WEBVTT - Small Town Texas Juries Hit Big Tech With Huge Awards

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<v Speaker 1>This is Bloomberg Law with June Brusso from Bloomberg Radio.

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<v Speaker 1>I WOA smart texts on of mind and Texas is

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<v Speaker 1>on the minds of patent holders suing big tech and

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<v Speaker 1>those Texas juries in particular during the pandemic. While most

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<v Speaker 1>courts across the country hit the pause button on jury trials,

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<v Speaker 1>Juries and three small towns in Texas have delivered seven

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<v Speaker 1>verdicts totally more than three point seven billion dollars to

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<v Speaker 1>patent holders against tech companies, among them Apple, Intel and Samsung.

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<v Speaker 1>Joining me is Bloomberg Legal reporter Laurel Culkins. Laurel of

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<v Speaker 1>all the patent cases filed in the US last year,

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<v Speaker 1>of them ended up in Texas and in three small

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<v Speaker 1>towns in Texas. Why, well, it's very interesting. It's sort

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<v Speaker 1>of a perfect storm of opportunity for the companies that

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<v Speaker 1>owned these patents. Texas has sort of long been known

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<v Speaker 1>for whopping jury verdicts, that's sort of its reputation. But

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<v Speaker 1>it has developed a subspecialty in patent law, an intellectual

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<v Speaker 1>property law in general, but patent law and specific thanks

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<v Speaker 1>to a couple of judges who are really good at it.

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<v Speaker 1>There was a judge in a little town called Marshall,

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<v Speaker 1>which is very close to the Louisiana border in East Texas,

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<v Speaker 1>and many years ago he started specializing in patent law

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<v Speaker 1>and developed what was called the Rocket Docket. He could

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<v Speaker 1>move patent cases through pretty darn fast, so people said,

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<v Speaker 1>I want my case hurt, I'm going to go there. Well,

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<v Speaker 1>the U. S. Supreme Court was actually involved in one

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<v Speaker 1>point to try to limit cases from companies all over

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<v Speaker 1>the country filing in this little courthouse in East Texas,

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<v Speaker 1>so that got dialed back a bit. But then a

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<v Speaker 1>couple of years ago, a new judge was appointed in

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<v Speaker 1>another small town in Texas called Waco, which is halfway

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<v Speaker 1>between Austin and daw Us, and he happens to be

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<v Speaker 1>an intellectual property lawyer by training, so he set up

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<v Speaker 1>his own version of the Rocket docket over in Waco,

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<v Speaker 1>and people have been flooding into it. Of patent cases

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<v Speaker 1>filed in Texas last year, all of them landed in

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<v Speaker 1>three little courthouses. All but sixty four of eight hundred

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<v Speaker 1>and fifty seven patent cases landed on Judge Albright's deaf

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<v Speaker 1>in Waco and over in Marshall, a judge named Rodney

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<v Speaker 1>Gilstrap took in two d and fifty two patent cases

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<v Speaker 1>of the filed in that district. So it's just this

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<v Speaker 1>flood of patent cases being filed in these small town courthouses.

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<v Speaker 1>And these judges decided, you know what, we're actually more

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<v Speaker 1>afraid of the backlog of these cases becoming unmanageable than

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<v Speaker 1>we're fearing COVID becoming unmanageable, because in small towns sometimes

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<v Speaker 1>they're rather isolated, and they haven't had the infection rates

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<v Speaker 1>that the big cities have had. How did two judges

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<v Speaker 1>manage that number of cases, the sheer caseload, Well, I

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<v Speaker 1>can only imagine that they of with their hair on fire.

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<v Speaker 1>They've hired staff and you know, like everybody else. Last March,

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<v Speaker 1>when COVID first want the country, they closed their courthouses too.

