By Roy Strom
Dave Donoghue initially rebuffed his wife, a patent litigator like himself, when she suggested six years ago that he write a blog about patent lawsuits in Chicago's federal district.
"'That's crazy,' I said. 'Who reads blogs?'" Donoghue, now a partner at Holland & Knight, said to his wife, Laura, in 2006.
"She said, 'my entire group does.' And I said, 'clearly you're all idiots, although I know you're not.'"
But today, it turns out blogs about patent litigation hold a large, loyal following on the Web.
One blog, IPWatchdog.com, even went so far as to rank 38 patent blogs in 2011 using Google's popularity formula.
Donoghue's 6-year-old blog, chicagoiplitigation.com, registered No. 16 on that list. He reads and writes about patent lawsuit filings and rulings as they come through the Northern District of Illinois.
It keeps him occupied: One of the five busiest districts for patent suits in the country, the Northern District of Illinois saw 229 cases filed last year, court data says.
"Being a Top 5 patent district, I think it's got an important voice in enacting the law," Donoghue said. "And so I thought it was valuable to talk about the trends and understand what was happening on a macro level."
He writes at a poignant time in the history of Chicago's patent court. He saw the Northern District of Illinois enact a sweeping overhaul of its patent litigation rules in 2009 that in part led to a 36 percent jump in filings in 2010.
On a more macro level, President Barack Obama signed the Leahy-Smith America Invents Act last year, a wide-ranging patent reform bill that took years of political back-and-forth to pass. And, the sheer rate of growth in the number of patents in recent years shows their increasing importance to the nation's economy.
Seventy-five years passed between when the first numbered patent issued in 1836 and patent No. 1,000,000 found its way out of the U.S. Patent and Trademark Office (USPTO) in 1911. It took less than one-tenth of that time — seven years — to go from 6 million patents in 1999 to 7 million in 2006.
Five years later, the 8 millionth patent got issued on Aug. 16 of last year, the USPTO says.
But questions exist as patents become an increasingly prevalent and important part of the U.S. economy. Patent attorneys, professors and some judges question whether the nation's patent system needs additional changes just one year after its biggest reform in decades.
This article launches a series that will appear first in Chicago Lawyer and then in Chicago Daily Law Bulletin , which will look at the U.S. patent system one year after it saw major reform with the passing of the America Invents Act (AIA) in 2011.
This article examines how individual courts developed reputations for favoring certain sides in patent infringement lawsuits, causing these suits to matriculate to certain courts. Lawyers interviewed said AIA did little to spread lawsuits more evenly among the courts.
Meanwhile, the number of cases filed in Illinois' Northern District grew in recent years, thanks in part to a set of rules making litigation costs more predictable for plaintiffs and defense attorneys as well as a program designed to make judges more experienced and comfortable with patent litigation.
Brad Lyerla, a partner and intellectual property litigator at Jenner & Block, said courts view patents as a way to strike a balance between rewarding innovation and encouraging competition.
"It's a delicate balance," he said. "And in the past 20 years, it has been nudged way, way, way in the direction of pro-patent."
After patent rights steadily grew stronger in the past two decades — possibly peaking with a glut of lawsuits in a small East Texas town — evidence exists that the pendulum might be swinging the other way, Lyerla said.
"I love our court system. I think America has the best courts in the world," he said. "But that doesn't mean we shouldn't keep working on the problems. And I think this is a problem. We're talking about a whole series of problems."
As the number of patents increased, unsurprisingly, so did the number of disputes over them.
The most patent lawsuits ever filed in a single year came in 2004, when 3,075 cases made their way to courts. In the past 20 years, patent cases grew from about 1,100 in 1991 to 2,892 in 2010, says an October 2011 report by PricewaterhouseCoopers.
But a host of characteristics unique to patent litigation, like the ability to file a case in almost any district, made the growth of filings uneven among the federal courts tasked with handling the caseload, said David Schwartz, a professor at IIT Chicago-Kent College of Law.
Each federal court developed its own way of handling patent trials and each district heard its own appeals. Eventually, the differences in procedure and appellate decisions grew so vast that it seemed as if each court used its own set of laws, Schwartz said.
Lawyers, then, filed cases in courts where the interpretation of the law favored their case, he said, calling it "forum shopping."
