What Happens In East Texas Definitely Doesn’t Stay There

This week has witnessed once again the oversized impact the Eastern District of Texas has in patent litigation—after all, that district was home to 44.2% of all patent cases filed in 2015 and 35.4% of all patent cases filed in 2016, with Judge Rodney Gilstrap presiding over an astounding one–quarter of all patent cases filed since 2014. This week’s results were, suffice it to say, mixed.

* Yesterday, on January 25, 2017, Judge Gilstrap issued a 57–page final judgment and opinion in the case of Iris Connex, LLC v. Dell, Inc., in which he sanctioned the real (and hidden) party in interest, Brian Yates, and his litigation counsel, Craig Tadlock, for their conduct in a set of cases the judge called “the clearest example of an exceptional to yet come before [him]. Simply put, if this case is not an exceptional case, then there are none.”

Rigorously and methodically, Judge Gilstrap peeled back the onion to the rotten core of a set of cases that should never have been brought, and were then litigated past the point of no return. While the opinion is worth reading in full, briefly, Brian Yates acquired an aging patent, then set up a set of shell companies designed to enable him to oversee litigation under that patent without bearing any of the consequences. The shell companies were constructed in such a way to be essentially immune from any sanction or fee award that a court might impose. When the court took an early and active interest in an early-case motion filed by Dell, holding early claim construction and granting an early summary judgment of non–infringement, the entities implicated sought refuge in bankruptcy court to avoid a fee award, but without success. After a hearing in which the true structure and ownership of the patent and holding companies was revealed, the court decided that significant sanctions were warranted. Specifically:

• $355,000 in attorneys’ fees payable to Dell by Iris Connex (the shell company) and Brian Yates jointly and severally;
• $152,000 in sanctions against Mr. Yates for litigation misconduct;
• An order that Mr. Yates provide copies of the court’s order to any defendant sued by any enforcement entity associated with Mr. Yates; and
• $25,000 in sanctions against Mr. Tadlock, litigation counsel, for making frivolous legal arguments.

We commend Judge Gilstrap’s active case management and commitment to substantive justice in exposing the true nature of Iris Connex and the network of other entities associated with Mr. Yates, and penalizing them for their unlawful behavior. A case highlighting how sunlight truly is the best disinfectant.

* Just one day earlier, on January 24, 2017, the Federal Circuit Court of Appeals signed off on a more puzzling result, affirming a preliminary injunction issued by Judge Schroeder of the Eastern District of Texas in Tinnus Enterprises v. Telebrands Corp. The case involves competing sellers of toys that fill multiple water balloons at once: the Bunch O Balloons and the Balloon Bonanza. Tinnus, the patent–owner, sought and obtained a preliminary injunction against Telebrands, to protect its product against alleged patent infringement. What makes this case notable is that the trial court issued the injunction despite a Patent Trial and Appeal Board finding that the claims of the patent–in–suit were likely invalid. (On top of that, the PTAB later concluded that the patent’s claims were actually invalid.) Regardless, the Federal Circuit affirmed the order entering a preliminary injunction, finding no abuse of discretion by the trial court. The confounding result is that, according to the court of appeals, the district court was not wrong to find that Tinnus was likely to prevail on a claim of infringement of a patent that the PTAB declared likely, then actually, invalid.

In one further twist, it appears that the district court just yesterday granted an emergency defense motion to stay the case in east Texas pending the Federal Circuit’s review of the PTAB’s determination that the disputed patent is invalid.