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<v Speaker 1>They said, you know, we're gonna do what we need

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<v Speaker 1>to do. But then as the infection rate either didn't

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<v Speaker 1>materialize or remained manageable in their jurisdictions, they said, we've

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<v Speaker 1>got to get back on it. And so Rodney guilt

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<v Speaker 1>Strap over in Marshall was one of the very first

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<v Speaker 1>to reopen his courtroom and he installed great, big plexiglass

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<v Speaker 1>shields around the jury box, and he put his plexiglass

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<v Speaker 1>walks around the witness box, and he socially distanced everybody,

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<v Speaker 1>and all the lawyers have to wear their masks, and

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<v Speaker 1>I think only the lawyers who are arguing at the

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<v Speaker 1>time can be in the courtroom. Everybody else has to

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<v Speaker 1>be in an adjacent courtroom watching on a close circuit TV.

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<v Speaker 1>So they put in a lot of safety precautions, and

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<v Speaker 1>they've been doing a lot of testings, and so they're

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<v Speaker 1>moving forward as quickly as they can. In fact, over

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<v Speaker 1>in Waco, Judge Albright seems to be on a pace

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<v Speaker 1>to hold a trial a week for as far as

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<v Speaker 1>I can see. He's got one right now under way

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<v Speaker 1>between two patent litigants. The last time they met was

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<v Speaker 1>in his courtroom a month ago, and the jury returned

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<v Speaker 1>a verdict of two point one eight billion dollars against Intel,

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<v Speaker 1>the big microchip MAX. Now, that was one of the

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<v Speaker 1>largest patent damage awards in US history. And these are

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<v Speaker 1>just eye popping numbers. You talked to your jury consultants.

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<v Speaker 1>Is there a reason why these numbers are just so high?

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<v Speaker 1>Actually there is, and it's kind of a confluence of factors.

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<v Speaker 1>The first one that the jury consultant says is undeniably true,

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<v Speaker 1>is that juries are taking their pecific responsibility definitely seriously

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<v Speaker 1>because they literally are putting their lives on the line

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<v Speaker 1>to come into the jury box. So as a result,

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<v Speaker 1>they're not putting up with any nonsense anymore. If they

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<v Speaker 1>think that a patent claim is frivolous, they're just gonna

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<v Speaker 1>pour the litigant out. And conversely, if they think that

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<v Speaker 1>the big tech implementer who has made all the products

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<v Speaker 1>using somebody else's technology, has stolen a little guy's idea,

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<v Speaker 1>they're gonna transom. They're gonna hammer them. And that's what's

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<v Speaker 1>been happening over and over again. There's another factor of

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<v Speaker 1>the jury consultants that is playing an enormous factor, and

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<v Speaker 1>it's the pandemic itself. In these large awards. The jurors

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<v Speaker 1>and earths are afraid because they've got all this pent

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<v Speaker 1>up frustration from not being able to live their lives

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<v Speaker 1>for the past year, and now they're being imposed upon

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<v Speaker 1>to way these matters, and as a result that just

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<v Speaker 1>pouring their frustration into these these jury awards. I mean,

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<v Speaker 1>look at what happened to Apple in the last seven months.

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<v Speaker 1>In Texas. Apple has gone through three jury trials and

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<v Speaker 1>all three went against them, And looking at that they

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<v Speaker 1>were facing the fourth Texas jury last month, they had

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<v Speaker 1>already picked the jury, and I guess they saw something

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<v Speaker 1>they'd like very much in that jury and they settled.

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<v Speaker 1>After seven years of unsuccessful settlement talks with the litigant,

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<v Speaker 1>they said no, we're not going to trial, and they

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<v Speaker 1>cut some kind of a deal that we don't know

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<v Speaker 1>what the terms are. Going back to Intel for a moment,

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<v Speaker 1>explain how that was just the first part of the trial.

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<v Speaker 1>This trial has actually been taking place in tranches or stages.

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<v Speaker 1>The first one happened many years ago. We're Intel was

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<v Speaker 1>determined to have actually infringed on the technology of this

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<v Speaker 1>little company that goes by its initials the l s I.

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<v Speaker 1>So the determination that they've done it was done years ago.

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<v Speaker 1>Now they've has been arguing about how much Intel ohs

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<v Speaker 1>for the various patents that were infringed. So in the

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<v Speaker 1>case that happened last month, on this one set of patents,

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<v Speaker 1>they were found to be liable for almost two point

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<v Speaker 1>two billion dollars and then the judge said, well, it

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<v Speaker 1>was just too much for one jury to wrap their

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<v Speaker 1>mind around to have all these patents presented in one case.

