After today, patent litigation may never be the same.
Why? By now you’ve likely heard the term “patent troll.” If you’ve been living under a moss-covered bridge in the deep, dark forest and have not heard the term, a patent troll – also known by the more diplomatic term “non-practicing entity” or NPE – is a business that derives its revenue not by offering a product or service into the marketplace, but rather by owning patents and asserting them through lawsuits or threats of lawsuits in order to win judgments or settlement payments for claims of patent infringement.
The Court of Appeals for the Federal Circuit, the court responsible for hearing all patent appeals from all 94 federal district courts will hear oral argument today in Kraft v. TC Heartland, a patent suit between two operating companies – that is, neither is a NPE. The case of Kraft v. TC Heartland doesn’t involve a patent troll, but stick with me. It has the potential to make things very difficult for patent trolls in the future.
When the case was brought in the District of Delaware, defendant TC Heartland argued that venue was improper and asked the court to transfer the case to Indiana, where TC Heartland is based and manufactures the products accused of infringement. The district court having denied its motion, TC Heartland has now appealed to the CAFC for a writ of mandamus directing the lower court to declare the venue improper and transfer the case. If TC Heartland’s request is granted (and the Supreme Court doesn’t swoop in to disagree), patent litigation may never be the same.
Part of the NPE practice has historically involved a strategic move that lawyers refer to as forum shopping. That is, finding a court where the judges or juries are most likely to side with the NPE, and to award significant monetary damages against the defendants, and filing the lawsuit in that court. This practice can confer a major advantage to the patent holder in negotiating a monetary settlement, as the favorable odds on the outcome of a trial are compounded by the real and monetary inconvenience of defending a federal lawsuit in a court that is distant from the defendant’s place of business. The defendant will incur added legal costs, due to the need for local legal counsel in the remote venue, and will face the business disruption associated with key personnel traveling to participate in the defense. All of these factors place the defendant at a distinct disadvantage in negotiating a settlement or deciding to mount a defense.
A patent litigation study by PWC found that from 1995-2014, Virginia Eastern, Delaware, Texas Eastern, Wisconsin Western, and Florida Middle account for 42% of all NPE decisions. And in each of the Middle District of Florida and the Eastern District of Texas, the plaintiff success rate over that period has been 55% in patent cases. Moreover, patent plaintiffs fortunate enough to have their case assigned to Judge Leonard Davis, Judge Ron Clark or Judge Rodney Gilstrap, in the Eastern District of Texas, have a 63%, 73% and 64% chance, respectively, of a win. Zoom in on the more recent side of the trend and it’s far more telling. In 2015, approximately 44% of all new patent lawsuits in the United States were filed in the Eastern District of Texas, up from 29.5% in 2014. Not to be ignored, the District of Delaware saw 18.8% and 19.2% of new patent cases, respectively, in those years. That means in 2015, two districts – neither of which includes New York City, LA or Chicago – accounted for more than 63% of new patent lawsuits.
When it comes to patent cases, the word of the CAFC is binding upon all lower courts. In the event the CAFC agrees with TC Heartland today, trolls and practicing entities alike will be challenged with regard to venue every time they bring a patent infringement suit in a venue that is inconvenient or unfavorable to the defendant. The patent world – owners, potential defendants and lawyers alike – await the outcome of today’s hearing. If Kraft wins, it’s business as usual. If TC Heartland wins, the practice of patent litigation is likely to see a major geographic change going forward. Stay tuned.