Judge Rodney Gilstrap Sets an Unwanted Record: Most Cases With Financial Conflicts

The companies included Microsoft Corp. (53 cases),

Walmart Inc.

(36 cases),

Target Corp.

(25 cases) and

International Business Machines Corp.

(9 cases).

A 1974 federal law requires judges to disqualify themselves from cases if they, their spouse or minor children hold a financial interest in a plaintiff or defendant, including the interest of a beneficiary in assets held by a trust.

The Journal investigation, which compared judges’ financial-disclosure forms against their court dockets, found that 131 federal judges violated this law from 2010 to 2018, in a total of 685 cases. Judge Gilstrap had several dozen more violations than the runner-up, Judge

Janis Sammartino

of California, who heard 54 cases involving companies held in her family’s trusts. She has since directed court clerks to inform the parties in most of the cases that she should have recused herself.

Judge Gilstrap, the chief judge for the U.S. District Court for the Eastern District of Texas, also disclosed one of the largest holdings in a conflicted company. He oversaw a patent-infringement case against a

Walt Disney Co.

unit while he or his wife reported holding between $100,001 and $250,000 of Disney stock. The plaintiff later withdrew its claim.

The 64-year-old Judge Gilstrap, one of America’s most prominent district judges, said he believed he didn’t need to recuse himself from some cases because they required little or no action on his part, and in other cases because the stocks were in a trust created for his wife without her stock-picking input. Legal-ethics experts disagree on both counts.

Judge Gilstrap declined interview requests. “I take my obligations related to potential conflicts/recusals seriously,” he said in one of seven emails to the Journal. “Throughout my judicial career, I have endeavored to comply with all such obligations, and I will continue to do so.”

Beyond violating law and ethics, the judges’ handling of lawsuits filed by and against companies in which they have financial interests threatens the federal courts’ hard-earned and crucial reputation for fairness, impartiality and objectivity.

Federal district judges have considerable discretion on matters of fact finding and other pretrial issues, and this can be especially important in patent litigation, a complex area of law. “The more important questions in any given patent case are the small discretionary, often procedural questions that the judge resolves before trial,” said

Paul Gugliuzza,

a law professor at Temple University.

Friends and other lawyers said they couldn’t imagine that Judge Gilstrap would ever be swayed by his or his family’s investments in making court rulings. “That man is as pure as the driven snow in terms of his ethics and personal responsibility,” said

Brad Toben,

the dean of Baylor University Law School and a longtime friend of the judge.

An unusually large role in patent litigation has made the Eastern District of Texas a lightning rod for criticism from some academics, corporations and think tanks.

These critics say its rules encourage patent holders to bring suits there because they are dispatched swiftly, often with quick settlement payouts to the plaintiffs. A 2016 article in the Southern California Law Review described how it said the court engaged in “forum selling,” a pejorative twist on “forum shopping,” the practice of lawyers seeking out friendly legal venues.

Some have lauded the court’s efforts to cater to patent litigants. A 2011 article in Southern Methodist University’s Science and Technology Law Review said the patent rules in East Texas “provide structure and a default schedule for the efficient, effective, and more predictable administration of patent cases.”

It is in patent suits where 85% of Judge Gilstrap’s recusal violations identified by the Journal occurred. In one, a McKinney, Texas-based company called Biscotti Inc. alleged that Microsoft’s Xbox One services infringed a patent covering live video-chat capabilities. A jury found in Microsoft’s favor in 2017.

Biscotti sought a new trial, citing numerous reasons, including an assertion that a video shown to the jury about videoconferencing calls violated evidentiary rules.

“The video does not present the sort of prejudice that would justify a new trial,” Judge Gilstrap said in rejecting Biscotti’s claims in 2018. “A plethora of other evidence in this record supports the jury’s verdict in this regard.”

For most of the nearly five years he oversaw the case, Judge Gilstrap’s disclosure forms listed between $15,001 and $50,000 of Microsoft stock.

In another instance, Judge Gilstrap took unusually strong action in a 2015 case that he shouldn’t have overseen because of stock held in his wife’s trust.

A firm called Iris Connex LLC sued Microsoft and 17 other technology companies alleging that their computer and smartphone devices infringed its patent for videoconferencing. In a 2016 ruling, Judge Gilstrap said that “no reasonable juror could find the accused camera system” with fixed cameras violated a patent held by the plaintiff that called for a movable camera.

The judge granted summary judgment, though the defendants hadn’t requested it. In doing so, he cited court precedent that said disposing of the claims at such an early point in the infringement case was highly unusual “but entirely appropriate at an early stage in a case where…the issues are cut and dry.”

In a later ruling, Judge Gilstrap also called Iris Connex’s lawsuit “exceptionally bad,” said the company was a shell meant to insulate the true owner of the patent against sanctions for filing frivolous cases, and ordered him to pay attorneys’ fees and expenses to one of the defendants.

Lawyers for Iris Connex and a spokesman for Microsoft declined to comment.

Judge Gilstrap said he removes himself from cases involving plaintiffs or defendants in which he or his wife hold stock—but not when those stocks are held in a trust created for his wife and her descendants.

