Why Is East Texas Home To So Many Patent Trolls?
Are you familiar with the term "patent troll"?
It's a pejorative phrase used to describe a person or company that issues frivolous lawsuits against other companies for violating patent laws. In the broadest terms, you may think that litigation such as this is not only valid but just.
Generally, though, you would be wrong.
That's because the patents held by these companies are so vague and wide-reaching, they can sue practically anyone.
For example, let's say that you apply for a patent for an app that "distributes electronic data from a central server to a mobile device." Well, that pretty much describes every app in existence, doesn't it? Yep. And that's exactly the idea.
Those that hold these patents (which generally should never have been issued in the first place), don't actually make any products. Instead, they lurk in the shadows, waiting for someone else to create a similar product and then they sue them for millions of dollars.
Often, the company being sued will settle the complaint out of court because it is ultimately cheaper than going through with the lawsuit. So, a $2 million complaint becomes a settlement for $500 thousand.
Not a bad day's work for doing little more than filing for an intentionally vague patent.
In short, so-called "patent trolls" are generally despised for their dishonesty and for jamming up U.S. courts with these frivolous complaints. At their worst, it can be argued that patent trolls slow technological progress by ceasing development of new and innovative tools because the developers being sued are frequently drawn into bankruptcy.
So, these people are terrible. Collectively, we can probably all agree on that.
Why are so many of them headquartered right here in East Texas?
In the video below, you'll meet Austin Meyer. Austin developed a flight simulator app and uploaded it to the GooglePlay Store. In short order, he was sued for patent infringement by a company called Uniloc.
Uniloc, on its surface, is a legit company. They developed the concept of "try and buy" software. You've encountered it before. Generally, applications that are pre-installed on your computer or phone, for example, offer you the opportunity to sample the product for a limited time before you decide whether or not you'd like to own it.
However, the nature of Uniloc's patent is vague and, as of 2010, the company had sued 73 other companies for infringement. They sued Microsoft in 2003 and settled for $388 million in damages. In 2012, they sued Mojang (creator of Minecraft) and then set about suing Android app developers throughout the GooglePlay store, including Austin's company, Laminar Research.
Mr. Meyer decided to get to the bottom of all of these lawsuits and he tracked down a group of attorneys that seemingly do nothing more than practice patent infringement law.
That led him right here to East Texas. Specifically, Tyler, Marshall and Longview.
What he found is particularly strange:
As he sets about the task of trying to meet with the lawyers involved in these hundreds of lawsuits, representing billions of dollars...he encounters only vacant offices.
Austin can be seen visiting a floor of an office building in Marshall, each with doors adorned with office plates bearing the names of various law firms. All are empty.
Similarly, he travels to Tyler and Longview, only to encounter the same thing: vacant storefronts with the names of the legal firms and technology companies (sometimes simply affixed to the door via Scotch tape), all complainants in numerous lawsuits.
In his video, Mr. Meyers notes that one office location in Tyler, located on College Avenue, is listed as the address of numerous litigants. The tiny, 15ft wide office is home to Collins Investigations, operated by Michael Collins. It's certainly not a large enough office to additionally house the shell companies proposed to operate there.
We asked Mr. Collins if he could shed some light on the situation but he immediately declined comment.
What is going on here?
According to arstechnica, East Texas is home to more patent trolls than anywhere in the U.S. 95% of all patent litigation in East Texas was filed by these non-practicing entities (a more 'sophisticated' way of saying 'patent troll'). In total, a whopping 44% of the nation's patent litigation originates here.
Practically all of these cases are assigned to a single judge: Marshall-based U.S. District Judge Rodney Gilstrap.
Bear in mind that none of the "companies" based in East Texas have any actual connection to the tech industry. They merely exist to seemingly extort other entities out of large legal settlements. So, the question then becomes, are these empty storefronts setting up shop in East Texas because of Judge Gilstrap?
