Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 1: I WOA smart texts on of mind and Texas is
Speaker 1: on the minds of patent holders suing big tech and
Speaker 1: those Texas juries in particular during the pandemic. While most
Speaker 1: courts across the country hit the pause button on jury trials,
Speaker 1: Juries and three small towns in Texas have delivered seven
Speaker 1: verdicts totally more than three point seven billion dollars to
Speaker 1: patent holders against tech companies, among them Apple, Intel and Samsung.
Speaker 1: Joining me is Bloomberg Legal reporter Laurel Culkins. Laurel of
Speaker 1: all the patent cases filed in the US last year,
Speaker 1: of them ended up in Texas and in three small
Speaker 1: towns in Texas. Why, well, it's very interesting. It's sort
Speaker 1: of a perfect storm of opportunity for the companies that
Speaker 1: owned these patents. Texas has sort of long been known
Speaker 1: for whopping jury verdicts, that's sort of its reputation. But
Speaker 1: it has developed a subspecialty in patent law, an intellectual
Speaker 1: property law in general, but patent law and specific thanks
Speaker 1: to a couple of judges who are really good at it.
Speaker 1: There was a judge in a little town called Marshall,
Speaker 1: which is very close to the Louisiana border in East Texas,
Speaker 1: and many years ago he started specializing in patent law
Speaker 1: and developed what was called the Rocket Docket. He could
Speaker 1: move patent cases through pretty darn fast, so people said,
Speaker 1: I want my case hurt, I'm going to go there. Well,
Speaker 1: the U. S. Supreme Court was actually involved in one
Speaker 1: point to try to limit cases from companies all over
Speaker 1: the country filing in this little courthouse in East Texas,
Speaker 1: so that got dialed back a bit. But then a
Speaker 1: couple of years ago, a new judge was appointed in
Speaker 1: another small town in Texas called Waco, which is halfway
Speaker 1: between Austin and daw Us, and he happens to be
Speaker 1: an intellectual property lawyer by training, so he set up
Speaker 1: his own version of the Rocket docket over in Waco,
Speaker 1: and people have been flooding into it. Of patent cases
Speaker 1: filed in Texas last year, all of them landed in
Speaker 1: three little courthouses. All but sixty four of eight hundred
Speaker 1: and fifty seven patent cases landed on Judge Albright's deaf
Speaker 1: in Waco and over in Marshall, a judge named Rodney
Speaker 1: Gilstrap took in two d and fifty two patent cases
Speaker 1: of the filed in that district. So it's just this
Speaker 1: flood of patent cases being filed in these small town courthouses.
Speaker 1: And these judges decided, you know what, we're actually more
Speaker 1: afraid of the backlog of these cases becoming unmanageable than
Speaker 1: we're fearing COVID becoming unmanageable, because in small towns sometimes
Speaker 1: they're rather isolated, and they haven't had the infection rates
Speaker 1: that the big cities have had. How did two judges
Speaker 1: manage that number of cases, the sheer caseload, Well, I
Speaker 1: can only imagine that they of with their hair on fire.
Speaker 1: They've hired staff and you know, like everybody else. Last March,
Speaker 1: when COVID first want the country, they closed their courthouses too.
Speaker 1: They said, you know, we're gonna do what we need
Speaker 1: to do. But then as the infection rate either didn't
Speaker 1: materialize or remained manageable in their jurisdictions, they said, we've
Speaker 1: got to get back on it. And so Rodney guilt
Speaker 1: Strap over in Marshall was one of the very first
Speaker 1: to reopen his courtroom and he installed great, big plexiglass
Speaker 1: shields around the jury box, and he put his plexiglass
Speaker 1: walks around the witness box, and he socially distanced everybody,
Speaker 1: and all the lawyers have to wear their masks, and
Speaker 1: I think only the lawyers who are arguing at the
Speaker 1: time can be in the courtroom. Everybody else has to
Speaker 1: be in an adjacent courtroom watching on a close circuit TV.
