SCOTUS Ends Texas Patent Craze

East Texas is known throughout the world as the major hub of U.S. patent litigation.  Over the last twenty years, thousands of companies and tens of thousands of lawyers have travelled to remote towns in Eastern Texas, where they attempt to resolve patent disputes, both large and small.  But nearly all of these cases carried an obvious problem—they had little or nothing to do with East Texas.

Over the years, many patent defendants argued that it was unfair to have their disputes in places with no connection to the underlying dispute.  However, those arguments generally fell on deaf ears, as the East Texas judges usually refused to transfer their cases to more convenient places.  Eventually, between 35-40% of all patent cases were being filed in East Texas.  At this point, the Supreme Court, perhaps seeing a problem that would not solve itself, decided to act.

On Monday, May 22, 2017, the Supreme Court decided TC Heartland v. Kraft Foods, striking what is likely to be a death blow to East Texas as a major patent litigation forum.  Perhaps appropriately, the Supreme Court’s TC Heartland decision had nothing to do with the Eastern District of Texas; it revolves around an Indiana entity being sued in Delaware.  Nevertheless, all sides agree that the major impact of TC Heartland will occur in East Texas, where future cases are likely to be severely limited.

The heart of the Supreme Court’s legal decision in TC Heartland is rather esoteric—whether the legal definition of “residence” has the meaning it would have had in the 1890s, or whether it was inadvertently changed by Congress about 100 years later. The 19^th century patent venue statute limited lawsuits to just a few locations (e.g., state of incorporation or location of a place of business).  In contrast, the 20^th and 21^st century statues, if applicable would allow patent lawsuits to be brought almost everywhere in the U.S. (including East Texas).

Advocates for the 19^th century interpretation (mostly large corporations) argued that Congress had never intentionally changed the meaning of the original patent venue statue, and that the lower courts had tacitly overruled a prior Supreme Court decision by allowing the Eastern District of Texas to persist.  Those arguing for the later interpretation argued that the clear text of the law was on their side, citing a non-patent venue statute.

Both sides were correct in their arguments; however, the Supreme Court decided that the 19^th century patent venue statute was the only venue statute that applied to patent cases, regardless of how clear the non-patent laws were.  Thus, after TC Heartland, patent lawsuits will only be heard in a very limited number of venues, which will typically not include the Eastern District of Texas.

The Supreme Court’s decision in TC Heartland has had an immediate impact on case filings in East Texas, with only four cases filed there the week of May 22 week as opposed 21 cases the preceding week and 53 cases the week before that.  This is likely a short term pause, while parties and lawyers get their bearings.

Any company with a presence in East Texas, which includes the affluent tech hub in Plano, Texas, is likely to still be involved in East Texas patent litigation. For example, three of the four East Texas cases filed immediately after TC Heartland were against Apple, which maintains a retail store in Plano.

Companies without a presence in Plano are likely to see future cases filed in California, Delaware, or Dallas/Houston.  It is also likely that many currently-pending cases will move to different parts of the country.

Finally, the total amount of U.S. patent litigation filings will likely decrease, as patent owners find it more difficult to efficiently consolidate cases together, which will crowd out marginal cases.  There will likely also be some unintended consequences.  Regardless of what happens, however, TC Heartland is likely to be one of the most consequential changes to the U.S. patent system this decade.

—Thomas King is a partner at Haynes and Boone.