By William McQuillen and Susan Decker

May 23 (Bloomberg) -- At the Blue Frog Grille in Marshall, Texas, manager Shawne Somerford says she keeps an eye on the schedule at the U.S. courthouse two blocks down. During trials, it generates as much as 40 percent of her business.

Her restaurant caters to $600-an-hour lawyers who flock from New York and Los Angeles to Marshall, 150 miles east of Dallas, to argue patent suits. The court has generated new office space, shops and work for local attorneys. All that may be threatened if a New Orleans court makes it easier to transfer cases out of Marshall following a hearing yesterday on an appeal.

The U.S. District Court for the Eastern District of Texas, thanks largely to Marshall Division Judge T. John Ward, has become America's most sought-after venue for patent suits. Its popularity is causing a backlog, with trials now scheduled through 2010. The court's future as a local economic engine is also under attack by a proposal in Congress.

``Over the years it has added several million dollars to our economy,'' said outgoing Mayor Ed Smith, referring to patent lawyers' spending. ``We just have not figured out a way to tax them.'' The possibility of losing the business is like a ``cloud hanging over'' the town, he said.

In the hearing yesterday before a New Orleans appeals court, Volkswagen AG contended that a claim for damages in an auto fatality should be moved to Dallas, closer to the site of the accident. Ward had turned down Volkswagen's motion. The appeals court hasn't yet issued a ruling.

While the dispute doesn't involve patent law, it would affect the Marshall court's role in such cases. The argument is part of a national debate over claims that trial lawyers shop for courts that are likely to return verdicts against corporations. A provision in the measure before Congress would require that at least one party have a physical presence where a suit is filed.

Local Economy

The outcome may hurt entrepreneurs who have revitalized Marshall, population 24,000. While the town hasn't assessed the court's economic impact, there is anecdotal evidence of it. Five new office suites are for rent as temporary space for lawyers.

Melinda Hodge, manager of the Hampton Inn, says at least 25 of the 68 rooms this week are filled by lawyers in town for the trial of Minneapolis-based Medtronic Inc.'s patent-infringement suit over heart devices against Boston Scientific Corp., of Natick, Massachusetts.

Corey Gossens, head cook of the Central Perks coffee shop, estimates 80 percent of its catering business is for lawyers.

Somerford's year-old Blue Frog Grille bakes its own bread, serves a cookie with each meal and uses chipotle to spice its ketchup. Sidewalk tables offer a view of the 19th-century Harrison County Courthouse, with gargoyles along the top and a statue of a confederate soldier at the base. That building dwarfs the U.S. courthouse, a converted brick post office across the street.

Clinton Appointment

The Eastern District's rise as a place for deciding disputes over inventions of medical devices, computer chips and digital television began with the arrival of Ward, now 65. A former trial lawyer from nearby Longview, he was appointed to the federal bench by President Bill Clinton in 1999.

Ward's interest in patent litigation stemmed from a client's loss of $25.2 million in a suit against Texas Instruments Inc. in his last trial as a lawyer, he said in a May 1 interview. The only judge assigned to the Marshall courthouse, he decorates his office with photos of his bird dog, Sophie, and Sam Rayburn, the Texas Democrat who was Speaker of the U.S. House of Representatives in the 1940s and 1950s.

He also wanted to understand why patent cases moved so slowly, he said. So he studied how the Northern District of California, home to Silicon Valley litigation, handles suits. He adopted that court's rules, aimed at limiting pretrial fights and finishing proceedings more quickly.

Busiest Court

In the 12 months through Sept. 30, 359 of 2,896 U.S. patent suits were filed in the Eastern District of Texas, according to the Administration Office of the U.S. Courts. That made it the busiest patent venue among the 94 district courts for the first time. The Central District of California, the usual leader, was second with 334.

Lawsuits against businesses may be filed in any district where their products are sold. U.S. law allows cases to be moved for the convenience of the parties. Ward grants 29 percent of transfer motions in patent cases, below the national average of 48 percent, according to LegalMetric LLC, a St. Louis-based research company.

Ward presides over almost all of the trials in Marshall, including a $431 million verdict against Boston Scientific in February, the biggest win by a patent owner. Boston Scientific is challenging the verdict. He was also on the bench in 2007 when Nortel Networks Corp., the Toronto-based maker of telephone equipment, was told to pay $28.1 million to Australia's Ipernica Ltd. in a dispute over a patent. The case settled last month after he denied Nortel's bid for a new trial.

`Plaintiff-Friendly Venue'

The judge has been overturned just twice in patent cases by the U.S. Court of Appeals for the Federal Circuit in Washington, said Greg Upchurch, director of research at LegalMetric. About 70 percent of Ward's trials have resulted in wins for patent owners, the research company said. The national average is 23.5 percent.

That's why a 17,000-member group of patent attorneys is backing the Volkswagen challenge to Ward's transfer ruling. While appeals of patent verdicts are heard by the Federal Circuit, it usually defers to regional appeals courts, such as the Fifth Circuit in New Orleans, to determine local judicial rules.

`Largely a Myth'

A filing by the American Intellectual Property Law Association in support of Volkswagen cited the ``widespread belief'' that the Marshall court ``is a plaintiff-friendly venue that provides a substantial litigation advantage to a patent holder.'' A group of Texas trial lawyers came to Ward's defense, calling the court's reputation ``largely a myth.''

Ward declined to comment on the effects of the New Orleans decision on Marshall's future, saying he hasn't followed the case. Local business people say they are concerned they will lose business.

``I'm ready to sign petitions, or do what I need to do,'' said the Hampton Inn's Hodge. Ward's courthouse ``really does bring in a lot of money -- the gals who wait tables at the restaurants downtown, the dry cleaners. It's a big boon for our economy.''