Where did all the patent trolls go?

2017 IN REVIEW

For much of the last several years, the "patent troll problem" dominated trade-publication discussions of patent law, and even made its way into the popular media. Various patent reform bills were introduced in Congress, but none passed. Conferences were held, proposals advanced, and articles written. But the hubbub has largely dissipated in 2017. Why? Some might argue that there have been much larger fish to fry in the national discourse this year.

That may be part of the answer. But another part of the answer is that there has been an accumulation of legal developments over the past several years that have substantially addressed many of the major concerns about patent trolls and patent litigation. Professor Robert Merges, of Berkeley Law, started arguing in late 2015 that there had been enough patent reform to address the existing problems, and that we needed to pause to let the changes take effect. See "Time for a Pause in Anti-Troll Policies: The State of US Patent Law in 2015," U.S.-China IP Summit (Oct. 8, 2015). The anti-troll patent-reform drum beat continued for about a year after that. But lately, things have been quiet.

According to Lex Machina, the number of patent cases filed annually peaked in 2013, when over 6100 patent lawsuits were filed. In 2014-2015, the number of suits hovered between 5,000 and 5,800, and dropped to 4,500 in 2016. 2017 is on track to see about 4,100 cases, the smallest number of patent filings since 2011, and down more than 30 percent from the peak.

So what happened? Well, clearly, there have been major developments in patent law -- addressing patent eligibility, damages, inter partes review, and fee-shifting, to name a few.

I submit that much of the story can be told mainly with reference to three civil procedure reforms and their impact on patent litigation.

The first such reform came in September 2011, when 35 U.S.C. Section 299 was added to the Patent Act, specifying that merely being accused of infringing the same patent is not enough of a "common question of law or fact" to support joinder of disparate defendants in a single patent action under Rule 20 of the Federal Rules of Civil Procedure. This was intended to alleviate the then-growing practice of naming a whole bunch of unrelated accused infringers as defendants in a single patent infringement suit. With the enactment of Section 299, the number of defendants-per-lawsuit (particularly in cases brought by nonpracticing entities) dropped, but the number of lawsuits shot up.

Thus, in the last quarter of 2011 and into 2012 and 2013, the numbers of patent suits filed skyrocketed, from a historical average of around 2,500 cases annually to more than double that. According to data from RPX, the number of patent suits brought by plaintiffs other than nonpracticing entities remained virtually constant throughout this period, at just under 2000 cases per year. In 2014, the year that the U.S. Supreme Court decided both Octane Fitness (relating to fee shifting for "exceptional cases") and Alice (relating to patent eligibility under 35 U.S.C. Section 101), the number of new cases dropped by about 15 percent from 2013's historic high, and the number of new cases rebounded in 2015 to within 5 percent of the 2013 peak.

The second major civil procedure reform came in December 2015 -- the abolition of Form 18 from the Federal Rules of Civil Procedure. The Appendix of Forms was adopted with the original Federal Rules of Civil Procedure in the 1940s, to provide illustrations of what would be required under the then-innovative "notice pleading" system. Form 18 was a sample patent infringement complaint that required very little detail beyond identification of the patent and the category of accused products. Particularly after the Supreme Court's 2007 and 2009 rulings in Twombly and Iqbal, requiring a complaint to include sufficient factual detail to show that a claim is "plausible," the low threshold of Form 18 was increasingly out of step with the modern complexities of patent litigation, fostering the perception that it was easy and inexpensive for plaintiffs to initiate patent litigation that was time-consuming and expensive for defendants to resolve the litigation, regardless of how good or bad the merits were.

Largely independently of the patent lawyers' debate over patent trolls and patent reform, the Judicial Conference determined that the Appendix of Forms had served its purpose, that there were lots of good pleading samples available through more than 70 years of experience with the Federal Rules, and that the whole Appendix of Forms should be abolished. This rule change took effect on Dec. 1, 2015. On Nov. 30, 2015 the Monday after Thanksgiving, plaintiffs filed 260 patent cases (roughly 10 times more than a typical day), 75 percent in the Eastern District of Texas.

The abolition of Form 18 appears to have had a major impact on the number of suits filed -- 3,063 suits were filed in the six months before the rule change (including 260 on the last day), compared with 2,094 suits filed in the six months after the rule change. However, the distribution of where those suits were filed did not change significantly.

The third major civil procedure reform came with the Supreme Court's ruling last May in TC Heartland. For a number of years, courts had interpreted the patent venue statute (28 U.S.C. Section 1400) in connection with the general venue statute (28 U.S.C. Section 1391) to essentially mean that corporations accused of patent infringement could be sued in any forum where they were subject to personal jurisdiction. In TC Heartland, the Supreme Court rejected that interpretation, holding that patent suits against corporations can only be brought in the state of incorporation or in a judicial district where the defendant has committed an act of infringement and has a regular and established place of business.

It has now been just over six months since TC Heartland was decided. Somewhat surprisingly, the ruling did not significantly change the total number of patent cases filed. But the distribution of cases has changed significantly. For the first time since 2011, the District of Delaware is now the top venue for patent filings, with 24 percent of all cases filed in the six months after TC Heartland. The Eastern District of Texas has dropped to 14 percent, and several of the other top-five venues have seen increases of 50 percent or more (though their totals continue to be less than 10 percent of all cases filed).

The impact of these changes can be seen in Tables 1 and 2. Table 1 shows the increasing concentration of patent litigation in the top districts (E.D. Tex, and D. Del. are the only two courts where more than 10 percent of patent suits were filed in any year between 2010 and 2017). Table 2 shows the cumulative impact of these reforms on the total number of suits filed in the top six judicial districts, at six-month intervals.

The impact of these changes can be expected to further develop in 2018, as we continue to see a major reshuffling of the patent litigation deck.