"People would forum shop all the time," Schwartz said. "It was almost the single biggest determinant of a case."
After all patent appeals got directed to the U.S. Court of Appeals for the Federal Circuit in 1982, the concern over differing legal interpretation went away, Schwartz said. Every court now went to the same place to answer questions on legal interpretations.
But forum shopping stayed put.
"I think there's still clearly forum shopping going on," said Mark Lemley, a Stanford University Law School professor. "The parties clearly do seem to think it matters, and I think there's some evidence they're right."
Lemley, who wrote a 2010 study on forum shopping called "Where to File Your Patent Case," said the best example occurs in a small town in East Texas.
Marshall, Texas, a shrinking town 20 miles west of the Louisiana border, listed 23,523 residents in 2010.
Despite eastern Texas' remoteness and virtually indiscernible role in innovation, about 24 percent — 3,562 — of all defendants named in U.S. patent lawsuits in 2011 got sued in the Eastern District of Texas, made up of courts in Marshall and similar towns surrounding it, says a study released in March by James Pistorino, a Palo Alto, Calif.-based Perkins Coie lawyer, and Susan Crane, a Los Gatos, Calif.-based attorney.
The Northern District of Illinois saw the fourth most defendants sued in 2011 with 814, the study by Pistorino and Crane says.
"It's a troublesome thing for society only to the extent that it suggests that the kind of justice you get depends on where you are," Lemley said.
"In an ideal world it wouldn't matter whether you filed your case in the District of Delaware, or the Northern District of California, or the District of Nebraska."
But not all parties agreed with that interpretation.
Chief U.S. District Judge James F. Holderman of the Northern District of Illinois, said, "I am unaware of any forum shopping" and also said the phrase holds a negative connotation as it implies different judges or courts levy different types of justice.
Paul Vickrey, a partner at Niro, Haller & Niro, who typically represents plaintiffs in patent cases, said it makes sense to understand the courts' differences when given the option to file a lawsuit in multiple courts — which, due to the liberal jurisdiction rules in patent cases, happens often.
"Let's say I have two, three or four possible venues I could choose from, you have to have a rationale behind your choice," he said. "And the existence of some degree of certainty, or a predictable process that is fair to both sides, could well mean the difference."
What's in a district?
Lyerla, from Jenner & Block, said patent holders that file lawsuits but make no products, called nonpracticing entities (NPEs), or "patent trolls," view the cost to litigate in a particular court as the most important factor when choosing where to file a lawsuit.
The higher the costs for the defense compared to those of the plaintiff — what he calls the delta — the more likely the defense will settle the case instead of challenging the plaintiff, he said.
"The plaintiff is available to say, 'Don't spend that delta on your lawyer, spend that on me,' " Lyerla said.
"The economic effect is that plaintiffs think that they can get higher settlements in (the Eastern District of) Texas and Delaware, just because it's more expensive to litigate there," he said.
Lemley's 2010 study says plaintiffs, in general, look for three things when choosing a court: A high win rate for plaintiffs; the ability to make it to a jury trial (juries typically side in a plaintiff's favor more often than a judge); and fast proceedings, which limit plaintiff's costs.
Defense attorneys, on the other hand, generally look for the opposite if they attempt to move a case to a new court: "A forum that is unlikely to send cases to jury trial, that regularly rules for defendants and that takes a long time to do both," Lemley's study says.
The Northern District of Texas saw the highest win rate for plaintiffs, 55 percent, in Lemley's study of patent cases between 2000 and 2010. Plaintiffs fared sixth-best in East Texas, winning 40 percent of cases. The Northern District of Illinois ranked No. 12, with plaintiffs winning 33 percent of the time.
As for making it to trial, the Eastern District of Texas came in second, with 8 percent of cases going to trial, behind the District of Delaware's 12 percent clip, Lemley's study says. The Northern District of Illinois came in at No. 23 with a mere 1.6 percent of cases going to trial.
East Texas and the District of Delaware ranked first and second in the number of patent lawsuits filed in 2011, the Pistorino and Crane study says.
Earlier versions of AIA featured provisions aimed at making it harder for plaintiffs to pick their venue, said Brent Hawkins, a McDermott, Will & Emery partner who focuses his practice on intellectual property litigation, counseling and procurement.
