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Does Track B Get Us To Where We Need To Be?

The Eastern District of Texas – well-known for being the court of choice for patent enforcement – issued an order earlier this year for expedited management of certain patent infringement cases.  It’s called “Track B” (Track A is the typical case handled according to the Patent Local Rules).  It is designed to require key disclosures of positions and damages early in the case, to either position cases for early settlement (common in troll litigation) or to take advantage of other measures to streamline the case.  With patent litigation costs spiraling out of control, and defendants facing cost of defense settlement pressure, measures that bring the calculus back to the actual merits and the true value of the case are welcome.

Kudos to the ED Texas for trying to find creative ways to manage the high volume of (typically) low value troll cases on its docket.  The $64,000 question – will it help?

The pros:

The value of the case will be determined early.  The patentee must disclose related licenses (which bears on the “reasonable royalty” that could be sought as damages) and settlement agreements within 14 days after the defendant responds to the Complaint.  The defendant must provide its summary sales information 30 days later and the patentee must provide a good faith estimate of its damages 14 days after that.  This sets the stage for low value cases to be settled out quickly.

The patentee must lay its infringement cards on the table within 14 days after the defendant responds to the Complaint.  This should encourage patentees to conduct appropriate diligence before filing the Complaint, as they need to show their cards before they could reasonably negotiate a settlement.  A defendant would likely choose to see the case against it, and other licenses and settlements relating to the patent(s)-in-suit, before talking settlement.

Defendants have a couple more weeks to put their invalidity contentions together after service of the infringement contentions, but it still happens much earlier in the life of the case than under Track A.

The Court also offers a variety of other processes to streamline cases (focusing patent claims and prior art; e-discovery modifications), that can be explored in the management conference.

The cons:

Defendants must have their invalidity contentions ready within just a few months of being sued.  This can be expensive – and sometimes time-consuming, if third party prior art needs to be discovered.  This puts additional settlement pressure on the defendant.

Defendants must identify in their Initial Disclosures all products they could reasonably expect to be accused of infringement.  This puts the burden on the defendant to identify products the patentee might never have asserted as infringing. The Defendant is at risk of sanctions later in the case if the relevant products were not identified in good faith.  This allows patentees to be less rigorous in their due diligence, identifying just a single product with the knowledge that they will get a list of products from the defendant, and can add products down the road to the case based on the defendant’s mandated disclosure.

So, will Track B help against trolls?  Yes and no.  It should weed out cases that have no business taking the Court’s time – those that aren’t worth the cost to even take the case to the management conference stage.  It will force the parties to really determine the value of the case, and offers opportunities for settlement (based on that value) before the defendant invests in invalidity contentions.  But it will also change the dynamics of cases that have enough value that the defendant needs or wants to fight.  Defendants may move to transfer more quickly – seeking the sweet spot for a transfer after receiving the patentee’s infringement contentions, but before invalidity contentions are due.  A defendant who has already served invalidity contentions may be willing to stand on that investment and get deeper into the case to try for a merits resolution.  Ultimately, the often long and slow path to the management conference could keep those options to streamline tantalizingly out of reach of the defendant, keeping cases languishing without forward progress except incurring discovery costs.

Track B may not be the answer, but new attempts to solve the high cost of patent litigation – particularly in low-value troll cases – are welcome and move us closer to the right answer.