30 Nov 2018 in Newsletter
18 Months Gone: TC Heartland’s Evolving Impact on Patent Litigation in the Eastern District of Texas
The United States Supreme Court decision in TC Heartland, LLC v. Kraft Foods Group Brands, LLC, 137 S. Ct. 1514 (2017) (8-0 decision) (hereinafter “TC Heartland”) upended 30 years of patent venue law. Specifically, Justice Thomas authored the opinion finding that “a domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.” At the time of the TC Heartland decision, it was unclear to what extent a case emanating from a federal district in Delaware would reshape patent litigation for other districts, such as the popular venue found in the United States District Court for the Eastern District of Texas (hereinafter “the Eastern District of Texas”).
Between about 2000 and 2017, the United States saw a dramatic shift in venue preferences for patent litigation. During this time period, the Eastern District of Texas became a popular venue for such cases. In contrast to district courts located inside large cities, for example, the Eastern District of Texas had a sparse number of criminal cases that might interfere with the district court’s docket. Thus, patent holders could obtain a “rocket docket” relative to patent lawsuits filed in other districts. Moreover, the Eastern District of Texas gradually earned a reputation of being friendly for patent holders, thus increasing the number of patent lawsuits filed with the court. Accordingly, this federal district located in a largely rural area of east Texas became a major battleground for technology companies spanning the entire United States.
Thus, the shifting patent landscape post-TC Heartland can be best understood by empirical analysis, i.e., by comparing patent cases filed before and after the TC Heartland decision. In the year before TC Heartland decision, 38% of patent litigation in U.S. district courts took place in the Eastern District of Texas. In particular, patent holders that sought to enforce their patents without practicing the technologies in their patents, also called non-practicing entities (NPEs), favored the Eastern District of Texas pre-TC Heartland. Specifically, more than 90% of the patent litigation in the Eastern District of Texas involved a lawsuit filed by an NPE entity. In contrast, in the same time period, only 35% of cases in the United States District Court for the Southern District of Texas (hereinafter “SDTX”), which includes Houston, involved NPEs.
Since the TC Heartland decision, litigation is moving to the state, and seemingly the district, where the defendant company is incorporated. Given that the bulk of lawsuits are directed at high-tech companies, the district courts in regions with strong tech industries have seen a large increase in their patent caseload. Most strikingly is an 84% increase in filings year-over-year in the United States District Court for the Northern District of California (hereinafter “NDCA”), which includes both Silicon Valley and the San Francisco Bay Area. For example, NDCA has seen about 3.5 times as many new patent lawsuit filings involving NPEs.
The United States District Court for Delaware (hereinafter “District of Delaware”) has seen a dramatic increase in caseload. The state of Delaware has traditionally been attractive for business incorporations even where the business’ headquarters is located in a different state. For example, while many Fortune 500 companies have headquarters located across the US, 67% of the Fortune 500 companies are legally incorporated in state of Delaware. As a result, the District of Delaware has become the most popular district court for patent litigation, increasing from 13% of the national district case filings in the year before the TC Heartland decision to 22% in the following year.
However, the Eastern District of Texas is still the second most popular district for patent litigation post-TC Heartland, constituting 15% of the national district court new filings. When reviewing cases in the Eastern District of Texas following the TC Heartland decision, case after case was closed following a successful defense motion to relocate the lawsuit to a district within the defendant’s state of incorporation. As a result, the true landscape in this area is still shifting.
Furthermore, the total number of patent lawsuits filed in Texas has dropped almost 60% following the TC Heartland decision in comparison to pre-TC Heartland numbers. But once the Eastern District of Texas is excluded, the numbers tell a slightly different story. For example, the number of lawsuits filed in other Texas districts is up almost 80% in comparison to pre-TC Heartland numbers (+55% in Southern District of Texas; +77% in Western District of Texas; +102% in Northern District of Texas).
In analyzing the statistics, the increase in lawsuits is primarily associated with litigation involving NPEs. For example, non-NPE litigation is up only 13% outside the Eastern District of Texas. In contrast, the rest of Texas outside the Eastern District of Texas has seen 2.5 times as many lawsuit filings involving NPEs in comparison to pre-TC Heartland numbers. Most strikingly, the Northern District of Texas has seen more than a 4 fold increase in the number of patent lawsuit filings involving NPEs.
Despite the elapsed time since the ruling, there are still a few ongoing questions, including:
- Where does the defendant “reside” when that entity is not a domestic corporation?
- Will businesses incorporated in Texas be sued disproportionately in the Eastern District of Texas? Will California courts other than NDCA begin to see new patent lawsuit filings against high-tech companies?
While the location of where patent infringement cases in the United States are filed may have dramatically changed with the TC Heartland decision, at least according to the statistics discussed above, no one yet knows the full effects.
 TC Heartland at 1517.
 Please note that statistics for this newsletter article are courtesy of Unified Patents, Inc., available at https://www.unifiedpatents.com/. Calculations are based on District Court patent litigation filings from 5/22/2016 to 5/22/2017 compared with filings from 5/22/2017-5/22/2018.