On May 22, 2017, the US Supreme Court issued an opinion in the matter of TC Heartland v. Kraft Foods Group Brands, LLC., a case that had been speculated to possibly change the distribution of where patent litigation cases are filed.
Prior to the Supreme Court’s ruling, plaintiffs in a patent dispute had considerable freedom in the determination of litigation venue. A 1990 US Federal Court of Appeals decision – VE Holding Corporation v. Johnson Gas Appliance Co – determined that plaintiffs in patent infringement cases could sue in any district where the defendant was subject to its jurisdiction or conducted sales, not just in a court where a defendant was incorporated or had an established business location.
This decision contributed to a practice of “venue shopping,” a process by which a plaintiff would file their patent litigation claim in certain courts that were known to be friendly to the plaintiff.
However, as discussed in our previous post from May 2017, the Supreme Court’s decision in the TC Heartland case narrowed the interpretation of where a domestic corporation “resides” to the company’s state of incorporation, and “where the defendant has committed acts of infringement and has a regular and established place of business” (under 28 USC §1400(b)). We hypothesized that, as a result, there may be changes in where patent cases are filed.
Before May 2017’s opinion, material patent cases involving public SEC registrants were heavily concentrated in five federal courts, with Delaware (28%) and Texas Eastern (18%) combined having 46% of the total number of cases.
According to Audit Analytics’ analysis of material patent cases involving SEC registrants between May 22, 2017, and November 4, 2019, the top five courts still remain the US federal courts in Delaware, New Jersey, California Northern, Texas Eastern, and California Central.
Though the courts remained the same, the distribution of cases among those five courts has significantly altered. After the Supreme Court’s decision in May 2017, the number of patent cases filed in Delaware rose to 44%, a 16% increase.
Simultaneously, there was a significant decrease in cases filed in Texas Eastern, which dropped in the rankings to the fourth most popular jurisdiction, with only 5% of patent cases filed since May 1, 2017. This is somewhat surprising, considering in 2017 Texas Eastern was the second most popular jurisdiction, having 18% of the total number of patent cases.
However, the shift in the number of patent cases for public registrants that were filed in Delaware and Texas Eastern district courts makes sense given the state of incorporation for the defendants involved.
Of the public companies that have been defendants in a patent case since May 1, 2017, 69% were incorporated in Delaware. In comparison, less than 1% of public registrant patent defendants since May 2017 were incorporated in Texas. The stark difference in the amount of companies incorporated in each state may partially explain why the percentage of cases filed in Delaware dramatically increased, and why the percentage of cases filed in Texas Eastern dropped significantly.
The fact that more overall impact was not seen likely has to do with §1400(b)’s provision for venue “where the defendant has committed acts of infringement and has a regular and established place of business.” This provision could allow for cases to be filed in a jurisdiction where SEC registrants have an established office location.
Considering many SEC registrants are large organizations with multiple offices, patent plaintiffs may still have freedom to pick a litigation venue. However, as our research suggests, the impact from the Supreme Court’s ruling in the TC Heartland case steered more material patent cases against SEC registrants to be filed in Delaware than in prior years, and has strongly decreased the amount of material patent cases filed in Texas Eastern.
This analysis was performed using the Litigation database powered by Audit Analytics.
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