East Texas is known for its Piney Woods, Caddo Lake, maybe for sweet potatoes. It’s also the patent lawsuit capitol of the country. More patent infringement cases are brought to Eastern District courts than anywhere else. There’s pressure to root out the so-called “patent trolls”.
In part two of this story, we report on what’s being done to reign in patent trolls in Texas. We’ll talk with Michelle Lee, the head of the US Patent and Trademark Office at its new outpost in Dallas.
JB Goodwin’s foray into the murky waters of patent litigation began in 2014, with an envelope.
“It was a certified letter,” he recalls. “Inside a complaint against our firm filed with the Eastern District Federal Court, which is a part of Texas where we do absolutely no business. Frankly, I didn’t know what to think.”
Goodwin, a realtor in Austin, didn’t understand what exactly he was being sued for, but he knew it was serious.
“We had about two weeks to answer the specific charges levied against us by the patent troll,” he says.
What’s a patent troll? Depends on who you ask. Most people agree patent trolls are businesses that own a bunch of patents but don’t produce anything… instead, they make money by suing other companies hoping to get them to pay a settlement fee. Often they’re called non-practicing entities.
Southern Methodist University law professor Keith Robinson says the patent troll at its worst doesn’t care about right and wrong. Whether or not you have a right to walk on that bridge above it. It just wants you to pay a fee.
“The rationale behind that,” he says, “is it costs an incredible amount of money to litigate a patent case. So [the business being sued] can either spend millions of dollars defending the case of pay $50,000 for the patent holder to go away.”
To slip back under the bridge so to speak…Robinson says when patent trolls sue, they can essentially pick where they want to file their lawsuit – unlike other areas of law. So why would a company based in say, Delaware, file a patent lawsuit in East Texas? Robinson says that’s where they have the best chance to win.
“Litigators find [the Eastern District] to be a very patent friendly district,” he says.
In the first half of 2015, legal analytics provider Lex Machina reports the Eastern District of Texas received thirteen hundred patent infringement lawsuits – five times as many as the next most popular district. Not all companies that sue for patent infringement are patent trolls. The lawyer for Property Disclosure Technologies — that’s the company that sued JB Goodwin – says it doesn’t fit that definition. We’ll hear from him in a minute. The company accused Goodwin and a dozen other real estate firms of using a common search feature without paying a licensing fee.
“Since I didn’t feel like we had done anything wrong,” he says, “I just felt like we needed to fight the process as opposed to settle.”
Eleven of the thirteen companies sued did settle. Goodwin dug in his heels. He teamed with the National Realtors Association and saddled up for a ride.
After months of arguing, the plaintiff finally dropped the lawsuit.
Another Texas businessman, Greg Dick, was caught up in a similar legal fight in 2011. A group called “Variant Holding” sued his hotel — Tanglewood Resort on Lake Texoma – for infringing on patent number 7,624,044. And yes, was filed in the Eastern District.
Now, like in the case of JB Goodwin, Greg Dick was just one of many being sued. There were 75 companies on the list — Best Western, Hyatt, Yelp. Dick says some of the larger companies were agreeing to settlements for hundreds of thousands of dollars.
“And the only reason you settle,” Dick says, “is because it’s easier and less expensive to settle than it is to fight this. That’s why this works for these unscrupulous and unethical law firms and companies.”
Eventually, Dick caved in. He settled for $5,000 — which doesn’t sound like much, but his legal fees he says were over $60,000.
“And that’s a lot of money for a company like ours,” he says.
We sent multiple emails to Variant Holding, but no one responded. We did hear from the lawyer for the company that sued JB Goodwin. Eric Buether, with Buether Joe & Carpenter, LLC , says Property Disclosure Technologies was just trying to, essentially collect rent.
“If someone infringes a patent, and the fair and reasonable royalty is only a small amount, that doesn’t mean the patent owner shouldn’t be compensated for that fair and reasonable royalty,” he says. “If I lease an apartment and my rent is only $100 a month but I refuse to pay it, that doesn’t mean the landlord shouldn’t be compensated for $100 a month.”
Buether also says the popularity of the Eastern District of Texas is not proof that patentees have some kind of unfair advantage against accused infringers in that district.
There are bad actors on both sides of the courtroom, Buether says. Both claim to know how to reform the patent system. Both say American business and innovation hangs in the balance.