The ruling in ‘TC Heartland’ could shut down Texas as a center for patent litigation—and that could have ripple effects.
Scott Graham, Corporate Counsel
December 15, 2016
Kenneth Parker at Haynes and Boone
The U.S. Supreme Court has heard more than 30 patent cases over the last 10 years. A case the high court accepted for review Wednesday could have more impact than any of them since a 2006 decision scaling back injunctions, in the eye of at least one experienced patent litigator.
TC Heartland v. Kraft Foods Group Brands “could be the biggest change since the eBay case,” said Haynes and Boone partner Kenneth Parker. “The biggest case of the decade.”
If the court agrees with petitioner TC Heartland Inc., it will mean hundreds of cases that are filed each year in the plaintiff-friendly Eastern District of Texas will have to move elsewhere. Filings would likely increase in Delaware and California, where many large operating companies are incorporated, with other cases dispersed around the country.
That would almost certainly mean lower settlement values for plaintiffs. For patent litigators on both sides, it could mean the uncertainty of practicing before judges who aren’t familiar with patent cases or who don’t have established local rules. “I think you’re going to see a general downturn in patent litigation overall” if the venue rules are tightened, said Sterne Kessler Goldstein & Fox litigation chief Byron Pickard. “Your marginal case will be worth less money.”
TC Heartland and a slew of amici curiae are asking the court to restore the venue rules that applied to patent infringement cases before a 1990 Federal Circuit decision opened them essentially to any district in the country. Under a prior Supreme Court decision, patent cases had to be filed in the state where the defendant was incorporated or had a regular and established place of business.
Some 35 percent of all the patent infringement cases in the country were filed in the Eastern Texas during the first three quarters of this year. The venue appears to be especially popular with nonpracticing entities.
Patent litigators say Eastern Texas has become the venue of choice for a number of reasons: Juries are willing to award more damages, cases are brought to trial quickly, the trials themselves are kept shorter, summary judgment is harder to obtain, and Section 101 patent eligibility motions, which can quickly shut down a suit in other courts, are generally not decided early in the litigation.
“Patent lawyers today spend a great deal of time figuring out the best districts in which to file patent cases, and for good reason,” Stanford law professor and Durie Tangri partner Mark Lemley wrote in an amicus curiae brief supporting certiorari. “The district in which you file your patent case has consequences for how much your case will cost, how long it will last, and whether you will prevail in court.”
Haynes and Boone’s Parker says there are subtler reasons too. Because Judge Rodney Gilstrap hears almost all of the cases in the court’s Marshall division, parties who file there know a case will be handled by a judge who understands and is engaged in patent law, under established and fully litigated local rules.
If cases are dispersed around the country, proceedings will be far less predictable. “In certain jurisdictions and with certain judges, it’s very difficult to get to trial,” Parker says—with discovery and pretrial motions sometimes dragging on a s long as five years. Cases also could wind up before judges who aren’t shy about their dislike for patent cases, or simply aren’t experienced with them.
The Eastern District’s share of non-practicing entity cases would likely drop from 64 percent to 19 percent under a decision for TC Heartland, according to a study by Santa Clara University law professor Colleen Chien and Villanova University’s Michael Risch. The Districts of Delaware and Northern California would pick up most of those cases, they predict, though New Jersey, Northern Illinois, Northern Texas and Western Washington would see some increase as well.
Weil, Gotshal & Manges partner Edward Reines posits that tighter venue rules could affect another type of patent litigation—suits filed by branded drug manufacturers against generics under the Hatch Waxman Act. Drug makers bring most of those cases in Delaware, but Reines speculates that generics—particularly those based overseas—could incorporate their U.S. operations in districts they perceive as more favorable.
TC Heartland stems from a Delaware suit in which Kraft sued Indiana-based TC Heartland for infringing three Kraft patents on fortified water. James Dabney of Hughes Hubbard & Reed and Professor John Duffy of University of Virginia School of Law represent TC Heartland, which says it has no meaningful connection to Delaware.
Of course, the Supreme Court hasn’t decided the case yet. While the court usually reverses lower court judgments, Reines and Paul Hastings partner Yar Chaikovsky caution that a decision for TC Heartland isn’t a done deal.
Chaikovsky points out that the high court recently granted cert and affirmed a Federal Circuit decision interpreting Patent Trial and Appeal Board procedures in Cuozzo v. Lee. It’s possible the court might just want to clear up uncertainty surrounding venue for patent and other types of cases, Chaikovsky says. Reines says that policy considerations—such as forum-shopping in the TC Heartland case—sometimes play a larger role in certiorari decisions than they do on the merits, when the justices have to dig into statutory construction.
The cert order was not welcome news to Texas intellectual property lawyers who’ve made a profitable living off filing and defending cases in the Eastern District.
Peter Corcoran, a Texarkana patent attorney, said he feared a reversal could eliminate as much as 99 percent of the Eastern District’s docket. “I think I need to start looking for another area of work,” Corcoran said of the implications of overturning TC Heartland. “It’s not good.”
Leonard Davis, the former chief judge of the Eastern District of Texas who’s now of counsel at Fish & Richardson, said that if, TC Heartland is overturned, much of the nation’s patent litigation will shift to California, where major tech companies are incorporated. It won’t affect his firm much, although it may lose the ability to try cases in front of the Eastern District’s seasoned judges, he said.
“Our firm is a national firm, and we have offices on the east and west coasts—we will be fine wherever the patent docket goes,” Davis said. “But with the experience the Eastern District has, it’s just a good place to try cases whether you’re on the plaintiff’s side or the defense side.”
Cases granted cert in December typically get put on the court’s spring calendar and are decided by June. But all bets are off this year, says Haynes and Boone’s Parker, because of the court’s vacancy. If the court needs a ninth vote to break a 4-4 tie, it could hold the case over to next fall.