Small Town Texas Juries Hit Big Tech With Huge Awards

Joining me is Bloomberg Legal reporter Laurel Culkins. Laurel of all the patent cases filed in the US last year, of them ended up in Texas and in three small towns in Texas. Why, well, it's very interesting. It's sort of a perfect storm of opportunity for the companies that owned these patents. Texas has sort of long been known

for whopping jury verdicts, that's sort of its reputation. But it has developed a subspecialty in patent law, an intellectual property law in general, but patent law and specific thanks to a couple of judges who are really good at it. There was a judge in a little town called Marshall, which is very close to the Louisiana border in East Texas, and many years ago he started specializing in patent law

and developed what was called the Rocket Docket. He could move patent cases through pretty darn fast, so people said, I want my case hurt, I'm going to go there. Well, the U. S. Supreme Court was actually involved in one point to try to limit cases from companies all over the country filing in this little courthouse in East Texas,

so that got dialed back a bit. But then a couple of years ago, a new judge was appointed in another small town in Texas called Waco, which is halfway between Austin and daw Us, and he happens to be an intellectual property lawyer by training, so he set up his own version of the Rocket docket over in Waco, and people have been flooding into it. Of patent cases filed in Texas last year, all of them landed in

three little courthouses. All but sixty four of eight hundred and fifty seven patent cases landed on Judge Albright's deaf in Waco and over in Marshall, a judge named Rodney Gilstrap took in two d and fifty two patent cases of the filed in that district. So it's just this flood of patent cases being filed in these small town courthouses.

And these judges decided, you know what, we're actually more afraid of the backlog of these cases becoming unmanageable than we're fearing COVID becoming unmanageable, because in small towns sometimes they're rather isolated, and they haven't had the infection rates that the big cities have had. How did two judges manage that number of cases, the sheer caseload, Well, I can only imagine that they of with their hair on fire.

They've hired staff and you know, like everybody else. Last March, when COVID first want the country, they closed their courthouses too. They said, you know, we're gonna do what we need to do. But then as the infection rate either didn't materialize or remained manageable in their jurisdictions, they said, we've

got to get back on it. And so Rodney guilt Strap over in Marshall was one of the very first to reopen his courtroom and he installed great, big plexiglass shields around the jury box, and he put his plexiglass walks around the witness box, and he socially distanced everybody, and all the lawyers have to wear their masks, and I think only the lawyers who are arguing at the time can be in the courtroom. Everybody else has to be in an adjacent courtroom watching on a close circuit TV.

So they put in a lot of safety precautions, and they've been doing a lot of testings, and so they're moving forward as quickly as they can. In fact, over in Waco, Judge Albright seems to be on a pace to hold a trial a week for as far as I can see. He's got one right now under way between two patent litigants. The last time they met was in his courtroom a month ago, and the jury returned a verdict of two point one eight billion dollars against Intel,

the big microchip MAX. Now, that was one of the largest patent damage awards in US history. And these are just eye popping numbers. You talked to your jury consultants. Is there a reason why these numbers are just so high? Actually there is, and it's kind of a confluence of factors. The first one that the jury consultant says is undeniably true, is that juries are taking their pecific responsibility definitely seriously because they literally are putting their lives on the line

to come into the jury box. So as a result, they're not putting up with any nonsense anymore. If they think that a patent claim is frivolous, they're just gonna pour the litigant out. And conversely, if they think that the big tech implementer who has made all the products using somebody else's technology, has stolen a little guy's idea, they're gonna transom. They're gonna hammer them. And that's what's

been happening over and over again. There's another factor of the jury consultants that is playing an enormous factor, and it's the pandemic itself. In these large awards. The jurors and earths are afraid because they've got all this pent up frustration from not being able to live their lives for the past year, and now they're being imposed upon to way these matters, and as a result that just

pouring their frustration into these these jury awards. I mean, look at what happened to Apple in the last seven months. In Texas. Apple has gone through three jury trials and all three went against them, And looking at that they were facing the fourth Texas jury last month, they had already picked the jury, and I guess they saw something they'd like very much in that jury and they settled.

After seven years of unsuccessful settlement talks with the litigant, they said no, we're not going to trial, and they cut some kind of a deal that we don't know what the terms are. Going back to Intel for a moment, explain how that was just the first part of the trial. This trial has actually been taking place in tranches or stages.

The first one happened many years ago. We're Intel was determined to have actually infringed on the technology of this little company that goes by its initials the l s I. So the determination that they've done it was done years ago. Now they've has been arguing about how much Intel ohs

for the various patents that were infringed. So in the case that happened last month, on this one set of patents, they were found to be liable for almost two point two billion dollars and then the judge said, well, it was just too much for one jury to wrap their mind around to have all these patents presented in one case. So he sliced and diced it up into three trials, and the second one is ongoing now, and the third one will take place in June, all of which are

occurring in the small town of Waco. And as the jury consultant pointed out, you know these are small towns. These newspaper headlines are seen by an awful lot of people. The PBS talk about him, and as a result, it's sort of acclimating these small town jury pools to these whopping awards. He says, for better or worse, billions is the new millions. In some of these venues. The judge

refused to move the trial or even delay it. Right, he's not going to delay anything because he's got this enormous ocean swell of cases behind and pushing him forward. So he really is up against the clock on trying to process as many as possible plus um. Most judges believe that they can weed out jurors that have predetermined opinions. Sometimes they're right, sometimes they're wrong. But jurors go through a process of questioning before every trial known as bordar

or border a depending on where you're from. And uh, they they sometimes kick their hand that they've made up their mind, or I'll say, admit it, that they've made up their mind. And then those people don't serve on the jury. So the judges have a lot of faith in that process, and sometimes it works and sometimes Laurel. The reputations of tech companies have been tarnished in many consumers eyes, what with the data breaches, privacy and antitrust concerns.