Judge Gilstrap said that a trustee makes investment decisions for the trust and holds legal title to its assets and that the trust will continue to exist after his wife’s death.

Judge Gilstrap said he checked the trust’s characteristics against ethics guidance provided to other federal judges and believes that “its structure, the limitations it imposes, and the Trustee’s discretion place it in a category of trusts which would not require recusal.”

Legal experts told the Journal that Judge Gilstrap’s wife has an interest in the trust’s stocks, even if she doesn’t hold legal title to them.

Federal law defines a “financial interest” in a party as either a “legal or equitable interest,” such as a beneficiary’s interest in a trust.

“The judge must recuse if the trust for the spouse has even one share of stock in a party,” said

Stephen Gillers,

a New York University law professor and author of a judicial ethics casebook, who reviewed the filings for the Journal. “It does not matter that the spouse or child have no say in the investment choices.”

Investments in his wife’s trust should be disclosed if she either is the legal owner of the trust or has an equitable interest, said

Ben Johnson,

a law professor at Pennsylvania State University, who published research on recusal failures among district judges. “He would have to recuse.”

Judge Gilstrap’s financial disclosure forms make no distinction between the trust’s assets and stocks the judge and his wife hold in other investment accounts.

In emailed statements, he declined to provide an accounting of the stocks in the trust but confirmed that Microsoft was among them, reiterating that he believed he had no duty to recuse himself in cases involving the company.

Judge Gilstrap also initially said he had no duty to recuse himself from some cases involving parties in which his family’s other investment accounts held stock because the cases identified by the Journal were handled by a magistrate judge or required only “ministerial” actions by Judge Gilstrap.

After the Journal contacted him, he sought counsel from the federal judiciary’s ethics committee. The panel said he was mistaken.

A Sept. 2 opinion by the committee, provided to the Journal by Judge Gilstrap, said the Code of Conduct for U.S. Judges “requires recusal when a judge has a financial conflict, regardless of the substance of the judge’s actual involvement in the case,” and “encompasses a situation where the Clerk’s Office assigns you a case, even where you do not act.”

In sharing the opinion with the Journal, Judge Gilstrap said he would follow the panel’s guidance. “In hindsight and considering the attached opinion from the Committee, I now understand that, despite my lack of any involvement or action, such cases result in a need for me to recuse,” he said.

He declined to say whether he sought an opinion from the committee on whether he was required to recuse in connection with his wife’s trust.

Court dockets in the cases identified by the Journal give no indication that Judge Gilstrap or the court clerk has notified parties that he held a disqualifying interest while assigned to the cases.

On Tuesday, another federal judge notified by the Journal about recusal violations directed a court clerk to make public alerts to parties in 16 lawsuits saying he shouldn’t have heard the cases. That brought to 57 the number of judges who have told clerks to issue similar court notices, in 345 lawsuits.

Judge Gilstrap joined the federal bench in 2011, nominated by former President

Barack Obama

and recommended by two Republican senators from Texas. “He has earned the support of people of all political stripes in East Texas and around our great state,”

Sen. John Cornyn

said at the confirmation hearing.

When nominated, he reported that he or his family owned a total of nearly $1.8 million in shares of more than three dozen companies. In a more recent accounting, his 2018 disclosure form, Judge Gilstrap reported holding $3.7 million in stocks, among total assets of more than $8 million.

The shares he disclosed owning when nominated included $16,521 of Microsoft, $6,915 of JPMorgan Chase & Co. and $1,756 of

Cisco Systems Inc.

Within days of his confirmation, his docket filled with more than 100 cases, including suits that named Microsoft, JPMorgan and Cisco as parties.

By the end of the year, he had more than a dozen cases that involved companies in which he or his wife owned stock, the Journal found.

Mr. Gilstrap faced no questions about his investments at his confirmation hearing. But senators asked him about “patent-troll” litigation, a derisive term for suits by plaintiffs—often firms that make no products but own patents—to enforce rights against alleged infringers far beyond the patents’ value.

He vowed to be fair. “I’ve heard it said that to be an effective district judge, you have to be willing to disappoint your friends and astound and please your detractors sometimes,” he said at the hearing.

Judge Gilstrap is known around Marshall for meeting with students for civics lessons, singing in a church choir and handing out jars of homemade honey he has branded “Sweet Justice.”

A magna cum laude graduate of Baylor with a degree in religion, Mr. Gilstrap went to Baylor Law School before starting to practice law in Marshall. In 1984 he co-founded a firm there specializing in intellectual-property and patent law.

Court rules at the time allowed plaintiffs to file patent-infringement suits anywhere the defendant’s product was sold. When Dallas-based

Texas Instruments

sued competitors based in Asia to defend its semiconductor patents In the late 1980s, TI’s lawyers brought the cases not in Dallas but in Marshall, which had acquired a reputation for having juries sympathetic to plaintiffs and where suits could go to trial quickly.

A series of judges in the Eastern District of Texas adopted local rules that promised a “rocket docket” for patent cases. In a patent case before the U.S. Supreme Court in 2006, when an attorney complained of a pro-plaintiff bent at the court in Marshall, Justice

Antonin Scalia

referred to it as being among “renegade jurisdictions.”