Speaker 1: So they put in a lot of safety precautions, and
Speaker 1: they've been doing a lot of testings, and so they're
Speaker 1: moving forward as quickly as they can. In fact, over
Speaker 1: in Waco, Judge Albright seems to be on a pace
Speaker 1: to hold a trial a week for as far as
Speaker 1: I can see. He's got one right now under way
Speaker 1: between two patent litigants. The last time they met was
Speaker 1: in his courtroom a month ago, and the jury returned
Speaker 1: a verdict of two point one eight billion dollars against Intel,
Speaker 1: the big microchip MAX. Now, that was one of the
Speaker 1: largest patent damage awards in US history. And these are
Speaker 1: just eye popping numbers. You talked to your jury consultants.
Speaker 1: Is there a reason why these numbers are just so high?
Speaker 1: Actually there is, and it's kind of a confluence of factors.
Speaker 1: The first one that the jury consultant says is undeniably true,
Speaker 1: is that juries are taking their pecific responsibility definitely seriously
Speaker 1: because they literally are putting their lives on the line
Speaker 1: to come into the jury box. So as a result,
Speaker 1: they're not putting up with any nonsense anymore. If they
Speaker 1: think that a patent claim is frivolous, they're just gonna
Speaker 1: pour the litigant out. And conversely, if they think that
Speaker 1: the big tech implementer who has made all the products
Speaker 1: using somebody else's technology, has stolen a little guy's idea,
Speaker 1: they're gonna transom. They're gonna hammer them. And that's what's
Speaker 1: been happening over and over again. There's another factor of
Speaker 1: the jury consultants that is playing an enormous factor, and
Speaker 1: it's the pandemic itself. In these large awards. The jurors
Speaker 1: and earths are afraid because they've got all this pent
Speaker 1: up frustration from not being able to live their lives
Speaker 1: for the past year, and now they're being imposed upon
Speaker 1: to way these matters, and as a result that just
Speaker 1: pouring their frustration into these these jury awards. I mean,
Speaker 1: look at what happened to Apple in the last seven months.
Speaker 1: In Texas. Apple has gone through three jury trials and
Speaker 1: all three went against them, And looking at that they
Speaker 1: were facing the fourth Texas jury last month, they had
Speaker 1: already picked the jury, and I guess they saw something
Speaker 1: they'd like very much in that jury and they settled.
Speaker 1: After seven years of unsuccessful settlement talks with the litigant,
Speaker 1: they said no, we're not going to trial, and they
Speaker 1: cut some kind of a deal that we don't know
Speaker 1: what the terms are. Going back to Intel for a moment,
Speaker 1: explain how that was just the first part of the trial.
Speaker 1: This trial has actually been taking place in tranches or stages.
Speaker 1: The first one happened many years ago. We're Intel was
Speaker 1: determined to have actually infringed on the technology of this
Speaker 1: little company that goes by its initials the l s I.
Speaker 1: So the determination that they've done it was done years ago.
Speaker 1: Now they've has been arguing about how much Intel ohs
Speaker 1: for the various patents that were infringed. So in the
Speaker 1: case that happened last month, on this one set of patents,
Speaker 1: they were found to be liable for almost two point
Speaker 1: two billion dollars and then the judge said, well, it
Speaker 1: was just too much for one jury to wrap their
Speaker 1: mind around to have all these patents presented in one case.
Speaker 1: So he sliced and diced it up into three trials,
Speaker 1: and the second one is ongoing now, and the third
Speaker 1: one will take place in June, all of which are
Speaker 1: occurring in the small town of Waco. And as the
Speaker 1: jury consultant pointed out, you know these are small towns.
Speaker 1: These newspaper headlines are seen by an awful lot of people.
Speaker 1: The PBS talk about him, and as a result, it's
Speaker 1: sort of acclimating these small town jury pools to these
Speaker 1: whopping awards. He says, for better or worse, billions is
Speaker 1: the new millions. In some of these venues. The judge
Speaker 1: refused to move the trial or even delay it. Right,
Speaker 1: he's not going to delay anything because he's got this
Speaker 1: enormous ocean swell of cases behind and pushing him forward.
Speaker 1: So he really is up against the clock on trying
Speaker 1: to process as many as possible plus um. Most judges
Speaker 1: believe that they can weed out jurors that have predetermined opinions.
