[Ip-health] Julie Creswell in NYT: So Small a Town, So Many Patent Suits

[James Love]

* What was remarkable about the trial was not the issue being tried
or the arguments proffered by each side, but that these big companies
=97 like dozens more from the East and West Coasts =97 wound up in the
Federal District Court here in Marshall, the self-proclaimed Pottery
Capital of the World and home to the annual Fire Ant Festival
(sponsored by Terminix, the pest-control company).  More patent
lawsuits will be filed here this year than in federal district courts
in San Francisco, Chicago, New York and Washington. Only the Central
District of California, in Los Angeles, will handle more patent
infringement cases.

* What=92s behind the rush to file patent lawsuits here? A combination
of quick trials and plaintiff-friendly juries, many lawyers say.
Patent cases are heard faster in Marshall than in many other courts.
And while only a small number of cases make it to trial =97 roughly 5
percent =97 patent holders win 78 percent of the time, compared with an
average of 59 percent nationwide (less than half in New York.),
according to LegalMetric, a company that tracks patent litigation.

*  Patent litigation is a growing business across the country;
Marshall is just the most visible example. Among the weightier issues
behind the mushrooming of its patent docket is whether the elements
that have made it expand =97 hungry plaintiffs=92 lawyers, speedy judges
and plaintiff-friendly juries =97 are encouraging an excess of
expensive litigation that is actually stifling innovation. Some say
yes. =93A lot of the cases being filed in Marshall are by patent
holding companies, or patent trolls, as they=92re called, whose primary
and only assets are patents,=94 Mr. Tyler said.

* Companies spent 32 percent more on outside counsel for intellectual
property litigation in 2003 than in the previous year, Chuck Fish,
the chief patent counsel for Time Warner, told the House Judiciary
Subcommittee on Courts, the Internet and Intellectual Property
earlier this year. Spending for all other litigation rose a mere 1
percent during that time, Mr. Fish said.

*  There is legislative movement afoot as well. This spring, two
senators, Patrick J. Leahy, Democrat of Vermont, and Orrin G. Hatch,
Republican of Utah, introduced a patent reform bill. Among its many
provisions is one to limit damages in patent lawsuits and another to
require a more substantial connection between a business and the
court where it brings a patent lawsuit.  WE think the bill will
restore more balance in the patent system and remove incentives for
plaintiffs to run to one jurisdiction and try to hit the jackpot,=94
said Mark W. Isakowitz, a lobbyist with the Coalition for Patent
Fairness, which advocates patent reform on behalf of corporations.
Any reform would likely happen next year at the earliest, lawyers say.


http://www.nytimes.com/2006/09/24/business/24ward.html

The New York Times

September 24, 2006
So Small a Town, So Many Patent Suits
By JULIE CRESWELL

MARSHALL, TEX.

ON a crisp Monday morning earlier this month, about 20 lawyers from
some of the country=92s top law firms shuffled their way into a
brightly lit, wood-paneled federal courtroom in this small city in
eastern Texas.

Wearing white shirts and dark suits, the lawyers congregated in small
groups, leaning into one another with their arms crossed and speaking
in hushed tones.

At precisely 8:30 a.m., a series of knocks on the right side of the
courtroom signaled the entrance of Judge T. John Ward, a blur of
black robe and white hair, who quickly took his seat and, with little
preamble, began the proceedings.

Over the next few minutes, a 10-person jury listened raptly as
lawyers for both sides laid out the case. Hyperion Solutions, a
software company based in Santa Clara, Calif., accused the
OutlookSoft Corporation of Stamford, Conn., of infringing two of its
patents, causing $50 million in damages. A lawyer for OutlookSoft
said the company did not steal any patented technology, adding that
Hyperion=92s patents were not even valid.

What was remarkable about the trial was not the issue being tried or
the arguments proffered by each side, but that these big companies =97
like dozens more from the East and West Coasts =97 wound up in the
Federal District Court here in Marshall, the self-proclaimed Pottery
Capital of the World and home to the annual Fire Ant Festival
(sponsored by Terminix, the pest-control company).

More patent lawsuits will be filed here this year than in federal
district courts in San Francisco, Chicago, New York and Washington.
Only the Central District of California, in Los Angeles, will handle
more patent infringement cases.

On the surface, there is little to recommend Marshall as a locus for
global corporations looking to duke it out over who owns the rights
to important technology patents. Some 150 miles east of Dallas, and
just minutes from the Louisiana border, Marshall and its 25,000
residents are fairly typical of most small cities in Texas. Marshall
is a place where friendships last a lifetime and rivalries even
longer, where residents still talk about the Civil War, debate on
street corners about decades-old high school football games, and
conduct midday business meetings over plates of meatloaf, mashed
potatoes and banana pudding.