A number of lawyers say, it's not just Judge Gilstrap...it's Marshall, Texas in general, and it all started with T. John Ward.
Ward, Gilstrap's predecessor, took office in 1999 and quickly increased the number of patent cases heard in his court tenfold. East Texas soon became known as the home of the "rocket docket", a nickname earned because of the speed at which Ward would demand his cases move.
Often, attorneys would be faced with a chess clock when making their opening and closing statements. Each side might be given 15 hours, at most, to present their evidence. In other districts, the presentation of evidence can often wind on for months.
Most striking, however, was another reputation that East Texas earned: for overwhelmingly siding with the plaintiff during patent litigation.
According to the Seattle Times, 90% of cases heard by Judge Ward ended in a victory for the patent holder.
When called under scrutiny for these overwhelming odds and questioned if the "rocket docket" methodology was truly fair to all parties, Ward insisted that his rules were in place to lower the cost of litigation for often financially strapped patent holders.
While his intentions may have been good, the precedent set during his tenure are often cited as the reason behind East Texas becoming a haven for patent trolls.
And, so, that will explain the vacant offices that exist solely to provide an address for an otherwise non-existent company. A location in Tyler, Longview or Marshall allows their case to be heard in in the lucrative East Texas district.
It can be said that Judge Gilstrap inherited this situation but, most agree that he is certainly in no hurry to make any adjustments. No one has made any allegations of corruption in the district and, despite even Supreme Court Justice Anton Scalia referring to our district as a “renegade” jurisdiction, there's one reason that no one in East Texas is in a rush to change the rules:
The small town of Marshall does quite well for itself thanks to patent trolls.
Because Marshall is so far away from any major transportation hubs, this requires attorneys representing their clients to fly into Dallas and then drive 2 and a half hours. Hotels and restaurants cater to litigators from the Silicon Valley and local attorneys have built a strong practice around patent trolling.
Some companies facing patent litigation in Marshall have gone out of their way to try to earn the goodwill of the community, probably in an effort to swing a case their way.
Marshall is home to the Samsung Open Air Ice Skating Rink (conveniently located right in front of the court house). TiVo, in town fighting a patent suit, once spent a record-breaking $10,000 for a steer up for auction at Farm City Week.
Two weeks later, they won a $74 million jury award. But that had nothing to do with purchasing the bull. Nope.
The problem in East Texas has become so ridiculous that even John Oliver cited Marshall, Texas specifically in his report on patent trolls last year:
“When this problem becomes so pronounced that it is mocked on HBO, there can be no doubting that it needs to be solved immediately,” said Klarquist Sparkman partner John Vandenberg.
Presently, lawmakers are working to try to pass legislation that would require patent holders to only file suit for infringement where their company is incorporated or has a regular place of business. In other words, the empty office in Longview won't count and therefore, patent trolls won't be able to utilize our questionable court rules in order to practically guarantee a win.
However, in April that legislation was dealt a blow when a ruling essentially agreed that the present rules for venues in a court case can stand as-is. Meaning, that as long as your patent-troll company holds an address in East Texas...yep...you can sue here. Even if it is just an empty office.
While there doesn't appear to be much that we, as citizens, can do to stop this practice, it's also quite obvious that there are citizens in Marshall that are enjoying the perks of our patent troll haven; some landlords in Tyler and Longview probably enjoy getting the rent check every month from a 'tenant' not likely to damage any property.
Nevertheless, it is a bit disconcerting that, because our little corner of Texas is so inviting to trolls, by association, we may be slowing progress on any number of fronts - especially in the tech sector. Perhaps the best thing we can do is raise awareness of the issue and express our displeasure.
Maybe then, we'll collectively send a message that we don't want to be privy to these sorts of shady business operations. The courts can do something about this problem but citizens must first let them know that we will no longer tolerate it in our hometown.
In Texas, we play hard but we don't play dirty. We shouldn't support those that do.