Texas town's role as patent-lawsuit capital in jeopardy

At the Blue Frog Grille in Marshall, Texas, manager Shawne Somerford says she keeps an eye on the schedule at the U.S. courthouse two blocks down. During trials, it generates as much as 40 percent of her business.

Her restaurant caters to $600-an-hour lawyers who flock from New York and Los Angeles to Marshall, 150 miles east of Dallas, to argue patent suits. The court has generated new office space, shops and work for local attorneys. But all that may be threatened if a New Orleans court makes it easier to transfer cases out of Marshall after a hearing Thursday that is on an appeal.

The U.S. District Court for the Eastern District of Texas, thanks largely to Marshall Division Judge T. John Ward, has become the country's most sought-after venue for patent suits -- disputes about inventions such as medical devices, computer chips or digital television. Its popularity is causing a backlog, with trials scheduled through 2010. The court's future as a local economic engine is also under attack by a proposal in Congress.

"Over the years it has added several million dollars to our economy," said outgoing Mayor Ed Smith, referring to patent lawyers' spending. The possibility of losing the business is like a "cloud hanging over" the town, he said.

In Thursday's hearing before a New Orleans appeals court, Volkswagen AG contended that a claim for damages in an auto fatality should be moved to Dallas, closer to the site of the accident. Ward had turned down Volkswagen's motion. The appeals court hasn't yet issued a ruling.

While the dispute doesn't involve patent law, it would affect the Marshall court's role in such cases. The argument is part of a national debate about claims that trial lawyers shop for courts that are likely to return verdicts against corporations. A provision in the measure before Congress would require that at least one party have a physical presence where a suit is filed.

The outcome may hurt entrepreneurs who have revitalized Marshall, population 24,000.

Melinda Hodge, manager of the Hampton Inn, says at least 25 of the 68 rooms this week are filled by lawyers in town for the trial of Minneapolis-based Medtronic Incorporated's patent-infringement suit concerning heart devices against Boston Scientific Corp., of Natick, Mass. Corey Gossens, head cook of the Central Perks coffee shop, estimates that 80 percent of its catering business is for lawyers.

The Eastern District's rise as a place for deciding patent disputes began with the arrival of Ward, 65. A former trial lawyer from nearby Longview, he was appointed to the federal bench by President Bill Clinton in 1999.

Ward's interest in patent litigation stemmed from a client's loss of $25.2 million in a suit against Texas Instruments Inc. in his last trial as a lawyer, he said in a May 1 interview.

In the 12 months through Sept. 30, 359 of 2,896 U.S. patent suits were filed in the Eastern District of Texas, according to the Administration Office of the U.S. Courts. That made it the busiest patent venue among the 94 district courts for the first time. The Central District of California, the usual leader, was second, with 334.

Lawsuits against businesses may be filed in any district where their products are sold. U.S. law allows cases to be moved for the convenience of the parties. Ward grants 29 percent of transfer motions in patent cases, below the national average of 48 percent, according to LegalMetric, a St. Louis-based research company.

Ward declined to comment about the effects of the New Orleans decision on Marshall's future, saying he hasn't followed the case.

He presides over almost all of the trials in Marshall, including a $431 million verdict against Boston Scientific in February, the biggest win by a patent owner. Boston Scientific is challenging the verdict. Ward was also on the bench in 2007 when Nortel Networks Corp., the Toronto-based maker of telephone equipment, was told to pay $28.1 million to Australia's Ipernica Ltd. in a patent dispute. The case settled last month after he denied Nortel's bid for a new trial.

The judge has been overturned just twice in patent cases by the U.S. Court of Appeals for the Federal Circuit in Washington, said Greg Upchurch, director of research at LegalMetric. About 70 percent of Ward's trials have resulted in victories for patent owners, the research company said. The national average is 23.5 percent.