The bill that passed, though, left out those provisions, Hawkins said.
Instead, it sought to raise costs for plaintiffs and reduce incentives for lawsuits brought by NPEs through a provision limiting joinders, Hawkins said.
"I don't think it's had the impact" of limiting NPE lawsuits, he said.
"Having the joinder provision without the venue provision is not effective for the purpose of reducing the number of NPE actions for sure. In fact, it's done the opposite."
Rather than filing one lawsuit with multiple defendants, plaintiffs now must file those lawsuits separately in the same district, he said.
The Pistorino and Crane study, which compares filings pre- and post-passing of AIA, says that occurred.
Before AIA passed in September 2011, the District of Delaware set a pace to receive 395 cases over a full year. After the bill passed, the annualized rate of cases jumped to 696, the study says.
AIA may limit some but not all types of patent troll lawsuits, said Adam Kelly, a patent litigator and partner at Loeb & Loeb.
"Your garden variety patent troll could not maintain eight separate lawsuits against eight separate defendants in eight separate district courts," he said.
But plaintiff's lawyers working under a contingency fee could see the increased costs as part of doing business, Kelly said.
Northern District grows for other reasons
(From left to right) Dean Monco, Allan Sternstein, and Edward Manzo helped write a set of rules that govern Chicago's patent court. The Northern District of Illinois saw 37 percent more patent cases in 2010, the year after passing those rules and another 15 percent jump in 2011.
Photo by Ben Speckmann.
Because plaintiffs can still file a patent lawsuit almost anywhere, it might be assumed that the Northern District of Illinois' recent growth in cases — it received an all-time high of 229 last year and was on pace for 250 in 2012 at the end of June — owes to the court somehow turning more plaintiff-friendly.
But all the lawyers and judges interviewed for this article said they attribute other reasons for the growth. They ascribed the court's growth to its increasing predictability, thanks to a set of rules dictating the timeline of litigation and a bench of tech-savvy judges.
Holderman said when he became chief judge of the Northern District of Illinois in 2006 he advocated for local patent rules, which dictate the procedures for patent litigation in his courts.
Those local patent rules got put into place in October 2009, and fit in with his role of providing justice in the most efficient and fairest manner possible, he said.
Local rules, which can impact pored-over statistics like time-to-trial or win percentage, can act as another lens as plaintiffs and defense lawyers perceive which party a court's process favors, said Kelly, from Loeb & Loeb.
"I think the Northern District in Illinois strikes a fair balance," he said. "I would characterize the rules here as neutral."
For instance, local patent rules create timetables for litigation. In general, as the timetable shortens the rules become more favorable to plaintiffs. Extreme examples of short timetables become known as "rocket dockets," lawyers said.
Patent cases, on average, took about four years from filing-to-trial in the Northern District of Illinois prior to its rules getting passed, says a 2009 paper by Judge Matthew F. Kennelly and Edward D. Manzo, two members of an Intellectual Property Law Association of Chicago (IPLAC) committee that wrote the local patent rules.
The rules now say a case should be ready for trial about two years — 102 weeks — after the complaint gets filed.
As a comparison, one court considered a rocket docket, the Western District of Wisconsin, resolved its cases on average in about 29 weeks, Lemley's study says.
"We didn't try to become the fastest jurisdiction in the country," said Manzo, a partner at Husch Blackwell. "Twenty-nine weeks is really remarkable, but I'm doggone sure that we didn't want to press our judges to get cases ready in 29 weeks."
Vickrey, from Niro, Haller & Niro who was also involved in drafting the rules, said the rules provide a more dependable timeline for when a case will make it to trial.
"Before the rules, filing a case in the Northern District was problematic, because every judge approached time to trial differently. It was all over the map," Vickrey said.
Holderman said he agreed that Chicago's district court falls in the middle of the pack for the time it takes to reach a trial, as it does for most of the other statistics Lemley studied.
Attorneys who handle patent cases and participated in writing the local patent rules said the rules strike a fair balance.
"I think that the adoption of the local patent rules has made the Northern District a more attractive venue for patent cases," Vickrey, a plaintiff's lawyer, said.
