Recent Uptick in Patent Litigation Likely Due to Coronavirus and Legal Developments

White & Case Technology Newsflash

Companies with strong patent portfolios and those subject to infringement actions should note that patent litigation is on the rise. At the national level, 20Q2 patent filings were up 27 percent from 20Q1 and approximately 16 percent year-over-year. Some commentators suggest that financial pressures (in large part due to the coronavirus pandemic), the current strength of the technology sector, and investor interest in cheap patent assets (including those divested in recent bankruptcy proceedings in the retail and restaurant sectors) are behind the uptick in litigation.

Litigation trends in popular patent venues show greater variety. Patent filings were up in the Northern District of California, the Eastern District of Texas, and the Western District of Texas. Those responsible for intellectual property procurement and disputes should take note to be prepared.

Patent Lawsuits Are On The Rise

^{*Statistics from Lex Machina}

Commentators cite growing financial pressures as one of the explanations for the uptick in patent filings. Firms currently experiencing budget shortfalls may turn to litigation to drum up extra revenue. In a related metric, issued patents in 20Q2 were up seven percent from 20Q1 and four percent year-over-year.¹ Individuals and companies are increasingly looking to turn their innovations into patents and their patents into cash.

The continued strength of the technology sector may also explain the uptick in nationwide filings. As coronavirus safety measures force businesses to shift brick-and-mortar operations online, the technology that makes the shift possible becomes more valuable. Tech companies and investors will look to expand their patent portfolios and monetize the patents they already own. The tech sector's strong performance in recent month also means that companies will have the resources to enforce patents.

Another explanation for the trend could be that recent bankruptcies and general economic pressure have forced firms to dump discounted patents on the market. Of particular note, bankrupt retailers and restaurant chains may sell off the patents connected with their online presence. A company's intellectual property is sometimes more valuable than the business itself. In recent weeks, a number of retailers have sold intellectual property for millions of dollars.² Investors have historically seen patent assets as recession-proof, and internet-related patents are now particularly attractive. New owners able to buy up patents will also likely have the resources for aggressive enforcement.

New patent investment companies and increasingly active non-practicing entities have also spurred on patent litigation. Data on filings by high-volume plaintiffs, entities that have filed ten or more cases within a 365-day span, help confirm that investors are behind the current litigation trend. Filings for high-volume plaintiffs were up 33 percent between 20Q1 and 20Q2, outpacing the overall increase in filings.

While all of these factors may encourage new patent litigation, the current trend could falter if the economy remains stagnant or slips into a deeper recession. Some firms may sit on the sidelines and look for greater stability before diving into long-term litigation.

Northern District of California

^{*Statistics from Lex Machina}

Total patent filings in the Northern District of California nearly doubled between 20Q1 and 20Q2 and were up 19 percent year-over-year. From a historical perspective, filings in the Northern District grew significantly after the Supreme Court's TC Heartland decision in 2017.³ TC Heartland effectively limited venue options for suits against domestic corporations when it equated the word "residence" in the patent venue statute with defendant's place of incorporation.⁴ The tech industry's outsized presence in the Northern District made it a popular venue for patent filings after TC Heartland, and the recent uptick in litigation builds on this trend.

It is worth noting that filings by high-volume plaintiffs in 20Q2 trailed the general trend in the Northern District and are down year-over-year. This suggests that more competitor-driven suits may be prompting new litigation. Economic trends and the global pandemic may be the reason for this shift.

Eastern District of Texas

^{*Statistics from Lex Machina}

Patent filings in the Eastern District of Texas were also up, showing an 82 percent increase between 20Q1 and 20Q2 and a 52 percent increase year-over-year. Patent litigation in the Eastern District decreased sharply after the TC Heartland decision. However, the new increase in filings may indicate that plaintiffs believe they can still establish proper venue by showing defendants committed acts of infringement and have a regular and established place of business in the Eastern District. It might also suggest that foreign defendants, not covered by the patent venue statute, are now in the crosshairs of patent suits.

Western District of Texas

^{*Statistics from Lex Machina}

The upward trend in litigation out of the Western District of Texas predates the coronavirus pandemic. The growth of Austin, Texas, as a tech hub means that more defendants are likely to meet venue requirements in the Western District. The 2018 appointment of District Judge Alan D. Albright is also driving the current trend. Judge Albright's experience as a patent litigator and his promulgation of local rules that increase certainty around litigation make the Western District an attractive venue for prospective plaintiffs. In the past year and a half, Judge Albright has heard 721 patent cases—88 percent of all patent cases filed in the Western District—making him the number one patent judge in the country.⁵

District of Delaware

^{*Statistics from Lex Machina}

After TC Heartland, the District of Delaware became the most active venue for patent litigation. However, in the last year, patent filings in the District have seen a slow decline. This may show that plaintiffs are growing comfortable the Northern District of California and the Western District of Texas as preferred venues.

_{1 Patexia Insight 85: Patent Litigation Up 27% in Q2 of 2020
2 Intellectual-Property Assets Are Getting More Valuable
3 Silicon Valley's Home Court: Patent Trends in the Northern District of California
4 TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1521 (2017).
5 See Lex Machina}

Samuel Seham (Law Clerk, White & Case, New York) contributed to the development of this publication.

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