Speaker 1: Sometimes they're right, sometimes they're wrong. But jurors go through
Speaker 1: a process of questioning before every trial known as bordar
Speaker 1: or border a depending on where you're from. And uh,
Speaker 1: they they sometimes kick their hand that they've made up
Speaker 1: their mind, or I'll say, admit it, that they've made
Speaker 1: up their mind. And then those people don't serve on
Speaker 1: the jury. So the judges have a lot of faith
Speaker 1: in that process, and sometimes it works and sometimes Laurel.
Speaker 1: The reputations of tech companies have been tarnished in many
Speaker 1: consumers eyes, what with the data breaches, privacy and antitrust concerns.
Speaker 1: But the plaintiffs in these cases are not the inventors
Speaker 1: of the patents. There the companies that bought the patents
Speaker 1: from the inventor, so it's hard to see why the
Speaker 1: jury is sympathetic to them. It's not like a big
Speaker 1: corporation has ripped off the inventor or the little guy. Well,
Speaker 1: that's true, and there's a term in the industry for
Speaker 1: these companies that hold the patents that don't make any
Speaker 1: products themselves, and they're often referred to as pet trolls,
Speaker 1: which is very unflattering. As John Oliver said, it's unflattering patrols.
Speaker 1: But the implication is that these people are just mining
Speaker 1: the patents for the money. Well, the way they presented
Speaker 1: to the jury is what makes it difference. They will
Speaker 1: tell the jury, we're defending the idea of this little
Speaker 1: guy inventor, this little guy inventor, or this little cluster
Speaker 1: of inventors years ago came up with this fabulous innovation,
Speaker 1: and these big companies just tromped all over it. And
Speaker 1: if they present it that way, they're playing into sort
Speaker 1: of a natural tendency of Texas juries. Texans have an
Speaker 1: inclination to align themselves with the underdogs. They love it
Speaker 1: when the underdog wins. They don't let people stomp around
Speaker 1: on the little guy. They're not big on bullies, regardless
Speaker 1: of what you might think of their politics. And as
Speaker 1: a result, these juries are kind of finding themselves aligning
Speaker 1: with these patent holders who don't make any products themselves,
Speaker 1: against some of the biggest names in America in whose
Speaker 1: products the juries used right and left. So it's it's
Speaker 1: a very strange dichotomy when you think about it, But
Speaker 1: it seems like, over and over again, formula is working
Speaker 1: in Texas. Right now, now, I take it that sometimes
Speaker 1: patent holders do lose in these Texas courts. Oh absolutely,
Speaker 1: It's not a slam dunck. I don't mean to imply
Speaker 1: that it is, because just in the last few months,
Speaker 1: Alphabet's Google unit has defeated a patent infringement claim that
Speaker 1: would have been worth hundreds of millions of dollars had
Speaker 1: it succeeded, and the Roku streaming giant has defeated twice
Speaker 1: now claims by so called patentrol trying to come after
Speaker 1: some of their technology. So it's not a slam dunk.
Speaker 1: And that's why sometimes companies are willing to roll the diet.
Speaker 1: There's another one except for trial. I think in a week.
Speaker 1: It's a trial between a little company called and Cora
Speaker 1: and Samsung and also LG Electronics. Well a week or
Speaker 1: two ago, Samsung said, you know, we're not going to
Speaker 1: trial with you guys, so they settled, but LG is not,
Speaker 1: So you know, we don't know what's going to happen.
Speaker 1: And when we talk to one of the Bloomberg analysts
Speaker 1: who tracks patents and the impact of patent on companies,
Speaker 1: he told us this whole trend, this whole strain of
Speaker 1: eye popping verticts is something that the big tech industry
Speaker 1: needs to pay attention to. They can't ignore the fact
Speaker 1: that this is going on just because they think they've
Speaker 1: got smart enough lawyers to eat it. You know, some
Speaker 1: of these overwhelming awards might be cut down on appeal.
Speaker 1: And I take it there're gonna be a lot of
Speaker 1: appeals here. Oh, absolutely. And that's what's unique to to
Speaker 1: patent litigation is even though they're tried in federal court,
Speaker 1: they don't flow up through the regular channels. Um. Normally, Uh,
Speaker 1: federal courts in Texas flow into the Fifth Circuit Appellate
Speaker 1: Court in New Orleans, and um, that's a notoriously conservative court,
Speaker 1: and it's becoming harder and harder to predict what they're
Speaker 1: going to do. But uh, and then up to the
Speaker 1: Supreme Court. Well, now, these these litigation patent litigation claims
Speaker 1: flow through the Federal Circuit in District of Columbia in
Speaker 1: Washington and the capital, so they go to a different channel.
