Yahoo Finance

Patent filings are also on the rise in Delaware, the state of incorporation for most of the nation's publicly traded companies. According to numbers compiled by U.S. District Chief Judge Leonard Stark's office, new patent cases spiked 133 percent to 98 in the seven weeks following TC Heartland, from 42 over the same period leading up to the decision.

The four-judge court has been dealing with two vacancies, and Stark recently enlisted a slate of visiting judges to meet the demand.

Karen Jacobs, who coordinates Morris, Nichols, Arsht & Tunnell's intellectual property practice group in Wilmington, Delaware, said the jump in new filings was mostly in line with what most attorneys had expected in the wake of TC Heartland. But, she said, It's still early to see the real impact because many of those are multi-defendant cases.

Ultimately, Delaware's role as a popular patent venue may likely be determined by how broadly the Federal Circuit chooses to interpret the regular and established language. It depends on how many fora there could be for a potential dispute, she said.

Emily Hostage, RPX's head of strategic analytics and policy, says that while numbers have shifted from district to district, overall NPE activity has dropped since TC Heartland. Whether it's a momentary blip while patent owners regroup or part of a longer-term decline is the million-dollar question, she said.

If companies have already purchased patents and drawn up monetization plans, they might go ahead and sue regardless of which venue they're directed to. We may not see the consequences for another year or two, Hostage said. It's hard to know what we can't see.

THE MORE THINGS CHANGE

In TC Heartland the Supreme Court overruled a 1990 Federal Circuit decision, VE Holding v. Johnson Gas, that had essentially opened patent venue to almost any district. The justices looked instead to their own 1957 opinion, Fourco Glass v. Transmirra Products, which limited venue to the district where a defendant is incorporated, or where infringement occurs and the defendant has a regular and established place of business.

For patent cases already well under way, district judges were at first reluctant to transfer or shut them down for now being in the wrong venue. Instead they held defendants had waived the venue defense by failing to object when the case was still new. The defendants argued that they had no way of knowing when cases were filed in 2014, 2015 or even 2016 that the Supreme Court would eventually overhaul the venue law.

U.S. District Judge Henry Coke Morgan of the Eastern District of Virginia ruled June 7 in Cobalt Boats v. Sea Ray Boats that there actually had been no intervening change in the law that would excuse waiver. Rather, the Supreme Court simply clarified that the Federal Circuit had been mistaken for 27 years, Morgan reasoned. After all, as Sea Ray Boats' opponent pointed out, the company could have taken a venue challenge to the Supreme Court just as TC Heartland did. Plus, there was the matter that the case was only five days from trial.

The Federal Circuit declined to intervene in a brief 2-1 order issued June 9. Judges Evan Wallach and Kara Stoll held that Morgan did not clearly err, and that Sea Ray Boats can always raise the venue issue on appeal, after trial. Judge Pauline Newman dissented, saying there was little doubt TC Heartland had changed the law. Determination of the forum is appropriate before expenditure of the major resources of a two-week jury trial, she wrote.

In the month that followed, district judges in Eastern and Northern Texas, Northern Illinois and Massachusetts followed suit. Other panels of the Federal Circuit again declined to intervene, noting that trials were on the immediate horizon.

More recently, a backlash has been brewing. It started when U.S. District Judge Ronald Leighton of the Western District of Washington ruled June 21 that TC Heartland had worked a sea change on patent law and 3M Co. could not be faulted for failing to anticipate it.

Since July 24, district judges in Arizona, Georgia, Minnesota, Nevada, Southern California and Tennessee have backed Leighton's point of view. Before TC Heartland, Federal Circuit precedent clearly foreclosed the venue defense, U.S. District Judge Robert Jones of the District of Nevada wrote July 27 in GC Technology Development v. FanDuel. The venue defense was available to FanDuel Inc. and its co-defendants only in the most technical sense of the word. He ordered their cases transferred to courts in Delaware, Washington and California.

The waiver issue is starting to become a lot more split, said Matthew Rizzolo, a Ropes & Gray counsel who's been tracking the cases. He said the Federal Circuit is going to have to address it sooner or later, though it may not happen until after a case makes it up on appeal following a trial.

WHAT WILL SATISFY VENUE?

By contrast, the Federal Circuit appears to be gearing up to decide how TC Heartland should be applied to newer cases going forward particularly, what qualifies as a regular and established place of business.

The Eastern District's Gilstrap laid out four factors he will consider in Raytheon v. Cray. A physical presence will tend to be persuasive, he wrote a finding backed last week by a visiting judge in Delaware who found the presence of a single Apple store dispositive. In Gilstrap's view, a physical presence can also mean employees or independent contractors working within the district.

But a physical presence is not a prerequisite to proper venue, Gilstrap wrote. A defendant's representations that it has a presence in the district; benefits derived from the district including sales revenue; and targeted interactions with the district including marketing and business development can all be taken into account, the judge stated.

Gilstrap's rules appear to open the door for internet companies to continue being sued in the Eastern District in some circumstances. Backed by Fenwick & West partner David Tellekson, Cray Inc. is asking the Federal Circuit to order Gilstrap to transfer the case to its home state of Wisconsin.

This time the appellate court appears to be nibbling. It ordered Raytheon Co. to file a response and is accepting amicus curiae briefs. Raytheon is represented by a Steptoe & Johnson team led by partner Thomas Filarski.

The High Tech Inventors Alliance a nonprofit formed by Adobe Systems Inc., Amazon, Cisco Systems Inc., Dell Inc., Google, Intel Corp., Oracle and Salesforce.com Inc. argue that Gilstrap's rules will deter companies from enabling employees to work remotely in order to avoid being haled into plaintiff-favored jurisdictions to defend patent infringement allegations. John Thorne of Kellogg, Hansen, Todd, Figel & Frederick U.S. Justice Neil Gorsuch's former law firm signed the alliance's brief.

Gilead Sciences and Bartlit Beck Herman Palenchar & Scott are also supporting Cray, arguing that a regular and established place requires an actual 'place.'

Ericsson Inc. and Nokia USA Inc., which often are on the plaintiff side of patent disputes, are urging the court to leave Gilstrap's order intact, saying it squares with the case law that predated VE Holding. Cray's insistence on a physical presence is out of touch with the modern commercial world, McKool Smith's Mike McKool argues for Ericsson and Nokia.

McKool also wields an argument that's been used against patent owners to great effect in recent years. He says Cray is seeking a rigid, inflexible test for determining venue. Gilstrap's approach gives district judges the discretion to weigh facts on the ground rather than corporate formalities.

Scott Graham writes about intellectual property and the U.S. Court of Appeals for the Federal Circuit. Contact him at sgraham@alm.com. On Twitter: @ScottKGraham. Tom McParland covers litigation in Delaware. He can be reached at tmcparland@alm.com. On Twitter: @TMcParlandTLI.