What sets Marshall apart from its neighbors is a red-hot patent
docket. Four years ago, 32 patent lawsuits were filed in the Federal
Eastern District of Texas, which includes Tyler, Texarkana and
Marshall. This year, an estimated 234 cases will be filed in the
district, a majority of them in Marshall.

What=92s behind the rush to file patent lawsuits here? A combination of
quick trials and plaintiff-friendly juries, many lawyers say. Patent
cases are heard faster in Marshall than in many other courts. And
while only a small number of cases make it to trial =97 roughly 5
percent =97 patent holders win 78 percent of the time, compared with an
average of 59 percent nationwide, according to LegalMetric, a company
that tracks patent litigation.

Those odds are daunting enough to encourage many corporate defendants
to settle before setting foot in Marshall. Add to that the fact that
jurors here have a history of handing out Texas-sized verdicts to
winners. In April, for instance, a Marshall jury returned a $73
million verdict against EchoStar Communications for infringing the
patents of TiVo.

MARSHALL was once one of the most prominent and wealthy cities in
Texas, but much of the city=92s industry and many of its downtown shops
disappeared in recent decades. Now, thanks to an influx of out-of-
town lawyers and the increased investment in real estate by a handful
of local leaders, Marshall is in the early stages of a revival.

The sounds of hammers and electric saws echo across the brick-paved
streets that line its picturesque downtown square as buildings that
stood empty for years are being transformed into office space for rent.

Restaurants that depended on tourists drawn to town by the Fire Ant
Festival, the Stagecoach Days Festival and the winter Wonderland of
Lights display now do a brisk business catering lunches and dinners
for visiting lawyers. Some hotel chains along Interstate 20, south of
downtown, are running at 95 percent occupancy rates during the week.

=93During the TiVo-EchoStar trial, 90 percent of my revenue for one
month came from one of the law firms in the case,=94 said Phillip W.
Gurganus, manager of the local 68-room Hampton Inn, where rates run
$77 a night.

His mother, a former Texas tort reform lobbyist, helps to serve
breakfast at the hotel. =93I loved getting that check and taking it to
the bank,=94 he added.

How far the dollars from visiting lawyers trickle through Marshall=92s
economy remains unclear and is the subject of discussion among local
leaders.

For much of its history, Marshall has been a community divided by
wealth and race. People whose grandparents or great-grandparents made
fortunes from oil, natural gas or railroads live in gated mansions
and rarely mix with those who frequent the local Wal-Mart or many
downtown finance shops that make $300 loans. The median family income
in Marshall is $30,000.

=93The majority of Marshallites don=92t even know the patent docket
exists,=94 said Johnny B. Taylor, a native of Marshall who returned and
started an office rental business after spending 31 years as a police
officer in Arlington, Tex. =93There=92s one way the docket affects them:
they can=92t find parking.=94

Cranking up the air-conditioner of her father-in-law=92s 1990 red
Cadillac DeVille with a matching red leather interior, Geraldine
Mauthe, the city=92s bubbly and silver-haired convention-and-visitors
director, begins the tour of town.

Turning away from the pale yellow century-old Harrison County
Courthouse, which is being renovated and updated to handle Marshall=92s
rapidly expanding patent docket, Ms. Mauthe often stops the Cadillac
in the middle of the street =97 eliciting sharp honks from cars behind
her =97 to point out local sights.

This much can be said about Marshall: It is not lacking in churches
(50 Baptist, 35 of other Protestant denominations and 1 Roman
Catholic), historic homes (many built in the 1850=92s) and, oddly,
funeral homes. =93We have seven. Four for blacks and three for whites,=94
Ms. Mauthe said, matter-of-factly.

When she drove past a hair salon that offered haircuts, tanning and
the services of a notary public, Ms. Mauthe rubbed her fingers
together and said: =93You got to make money somehow.=94

Oh yes, Ms. Mauthe added, Marshall and its robust legal community go
back a long way. In the late 1800=92s, she said, Marshall was a
bustling city, a transportation gateway to the North, linking local
cotton farmers and the Texas and Pacific Railway.

As the railroad was built, personal-injury lawyers came to town to
represent injured workers. In more recent decades, Scott Baldwin,
Franklin Jones and other Marshall-based plaintiffs=92 lawyers generated
tens of millions of dollars in fees =97 and grabbed the national
spotlight =97 by pursuing class-action lawsuits against companies that
used asbestos and silica, and against the pharmaceutical and tobacco
industries.

