New lawsuits are down—way down—in the mostly rural district that was once the national hotspot for patent disputes.
For several years, the Eastern District of Texas hosted more patent lawsuits than any other judicial district in the country. Last year, East Texas saw more patent lawsuits filed than the next four judicial districts combined. But in May, the Supreme Court sharply limited where patent owners can choose to file their lawsuits, in a case called TC Heartland. That’s leading to a sharp change in the geography of patent litigation.
Statistics published today by the IP litigation research company Lex Machina show the dramatic effect the decision has had on the litigation landscape. Lex Machina compared patent filings in the 90 days before the TC Heartland decision came down on May 22 to the 90-day period directly after the decision. What the company found is that the two top districts changed places.
In the 90 days before TC Heartland, 377 patent lawsuits were filed in the Eastern District of Texas. After TC Heartland, just 129 cases were filed in a similar period. That represents a more than 60-percent drop-off in new filings.
Much of that litigation seems to have moved to Delaware, where many national firms are incorporated due to favorable tax laws. Delaware’s single judicial district had 153 patent lawsuits in the period before TC Heartland, but that shot up to 263 lawsuits in the period after the decision.
TC Heartland allows a company to be sued for patent infringement where it “resides,” which is typically the state in which the company is incorporated—hence, all the lawsuits in Delaware, which was already a fairly popular venue. Alternatively, a company can be sued in a district in which it has a “regular and established place of business.”
The trend seems likely to continue, given a recent case called In re: Cray Inc., in which an appeals court clarified how TC Heartland must be applied. In that case, a federal judge ruled that a case against supercomputer manufacturer Cray could be kept in East Texas because the company employed a single work-from-home employee in the district. The top patent appeals court sharply disagreed, though, and overturned that decision, forcing the Cray case out of East Texas.
“The patterns we’re seeing are changing dramatically, and the double-digit dominance of East Texas is gone,” said Brian Howard, Lex Machina’s data scientist, in an interview with Ars.
East Texas was initially an attractive venue because it offered fast times to trial. However, that later became eclipsed by other factors, which were particularly attractive to the types of plaintiffs called “non-practicing entities” or, pejoratively, “patent trolls.” Judges there rarely granted summary judgment to defendants. Even after the Supreme Court’s Alice decision banned “do it on a computer”-type patents, East Texas was reluctant to throw out patents under Alice.
While the moving out of Texas trend will continue, there are a few important things to watch. First, will Delaware become overwhelmed? The district has been short on judges for years, and a gridlocked Congress is unlikely to agree on replacements quickly.
“If they can’t grind through the cases, I don’t know to what extent that would be perceived as a good venue,” Howard said. “Some other district could position itself to offer at least the appearance of more speed.”
Now that In re: Cray has established a new status quo, another thing to watch is what lengths companies might go to in order to avoid disfavored districts. Apple, for instance, maintains just a single retail store in the state of Delaware. In August, a judge held that was enough to force the California company to face a patent lawsuit in that state.
“If I were Apple, I’d be taking a serious look at how much that store brings in,” Howard said.
Apple also has stores in Frisco and Plano, two cities north of Dallas that are within the boundaries of the Eastern District of Texas.
Lex Machina also released general statistics about litigation trends in 2017’s third quarter. The company found 995 cases were filed nationwide, which reflects a steady slowdown that has happened since litigation peaked in 2013. A spike in late 2015 was caused by a rush of companies seeking to file lawsuits before Congress ended Form 18, requiring plaintiffs to disclose more information before they filed suit.
While the decline of NPE litigation is discernible, especially in the past year, Howard described it as “lumpy,” since just a few companies can cause a big upswing in litigation.
“There are a lot of high-volume plaintiffs,” Howard said. “If one of them files 60 cases in a day, that’s a spike all its own.”