Forum Selling
Dan Klerman
USC Law School
Greg Reilly
California Western Law School
ALEA 2015
Columbia Law School
May 16, 2015
Overview
• Broad jurisdictional choice for plaintiffs leads to forum shopping
• Forum shopping leads some judges to try to attract more cases
• A few judges can have a large impact, because they get many cases
• Effect of forum selling depends on whether forum is selected consensually
• If forum selected consensually, judges compete by making adjudication more
efficient
• E.g., Contract adjudication in NY court
• If forum chosen unilaterally, then judges compete by favoring the chooser
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Plaintiff usually chooses court, so judges tilt law in pro-plaintiff direction
Pro-plaintiff law is likely to be inefficient
Patents, class actions, ICANN & domain names, pre-modern England
Maybe: bankruptcy
• Inefficiency of non-consensual choice of forum helps justify constraints on
forum choice and suggests reforms
• Constitutional law of personal jurisdiction
• Venue statutes
• Tighten jurisdiction/venue where currently loose
Patents and the Eastern District of Texas
• Since 2007, more patent infringement cases have been filed in the
Eastern District of Texas than any other district
• Approximately one quarter of patent cases (and increasing) in 2012-2014
• EDTX is a lightly populated, mostly rural district with no major cities or
tech companies
• Yet, it has more than 3 times as many patent cases as the Northern
District of California, which includes Silicon Valley
• EDTX is especially favored by Patent Assertion Entities (“patent trolls”)
• Personal jurisdiction and venue, as applied in patent cases, permit suit
any place infringing product is sold
• No restrictions on forum choice in suits against defendants with
nationally distributed products!
How Does the Eastern District of Texas Attract Cases?
1. Hostility to summary judgment
• Less than 1% of cases resolved by SJ
• Compared to almost 3.5% in other districts
• Patent-only procedures require judge’s permission to file SJ motion
2. Broad interpretation of joinder rules
• Before AIA (2012), EDTX uniquely receptive to joinder of unrelated defendants
accused of infringing same patent
• Post-AIA, EDTX judges have minimized impact of anti-joinder provision by
consolidating cases for pre-trial
3. Judge shopping
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Plaintiffs can sue in division of their choice
Public, pre-specified case allocations, with only 1 or 2 judges per division
Patent-only allocations assign patent cases to particular judges
Filing patterns among divisions have shifted with changes in judges
Hostility to stays pending reexamination
Hostility to transfers of venue
Broad initial disclosures
Trial management
Why Procedure?
• Nationwide review by Federal Circuit makes substantive
distinctiveness difficult
• Procedural decisions almost unreviewable on appeal
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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 limited and extraordinary remedy
• e.g., never issued to review denial of summary judgment
• Notably, Federal Circuit has used mandamus extensively to order
transfer out of EDTX.
• Also has used to order severance
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 often 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
• EDTX is not just better, more expert forum
• Alleged infringers almost never seek declaratory judgment in the
EDTX
• Forum selling could decrease the quality of decisions
• Hostility to SJ makes EDTX less predictable
• Hostility to SJ and stays pending reexamination decrease
experience and expertise of decision maker
Other Examples of Forum Selling I
• Class actions and mass torts in “magic jurisdictions”
• Lax interpretation of jurisdictional rules allows class action lawyers 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 companies 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
• 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 are often for-profit companies
• Arbitration providers compete by favoring trademark owners
• 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
• Enforced of oral promises (indebitatus assumpsit)
• Provided very few defenses in contract cases
Contracts and Corporate Chartering
• Competition 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
• 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
• E.g. restricting patent suits to defendant’s home state or
largest market
• Forum selling is relatively rare, because venue and
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 explain why there are venue states
Conclusion
• Jurisdictional choice in non-contractual contexts is bad,
because it can lead to forum selling
• Patent litigation in the 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
• When plaintiffs have broad jurisdictional choice
• Consideration of forum selling
• Helps explain constraints on jurisdiction and venue
• Suggests why those constraints should be tightened where they
are currently lax