By the late 1990=92s, though, it looked as if the good times were
ending for Marshall=92s lawyers. Broad tort reform in the state had
limited punitive damages and later capped damages on medical
malpractice lawsuits, effectively limiting the fees that lawyers
could make.

In Marshall, an oft-told joke is that the passage of tort reform was
when many local lawyers made the trip from P.I. to I.P. =97 that is,
they moved out of personal injury and into intellectual property.

That was the road traveled by Samuel F. Baxter, a former state
district court judge who had become a personal-injury lawyer, after
he received a call from a lawyer in Dallas in 1996, asking him to
help out in a patent lawsuit in Marshall. =93I told him, =91No, I don=92t
know anything about patents,=92 =94 Mr. Baxter recalled as he reclined
far back in his chair in his Marshall office, which included an
autographed Cy Young baseball and aging maps of the United States
depicting an outsized Republic of Texas.

Mr. Baxter was eventually persuaded to take the case and was the lead
trial lawyer defending Samsung in a patent lawsuit filed by Texas
Instruments, which eventually settled. Since then, Mr. Baxter, who is
a principal at McKool Smith, a Dallas-based law firm with a full-time
office in Marshall, has been involved in a number of patent cases; in
one, he helped represent TiVo in its patent fight with EchoStar.

Charmingly loquacious about his two adopted sons and local Civil War
history, Mr. Baxter turns economical with his words when asked why
the federal court in Marshall handles more patent lawsuits than
federal courts in much larger cities.

=93One, speed kills,=94 he said. =93If you=92re the plaintiff, you can go
fast and get a resolution faster here than you can a lot of other
places.

=93Second, there=92s a dearth of good lawsuits these days for lawyers to
handle,=94 he added. =93You know lawyers: they go where the money is.=94

THE testing of Marshall as a patent battleground began nearly two
decades ago, when Texas Instruments, which has its headquarters in
Dallas, embarked on an aggressive strategy to make rivals license its
patents. If a company would not capitulate or at least negotiate, a
Texas Instruments team of lawyers would drag it to court =97
increasingly, down the road to the uncluttered courtrooms of Marshall.

In September 1999, Mr. Ward, a malpractice and product-liability
lawyer with a practice nearby, in Longview, was sworn in to the East
Texas federal bench.

A no-nonsense judge who charms people with his folksy demeanor but
who also has a reputation for a fiery temper in the courtroom, Judge
Ward began hearing patent cases. As a private lawyer, he had argued a
few such cases; as a judge, however, he quickly grew frustrated at
the slow pace, paperwork, and delays and motions that were part of a
patent docket.

That=92s when he adopted what he calls =93the Rules.=94 As any lawyer who
has shown up in Judge Ward=92s courtroom will testify, the Rules put
patent lawsuits on a strict timetable, laying out when key documents
must be handed over and setting firm trial dates.

No 100-page motions or lawyer soliloquies are tolerated in Judge
Ward=92s courtroom. He puts page limits on documents and uses a chess
clock to time opening and closing arguments, brusquely interrupting
lawyers when it is time for them to wind it up.

The changes turned Marshall=92s federal court into a =93rocket docket=94 =
=97
a place where the time between filing and trying a lawsuit became
significantly shorter than in other districts.

=93I really shot myself in the foot when I adopted the Rules,=94 Judge
Ward said with a laugh, sitting in a leather chair in his quiet, wood-
paneled chambers during a lunch recess in the Hyperion-OutlookSoft
trial. The reason, he added, was that the district was soon deluged
by patent suits filed by companies seeking a quick resolution to
their conflicts. While judges in nearby cities also began to hear
patent cases, most of them remain before Judge Ward.

The expedited process pleases clients, though it is sometimes hard on
the lawyers who break the Rules.

=93When he=92s mad, first his face gets red,=94 said Michael C. Smith, a
lawyer with the Roth Law Firm in Marshall. =93Then his neck gets red
and he starts tucking his chin down into his chest. If he tears off
his glasses, I don=92t care what side you=92re on, you had better drop to
the floor and get under that table fast.=94

Judge Ward said that he did not often lose his temper. =93If I tell a
lawyer to stop leading the witness and he continues, well, we=92re
going to have a problem,=94 he said.

SPEED is not the only feature bringing patent holders to Marshall.
So, too, is the fact that they usually win. Three-fourths of the
cases that come to trial in Marshall are decided in favor of the
plaintiffs, compared with less than half in New York.