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<v Speaker 1>So he sliced and diced it up into three trials,

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<v Speaker 1>and the second one is ongoing now, and the third

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<v Speaker 1>one will take place in June, all of which are

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<v Speaker 1>occurring in the small town of Waco. And as the

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<v Speaker 1>jury consultant pointed out, you know these are small towns.

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<v Speaker 1>These newspaper headlines are seen by an awful lot of people.

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<v Speaker 1>The PBS talk about him, and as a result, it's

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<v Speaker 1>sort of acclimating these small town jury pools to these

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<v Speaker 1>whopping awards. He says, for better or worse, billions is

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<v Speaker 1>the new millions. In some of these venues. The judge

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<v Speaker 1>refused to move the trial or even delay it. Right,

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<v Speaker 1>he's not going to delay anything because he's got this

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<v Speaker 1>enormous ocean swell of cases behind and pushing him forward.

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<v Speaker 1>So he really is up against the clock on trying

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<v Speaker 1>to process as many as possible plus um. Most judges

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<v Speaker 1>believe that they can weed out jurors that have predetermined opinions.

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<v Speaker 1>Sometimes they're right, sometimes they're wrong. But jurors go through

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<v Speaker 1>a process of questioning before every trial known as bordar

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<v Speaker 1>or border a depending on where you're from. And uh,

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<v Speaker 1>they they sometimes kick their hand that they've made up

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<v Speaker 1>their mind, or I'll say, admit it, that they've made

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<v Speaker 1>up their mind. And then those people don't serve on

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<v Speaker 1>the jury. So the judges have a lot of faith

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<v Speaker 1>in that process, and sometimes it works and sometimes Laurel.

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<v Speaker 1>The reputations of tech companies have been tarnished in many

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<v Speaker 1>consumers eyes, what with the data breaches, privacy and antitrust concerns.

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<v Speaker 1>But the plaintiffs in these cases are not the inventors

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<v Speaker 1>of the patents. There the companies that bought the patents

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<v Speaker 1>from the inventor, so it's hard to see why the

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<v Speaker 1>jury is sympathetic to them. It's not like a big

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<v Speaker 1>corporation has ripped off the inventor or the little guy. Well,

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<v Speaker 1>that's true, and there's a term in the industry for

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<v Speaker 1>these companies that hold the patents that don't make any

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<v Speaker 1>products themselves, and they're often referred to as pet trolls,

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<v Speaker 1>which is very unflattering. As John Oliver said, it's unflattering patrols.

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<v Speaker 1>But the implication is that these people are just mining

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<v Speaker 1>the patents for the money. Well, the way they presented

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<v Speaker 1>to the jury is what makes it difference. They will

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<v Speaker 1>tell the jury, we're defending the idea of this little

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<v Speaker 1>guy inventor, this little guy inventor, or this little cluster

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<v Speaker 1>of inventors years ago came up with this fabulous innovation,

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<v Speaker 1>and these big companies just tromped all over it. And

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<v Speaker 1>if they present it that way, they're playing into sort

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<v Speaker 1>of a natural tendency of Texas juries. Texans have an

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<v Speaker 1>inclination to align themselves with the underdogs. They love it

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<v Speaker 1>when the underdog wins. They don't let people stomp around

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<v Speaker 1>on the little guy. They're not big on bullies, regardless

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<v Speaker 1>of what you might think of their politics. And as

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<v Speaker 1>a result, these juries are kind of finding themselves aligning

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<v Speaker 1>with these patent holders who don't make any products themselves,

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<v Speaker 1>against some of the biggest names in America in whose

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<v Speaker 1>products the juries used right and left. So it's it's

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<v Speaker 1>a very strange dichotomy when you think about it, But

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<v Speaker 1>it seems like, over and over again, formula is working

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<v Speaker 1>in Texas. Right now, now, I take it that sometimes

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<v Speaker 1>patent holders do lose in these Texas courts. Oh absolutely,

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<v Speaker 1>It's not a slam dunck. I don't mean to imply

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<v Speaker 1>that it is, because just in the last few months,

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<v Speaker 1>Alphabet's Google unit has defeated a patent infringement claim that

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<v Speaker 1>would have been worth hundreds of millions of dollars had

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<v Speaker 1>it succeeded, and the Roku streaming giant has defeated twice

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<v Speaker 1>now claims by so called patentrol trying to come after

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<v Speaker 1>some of their technology. So it's not a slam dunk.

