Canada, Intellectual Property, Litigators, Patents, Plaintiffs Firms, Texas

The View From Up North: Patent Litigation — Canada Versus America

Which nation takes the better approach to patent litigation?

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Raise your hand if you’ve been to Marshall, Texas. It’s on the eastern edge of the Lone Star State, not far south from Springdale, Arkansas, where Jim Bob and Michelle are raising 19 kids (and hopefully no more), and just west of Monroe, Louisiana, where the Robertsons play whack-a-duck every fall.

I see a few hands raised. Vacationing in Marshall, perhaps? No? Visiting family? No?

Then, I bet you’re patent litigators….

Patent litigation is big business in Canada. It’s crazy business in the U.S., and Marshall, Texas is Disney World for patent litigators. Plaintiffs flock to Marshall to file patent litigation cases because Marshall and the rest of the Eastern District of Texas has historically shown plaintiffs much love. Patent trolls enjoy the Eastern Texas hospitality so much they actually rent satellite offices in Marshall to ensure they have a sufficient connection to Texas to prevent being turfed from the district over jurisdictional or venue issues.

A whole industry has sprung up to support the influx of patent litigation. Hotels dot the landscape and restaurants have opened to feed hungry legal teams. It is big business for the town and will likely continue to be as long as jurors continue to listen impartially to the facts and then find for the plaintiffs. Last year was an anomaly; defendants actually did well in 2013 in the Eastern District. You can imagine that might have sparked a few quiet conversations where prospective jurors were reminded that Aunt Bee’s Chicken Emporium and the Marshall Motor Inn (free HBO) are out of business if plaintiffs stop feeling loved.

The question popped into my mind: why is patent litigation so much bigger in the United States than Canada? How is it possible a whole town can thrive around litigation proceedings? We share such a close culture; our economies are intertwined. What is going on in the U.S. that creates a Marshall, Texas? Here are some of the key factors:

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1. No Contingency Bar. There are very few plaintiffs’ lawyers who will take a patent case on contingency in Canada. Contrast that to the United States, where swaggering contingency lawyers will roll the dice alongside the plaintiff. This means the cost of litigation is much lower up front for American plaintiffs who can convince a contingency lawyer to take their cases.

2. Loser-Pay System. In Canada, losers can be saddled with the winner’s legal costs. This is obviously a substantial deterrent to filing nuisance patent cases. The United States has something cleverly called the “American Rule,” which provides that, in most instances, the parties pay their own legal costs, win or lose.

3. Economic Benefit vs. Risk. The United States has approximately ten times the population of Canada. Winning and losing a patent case means so much more in the U.S. because the stakes are higher. We don’t have the concept of treble damages in Canada. Moreover, our judges tend to grant smaller awards in general to successful patent plaintiffs.

Additionally, in light of the fact that Canadian plaintiffs have to pay their lawyers upfront and a plaintiff who loses may have to pay substantial legal costs to the other party, the potential economic risk of litigation is much higher in Canada. Plaintiffs have to conduct a thorough cost/benefit analysis before filing a case.

There are two industries in Canada, however, where the economic outcomes matter enough to foster patent fights: pharmaceuticals and oil and gas. Several large Canadian firms have built thriving patent litigation practices on the backs of innovator vs. generic drug disputes.

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4. Jury Trials and Forum Shopping. Searching for a friendly jurisdiction is a time-honored legal strategy in the United States. It’s not nearly as prevalent in Canada, especially in Federal Court, which has jurisdiction over patent litigation. There are no jury trials in Federal Court. Thus, there is no need to search the country for the Canadian equivalent of Marshall.

Additionally, the Federal Court is a circuit court. Its judges travel all over the country to hear cases. The plaintiff, therefore, can file in Vancouver, Ottawa, or Toronto and potentially get the same judge. As a result, Canadian plaintiffs tend to file where it’s physically most convenient. They live with the judge that gets assigned the case.

5. Rules of Civil Procedure. The scope of discovery is so much broader in the United States. In Canada, a plaintiff lawyer might be able to depose one company insider and one company expert. In the United States, each side might depose dozens of witnesses. As a result, there should be no real surprises at trial. Both sides will know all the facts.

There is a big risk in Canada that neither side will have all the facts. Nobody wants to go to trial and get nasty surprises. That’s a real incentive to settle.

Additionally, Canadian judges do not manage dockets with as stern a gavel. Judges in the U.S. are much busier. They tend to push cases along as quickly as possible. Long patent trials are rare. In Canada, it is not unusual to ask for sixty trial days for a patent case. In Marshall, one week trials are common.

Furthermore, it can take a lot work (i.e., require a lot of bodies) to help prep all your witnesses and to take depositions from the other side. We can do that in Canada with a smaller team because of our limited scope of discoveries and looser timelines.

I almost hate to say it, but lawyers drive a lot of patent litigation, right? There is big money to be made in fees. Huge departments exist just to conduct patent litigation. Patent lawyers charge U.S. litigants a yacht-load of money just to conduct depositions. The scope of depositions and the tight timelines require U.S. firms to build large patent teams to get everything done in time. If you build it you must feed it, like a patent version of the cookie monster (“Me love patents! Nom, nom, nom, nom.”).

Plaintiffs’ lawyers have every economic incentive to foster trolls to keep the patent monster fed. Defense lawyers have every economic incentive to urge their clients to fight. All of this is done uberrima fides, of course. Lawyers would never breach their fiduciary duties by placing the well-being of the firm ahead of their clients’ interests.

Contrast that with Canada, where the scope of discovery does not require the same massive legal teams. The process before trial is less expensive. Canadians build smaller patent groups. They have less invested in them and, therefore, don’t have to churn patent litigation in the same manner to keep the patent monster fed.

In the end, patent litigation is an important practice area to Canadian lawyers, but not nearly as important or lucrative as it is to American lawyers. Maybe that’s good, maybe that’s bad. But one thing’s for certain: it means we don’t have the equivalent of Marshall, Texas in Canada, and that’s a shame because how fun would it be to have a whole town where people actually like it when lawyers show up?

Someday I want to make a pilgrimage to Marshall. I think I’ll drive. I’ll probably kick the trip off in Springfield near the Duggar homestead, wind my way past the Duck Dynasty warehouse in Monroe, make a sharp right and head west into Marshall to see the town that patent litigation feeds and to meet the people who love lawyers and think trolls are cute and cuddly.

That’s the View From Up North. Have a super week.

Steve Dykstra is a Canadian-trained lawyer and legal recruiter. He is the President of Keybridge Legal Recruiting, a boutique recruitment firm that places lawyers in law firms and in-house roles throughout North America. You can contact Steve at steve@keybridgerecruiting.com. You can also read his blog at stevendykstra.wordpress.com, follow him on Twitter (@IMRecruitR), or connect on LinkedIn (ca.linkedin.com/in/stevedykstra/).

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