Academic journal article Santa Clara High Technology Law Journal

Has Delaware Become the "New" Eastern District of Texas? the Unforeseen Consequences of the AIA

Academic journal article Santa Clara High Technology Law Journal

Has Delaware Become the "New" Eastern District of Texas? the Unforeseen Consequences of the AIA

Article excerpt

TABLE OF CONTENTS  INTRODUCTION I. THE NPE OR "PATENT TROLL" II. THE COST OF LITIGATION III. LIKELIHOOD OF SUCCESS IV. FEDERAL RULE OF CIVIL PROCEDURE 20(A)(2): PERMISSIVE       JOINDER OF PARTIES V. ENACTMENT OF THE AIA VI. NPES CONTINUE TO FILE RECORD NUMBER OF PATENT       INFRINGEMENT CASES VII. SECTION 299 OF THE AIA DOES NOT APPLY TO PRE-TRIAL       CONSOLIDATION VIII. PRETRIAL CONSOLIDATION RULES ARE ABOUT JUDICIAL       EFFICIENCY, NOT FAIRNESS TO DEFENDANTS IX. THE MOVE TO DELAWARE CONCLUSION 

INTRODUCTION

On September 16, 2011, President Obama signed into law the 2011 Leahy-Smith America Invents Act (AIA), aimed in part at curbing patent suits brought by non-practicing entities (NPEs). (1) since that time, however, the number of patent cases filed in the District of Delaware has risen steadily, making it the most popular venue for patent litigation in the country, a position previously held by the Eastern District of Texas for many years. (2)

Ironically, the AIA's anti-joinder provisions, codified at 35 U.S.C. Section 299, were enacted by Congress to prevent patent holders from joining multiple defendants in the same action based merely on the assertion of the same patent(s). (3) in the decade preceding the enactment of the AiA, in fact, NPEs (sometimes derogatorily referred to as "patent trolls" by the patent defense bar) had made it a practice to sue multiple defendants and, in some instances, even entire industries, in a single patent infringement suit in the plaintiff friendly courts of the Eastern District of Texas. (4) When defendants with little to no connection to that forum tried to transfer cases to more defendant friendly jurisdictions, courts in the Eastern District of Texas often relied on the judicial economies achieved by having the same court address the issues common to all defendants (e.g., invalidity or claim construction) to deny transfer motions. (5)

While the AIA was making its way through Congress, however, the Federal Circuit granted a number of requests by defendants to transfer patent cases out of the Eastern District of Texas and, in the process, articulated a more lenient standard for transferring cases out of jurisdictions with little connection to the case. (6)

The cumulative effect of the enactment of the AIA with the more permissive jurisprudence on motions to transfer was to make it harder for NPEs to file multi-defendant cases in the Eastern District of Texas and keep them there. As a result, NPEs started looking for a new venue to file multi-defendant actions. Recent survey data on new patent suit filings suggests that NPE's have found a new "forum of choice" in the District of Delaware, likely because most large U.S. corporations are incorporated in that jurisdiction and the courts in that district have been hesitant to grant motions to transfer filed by Delaware corporations. (7) This article examines how the enactment of the AiA's anti-joinder provisions and the recent transfer jurisprudence by the Federal Circuit have combined to bring about this dramatic shift in the geographic distribution of patent litigation.

I. THE NPE OR "PATENT TROLL"

Non-practicing entities (NPEs) are companies that own patents, but instead of making products that practice the patents, they generate revenue by licensing and asserting patents against alleged infringers to extract license fees. (8) The 2012 NPE Activity Report prepared by RPX Corporation defines NPEs to include: (1) patent assertion entities (PAEs), (2) universities and research institutions, (3) individual inventors, and (4) non-competing entities (NCEs) or operating companies asserting patents outside their areas of products or services. (9)

According to a report by the Federal Trade Commission (FTC), the NPEs' business model focuses on "buying and asserting patents against companies that have already begun using them." (10) As a result, the NPEs' business model depends on generating more revenue from licensing and enforcement activities than the costs of obtaining such revenue. …

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