The economy has three enemies: taxes, regulation, and, for lack of a better word, liability. President Donald Trump has managed to slay two of these dragons by backing tax cuts and aggressive deregulation of entire economic sectors but there’s little he can do about the cost of litigation. Mostly, it’s a matter for the states and they, like it or not, need to act before activist lawsuits help choke off the recovery.
It’s a problem that’s been building for years, particularly as it regards the alleged misappropriation of trade secrets. The number of suits on this issue increased by at least 14 percent per year between 2001 and 2012 with Texas, surprisingly, as ground zero.
Over the past 25 years federal district courts in Texas were responsible for nearly 20 percent of all trade secrets case decisions. The plaintiff bar has staked it out as preferred venue which, given the state’s reputation as a place where conservatives rule the day on just about every issue, doesn’t make much sense. Until you consider how deeply the trial bar has its hooks into everything, Republican and Democrat, liberal and conservative alike, all across America.
Plaintiffs looking for large payouts have ample reasons to bring their complaints to Texas. Juries find for the plaintiffs almost 70 percent of the time even though the complaints being litigated involve intellectually challenging concepts that may be beyond the scope of the average trial judge to fully comprehend. And because there are big bucks involved — everything is big in Texas after all — the incentives to go to trial are considerable.
In 2017, the largest intellectual property award anywhere in America was $500 million resulting from a case tried in the Lone Star State. And at the six-month mark, it looks like Texas will again claim the prize for biggest verdict awarded in 2018 thanks to a March jury decision giving a company called HouseCanary (a company in the real estate valuation business) over $700 million after it successfully sued Amrock, alleging its competitor had misappropriated trade secrets.
What makes the HouseCanary case bizarre is the fact that the company’s home base is San Francisco, California. It’s where 90 of the 120 people employed there actually work. The decision to bring suit in Texas, where company operations are barely big enough to be called a shell, sounds like someone was engaged in venue shopping in anticipation of a big verdict.
The states need to get serious about legal reform. The various loopholes and lax rules that allow for cases like this to move from one jurisdiction to another because the payoff might be larger imposes costs on the economy paid ultimately by you and me. It’s hard to believe the Texas economy is thriving given the peril every company that actually does business their faces on a day to day basis. Many companies, especially the small businesses that form the backbone of the U.S. economy, cannot afford the burden of punitive damages, legal fees, and operational disruption these kinds of lawsuits bring – yet they have no alternative. Likewise, it’s a kind of tax on innovators at the start-ups that are changing the way we live. As long as the danger of irrational judgments persist, the country’s most promising start-ups are imperiled.
The upward shift in the trend line needs to be reversed. The continued payout of substantial judgments far in excess of actual damages in these trade secrets cases needs to stop or innovation may grind to a halt. The risks associated with losing a case, especially a dubious one, are too high. The HouseCanary case is just one more example of a system run amok in ways that will depress rapid economic growth at a time when it is most sorely needed.
Peter Roff is a former senior writer for United Press International. You can reach him by email at RoffColumns@gmail.com and follow him on Twitter @PeterRoff.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.