Speaker 1: They go to a different set of judges that's more
Speaker 1: accustomed to looking only at patent claim you know, or
Speaker 1: more often at path. So, yeah, these awards often aren't
Speaker 1: held up on appeal, and often they get kicked back
Speaker 1: down to be retried, and sometimes they get kicked back
Speaker 1: down again and again. Um, there's one. There's a couple
Speaker 1: of those that went on for almost ten years between
Speaker 1: Apple and a little outfit called Vernetics UM and that
Speaker 1: kept going back and forth on the appellate level, and
Speaker 1: within the last slightly more than a year, Vernetics has
Speaker 1: twice one damages UH from Apple on the order of
Speaker 1: half a billion dollars per trial. So Apple has lost
Speaker 1: more than a billion dollars on those two proceedings. Even
Speaker 1: though it's taken like ten years to play out, it's
Speaker 1: not done yet. I mean, it's still going to go
Speaker 1: back up on appeal. So the Supreme Court limiting jurisdiction,
Speaker 1: that didn't help at all. It did until the new
Speaker 1: judge was appointed in Waco, and so it's like when
Speaker 1: you squeeze a water balloon, you squeeze one might just
Speaker 1: gonna bulge out somewhere else. So that's the inadvertent result
Speaker 1: is that a patent attorney took over the benche in Waco,
Speaker 1: and so everybody ran there. And I don't know whether
Speaker 1: somebody is going to ask the Supreme Court to once
Speaker 1: again look at whether limitations need to be drawn. The
Speaker 1: biggest problem is the way they restricted the filings in
Speaker 1: marshall Over in East Texas. Was the Supreme court said
Speaker 1: that in order to drag a big tech company to
Speaker 1: court there, the big tech company has to have some
Speaker 1: kind of operational or commercial footprint within the district. And
Speaker 1: since it's not a huge employment center, not a huge
Speaker 1: manufacturing base or retail base, a lot of companies could
Speaker 1: escape trial there on that basis. All the problem is
Speaker 1: Waco is drawn into the same district as Austin, and
Speaker 1: that you've probably seen the headlines of all the technology
Speaker 1: companies relocating to Austin or beefing up their operations and Austen. Well,
Speaker 1: the side benefit of that are unfortunate. Side benefit is
Speaker 1: that exposes them to litigation in Waco because Waco is
Speaker 1: in the same district. I'm not sure how they're going
Speaker 1: to draw the lines to limit this from happening. Now,
Speaker 1: the first maneuver worked, I don't know how to to
Speaker 1: make a second maneuver that would have the same result.
Speaker 1: It's like an industry in these towns, the patent litigation industry.
Speaker 1: Oh absolutely. And I've often wondered, if like you went
Speaker 1: and set down in the courthouse cafe or something, or
Speaker 1: in the small cafe on the courthouse square, whether you
Speaker 1: could talk arcane patent litigation with whoever was sitting at
Speaker 1: the table next to you. I mean, exactly how much
Speaker 1: does the jury pool start to become educated about patent law.
Speaker 1: It's an amazing thing that these small towns with these
Speaker 1: you know, a lot of them are blue collar people,
Speaker 1: just average bedrock Americans who are sitting and listening to
Speaker 1: these highly technical definitions and explanations of routers and microchips
Speaker 1: and software that does this or that. And it's amazing
Speaker 1: that it's all happening in these little small towns. And
Speaker 1: then the outcome are these enormous verdicts. But that's why
Speaker 1: we decided it needed to be written about, because it
Speaker 1: was pretty unusual that lightning seems to keep striking again
Speaker 1: and again. Thanks Laurel. That's Bloomberg Legal reporter Laurel Culkins,
Speaker 1: and that's it for this edition of the Bloomberg Law Show.
Speaker 1: I'm June Grosso, and you're listening to Bloomberg