But the plaintiffs in these cases are not the inventors of the patents. There the companies that bought the patents from the inventor, so it's hard to see why the jury is sympathetic to them. It's not like a big corporation has ripped off the inventor or the little guy. Well, that's true, and there's a term in the industry for these companies that hold the patents that don't make any products themselves, and they're often referred to as pet trolls,

which is very unflattering. As John Oliver said, it's unflattering patrols. But the implication is that these people are just mining the patents for the money. Well, the way they presented to the jury is what makes it difference. They will tell the jury, we're defending the idea of this little guy inventor, this little guy inventor, or this little cluster of inventors years ago came up with this fabulous innovation,

and these big companies just tromped all over it. And if they present it that way, they're playing into sort of a natural tendency of Texas juries. Texans have an inclination to align themselves with the underdogs. They love it when the underdog wins. They don't let people stomp around on the little guy. They're not big on bullies, regardless

of what you might think of their politics. And as a result, these juries are kind of finding themselves aligning with these patent holders who don't make any products themselves, against some of the biggest names in America in whose products the juries used right and left. So it's it's a very strange dichotomy when you think about it, But it seems like, over and over again, formula is working in Texas. Right now, now, I take it that sometimes

patent holders do lose in these Texas courts. Oh absolutely, It's not a slam dunck. I don't mean to imply that it is, because just in the last few months, Alphabet's Google unit has defeated a patent infringement claim that would have been worth hundreds of millions of dollars had it succeeded, and the Roku streaming giant has defeated twice now claims by so called patentrol trying to come after some of their technology. So it's not a slam dunk.

And that's why sometimes companies are willing to roll the diet. There's another one except for trial. I think in a week. It's a trial between a little company called and Cora and Samsung and also LG Electronics. Well a week or two ago, Samsung said, you know, we're not going to trial with you guys, so they settled, but LG is not, So you know, we don't know what's going to happen.

And when we talk to one of the Bloomberg analysts who tracks patents and the impact of patent on companies, he told us this whole trend, this whole strain of eye popping verticts is something that the big tech industry needs to pay attention to. They can't ignore the fact that this is going on just because they think they've got smart enough lawyers to eat it. You know, some of these overwhelming awards might be cut down on appeal. And I take it there're gonna be a lot of

appeals here. Oh, absolutely. And that's what's unique to to patent litigation is even though they're tried in federal court, they don't flow up through the regular channels. Um. Normally, Uh, federal courts in Texas flow into the Fifth Circuit Appellate Court in New Orleans, and um, that's a notoriously conservative court, and it's becoming harder and harder to predict what they're going to do. But uh, and then up to the

Supreme Court. Well, now, these these litigation patent litigation claims flow through the Federal Circuit in District of Columbia in Washington and the capital, so they go to a different channel. They go to a different set of judges that's more accustomed to looking only at patent claim you know, or more often at path. So, yeah, these awards often aren't held up on appeal, and often they get kicked back down to be retried, and sometimes they get kicked back

down again and again. Um, there's one. There's a couple of those that went on for almost ten years between Apple and a little outfit called Vernetics UM and that kept going back and forth on the appellate level, and within the last slightly more than a year, Vernetics has twice one damages UH from Apple on the order of half a billion dollars per trial. So Apple has lost more than a billion dollars on those two proceedings. Even though it's taken like ten years to play out, it's

not done yet. I mean, it's still going to go back up on appeal. So the Supreme Court limiting jurisdiction, that didn't help at all. It did until the new judge was appointed in Waco, and so it's like when you squeeze a water balloon, you squeeze one might just gonna bulge out somewhere else. So that's the inadvertent result is that a patent attorney took over the benche in Waco, and so everybody ran there. And I don't know whether somebody is going to ask the Supreme Court to once

again look at whether limitations need to be drawn. The biggest problem is the way they restricted the filings in marshall Over in East Texas. Was the Supreme court said that in order to drag a big tech company to court there, the big tech company has to have some kind of operational or commercial footprint within the district. And since it's not a huge employment center, not a huge manufacturing base or retail base, a lot of companies could

escape trial there on that basis. All the problem is Waco is drawn into the same district as Austin, and that you've probably seen the headlines of all the technology companies relocating to Austin or beefing up their operations and Austen. Well, the side benefit of that are unfortunate. Side benefit is that exposes them to litigation in Waco because Waco is in the same district. I'm not sure how they're going

to draw the lines to limit this from happening. Now, the first maneuver worked, I don't know how to to make a second maneuver that would have the same result. It's like an industry in these towns, the patent litigation industry. Oh absolutely. And I've often wondered, if like you went and set down in the courthouse cafe or something, or in the small cafe on the courthouse square, whether you could talk arcane patent litigation with whoever was sitting at

the table next to you. I mean, exactly how much does the jury pool start to become educated about patent law. It's an amazing thing that these small towns with these you know, a lot of them are blue collar people, just average bedrock Americans who are sitting and listening to these highly technical definitions and explanations of routers and microchips and software that does this or that. And it's amazing that it's all happening in these little small towns. And

then the outcome are these enormous verdicts. But that's why we decided it needed to be written about, because it was pretty unusual that lightning seems to keep striking again and again. Thanks Laurel. That's Bloomberg Legal reporter Laurel Culkins, and that's it for this edition of the Bloomberg Law Show. I'm June Grosso, and you're listening to Bloomberg