Sweeping changes mark turbulent year in patent law

In another turbulent year for patent litigation, 2018 saw the new director of the U.S. Patent and Trademark Office, Andrei Iancu, make sweeping changes to an industry still adjusting to a major U.S. Supreme Court ruling.

As case filings dropped in places like the Eastern District of Texas, expected beneficiaries to the ruling -- places like Delaware and Northern California -- saw a rise in filings but did not make up for the overall decline. TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017).

The ruling in TC Heartland, requiring that defendants being sued for patent infringement must have a physical place of business in the district where the case is filed, completely disrupted the widely practiced strategy of filing patent infringement claims in the supposed plaintiff-friendly Eastern District of Texas.

Patent and copyright attorney Ajay Krishnan of Keker, Van Nest & Peters LLP said while he would be surprised if the judges ruling in TC Heartland were unaware of the litigation concentration in the Eastern District of Texas prior to their ruling, the decision likely arose from a fairly straightforward interpretation of established patent statutes.

"They were really just interpreting a patent statute, and in TC Heartland itself they said, 'The patent statute is pretty clear, and we're scratching our heads as to why no one raised these issues for the last 20 years,'" Krishnan said.

"Because in the federal circuit prior to TC Heartland, no one had really raised the argument, and so everyone just went along with the idea that it is OK to sue a defendant in a place where they sell an allegedly infringing product, whether or not they have an established place of business there," Krishnan added.

Since TC Heartland, a few lawyers representing U.S. patent holders have attempted creative ways to circumvent the ruling, but for the most part, the number of filings in the Eastern District of Texas have dropped dramatically, said Krishnan. Other venues in places with a high concentration of technology companies, like Delaware and California, have seen an increase in filings but haven not made up for the loss.

"When you're looking at technology patents, there's good evidence that the number of patent filings dropped precipitously after TC Heartland in the Eastern District in Texas," Krishnan said, "and that drop was not made up in other districts, meaning people filing lawsuits in the Eastern District of Texas didn't file their lawsuits anywhere else. They just stopped filing."

According to recent studies, patent cases filed in the U.S. have now dropped to the lowest level since 2011. Patent attorney Christopher D. Bright of Morgan, Lewis & Bockius LLP who has kept an eye on patent litigation trends over the past year, said the data show a moderate decrease in filing from 2017 to 2018.

"The data is coming in. U.S. patent litigation is a bit down this last year as far as the number of disputes and filings, but it's largely flat between this year and last year," he said.

Many patent litigators believe the thinning of filings in the U.S. is not only due to TC Heartland but to an increasing interest among patent attorneys to file cases internationally in countries such as China and Germany.

"We are seeing an increase in Chinese patent litigation, for example, and an increased interest in litigating in other venues outside the United States, like in Europe," Bright said.

In Germany, if a patent owner proves infringement, chances are high they will get an injunction, he said.

"Similarly in China, the data show that when patent owners prevail there, they have a very good likelihood of obtaining an injunction," Bright said. "In the U.S., although the damages awards tend to be higher when awarded, the threat of an injunction is much lower."

While China's intellectual property legal system had a fairly poor reputation 20 years ago for providing no substantial means to enforce patents and a general lack of transparency on legal matters, patent attorney Kenneth G. Parker of Haynes and Boone LLP said the perception around China has changed dramatically.

"Over the past four to five years, folks have sat up and taken notice," Parker said. "Patent litigation cases are very viable over there; it seems to be a fair system."

Parker said another big shift in patent litigation this year has been the appointment of Iancu as director of the U.S. Patent and Trademark Office and the institutional changes he has made at the Patent Trial and Appeal Board -- most notably, the new inclination toward denying successive petitions in inter partes review.

"He's making a lot of changes that are swinging the pendulum a little bit back in favor of patent owners, not drastically but to some extent," Parker said.

While Iancu publicly stated the Patent Trial and Appeal Board will continue to study the review process, it now uses a seven-factor test when considering successive petitions. For example, it will use its discretion to deny follow-on petitions, challenging the same claims challenged in an earlier petition.

Many believe the list of factors, taken from the decision in General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha, IPR2016-01357, has made it more equitable for patent owners.

"It used to be easier to file multiple petitions, and the petitioner got multiple bites at the same apple," Parker said. "It tipped the balance in favor of the patent owner, which is what Iancu said he wants to do. Many litigators think it made the system more fair."