“Why Do Patent Trolls Go to Texas? It’s Not for the BBQ,” the Electronic Frontier Foundation, a libertarian digital-rights group that opposes patent trolls, said on its website in 2014. The pro-defendant American Tort Reform Association in 2016 deemed the district among “judicial hellholes” because of its plaintiff-friendly reputation.

The Marshall community benefited from the local court’s being a center of patent litigation. Law firms needed hotels. Some companies opened local outlets to facilitate filing cases in the district.

“These attorneys are coming to small-town Texas for cases, often bringing a team of 20 lawyers,” said Prof. Gugliuzza of Temple, who has studied the court.

Before joining the federal bench, Judge Gilstrap served for a dozen years as the local Harrison County judge. That made him a top county politician, in a role concerned with local economic development as well as with the local court.

When tapped for a federal judgeship, he committed to taking on what by then was a bulky patent-suit caseload in Marshall. Since 2011, Judge Gilstrap has heard nearly 15% of the more than 47,800 patent cases filed in federal courts.

The assets reported by Judge Gilstrap and his family include companies that are typically defendants in patent-infringement suits.

Judge Gilstrap has retained or enhanced rules that made the local court attractive to plaintiffs’ lawyers seeking to enforce patents rights, who often seek to settle their suits quickly.

In the period before patent cases got to trial, Judge Gilstrap’s court has proved somewhat plaintiff-friendly, according to data analyzed for the Journal by Lex Machina, a legal analytics provider. Of 6,929 patent cases in front of Judge Gilstrap, 83% were resolved with a settlement before trial, compared with 69% of patent cases nationally since 2011.

Once litigants got to trial, however, the data analysis shows Judge Gilstrap’s rulings have favored defendants more often than in patent suits nationwide. Since 2011, he has found that defendants infringed patents in 34 cases and didn’t infringe in 35. Nationwide, judges have found infringement in 277 cases and none in 204 cases, according to Lex Machina, which also counted more patent suits handled by Judge Gilstrap than any other judge in the past decade.

Judge Gilstrap didn’t respond to requests for comment on these findings.

The tort-reform association said that in 2015, Judge Gilstrap threw out 168 suits filed by what the association labeled “a serial patent troll” that sought small settlements from numerous companies.

Over the years, Judge Gilstrap has championed the Eastern District of Texas on the legal-lecture circuit. In 2018, he made two dozen trips, many to speak at national and international conferences about patent litigation, paid for by the U.S. court system, bar associations and universities, his financial disclosure form shows. All this was permissible.

The Eastern District’s outsize role in patent litigation has eased since 2017, when the Supreme Court limited plaintiffs to bringing their suits where defendants have an established place of business. The district now is only the third-busiest, of 94 federal court districts, in patent cases. Judge Gilstrap, though, is still one of the busiest patent judges and has been since his earliest days on the federal bench.

Judge Gilstrap disqualified himself from a patent case weeks after his Senate confirmation in 2011, but he kept the case when it boomeranged back to him after brief stops in the courtrooms of two other judges.

In the suit, the plaintiff alleged its patent was infringed by a tool on the websites of

McDonald’s Corp.

and several other companies to help people find stores near them. Judge Gilstrap recused himself in January 2012 without explanation.

Asked recently about it, he said, “This was a long time ago, but I suspect the presence of McDonald’s Corp. (which I hold in a personal brokerage account) would have prompted” him to bow out.

The judge to whom the case was reassigned retired after about two months. The district court assigned it to another judge, but later took it away from that judge in a rebalancing of caseloads. The case landed on Judge Gilstrap’s docket again in January 2013. This time, he didn’t recuse himself.

McDonald’s was no longer a defendant, having settled. The plaintiff, however, had filed more suits alleging that various retailers, banks and big-box stores were infringing its patent. Judge Gilstrap consolidated these suits.

Of the more than two dozen companies that were by then parties, Judge Gilstrap’s disclosure forms showed investments in five:

Home Depot Inc.

and JPMorgan (each $15,001 to $50,000 worth) plus Microsoft, Target and Walmart (each up to $15,000).

Walmart and the plaintiff, LBS Innovations LLC, entered into an agreement to dismiss the claims against the retailer in September 2013. Judge Gilstrap discarded some of LBS’s infringement claims against the remaining companies in a January 2014 ruling. Settlements with Home Depot, JPMorgan, Microsoft and Target quickly followed.

Judge Gilstrap said the stocks in the five companies were assets of his wife’s trust and didn’t require his recusal.

Eric Buether,

a lawyer who represented LBS in the case, said, “My experience is that he’s a fastidious judge who holds all parties and lawyers to obey the rules and [I] would not expect this to be anything other than an innocent error if there even were one.”

Mr. Buether has a trial in Judge Gilstrap’s court starting next week.

—Header illustration by Art Lien for The Wall Street Journal

Write to Joe Palazzolo at joe.palazzolo@wsj.com, James V. Grimaldi at james.grimaldi@wsj.com and Coulter Jones at Coulter.Jones@wsj.com