"My firm now prefers to file in Chicago where we do have the option."
Allan Sternstein, a member at Dykema, who represents both plaintiffs and defendants in patent litigation, served as chairman of the IPLAC committee that wrote the rules.
The faster litigation process the rules create mightgenerally benefit plaintiffs, but the committee countered that with things that might benefit a defendant, Sternstein said.
For instance, he said the rules limit the amount of discovery a plaintiff can request of a large corporation before the plaintiff specifically states what infringes its patents. Before, he said small plaintiffs could impose huge costs on big corporations by making vague claims of infringement and then asking for "mountains and mountains of documents" from the defendant.
Local lawyers said another reason for Chicago's increasing role in patent litigation comes from a 10-year pilot program aimed at making judges more proficient in handling patent cases. That program started in September 2011.
Under the Patent Pilot Program, any nonparticipating judge who receives a patent case can reassign it to a judge who chooses to take part in the program. Originally, 10 judges signed up, the court said.
The hopeful outcome of the program — judges more interested in and accustomed to the complexities of patent litigation — could help both plaintiffs and defendants, said Lemley, the Stanford professor.
"As between a judge who says they don't want these cases, and a judge who has expressed interest in them, I think I'd rather be in front of the judge who's interested in hearing what I wanted to talk about," Lemley said.
"But I could imagine some plaintiffs might benefit from the sort of lack of knowledge of a judge who didn't have experience, especially if their case was weak."
Kennelly, who participates in the Patent Pilot Project, said the project and the local rules that he helped draft did not seek to increase the number of cases tried here or to benefit one side versus the other.
Instead, he said they help reduce the cost, a factor of time and uncertainty, which rises with the number of judges in a district, related to filing a case in the Northern District of Illinois, one of the larger districts with a high number of patent cases.
"And I think it's worked," Kennelly said. "My sense is that things are moving more expeditiously, which ought to reduce in some way the overall expense."
Small signs of change
Lyerla, from Jenner & Block, said one of the most glaring examples that patent litigation statutes need some amount of normalcy from court-to-court comes from "an insane reversal rate compared to any other thing in law."
He referred to a study done by Schwartz, from IIT Chicago-Kent, which found the U.S. Court of Appeals for the Federal Circuit overturns about 30 to 40 percent of Markman rulings appealed in a patent case.
A Markman ruling essentially defines what the patent means, Schwartz said.
"I think that it is clearly the most or one of the most important issues in patent cases," Schwartz said. "It's almost always disputed what the patent means and it's frequently dispositive of the whole case."
The high reversal rate, Lyerla said, stems from two fundamentally different approaches judges take to Markman rulings.
Some judges use the actual words of the patent to define itwhile others seemingly go in reverse — looking at the invention itself to give meaning to the patent's words, Lyerla says in an article titled "Understand the Two Approaches to Claim Construction," which appeared in Managing Intellectual Property magazine's November 2011 issue.
"Neither approach has gained sway over the other — and that is the problem," Lyerla says in his article, adding that policymakers could resolve it by simply choosing a preferred method.
The root of the Markman problem, like the root of forum shopping, stems from different judges and courts taking different approaches.
Some recent evidence, Lyerla said, suggests the Court of Appeals for the Federal Circuit recently seems more willing to ensure courts take a uniform approach.
For instance, since 2008, the Federal Circuit issued 11 writs of mandamus to the Eastern District of Texas demanding its judges follow rules relating to transferring cases from its docket that simply don't belong, the Pistorino and Crane study says.
"There is some pushback now coming from a variety of different sources toward making the practice with respect to (transferring cases) more uniform across the various district courts," Lyerla said.
Dean Monco, a partner at Wood Phillips involved in the Northern District of Illinois' rule-writing process, said "the goal would obviously be" to create a more even distribution of cases that related more to the litigants' location than court characteristics.
Kennelly, for his part, said he disagreed with the notion that district courts need or could receive a formalized set of rules from the Federal Circuit.
"Everything, whether it's better or worse, you have to ask, 'As compared to what?' " Kennelly said.
"And as compared to before, (the Northern District of Illinois) had 46 procedures, now we've got one. OK, maybe it's not perfect that we're different than other districts, but it's better than it was before and better than the only other likely outcome."