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Patent Trolls' Favorite Judge Comes Up With Test To Keep Patent Cases In East Texas, No Matter What SCOTUS Said

We've written a few times about Judge Rodney Gilstrap, an East Texas federal district court judge, whom patent trolls seem to love. For well over a decade, we've discussed how patent trolls absolutely love to file cases in East Texas, and in the past few years, Gilstrap has basically been the judge for patent cases in East Texas. Incredibly, in 2016, Gilstrap alone handled 20% of all patent cases in the country (that was true in earlier years as well). Not 20% of the patent cases filed in East Texas -- but in the whole country. And if you read that link, you see that Gilstrap seems (a) proud of this and (b) insists that people are upset about all the patent cases going to East Texas because they don't like small-town America -- and not because the court makes it that much easier for trolls to shake down everyone.

Now, as you may recall, the Supreme Court, just a few months ago, appeared to slam the door shut on patent troll venue shopping with its ruling in the TC Heartland case. In that case, the Supreme Court ruled that patent law is pretty clear, that you need to sue where the supposed infringer "resides." For years, the courts had ignored this -- despite it being plainly stated in the law -- and said that you could file a lawsuit wherever a company did any business (and with many companies, that means anywhere at all).

Many folks suggested that the SCOTUS TC Heartland ruling should put a real damper on patent trolls running to Judge Gilstrap and East Texas.

However, it appears that Gilstrap may have other ideas. Ryley Bennett, from the Washington Legal Foundation, recently wrote up a depressing article about how Gilstrap appears to have come up with a new "test" for patent venue that more or less wipes out the Supreme Court's ruling. The case was a patent infringement case where Raytheon sued Cray in East Texas. Cray argued for a change of venue, which Gilstrap denied (just a month before the SCOTUS ruling on TC Heartland), pointing to a sale Cray had made in East Texas. So after TC Heartland, Cray asked Gilstrap to reconsider with that new precedent. And here, Gilstrap single-handedly created a new "test" about what is meant by "resides" in, making it possible to keep many cases in East Texas. The key here was that Cray had a single sales person who worked from home in the Eastern District of Texas. And, to Gilstrap, that's enough to establish "residence."

Bennett explains why this is so problematic:

According to Judge Gilstrap, to demonstrate that a defendant maintains a regular and established place of business, there does not have to be a physical presence or place at all—that’s just a persuasive factor for the court to consider. Inventory, under this analysis, is persuasive in finding a regular and established place of business. Thus, under Judge Gilstrap’s interpretation, a plaintiff can secure its venue of choice by using downstream targets. Even when a corporation does not have property in the EDTX, under this test, if the corporation has remote (work-from-home) employees—who are reimbursed for business expenses such as cell phone and internet use, along with travel reimbursement—it can be subject to venue in a district where any of its remote employees resides.

Further, under Judge Gilstrap’s second factor, a defendant’s “representations” can be a mere advertisement about what the company does or where it is located, even if the company is located in a different state. Ironically, although Judge Gilstrap repeatedly stated that the business world has changed since the adoption of § 1400 and it should be adjusted accordingly, he cited a 1910 decision when stating that customer inquiries directed at an agent who happens to be in the EDTX should be considered persuasive when determining if there is a regular and established place of business there.

Judge Gilstrap’s third factor—benefits received—is not limited to sales revenues; rather, any benefit that the defendant derives from presence in the EDTX should be considered. Does this mean that a happenstance conversation in a restaurant with a person who then becomes a customer outweighs other factors and gives rise to a regular and established place of business? Under Judge Gilstrap’s third factor of his test, it does.

In explaining the final factor—targeted interactions—Judge Gilstrap cited a Sixth Circuit personal jurisdiction case as support that existing or potential customers, customer support, or targeted marketing efforts give rise to a regular and established place of business—the same type of personal jurisdiction considerations that the Supreme Court in TC Heartland said did not apply to venue determinations.

Because of all of this, Bennett notes that the new "test" feels an awful lot like the old rules that the Supreme Court just threw out. Not surprisingly, Cray immediately asked the appeals court to weigh in on the issue, while Raytheon has asked to leave Gilstrap's ruling in place. As it stands, CAFC is still reviewing the issue, and various parties are lining up filing amicus briefs urging the court one way or the other.

However, it does at least give the appearance of a highly criticized East Texas court judge effectively stacking the deck with this test in a manner that will allow him to ignore the clear spirit and substance of a Supreme Court ruling, in an effort to keep the patent troll case train to keep dumping cases at his courtroom doorstep.

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