The success rate for patent holders in Marshall is a great incentive
for defendants to settle matters quickly and privately. Since 1991,
the Federal District Court in Marshall has held less than half the
number of full patent trials as courts in Los Angeles, New York,
Chicago and San Francisco.

=93I would say that this is, historically anyway, a plaintiffs-oriented
district,=94 Judge Ward said, noting that he lost a large patent suit
there himself when he was practicing. He was part of the team
representing Hyundai Electronics in 1999 when it lost a $25.2 million
verdict in a lawsuit filed by Texas Instruments.

Others point to a different reason why plaintiffs may win more often
than defendants: plaintiffs, they say, typically hire local Marshall
lawyers. Hiring local in Marshall means that you will get a lawyer
who not only knows the jurors, but who also probably knows their
friends and even personal details like how often they go to church,
local lawyers say.

=93We had a Fourth of July party and we circulated the jury lists to
people there on the boat dock,=94 said Joy Berry, a local lawyer who
advises out-of-town law firms in jury selections. =93By the time the
party was over, we knew quite a bit about nearly everyone=94 on a list
of potential jurors for coming trials, she said.

Mr. Smith of the Roth Law Firm said it could be difficult for outside
lawyers to blend in and noted that some even tried to curry favor
with jurors by taking on a drawl or wearing cowboy boots. =93I call
them T.B.L.=92s, or =91tall building lawyers,=92 =94 he said. =93They don=
=92t
take their coats off no matter how hot it is down here.=94

Indeed, local lawyers love to swap stories about visiting colleagues
and their clients from bigger cities or from abroad.

One of Mr. Baxter=92s favorites is about an out-of-town lawyer, a
vegan, who wanted a late-night meal. =93She walked over to Wendy=92s and
tried to order a salad through the drive-in window,=94 he recalled.
=93She was told she needed to be in a car to order through the drive-in
window so she walked back over to the hotel, woke up one of the
firm=92s partners and had him take her through the drive-in window.=94 He
laughed uproariously at the memory.

M. Craig Tyler, a lawyer in the Austin, Tex., office of Wilson
Sonsini Goodrich & Rosati, the big Silicon Valley law firm, is fond
of recounting how visitors react to Texas hospitality. =93We=92ve had
many meals with clients from the Pacific Rim who take out their
cellphones and send pictures back home when they see the portions of
the meals in Marshall,=94 he said. =93They thought it was family style,
that one plate would feed many people.=94

And then there are the tight-knit relationships that visiting lawyers
encounter when they work in Marshall. In one patent case that
eventually was settled, the plaintiffs hired an accountant whose
clients included Judge Ward.

Patent litigation is a growing business across the country; Marshall
is just the most visible example. Among the weightier issues behind
the mushrooming of its patent docket is whether the elements that
have made it expand =97 hungry plaintiffs=92 lawyers, speedy judges and
plaintiff-friendly juries =97 are encouraging an excess of expensive
litigation that is actually stifling innovation.

Some say yes. =93A lot of the cases being filed in Marshall are by
patent holding companies, or patent trolls, as they=92re called, whose
primary and only assets are patents,=94 Mr. Tyler said.

Companies spent 32 percent more on outside counsel for intellectual
property litigation in 2003 than in the previous year, Chuck Fish,
the chief patent counsel for Time Warner, told the House Judiciary
Subcommittee on Courts, the Internet and Intellectual Property
earlier this year. Spending for all other litigation rose a mere 1
percent during that time, Mr. Fish said.

Defending Marshall=92s role, many residents note that not only is it
cheaper to hold a trial in Marshall, but that it is neutral territory
for virtually all corporations that find themselves in court here.

=93It=92s not as if you have a situation here where Microsoft is hated or
Cisco is spit upon,=94 Mr. Baxter said. =93Whether it happens in
Marshall, Tex., or Des Moines, Iowa, these lawsuits are going to
happen. They might as well happen here.=94

And many in Marshall are looking for ways to profit from the patent
gusher.

THE paint is peeling and the wallpaper in the bathroom is nothing
short of hideous, but all Johnny Taylor sees as he walks through the
former doctor=92s office he just bought in town is space for as many as
16 lawyers.

=93Furnished office space is renting for $1 to $1.50 a square foot per
week. So, a 2,000-square-foot office can get $2,000 per week,=94 said
Mr. Taylor, who has already wired the building for high-speed
Internet access and created marshallofficespace.com to highlight
offices for rent and offer advertising to local businesses.

One of the first challenges for visiting lawyers arriving in Marshall
is cramped quarters. They often roll into town with semitrailer
trucks that have traveled from San Francisco or New York containing
everything that could be needed to try a case, including volumes of
documents, copying machines, desks, video and audio equipment and
even cappuccino machines.

