess clock.
The Texas Monthly story, entitled "Patently Unfair," is a good place to get a flavor of Marshall’s history as a center of patent litigation.
You will not be surprised to hear that lawyers who appear before judges in Marshall are not keen to be quoted by name.
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