Forum Selling
Dan Klerman
USC Law School
Greg Reilly
Cal Western Law School
Faculty Workshop
UNLV Law School
January 21, 2015
Overview
• Broad jurisdictional choice for plaintiffs leads to forum shopping
• Forum shopping sometimes leads to some judges to try to attract
more cases
• Judges trying to attract more cases = “forum selling”
• Since plaintiffs choose the forum, judges attract cases by making the
law pro-plaintiff
• Pro-plaintiff courts get a disproportionate share of litigation
• So even if only a small number of judges are interested in hearing more cases
• They can have a big impact on the law
• That impact is usually bad
• 5 case studies
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Patents and the Eastern District of Delaware
Class actions and “magic jurisdictions”
Bankruptcy and the District of Delaware
ICANN domain name dispute resolution
Common law adjudication in pre-modern England
• Constitutional constraints on personal jurisdiction can be justified, in
part, as attempts to prevent forum selling
• Forum selling can be prevented by tightening rules relating to
jurisdiction and venue
Patents and the Eastern District of Texas
• The Eastern District of Texas is a small, mostly rural district
• No major cities or tech companies
• Yet, since 2007, it has had more patent infringement case filings than
any other district
• More than 3 times as many as the Northern District of California, which includes
Silicon Valley
• Almost one quarter of all patent cases filed in 2012-13
• EDTX is especially favored by Patent Assertion Entities
• a.k.a. “patent trolls”
• Patent venue statute interpreted to allow patentee to sue any place
infringing product is sold
• So defendant who makes nationally distributed product can be sued in any
district
• Much broader jurisdictional choice than in most other types of case
• Contrast product liability, where Supreme Court has made it difficult to sue
manufacturer where product is sold. McIntyre (2012)
How Does the Eastern District of Texas Attract Cases?
• Hostility to summary judgment
• Less than 1% of cases resolved by SJ
• Compared to almost 3.5% in other districts
• Local rules require parties to ask judge’s permission before making motion for SJ
• Broad interpretation of joinder rules
• Before AIA (2012), patentee could join all defendants allegedly infringement
same patent
• Post AIA, patentee must sue them separately, but judges will consolidate them
for pre-trial
• Judge shopping
• Plaintiffs can sue in division of their choice
• Each division has few judges
• Special patent case assignment rules assign patent cases to particular judges
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Broad initial disclosures
Hostility to stays pending reexamination
Hostility to transfers of venue
Trial management
Why Procedure?
• Review by Federal Circuit makes substantive distinctiveness
difficult
• Rules of appellate procedure make procedural decisions
almost unreviewable
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Final judgment rule
Abuse of discretion standard of review
Harmless error doctrine
If case has gone to trial, courts decide appeal based on trial record
• Not based on evidence presented on summary judgment motion
• Only real remedy is mandamus
• Mandamus is extraordinary remedy issued only in rare circumstances
• Mandamus has never been issued by any federal court to review denial of
summary judgment
• Notable that Federal Circuit granted 10 mandamus petitions relating to
refusal to transfer venue
Why Does the EDTX Want to Hear More Cases?
• Judges want interesting case load
• Non-random assignment means that only those judges who want
to hear patent cases get them
• Prestige
• Benefits to local bar
• Benefits to local economy
• Benefits to relatives
• Post-retirement opportunities
Why Is it Bad?
• Patent law is generally seen as too broad
• Broad scope impedes innovation
• Especially in computer-related areas
• Patent trolls are seen as particularly problematic
• EDTX pro-plaintiff / pro-patentee bias makes matters worse
• Patent law is highly technical
• EDTX hostility to SJ means that, if case goes to trial, case resolved
by largely uneducated jurors
• EDTX is not just better, more expert forum
• Alleged infringers almost almost never seek declaratory judgment
in the EDTX
• Hostility to SJ makes EDTX less predictable
Other Examples of Forum Selling I
• Class actions and mass torts in “magic jurisdictions”
• Lax interpretation of jurisdictional rules allows class action plaintiffs to sue
where named representative (but not other class members) were injured
• Beneficial to plaintiffs or to plaintiff’s lawyers?
• Partially cured by Class Action Fairness Act of 2005
• Bankruptcy and District of Delaware
• Venue rules de facto allow big company to file for bankruptcy in any district
• Since mid- 1990s, Delaware has heard most big case bankruptcies
• Judges attract cases by giving lawyers large fees and approving
reorganization plans
• Deal with larger caseload by inviting “visiting judges”
• But then take cases away if those judges do not follow Delaware
practices
• Controversy over efficiency implications
Other Examples of Forum Selling II
• ICANN domain name dispute resolution
• Trademark owner gets to unilaterally select arbitration provider
• Arbitration providers favor arbitrators who rule for trademark owners
• Arbitration provider with lowest rate of pro-owner decisions went out of
business
• Common law judging in pre-modern England
• Litigants could choose to sue in any of 3 common law courts
• Judges paid, in part, by fees paid by litigants
• Courts, especially King’s Bench, competed by making law more pro-plaintiff
• Enforceability of oral promises (indebitatus assumpsit)
• Lack of defenses in contract cases
• Cheaper procedures to vindicate property rights (ejectment)
• Checked by Parliament and Chancery/Equity
• Statute of Frauds
• Mistake, rule against penalties, unconscionability
Contracts and Corporate Chartering
• Paper focuses on non-contractual litigation
• Forum selling may be beneficial in contracts
• Sophisticated parties can select forum that maximizes value of their
transaction
• New York may be forum selling in commercial cases (Miller & Eisenberg
2009)
• Need for mutual assent in contractual litigation gives courts an incentive to
be fair and efficient
• No corresponding incentive in patent, TM, tort, or other noncontractual litigation
• Bankruptcy has contractual aspect, which may explain why there is a
plausible argument that forum selling has been beneficial
• Competition may be beneficial in corporate chartering
• Because managers (may?) have incentives to maximize firm value
• And thus choose to incorporate where law and adjudication are most
efficient (Delaware?)
• Contrast patent, TM and tort plaintiffs who, at time dispute arises, have no
incentive to choose efficient forum
Forum Selling and Personal Jurisdiction
• Forum selling is made possible by broad interpretations of
personal jurisdiction and venue rules
• Can be prevented by tightening those rules
• Or by interpreting them differently
• Forum selling is relatively rare, because jurisdictional rules
generally restrict where plaintiff can sue
• Danger of forum selling provides explanation for why personal
jurisdiction is constitutional issue
• Danger of forum selling helps justify fact that statutes and
constitution generally restrict plaintiff jurisdictional choice
Why Not More Forum Selling?
• Jurisdiction and venue rules are broad in some other areas
• Antitrust
• ERISA
• Defamation
• Possible answers
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Happening, but no one has noticed
Not enough at stake
MDL
Just hasn’t happened yet
Conclusion
• Jurisdictional choice is bad, because it can lead to forum
selling
• EDTX is best documented case
• Also mass torts, bankruptcy, ICANN domain name disputes,
common-law judging in pre-modern England
• Even though most judges do not want to hear more cases
• And even though most judges wouldn’t distort law in pro-plaintiff
way
• It only takes a few motivated judges to have a large, negative
effect
• Consideration of forum selling
• Helps explain constraints on jurisdiction and venue
• Suggest how those constraints should be interpreted