U.S. Supreme Court ruling could be economic boon for Delaware

Hundreds of patent lawsuits intended for other jurisdictions will now be filed in Delaware because of a recent U.S. Supreme Court decision.

The high court's ruling requires patent lawsuits to be filed in the state where a defendant is incorporated. With 67 percent of Fortune 500 companies and more than 1 million other business entities incorporated in Delaware, the state could see a dramatic upswing in the number of patent lawsuits filed in the U.S. District Court for the District of Delaware. 

As the number of patent cases in Delaware rises, so will the number of out-of-state lawyers coming to Wilmington and pumping millions into the local economy.

"There is going to be a lot of money spent in Delaware on dinners, office space, hotel rooms, car rentals and everything else that goes along with out-of-town lawyers flying in for trials," said Brian Love, a professor of patent law at Santa Clara University. "Delaware was already very popular, and now you are turning up the dial." 

Interestingly, the ruling that will ultimately be a major victory for Delaware was decided as a loss for the First State.

A Kraft Heinz Co. unit filed a patent infringement lawsuit in Delaware against TC Heartland LLC, a Carmel, Indiana, maker of water flavorings. TC Heartland is incorporated in Indiana and claimed Kraft Heinz should not be allowed to sue it in Delaware.

In a unanimous decision authored by Justice Clarence Thomas, the high court said Kraft cannot sue TC Heartland in Delaware because it is not incorporated here. 

The ruling will likely catapult Delaware ahead of the Eastern District of Texas as the nation's most popular patent venue. Delaware has been a distant second over the past few years.

About 1,647 patent infringement cases were filed in the Eastern District of Texas last year according to Lex Machina, the legal research arm of LexisNexis. Delaware trailed with 455 patent infringement cases in 2016. 

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Some local practitioners say the ruling in TC Heartland v. Kraft Heinz could reverse those numbers.

"In the long term, you will see Delaware's numbers increase and the Eastern District of Texas's numbers decrease substantially, but it is not going to happen overnight," said Daniel Silver, a patent attorney with McCarter & English, who has represented both plaintiffs and defendants. 

The Eastern District of Texas became a popular patent litigation jurisdiction after a 1990 federal appeals court ruled the lawsuits could be filed essentially anywhere a business sold products. Plaintiffs soon took advantage of friendly juries that awarded large damages and judges who are relatively slow to rule on motions to put pressure on defendants to settle cases.

"It is a perfect storm where you can file a suit and the defendant has to comply with onerous discovery burdens while many months pass," Love said. "The defendant is racking up lots and lots of defense costs without any immediate ability to get the case transferred somewhere else."

But with so many more companies incorporated in Delaware, the Eastern District of Texas' dominance has likely come to an end. 

A 2017 study by patent law professors Colleen V. Chien and Michael Risch estimates that TC Heartland transfer about 9 percent of the cases filed in the Eastern District of Texas to the District of Delaware. That would translate into about 148 cases a year leaving Texas for Delaware.

Some say that the total number of cases that will be filed in Delaware instead of the Eastern District of Texas will be much higher. 

"TC Heartland definitely shifts the ground to Delaware," said Amy Landers, a Drexel University patent professor. "Those who were sued in Texas don't have a place of business there."

Silver agreed that the District of Delaware could become the nation's most popular patent venue.

"You are just not going to see the same number of new cases filed in Texas and Delaware will probably become the busiest jurisdiction for patent infringement litigation," he said. 

The change won't happen immediately, however. Most of the cases already filed in the Eastern District of Texas will likely remain there. Over the next year, as new patent cases are filed and move through the court system Delaware will begin to see the increased caseload. 

Under the TC Heartland ruling, the only active cases that can be transferred are ones in which the defendants have pending motions to move the dispute out of the Eastern District of Texas. Venue disputes are case specific making it difficult to determine the exact number of active cases that could be transferred.

The TC Heartland decision will benefit Delaware practitioners at a time when patent litigation had decreased nationwide. Roughly 4,520 patent cases filed in the United States last year, its lowest total since 2012, according to Lex Machina. 

"Patent litigation has decreased for a few years," said Adam Poff, a patent attorney with Young Conaway Stargatt & Taylor. "To the extent there is some increase to get it back up to where it was previously, that's a good thing." 

If the District of Delaware is flooded with patent litigation, it could create a bottleneck for a court that is already short two judges. The loss of two judges is significant for a court that has only four judges. 

The District of Delaware is shorthanded right now because Judge Sue L. Robinson and Judge Gregory Sleet have taken senior status, a form of semi-retirement in which U.S. federal judges take on reduced caseloads, but no longer occupy a seat.

Sleet is expected to manage a full caseload while he is on senior status, but Robinson is not being assigned new cases and will stop serving as a senior judge this summer. 

Because both judgeships are federal positions, it is up to President Donald Trump to fill both positions.

Chief Judge Leonard P. Stark said in a statement to The News Journal the court can handle the increased patent litigation.

"Notwithstanding the enhanced challenges resulting from two of our four district judgeships being vacant, the judges of the Court will continue to strive to provide timely attention to all matters before them," Stark said in the statement. "We remain hopeful that the current vacancies will be filled and that the recommendation of the Judicial Conference of the United States that a fifth judgeship be created will be adopted by Congress." 

Poff said the increased workload could fall on the court's three magistrate judges, who are appointed to assist the court's judges in performing their duties.

"I expect the magistrate judges' responsibilities may be expanded to handle the increased caseload," he said. "I'm certain they've been able to prepare because they've seen the possibility of this decision in TC Heartland for a few months." 

Landers said the TC Heartland case could put more pressure on Delaware's congressional delegation to fill the District of Delaware's judicial vacancies. She said the lack of judges will take the court longer resolve disputes. That could result in patent plaintiffs finding creative arguments to file cases in other jurisdictions. 

"Patent plaintiffs like quick resolutions," she said. 

Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or jmordock@delawareonline.com.