Hacker News Reader

Comment by ytNumbers | Hacker News Reader

Going forward, I can't see any tech companies making the mistake of incorporating in the state of Texas. Better safe than sorry.

View on HN

Reading this story made me curious as to why software companies haven't made an effort to exclude sales in that area. It seems like that would at least get you out of that jurisdiction.

Because, to a certain extent, it's cutting off your nose to spite your face.

When you're an early-stage, cash-strapped business entity, doing business in TX probably seems like an acceptable risk.

Also probably wouldn't work - see the "stream of commerce" idea discussed above

Otherwise Texas policy seems to be pro-corporation. No corporate franchise tax until you make at least $100k, and you can form a corporation to do whatever you want. I know of one Texas corporation that did business for years in a Schrodinger's cat-like state, where it only kind of existed because they were in the process of finding a new board. Technically, the corporation existed, but wouldn't have been a valid entity to do business with, but most people would only check that the company existed. I'm not sure why it was done, but I suspect those guys got out of paying the franchise tax this way. (No, it wasn't my company!)

>> No corporate franchise tax until you make at least $100k,

Actually that limit is $1.11m.

https://comptroller.texas.gov/taxes/franchise/

Note that it's revenue. You still owe franchise tax even if you're losing money.

Which is good incentive to make some, money that is.

It's also an incentive not to incorporate/operate low margin businesses in Texas.

They have a clause to lessen that problem

"Franchise tax is based on a taxable entity’s margin."

https://comptroller.texas.gov/taxes/publications/98-806.php

It's a lie though, it is not, especially if you're a services and not a physical product company that can show "COST OF GOODS SOLD". Their definition of margin is not correct.

I don't think it's intended to account for all expenses. You do have the option of using compensation to cover your costs, though - why would that not be adequate for cost of providing services?

There are many flaws. For example, paying 1099 contractors doesn't count as an expense. That's just one. There are others.

Texan here. The Eastern District of Texas is a federal court and patents are federal law. The court is physically located in Texas but Texas state policy does not influence it.

But juries are selected locally.

Yes but State Law is separate from Federal Law. Texas can't pass a law that says only patent troll-hating Texans can sit on a federal jury, no matter how friendly Texas is to business.

Local people may know that having large corporations fight legal battles in their district benefits the local economy.

They definitely know because all the free goodies the trolls have gifted them. The whole operation is akin to racketeering.

https://youtu.be/3bxcc3SM_KA?t=479

State law doesn't matter in a federal court, but the culture of the place the jury is selected and the practice specialties of the local attorneys do. The parent post to yours was talking about Texas broadly, not specifically about Texas state law overriding federal law. That's your assertion, and borders on a straw man.

The state, and especially that part of the state within that federal court district, being generally friendly to one type of party or another has to do with more than state laws. It has to do with public perception, legal specializations in that court district, and more. The juries are selected from that public and local attorneys in a district known for patent trolling will likely specialize in patent trolling cases.

Especially on the East of Texas

I'd imagine this will lead to defendant-friendly patent laws becoming one of the selling points that states use to try to lure tech companies to relocate.

these suits are filed in federal district courts as far as I can tell. State law won't be controlling on the issues there.

Yeah, I further encourage not selling anything to people in that court's area of influence except maybe through a specific corporation designed to do just that. Make sure it constantly transfers its money out, too. Reason being there's a lot of money to be made selling in Texas, Austin is a tech hub, and University of Texas does some of the best work w/ top-notch researchers. So, can't leave entirely missing the benefits but certainly hedge against the risks.

Austin isn't in the Eastern district, but the Western. None of Texas' major cities are in the Eastern district.

https://en.wikipedia.org/wiki/United_States_federal_judicial...

https://en.wikipedia.org/wiki/United_States_District_Court_f...

I was wondering about that. Thanks for the info. :)

Plenty didn't incorporate in East Teas (my home area) and still sued and won anyways. This ruling wouldn't really stop them from incorporating or not. Just going to make them think twice about actual jurisdiction. Many companies won't have lawyers that know of or understand this case, and as such some companies will try taking advantage of that fact. Notice - we had to go all the way back to the 50s to resolve this case, and since the earlier 90s is when out-of-true-jurisdiction cases started happening. It took almost 30 years to stop that.

What really needs to happen is anyone's guess. Every system someone comes up with will likely have a flaw to be exploited.

Reply on news.ycombinator.com