Unified Patents' Offers First Quantitative Study of TC Heartland Impact

Since TC Heartland v. LLC D/B/A Heartland Food Products Group V. Kraft Foods Group Brands LLC. made clear that patent venue is not coextensive with personal jurisdiction, debate has swirled as to the impact of this case on the Eastern District of Texas (EDTX). Of course, the focus is properly on the EDTX as it is the district that effectively broke the system, as I and others made clear to the Supreme Court (Unified Patents amicus). But, little if any of the recent speculation has looked at hard numbers, until now.

A study authored by Unified Patents presents the first glimpse at the coming landscape. The text that follows is authored by Unified Patents.

Summary

TC Heartland stands poised to dramatically alter where patent cases are brought. But few of the many voices interpreting the decision have used qualitative means to predict how filing patterns may shift and what impact the decision may have on patent law in general. To remedy this, we combined data on patent filings in 2015 from Professors Colleen Chien & Michael Risch’s prior estimates of what impact a stricter venue ruling in TC Heartland would have on district court filings. Doing so, we predict that post-TC Heartland might result in following for all of 2017:

● A 69% decrease in filings (or almost 1000 fewer new cases) in the Eastern District of Texas (ED Texas). This would still make ED Texas the second-most popular venue.

● A 230% increase in filings (or almost 500 additional new cases) in the District of Delaware (DED) will make it the largest. This may cause issues, given that two of the District’s four full-time seats are vacant. (Here)

● A nearly 300% increase in cases (or almost 300 additional new cases) for the Northern District of California (ND Cal), surpassing Central District of California (CD Cal)

● Sizable increases for Northern District of Texas (ND Tex) and Southern District of New York (SD NY).

● Relatively minor increases in most other districts, generally based on the location of corporate HQs.

Background

For almost 30 years, the Federal Circuit has taken a broad view of venue in patent cases, allowing patent holders to bring suit in virtually any Federal District court nationwide. NPEs have taken advantage of these rulings to file suit in venues where they benefit from early trial dates, broad discovery requirements, a history of large jury verdicts, and other factors that pressure accused infringers to settle quickly. ED Texas, by far the most popular venue in recent years, is a rural district where few tech companies have any physical presence. Yet it has played host to thousands of patent suits, with more than 25% of all cases in the nation assigned to a single judge sitting in tiny Marshall, Texas. In that district, more than 90% of all patent litigation is brought by NPEs. This has forced many small entities to pay high settlement fees, in order to avoid the significant cost and uncertainty of litigation in a far-flung venue—even when the patents may be invalid.

TC Heartland Decision

In TC Heartland LLC v. Kraft Food Group Brands LLC, Slip Op. 16-341, (May 22, 2017) the Supreme Court unanimously held that—for purposes of establishing “residency” for venue in patent cases—domestic corporations are only residents in the State in which they are incorporated. This decision marks a major milestone in the battle against NPE litigation, and reverses a decades-old decision by the Federal Circuit that opened the floodgates for thousands of NPE filings in “patent-friendly” venues—most notably, the ED Texas. Of note, the Supreme Court largely agreed with an amicus curiae brief filed by Unified Patents.

Pre-TC Heartland—Projected 2017 Patent Litigation Venue and Volume

The two charts below project what the 2017 distribution of patent suits might have looked like without the TC Heartland decision. We calculated this distribution by (1) measuring the percent difference between actual volume of NPE and operating company patent litigation for Q1 2015 and Q1 2017 for each venue and then (2) applying that percent change to calculate the total anticipated patent litigation for 2017 based on 2015’s venue and volume. As you can see, we projected more than 3560 cases in total (including 60.2% NPE cases); more than half of those cases would have likely been filed in ED Tex.

Post-TC Heartland—Projected 2017 Patent Litigation Venue and Volume

In contrast, the two charts below project 2017 patent suits in view of TC Heartland. These post-TC Heartland projections were generated using the anticipated volume of litigation for all of 2017 combined with Professors Colleen Chien and Michael Risch’s research in Recalibrating Patent Venue, 77 Maryland Law Review (forthcoming 2018). In the study, Professors Chien and Risch measured the percentage of NPE and operating company litigation for each of the above-referenced venues in 2015 and estimated the change in those percentages if the Supreme Court reversed the Federal Circuit in TC Heartland. Using that analysis of in change of venue, the figures below show the estimated 2017 litigation. (The analysis assumes total volume of litigation would not change because of the decision.)

As you can see, there are approximately 1,000 fewer projected cases (a 69% decrease) for ED Texas and the distribution of cases is more evenly spread around the country.

Scott A. McKeown is an author of the Patents Post Grant.