[‘Korean Companies' Hunting Ground’ Texas District Court - ② Paradise for Patent Trolls] Targeted if Business Located in Jurisdiction

Case Concentration on Patent Holder-Friendly Judges
Jury Harbors Resentment Toward Global Companies

The background behind the U.S. Federal Texas District Court becoming a stage for patent infringement lawsuits by NPEs (Non-Practicing Entities, patent management companies) against Korean export companies such as Samsung Electronics, Hyundai Motor, LG Electronics, and SK Hynix lies in the U.S. court precedent that allows a trial if the defendant company has a place of business within Texas jurisdiction. It is also analyzed that the characteristics of some judges at this court, who have long served and issued rulings favorable to patent holders, as well as jurors who harbor strong resentment against large global corporations, influence this situation.

Rodney Gilstrap, Judge of the U.S. District Court for the Eastern District of Texas · Allen Albright, Judge of the U.S. District Court for the Western District of Texas [Image source=Law Times]

In the U.S. Federal Eastern and Western District Courts of Texas, hundreds of patent infringement lawsuits have been filed against Korean companies so far. According to an analysis by Law Times using LexisNexis’s U.S. court complaint and judgment search service 'CourtLink,' major Korean export companies such as Samsung Electronics, Hyundai Motor, LG Electronics, and SK Hynix have been sued in a total of 783 patent lawsuits from the first case in February 1997 through June 14, 2024. Most of the patent infringement lawsuits in these two courts were initiated by NPEs. According to the '2023 Patent Dispute Report' published by Unified Patent in the U.S., 85% (522 cases) of patent lawsuits in the Federal Eastern District of Texas and 90% (467 cases) in the Federal Western District of Texas last year were filed by NPEs.

Location of the Marshall Division of the Eastern District of Texas

Why are Korean companies, which do not even have headquarters in Texas, frequently targeted by NPEs in this particular region? The first factor is the U.S. court precedent that allows trials where the defendant company has a certain and established place of business. In May 2017, the U.S. Supreme Court, through the 'TC Heartland' ruling, limited the venue for patent infringement lawsuits by stating that "patent infringement lawsuits must be filed in the state where the defendant corporation is incorporated," thereby curbing indiscriminate forum shopping by NPEs.

However, since the ruling specified that it applies "as applied to domestic corporations," there was hope that NPE lawsuits against U.S. companies such as Apple, Google, and Microsoft would slow down, but concerns arose that foreign companies without an established address in the U.S. would become more vulnerable to NPE attacks.

In September of the same year, the U.S. Court of Appeals for the Federal Circuit (CAFC), which specializes in patent appeals, issued a more established ruling regarding patent lawsuit venues. To have jurisdiction over a patent lawsuit, a federal district court in a specific district must have ① a physical place in that district, which must be ② a regular and established place of business, and ③ the place of the defendant. According to this ruling, companies with certain business locations such as agencies in the Eastern District of Texas can be defendants in patent infringement lawsuits. In response, Apple withdrew two stores in this district in 2019 and transferred employees to nearby Dallas to prevent potential NPE lawsuits.

The tendency of judges who are favorable to patent holders is also a factor why NPE lawsuits concentrate in this region. Marshall, one of the jurisdictions of the Federal Eastern District of Texas, is a small city with a population of 23,000 but holds an absolute position in the world of patent lawsuits, often called a 'giant.' According to the Texas media 'Dallas Morning News,' since 2011, Chief Judge Rodney Gilstrap, who has presided over the Marshall division, has been assigned one out of every four patent cases in the U.S. This court has faced criticism for issuing rulings excessively favorable to patent holders who file indiscriminate patent infringement lawsuits. The late U.S. Supreme Court Justice Antonin Scalia once referred to the Marshall district as a "renegade jurisdiction."

It is also analyzed that the characteristics of the Marshall area jury, which distrusts large corporations and tends to deliver verdicts favorable to small businesses, influence this trend. Marshall was once a railroad transportation hub and prospered through cotton cultivation but has become economically depressed due to changes in the industrial landscape.

However, for over 20 years, the influx of patent lawsuits and the legal professionals and businesspeople visiting the city for trials have brought special benefits to the local economy, such as lodging and dining industries. The jury, composed of local residents, naturally tends to be sympathetic to NPEs and others who file lawsuits.

There is also talk that the population composition, with 70% white residents, tends to lean toward U.S.-based NPEs rather than Asian conglomerates like Samsung and LG.

Yoonji Hong, Sungkyu Lee, Hyun Ahn, Jinyoung Lee, Law Times Reporters

※This article is based on content supplied by Law Times.