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<v Speaker 1>And that's why sometimes companies are willing to roll the diet.

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<v Speaker 1>There's another one except for trial. I think in a week.

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<v Speaker 1>It's a trial between a little company called and Cora

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<v Speaker 1>and Samsung and also LG Electronics. Well a week or

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<v Speaker 1>two ago, Samsung said, you know, we're not going to

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<v Speaker 1>trial with you guys, so they settled, but LG is not,

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<v Speaker 1>So you know, we don't know what's going to happen.

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<v Speaker 1>And when we talk to one of the Bloomberg analysts

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<v Speaker 1>who tracks patents and the impact of patent on companies,

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<v Speaker 1>he told us this whole trend, this whole strain of

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<v Speaker 1>eye popping verticts is something that the big tech industry

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<v Speaker 1>needs to pay attention to. They can't ignore the fact

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<v Speaker 1>that this is going on just because they think they've

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<v Speaker 1>got smart enough lawyers to eat it. You know, some

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<v Speaker 1>of these overwhelming awards might be cut down on appeal.

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<v Speaker 1>And I take it there're gonna be a lot of

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<v Speaker 1>appeals here. Oh, absolutely. And that's what's unique to to

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<v Speaker 1>patent litigation is even though they're tried in federal court,

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<v Speaker 1>they don't flow up through the regular channels. Um. Normally, Uh,

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<v Speaker 1>federal courts in Texas flow into the Fifth Circuit Appellate

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<v Speaker 1>Court in New Orleans, and um, that's a notoriously conservative court,

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<v Speaker 1>and it's becoming harder and harder to predict what they're

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<v Speaker 1>going to do. But uh, and then up to the

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<v Speaker 1>Supreme Court. Well, now, these these litigation patent litigation claims

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<v Speaker 1>flow through the Federal Circuit in District of Columbia in

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<v Speaker 1>Washington and the capital, so they go to a different channel.

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<v Speaker 1>They go to a different set of judges that's more

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<v Speaker 1>accustomed to looking only at patent claim you know, or

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<v Speaker 1>more often at path. So, yeah, these awards often aren't

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<v Speaker 1>held up on appeal, and often they get kicked back

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<v Speaker 1>down to be retried, and sometimes they get kicked back

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<v Speaker 1>down again and again. Um, there's one. There's a couple

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<v Speaker 1>of those that went on for almost ten years between

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<v Speaker 1>Apple and a little outfit called Vernetics UM and that

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<v Speaker 1>kept going back and forth on the appellate level, and

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<v Speaker 1>within the last slightly more than a year, Vernetics has

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<v Speaker 1>twice one damages UH from Apple on the order of

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<v Speaker 1>half a billion dollars per trial. So Apple has lost

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<v Speaker 1>more than a billion dollars on those two proceedings. Even

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<v Speaker 1>though it's taken like ten years to play out, it's

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<v Speaker 1>not done yet. I mean, it's still going to go

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<v Speaker 1>back up on appeal. So the Supreme Court limiting jurisdiction,

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<v Speaker 1>that didn't help at all. It did until the new

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<v Speaker 1>judge was appointed in Waco, and so it's like when

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<v Speaker 1>you squeeze a water balloon, you squeeze one might just

0:11:54.440 --> 0:11:58.160
<v Speaker 1>gonna bulge out somewhere else. So that's the inadvertent result

0:11:58.280 --> 0:12:00.840
<v Speaker 1>is that a patent attorney took over the benche in Waco,

0:12:01.120 --> 0:12:03.920
<v Speaker 1>and so everybody ran there. And I don't know whether

0:12:03.960 --> 0:12:06.200
<v Speaker 1>somebody is going to ask the Supreme Court to once

0:12:06.240 --> 0:12:08.960
<v Speaker 1>again look at whether limitations need to be drawn. The

