Texas Patent Litigation Monthly Wrap-Up: October 2021

This post summarizes some of the significant developments related to patent litigation in federal district courts of Texas for the month of October 2021.

A. Texas courts facing pushback on multiple fronts.

1. The Restoring the America Invents Act

On September 29, 2021, Senators Patrick Leahy (D) and John Cornyn (R) introduced the Restoring the America Invents Act (RAIA). On its face, the bill seeks to amend Patent Trial and Appeal Board (PTAB) procedures. Restoring the America Invents Act, S.2891, 117th Cong. (2021), at §2. The bill would appear to make it easier for Defendants to challenge patents using Inter Partes Review (IPR). Id. However, the timing of the bill, and some of the specific provisions, suggest that it is, at least in part, a response to developments in the Western and Eastern Districts of Texas. In particular, the RAIA has two provisions that directly address complaints raised by Defendants when seeking PTAB review of patents asserted in litigation in those courts.

The first such provision is the removal of discretionary denials of institution. Currently, the PTAB may deny institution based on an analysis of factors articulated in Apple v. Fintiv. IPR2020-00019, Paper 11 (PTAB Mar. 20, 2020). One such factor is the temporal relationship between the PTAB's Final Written Decision (FWD) regarding a patent and a scheduled trial involving the same patent. Per Fintiv, if a trial is scheduled to be completed before a FWD is to issue, the PTAB may exercise its discretion and deny institution. The RAIA provision, however, requires that "a petition that meets the requirements of this chapter shall be instituted ...," which all but eliminates the PTAB's Fintiv jurisprudence. Restoring the America Invents Act, S.2891, at §2 (emphasis added). This provision would appear to affect the PTAB's decision making, particularly related to litigation in the Eastern District of Texas, where recently trials were being scheduled less than year from the Case Management Conference. See Ericsson Inc. et al v. Samsung Electronics, Co., Ltd. et al, Case No. 2-20-cv-00380 (E.D. Tex. Apr. 2021), Dkt. 108, Transcend Shipping Systems, LLC v. Orient Overseas Container Line Ltd., Case No. 2-21-cv-00020 (E.D. Tex. Aug. 2021), Dkt. 30.

The second is a list of explicit factors which a court must consider in deciding whether to grant a stay pending an IPR proceeding. Restoring the America Invents Act, S.2891, at §2. Individually, the RAIA's list of factors would appear to favor stays of litigation, and collectively, they create an undeniable presumption that a stay should issue in the face of a concurrent PTAB proceeding. Id. The provision would also grant an immediate right to appeal a district court's decision regarding a stay. Id. This provision appears to be a response to some judges' reluctance to grant stays based on related PTAB proceedings.

The timing of the RAIA is likely not coincidental, following the emerging popularity of the Western District of Texas as a forum for patent plaintiffs, and the new shorter trial schedules emanating from the Eastern District of Texas. The RAIA is a clear indication that Congress sees these developments as an issue, and sees empowering the PTAB as a potential solution.

2. The Federal Circuit's Continued Push-back

In addition to Congressional scrutiny, Texas courts have faced continued judicial scrutiny. The Federal Circuit has granted mandamus petitions originating from Texas courts at an unprecedented rate.

The Western District in particular has faced criticism from the Federal Circuit for not transferring certain cases. See, e.g., In re Adobe Inc., 823 F. App'x. 929, 931 (Fed. Cir. 2020); In re Apple Inc., 979 F.3d 1332, 1346 (Fed. Cir. 2020). In October, the Federal Circuit intervened and granted a mandamus petition to transfer a case out of the Western District of Texas. In re Dish Network LLC, 2021 U.S. App. LEXIS 31759, 2021 WL 4911981. In doing so, the Federal Circuit found that the court had abused its discretion in failing to effect the transfer, which the Federal Circuit encouraged the court to grant in an August ruling. Id at *4. Almost immediately following the Federal Circuit's ruling in In re: Dish Network LLC, the court granted a motion to transfer a case to the Northern District of California, but in analyzing the factor of "Cost of Attendance and Convenience for Willing Witnesses," noted that "the Federal Circuit has reprimanded this Court for reliance on decades of similar jurisprudence in the Fifth Circuit and elsewhere." HD Silicon Sols. LLC v. Microchip Tech., Inc., 6-20-cv-01092, 2021 U.S. Dist. LEXIS 204834, at *15, 2021 WL 4953884 (W.D. Tex. Oct. 25, 2021).

The Federal Circuit's orders appear to be the driving force behind transfer motion-related rules implemented by the Western District over the last year and a half. See Second Amended Standing Order Regarding Motions for Inter-District Transfer (.pdf) available at https://www.txwd.uscourts.gov/judges-information/standing-orders/. The court revised its rules once again in October, extending the period to file a reply brief in relation to a motion to transfer from seven to fourteen days. See Standing Order Governing Proceedings — Patent Cases (.pdf), at 6, available at https://www.txwd.uscourts.gov/judges-information/standing-orders/. The court has historically adjusted its rules fairly regularly to address any perceived problems or inefficiencies in its docket, and it is possible that there may be additional changes in the future due to the Federal Circuit's decisions on this front.

