Famous patent “troll’s” lawsuit against Google booted out of East Texas

Eolas Technologies, which has been called a "patent troll," has continued to file against big companies, even after losing a landmark 2012 trial. But following an appeals court order (PDF) last week, Eolas will have to pursue its lawsuits in California—not its preferred patent hotspot of East Texas.

As of Friday, Eolas' lawsuits against Google has been transferred to the Northern District of California. The move could reduce Eolas' chances of winning a settlement or verdict since East Texas courts have been viewed by some as favoring patent holders. Similar lawsuits against Amazon and Wal-Mart remain in East Texas, for now.

To understand the context, let's briefly sum up the history of Eolas. The company was formed out of a patent filed by Michael Doyle, who was the head of IT at the University of California, San Francisco, campus in the 1990s. Doyle says that, while at UCSF, he created the first program that allowed users to interact with images inside of a Web browser. He claimed that patent entitled him to royalties on a vast swath of features related to the "interactive Web," including online video, user-manipulated images on shopping websites, and suggestions that pop up in search bars.

Doyle and Eolas sued Microsoft in 1999. After years of litigation, Eolas ultimately won a settlement from Microsoft believed to be more than $100 million. (The University of California was paid $30.4 million, and its deal was believed to be roughly 25 percent.) A subsequent case resulted in dozens of settlements from big companies, but Google, Yahoo, and JC Penney defeated the Eolas patent at trial. The jury was convinced by presentations of earlier interactive Web technologies, like the Viola browser and the <embed> HTML tag. The creator of the World Wide Web himself, Tim Berners-Lee, testified in the defendants' favor.

Yet, Eolas lawyers were able to continue to get more patents granted as "continuations" of that original patent, even after a jury invalidated it, and the jury's verdict was upheld on appeal. Eolas was granted US Patent No. 9,195,507 on November 24, 2015. The company sued Google, Wal-Mart, and Amazon the same day.

A single employee

All three defendants filed motions seeking to transfer the case, but US District Judge Robert Schroeder denied them in November. Schroeder said that judicial economy favored keeping the cases in Texas. Schroeder also said that East Texas had "institutional knowledge" that could be valuable in overseeing the matter, even though US District Judge Leonard Davis, who oversaw the original Eolas cases, stepped down from the bench in 2015.

Google lawyers took the unusual step of taking the venue issue to an appeals court, saying Judge Schroeder's ruling was out of line. Last week, the top US patent court issued its 2-1 split decision (PDF) in Google's favor.

The district court said that the "locations and sources of proof" only slightly favored Google. In the view of the appeals judges, though, "the evidence overwhelmingly supports a conclusion that this factor weighs strongly in Google's favor." That's because the "vast majority" of Google employees work in Northern California—while "Eolas has a single employee currently residing in the Eastern District of Texas." (Emphasis in order.)

The district court was also in error when it relied on the existence of the two other cases as a major reason for favoring Eolas, the appeals judges held.

"Based on the district court's rationale, therefore, the mere co-pendency of related suits in a particular district would automatically tip the balance in non-movants favor," wrote US Circuit Judge Sharon Prost. "This cannot be correct."

Finally, the judges noted Davis' retirement and said that the idea that Texas courts could benefit from "institutional knowledge" was untenable. "By relying on these cases, the district court committed clear error."

A Google spokesperson declined to comment on the transfer order. Eolas lawyers didn't respond to a request for comment.

The appeals court order was issued on Thursday, and the docket in Schroeder's court accordingly transferred the case the following day.

The transfer is clearly a victory for Google and suggests that the end of Eolas is finally at hand. Then again, that's what onlookers thought in 2013 when Eolas lost its original appeal. Another important question remains unanswered: how can a patent-holding company like Eolas continue to acquire patents that are nearly identical to patents that have been invalidated in court?

The Electronic Frontier Foundation has complained about the US Patent and Trademark Office being too lenient in handing out "continuation" patents. The fact that the patent office seemingly does not take into account judicial rulings on related patents—even the rare patent invalidation that garners worldwide press—exacerbates that problem.

Correction 2/28/17: An earlier version of this article incorrectly reported that the lawsuits against Google, Wal-Mart, and Amazon had all been transferred to California. In fact, only Eolas' lawsuit against Google has been transferred. The cases against Wal-Mart and Amazon remain pending in East Texas.