0:12:09.000 --> 0:12:12.720
<v Speaker 1>biggest problem is the way they restricted the filings in

0:12:12.840 --> 0:12:15.880
<v Speaker 1>marshall Over in East Texas. Was the Supreme court said

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<v Speaker 1>that in order to drag a big tech company to

0:12:18.800 --> 0:12:21.920
<v Speaker 1>court there, the big tech company has to have some

0:12:22.040 --> 0:12:26.000
<v Speaker 1>kind of operational or commercial footprint within the district. And

0:12:26.080 --> 0:12:28.520
<v Speaker 1>since it's not a huge employment center, not a huge

0:12:28.559 --> 0:12:31.520
<v Speaker 1>manufacturing base or retail base, a lot of companies could

0:12:31.600 --> 0:12:34.240
<v Speaker 1>escape trial there on that basis. All the problem is

0:12:34.760 --> 0:12:37.760
<v Speaker 1>Waco is drawn into the same district as Austin, and

0:12:37.760 --> 0:12:40.319
<v Speaker 1>that you've probably seen the headlines of all the technology

0:12:40.360 --> 0:12:45.240
<v Speaker 1>companies relocating to Austin or beefing up their operations and Austen. Well,

0:12:45.520 --> 0:12:49.800
<v Speaker 1>the side benefit of that are unfortunate. Side benefit is

0:12:49.920 --> 0:12:53.120
<v Speaker 1>that exposes them to litigation in Waco because Waco is

0:12:53.160 --> 0:12:55.160
<v Speaker 1>in the same district. I'm not sure how they're going

0:12:55.240 --> 0:12:57.440
<v Speaker 1>to draw the lines to limit this from happening. Now,

0:12:57.679 --> 0:13:00.080
<v Speaker 1>the first maneuver worked, I don't know how to to

0:13:00.120 --> 0:13:02.120
<v Speaker 1>make a second maneuver that would have the same result.

0:13:02.840 --> 0:13:06.559
<v Speaker 1>It's like an industry in these towns, the patent litigation industry.

0:13:07.080 --> 0:13:09.839
<v Speaker 1>Oh absolutely. And I've often wondered, if like you went

0:13:09.840 --> 0:13:12.520
<v Speaker 1>and set down in the courthouse cafe or something, or

0:13:12.559 --> 0:13:15.400
<v Speaker 1>in the small cafe on the courthouse square, whether you

0:13:15.440 --> 0:13:18.679
<v Speaker 1>could talk arcane patent litigation with whoever was sitting at

0:13:18.679 --> 0:13:21.040
<v Speaker 1>the table next to you. I mean, exactly how much

0:13:21.080 --> 0:13:24.280
<v Speaker 1>does the jury pool start to become educated about patent law.

0:13:24.480 --> 0:13:28.040
<v Speaker 1>It's an amazing thing that these small towns with these

0:13:28.320 --> 0:13:30.000
<v Speaker 1>you know, a lot of them are blue collar people,

0:13:30.120 --> 0:13:33.200
<v Speaker 1>just average bedrock Americans who are sitting and listening to

0:13:33.280 --> 0:13:38.640
<v Speaker 1>these highly technical definitions and explanations of routers and microchips

0:13:38.640 --> 0:13:41.400
<v Speaker 1>and software that does this or that. And it's amazing

0:13:41.440 --> 0:13:43.280
<v Speaker 1>that it's all happening in these little small towns. And

0:13:43.280 --> 0:13:46.160
<v Speaker 1>then the outcome are these enormous verdicts. But that's why

0:13:46.200 --> 0:13:48.120
<v Speaker 1>we decided it needed to be written about, because it

0:13:48.160 --> 0:13:50.720
<v Speaker 1>was pretty unusual that lightning seems to keep striking again

0:13:50.720 --> 0:13:54.680
<v Speaker 1>and again. Thanks Laurel. That's Bloomberg Legal reporter Laurel Culkins,

0:13:55.000 --> 0:13:57.240
<v Speaker 1>and that's it for this edition of the Bloomberg Law Show.

0:13:57.520 --> 0:13:59.920
<v Speaker 1>I'm June Grosso, and you're listening to Bloomberg