B. CA Inc. et al. v. Netflix Inc.: Servers may satisfy "regular and established place of business" requirements.

In CA Inc. et al. v. Netflix Inc., Judge Gilstrap endorsed the findings of Magistrate Judge Payne that Netflix's extensive use and control of servers at local ISPs within the Eastern District of Texas satisfied the requirement of a "regular and established place of business." CA, Inc. v. Netflix, Inc., 2:21-cv-00080-JRG-RSP, 2021 WL 4950360 (E.D. Tex. October 25, 2021), 2021 WL 4955201 (E.D. Tex. September 27, 2021). Although the ruling appears to be at odds with precedent regarding the use of servers when evaluating a "regular and established place of business," Judge Payne distinguished this case by noting the considerable control Netflix maintained over the servers and Netflix's relationship with the ISPs where the servers were located. Id.; but see In re Google LLC, 949 F.3d 1338, 1343-44 (Fed. Cir. 2020).

Venue is appropriate "where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business." 28 U.S.C. § 1400(b). Courts apply a three factor test to decide whether a defendant has a regular and established place of business within a venue. In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017). Those factors are "(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant." Id.  Netflix maintained that factors (1) and (2) were not met. However, Magistrate Judge Payne disagreed.

Judge Payne first addressed factor (1), and focused on Netflix's control over the servers. Judge Payne found that Netflix handled modifications, upgrades, and repairs to the servers, and was able to monitor and remotely wipe software loaded on the servers." CA, Inc., 2021 WL 4955201 at **4-7. The court also noted that marketing materials indicated that the servers belonged to Netflix. Id. at *6. Thus, the court found that Netflix maintained sufficient possession and control over the servers for them to constitute a place of business of Netflix. Id. at *7. This was despite the fact that Netflix transferred ownership and title of the servers to the ISPs and only entered into a licensing agreement with the ISPs. Id. at *4.

Judge Payne then addressed factor (2) and found the agency relationship between Netflix and the ISPs satisfied this factor. Id. at **7-9. Here, Judge Payne focused on the nature of the relationship between Netflix and the ISP. Id. at *7. In particular, Judge Payne found that a "collaborative" arrangement existed between Netflix and the ISP, rather than a passive one. Id. at *8. In so finding, Judge Payne determined that the ISPs acted as Netflix's agent. Id at *9.

Judge Payne's recommendation, and Judge Gilstrap's adoption, is a cautionary tale for tech companies who may have assumed that the presence of equipment alone would not be sufficient to establish a "regular and established place of business," regardless of other circumstances.

C. Solas OLED Ltd. v. Samsung Display Co. Ltd. et al: Eastern District Protects Jury Verdicts

In March 2021, a jury found Samsung liable for infringing U.S. Patent Nos. 7,446,338, and 9,256,311, with infringement of the latter deemed willful. Solas Oled v. Samsung Display Co., 2:19-cv-00152-JRG, 2021 WL 5001403 at *1 (E.D. Tex. March 23, 2021). The jury awarded Solas a lump sum royalty of $62.7 million, which Judge Gilstrap increased to $77.7 million. Id. The jury also found a third patent asserted by Solas to be invalid. Id.

Samsung moved for judgment as a matter of law and sought a new trial. Samsung's requests touched on almost every aspect of the case — infringement, invalidity, and damages, as well as jury instructions. Id. Judge Gilstrap denied Samsung's requests on all counts. Solas Oled Ltd. v. Samsung Display Co., 2:19-cv-00152-JRG, 2021 WL 4950308 at *23 (E.D. Tex. October 25, 2021).

Judge Gilstrap first addressed Samsung's JMOL motions. For each of the asserted patents, Samsung requested JMOL based on direct infringement and indirect infringement. Id. at **14-18. For the '311 Patent, Samsung's request also covered willful infringement and invalidity. Id. **6-10. Samsung also requested JMOL on the issue of damages. Id. at **14-19. In each case, Judge Gilstrap found that the evidence supported the jury's verdict. Judge Gilstrap then turned to Samsung's request for a new trial. Id. at *19. Again, Judge Gilstrap found against Samsung, determining that none of the issues identified by Samsung warranted a new trial. Id. at **19-23.

In particular, on the issue of damages, Samsung argued that Solas had requested a running royalty, and therefore the jury's award of a lump sum was improper. Id. at *18. However, Judge Gilstrap determined that there was nothing wrong with the jury deciding that a lump sum royalty was the appropriate remedy for infringement, as opposed to a running royalty. Id. According to Judge Gilstrap, the jury was presented with sufficient evidence to support such a conclusion and was adequately instructed as to the law. Id.

Samsung also argued that instructions given to the jury were improper and necessitated a new trial. Samsung identified numerous instructions which it believed contained errors — induced infringement, willfulness, corroboration, the entire market value rule, the verdict form, and remitter of the '338 Patent damages. Id. at **21-23. Judge Gilstrap, however, analyzed each of the challenged instructions and found that none were improper. Id.

The case highlights the high bar litigants must overcome to overturn a jury verdict in the Eastern District.