Forum Selling Dan Klerman USC Law School Greg Reilly Cal Western Law School Faculty Workshop Emory Law School November 18, 2014

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 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 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, 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 Broad initial disclosures Hostility to stays pending reexamination and transfers of venue Trial management

Why Procedure? Review by Federal Circuit makes substantive distinctiveness difficult Rules of appellate procedure make procedural decisions almost unreviewable 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 How know that EDTX isn’t just better, more expert forum? Alleged infringers 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 Partially cured by Class Action Fairness Act of 2005 Beneficial to plaintiffs or to plaintiff’s lawyers? Bankruptcy and District of Delaware Venue rules de facto allow big company to file for bankruptcy in any district Since mid- 1990s, Delaware has had near monopoly on 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

Forum Selling, Contracts, and Corporate Chartering Paper focuses on non-contractual litigation Forum selection clauses and 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 non-contractual 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 other areas Antitrust ERISA Defamation Possible answers 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