1. Forum Selling Dan Klerman USC Law School Greg Reilly California Western Law School ALEA 2015 Columbia Law School May 16, 2015

2. 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 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

3. 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!

4. 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 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 4.Hostility to stays pending reexamination 5.Hostility to transfers of venue 6.Broad initial disclosures 7.Trial management

5. Why Procedure? Nationwide review by Federal Circuit makes substantive distinctiveness difficult Procedural decisions almost unreviewable on appeal 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

6. 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

7. 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

8. 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

9. 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

10. 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 non- contractual 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

11. 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

12. 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