Some people in Marshall are trying to save them the trouble by
providing fully equipped office space on short-term leases.

=93We=92re going to have a 6,000-square-foot space for a war room that we
can rent out for $7,500 to $10,000 a week,=94 said Leslie D. Ware, a
patent lawyer in Dallas, who bought a former furniture building next
door to the federal courthouse. =93A firm could basically walk in, plug
in their laptops, work and unplug and go home,=94 he said.

Others are trying to lure patent dollars through different tacks.
Fairfield Inn, which bought a subscription to Pacer, the electronic
docket, routinely calls law firms to offer rooms for their lawyers
with cases scheduled for trial.

=93I=92m thinking of coming up with a T-shirt for the lawyers,=94 said
Jennie A. Kelehan, a former financial adviser who moved here from
Houston three years ago and is now the co-owner of a wine and
specialty store called Under the Texas Sun. She estimated that
lawyers in town for the patent docket were responsible for about a
sixth of her sales.

=93The patent lawyers were not in our plans at all,=94 she said, =93but
they are definitely a huge asset for us and we will start using that
as we start planning for the future.=94

Others, though, seem more skeptical about the long-term effect of the
patent docket on Marshall=92s economy. They said they would like to
bring in new industries and increase tourism.

=93For the most part, the rocket docket and the lawyers are =91today
dollars,=92 =94 said Alan Grantham, a member of the Marshall Economic
Development Corporation and a senior vice president at Bancorp South.
=93They spend the night at a hotel, rent cars and eat at restaurants.=94
But, he added that the patent docket was not the only factor driving
the local economy.

Others, like Jerry Cargill, who runs a wholesale beverage
distributing company in Dallas and has a family farm outside
Marshall, said they hoped that increased tourism would play a bigger
role in Marshall=92s comeback.

In the last three years, Mr. Cargill has bought nine buildings
downtown, as well as a $500,000 stake in the historic Hotel Marshall.
The City of Marshall put in $1 million and others raised $527,000 to
restore the building to its original Italian Renaissance design.

=93I didn=92t even hear about the rocket docket until a year ago,=94 Mr.
Cargill said. =93By then, we were well into the various projects.=94

This fall, a tourism marketing firm is coming to town to create a
branding plan and to offer ideas to alter Marshall=92s infrastructure
for tourism. =93It=92s a unique community,=94 Mr. Cargill said. =93It just
needs some marketing.=94

Marshall=92s patent docket may not be able to sustain its current pace
of growth. Its reputation for speed is starting to attract so many
cases that a certain sluggishness may be setting in. Four years ago,
lawsuits took less than two years to go to trial. Now the average
time between when a suit is filed and when it goes to court is more
than 27 months.

There is legislative movement afoot as well. This spring, two
senators, Patrick J. Leahy, Democrat of Vermont, and Orrin G. Hatch,
Republican of Utah, introduced a patent reform bill. Among its many
provisions is one to limit damages in patent lawsuits and another to
require a more substantial connection between a business and the
court where it brings a patent lawsuit.

WE think the bill will restore more balance in the patent system and
remove incentives for plaintiffs to run to one jurisdiction and try
to hit the jackpot,=94 said Mark W. Isakowitz, a lobbyist with the
Coalition for Patent Fairness, which advocates patent reform on
behalf of corporations. Any reform would likely happen next year at
the earliest, lawyers say.

But the biggest change in Marshall=92s status could come if plaintiffs
start losing more cases.

A jury in Judge Ward=92s courtroom in July stunned observers when it
returned a verdict that said WG Security Products had not infringed
any of the patents of Sensormatic.

The jury in the Hyperion-OutlookSoft case went even further a little
over a week ago. After a five-day trial, it deliberated for less than
three hours before deciding that OutlookSoft had not infringed the
Hyperion patents and that those patents were invalid.

After the verdict was read, OutlookSoft=92s legal team returned to the
local law office it had been working out of and opened some
Champagne, said the company=92s chief executive, W. Phillip Wilmington,
who attended every day of the trial in Marshall.

=93As we were going through our victory discussion, a big truck pulls
up and there goes the copier and fax machines out the door,=94 Mr.
Wilmington said. =93It disappeared just as quickly as it was set up.
I=92m sure the week following, there was someone coming in to do it all
over again.=94


---------------------------------
James Love, CPTech / www.cptech.org / mailto:james.love@cptech.org /
tel. +1.202.332.2670 / mobile +1.202.361.3040

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