Will Delaware Be Different? An Empirical Study of TC Heartland and the Shift to Defendant Choice of Venue

57 Pages Posted: 10 Jun 2018

See all articles by Ofer Eldar

Ofer Eldar

Duke University School of Law; Duke Innovation & Entrepreneurship Initiative

Neel U. Sukhatme

Georgetown University Law Center; Georgetown McCourt School of Public Policy

Date Written: February 23, 2018

Abstract

Why do some venues evolve into litigation havens while others do not? Venues might compete for litigation for various reasons, such as enhancing their judges’ prestige and increasing revenues for the local bar. This competition is framed by the party that chooses the venue. Whether plaintiffs or defendants primarily choose venue is crucial because, we argue, the two scenarios are not symmetrical.

The Supreme Court’s recent decision in TC Heartland v. Kraft Foods illustrates this dynamic. There, the Court effectively shifted venue choice in many patent infringement cases from plaintiffs to corporate defendants. We use TC Heartland to empirically measure the impact of this shift using an event study, which measures how the stock market reacted to the decision. We find that likely targets of “patent trolls”— entities that own and assert patented inventions but do not otherwise use them—saw their company valuations increase the most due to TC Heartland. This effect is particularly pronounced for Delaware-incorporated firms. Our results match litigation trends since TC Heartland, as new cases have dramatically shifted to the District of Delaware from the Eastern District of Texas, previously the most popular venue for infringement actions.

Why do investors believe Delaware will do better than Texas in curbing patent troll litigation? Unlike Texas, Delaware’s economy depends on attracting large businesses that pay high incorporation fees; it is thus less likely to encourage disruptive litigation and jeopardize its privileged position in corporate law. More broadly, we explain why giving defendants more control over venue can counterbalance judges’ incentives to increase their influence by encouraging excessive litigation. Drawing on Delaware’s approach to corporate litigation and bankruptcy proceedings, we argue that Delaware will compete for patent litigation through an expert judiciary and well- developed case law that balances both patentee and defendant interests.

Keywords: patent litigation; forum selling; forum shopping; patent trolls; patent assertion entities; event study; Eastern District of Texas; District of Delaware; corporate litigation; bankruptcy filing; regulatory competition

JEL Classification: K41, O34, G14

Suggested Citation

Eldar, Ofer and Sukhatme, Neel U., Will Delaware Be Different? An Empirical Study of TC Heartland and the Shift to Defendant Choice of Venue (February 23, 2018). Cornell Law Review, Forthcoming; Duke Law School Public Law & Legal Theory Series No. 2018-43. Available at SSRN: https://ssrn.com/abstract=3183563

Ofer Eldar

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Neel U. Sukhatme (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

Georgetown McCourt School of Public Policy ( email )

Old North, Suite 100
37th & O Streets NW
Washington, DC 20057
United States

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