Texas Court Stuns Patent Troll Business Model

Texas has become well known, some would say infamous, for their patent friendly federal district courts. Over the years, “patent trolls” have increasingly flocked to Texas District Courts such as the eastern district (Marshall) to leverage these pro-patentee forums.

Since September 16, 2012, new USPTO post grant patent proceedings have been increasingly leveraged as the first true alternative to patent litigation. Here again, Texas courts offered patentees a benefit over many other districts in the U.S. That is, historically, Texas judges have been reluctant to stay litigation pending USPTO reexamination proceedings. To date, most presumed that this historical bias against staying litigation pending USPTO reexamination would continue despite the increase in speed in the new patent challenge proceedings of the America Invents Act (AIA). Yet, as made clear last week, the heightened standard necessary to institute an Inter Partes Review at the USPTO’s Patent Trial & Appeal Board (PTAB), coupled with the recent outcome in Fresenius USA v. Baxter Int’l. (CAFC 2013), has Texas courts rethinking the wisdom of their previous anti-stay stance.

In essence, Texas courts are now considering whether or not it makes sense to continue to dedicate judicial resources to patent validity issues which are in all likelihood going to be rendered moot before trial by the PTAB, or undermined by a different outcome as was the case in Fresenius. Even if the district court is not substantially concerned with the parties’ expenditures, judicial economy seems to weigh heavily against dedicating the court’s limited resources to adjudication of the substantial motion practice which arises from fact and expert discovery relating to soon-to-be-moot issues.

This ongoing debate was seemingly settled once and for all last week in Click-to-Call Technologies LP v. Oracle Corporation, et. al (TXWD). In Click-to-Call the Court granted a motion to stay pending IPR, explaining (here):

. . . Click-to-Call argues it will be prejudiced by a stay because the inter partes review and appeal process could extend beyond the trial date in this case, and the stay could hamper Click-to-Call’s efforts to license the ‘836 Patent to other parties. The Court is unpersuaded by these generic arguments. Although it is true an appeal of the PTAB ‘ s review decision may extend past this case’s June 2015 trial date, the PTAB has already determined “there is a reasonable likelihood” Oracle will succeed on its challenge to the ‘836 Patent. . . .Proceeding to trial could therefore prove to be extraordinarily wasteful of both the parties’ resources and the Court’s resources.2 This is particularly true given the PTAB’s recent decisions in similar post-grant review cases, where it has shown it has little regard for final judgments rendered after trial to a jury, even when those verdicts have been affirmed by the Federal Circuit. Additionally, it is unclear why anyone would license a patent currently undergoing inter partes review given the PTAB’s high standard for granting review in the first instance.

(emphasis added)

The court found the second factor (simplification) favoring a stay, and then explained with respect to the third factor:

Third, although post-Markman discovery in this case may have only recently begun, and a trial date has been set, it simply makes no sense for this Court to proceed in parallel with the PTAB. The finality of any judgment rendered by this Court will be dubious so long as the PTAB retains authority to review, and therefore invalidate, the asserted claims. This has consistently been the Court’s position with regard to stays under the new America Invents Act procedures. See, e.g., Versata Software, Inc. v. Volusion, Inc., No. 1: 12-CV-893-SS, slip op. at 3-6 (W.D. Tex. June 20, 2013) (granting motion to stay pending instituted review through PTAB ‘ s covered business methods procedure); Nat’! 01/well Varco, L.P. v. Omron 01/field & Marine, Inc., No. 1:1 2-CV-773-SS, slip op. at 2-3 (W.D. Tex. June 10, 2013) (denying motion to stay pending where PTAB had not yet granted petition to institute inter partes review). In sum, once the PTAB has determined a challenger is likely to succeed in invalidating all asserted claims of the patent-in-suit and has instituted inter partes review, staying the case to await the PTAB’s final decision is the preferable route.

(emphasis added)

The new post grant patent challenge provisions of the AIA have brought an end to the golden age of the patent troll…. even in some parts of Texas.

This case was brought to my attention by the great Docket Navigator.