Patent ruling means business for NDCal

Last month, the U.S. Supreme Court announced in TC Heartland v. Kraft Food Groups Brands LLC, 2017 DJDAR 4663 (May 22, 2017), that "as applied to domestic corporations, 'reside[nce]' for venue purposes refers only to the State of incorporation." Plaintiffs can only bring patent actions against domestic corporations where the domestic defendant is incorporated (per TC Heartland) or where the defendant "has committed acts of infringement and has a regular and established place of business." 28 U.S.C. Section 1400(b).

Prior to TC Heartland, patent attorneys generally understood that personal jurisdiction (i.e., the minimum contacts test) was enough to establish venue. This allowed for plaintiffs to often engage in forum shopping. Now, with a narrow definition of "residence," plaintiffs will no longer be able to cast their net so widely.

While TC Heartland is expected to increase the number of filings in the district where most companies are incorporated -- the already overtaxed court in the District of Delaware -- it also is likely to increase the number of filings, and more importantly the overall number of cases, in the Northern District of California.

Incorporation and Headquarter Data

First, even under the incorporation prong of 28 U.S.C. Section 1404(b), expect to see a rise of filings in Northern California. Although 66 percent of the Fortune 500 companies are incorporated in Delaware, that percentage falls to 21.51 percent when considering all companies in the S&P list. See Table 1. That is only around twice the percentage of companies that incorporated in California.

Headquarter location data further supports an increase in Northern California filings. Because defendants can be sued where they are incorporated and where they "ha[ve] committed acts of infringement and has a regular and established place of business," in determining where plaintiffs will file, it is also important to consider where would-be defendants are headquartered. More U.S. companies are headquartered in California, fully 13 percent, than any other state. See Table 2.

Within California, 7.4 percent of the 13 percent of companies nationwide are headquartered in the Northern District of California. Table 3 shows the breakdown of headquarter locations within the district.

Given this data, the Northern California should see an uptick in cases not unlike that expected in Delaware.

More Cases in Northern California

Because many companies headquartered in Northern California are incorporated in Delaware, they can be sued in either venue. Even if cases are filed in Delaware, however, the anticipated increased congestion in the court, combined with the ability of California companies to use their Northern California presence and connections to argue for transfer under the convenience of forums statute 1404(a), suggests that not only will we see more filings in the Northern District of California, we'll also see more transfers into the district.

Since the 2011 decision in In re Link_A_Media Devices Corp., in which the U.S. Court of Appeals for the Federal Circuit ordered the patent case transferred from the defendant's state of incorporation of Delaware to the Northern District of California, the District of Delaware has transferred numerous cases to Northern California where Delaware has had minimal connections to the case.

Table 4 shows the results of a review of 116 transfer decisions from the District of Delaware since Jan. 1, 2012. Here are some of the highlights:

• In 47.17 percent of the cases, the party seeking to transfer the case was requesting a transfer to the Northern District of California.

• In 54.67 percent of those decisions, the District of Delaware chose to transfer to the Northern District of California.

• In 26.67 percent of those decisions, when determining where the case could be brought in the first place, the court considered the second clause of 1400(b) finding explicitly or implicitly that the defendant had a regular and established place of business in California and that the alleged acts of infringement occurred within the district.

This data further supports transfer to the Northern District of California.

Court Congestion

In determining whether to transfer from Delaware under 1404(a), the court will not only consider the connections to Northern California but will, in applying the Jumara factors, consider the relative congestion ("the relative administrative difficulty in the two fora resulting from court congestion") of the districts. Jumara v. State Farm Insurance Company, 55 F.3d 873, 879 (3rd Cir. 1995). In prior decisions, the Delaware court often found the congestion factor neutral. That will likely change.

In 2016, 456 patent cases were filed in the District of Delaware whereas 190 patent cases were filed in the Northern District of California. Just this year, 231 cases were filed in Delaware compared to 59 in the Northern California. The District of Delaware currently has four district judges and three magistrate judges in its court (with two vacancies) as opposed to the 33 in the Northern California. Since 2012, the median time to trial for patent cases in Delaware has been 26.6 months. In California, the time to trial has been about 28.3 months. Although comparable in their times to trial, the Northern District of California has far fewer patent cases filed and more judges available to hear them. With the increase in the number of cases expected to be filed in Delaware, we expect to see a measurable disparity between the two districts moving forward.

Note that the Delaware court is already taking steps in order to ameliorate this anticipated congestion including having judges from other districts sit by designation. Further, Congress may increase the size of the bench in Delaware. Some of these efforts may mitigate the congestion issue but at most would likely only make this factor, at best, neutral.

Eastern District of Texas

The data indicates that 6.26 percent of companies are incorporated in Texas. Further, only 8.5 percent of companies within the state have their headquarters in the Eastern District. This is less than 1 percent of companies in the United States. In terms of transfer, only one of the 116 cases decided by Delaware was transferred to the Eastern District of Texas. Given that 30-40 percent of patent cases nationwide were previously brought in the Eastern District, that data alone suggests filings and cases in the Eastern District should substantially decrease.

Since TC Heartland was decided, 76 docket entries in the Eastern District of Texas have requested dismissal or transfer. Additionally, the district has issued multiple court orders requiring supplemental briefing on effect of TC Heartland. While many existing cases will stay put given that most defendants have likely waived venue and the Federal Circuit recently determined, in denying mandamus of a decision in Cobalt Boats, LLC v. Sea Ray Boats, Inc., 2-15-cv-00021 (VAED June 7, 2017, Order), that TC Heartland did not constitute an intervening change in the law, it's likely that newly filed cases either will not be filed in the Eastern District or will not survive motions to transfer or dismiss. Any other result that does not lead to a significant reduction of the number of cases in the Eastern District of Texas will likely face scrutiny by the Federal Circuit and Congress.

Since TC Heartland there have been slight upticks in patent filings in the Northern District of California. In the two weeks following the decision, 12 patent cases were filed in the district as opposed to the two that were filed in the two weeks leading up to the decision. The bottom line is that if you want to avoid a protracted venue battle that you will likely lose, the best bet is to sue Northern California companies on their own turf.

This article was researched and written in collaboration with Drew Washington and Joseph Dimont, summer associates at Winston & Strawn LLP.