1. So does this mean that almost all patent suits will be filed in Delaware?
1a. If that is correct, does someone know the TL;DR of the rules that make it a better choice than other places. (I mean, juries are juries).
2. Will tech companies now incorporate in non-Delaware states because there are even better rules somewhere else?
Thanks for helping us understand the context.
As for Delaware, I don't think it's particularly plaintiff friendly so much as its not defendant friendly. If you sue a tech company in N.D. Cal. you're in the position of telling locals that a business that generates jobs and tax revenues for them did something wrong. Delaware, being the hub of all sorts of business litigation, sees things at a more abstract level. You're less likely to get a judge or jury in Delaware that comes in with a particular preconceived notion of X or Y being bad. They're going to look at the facts and they're going to look at the law and make a decision. That manifests itself in some practical ways. For example, some Delaware judges are loathe to permit summary judgment motions (decisions on the case before it goes to a jury). Many infringement questions are, according to the law, jury questions, but judges grant summary judgment anyway to save defendants the time and expense of a jury trial. Delaware judges don't really care about that.
Does this mean that startups should actually stay in Delaware to reduce the footprint of places they can get sued in?
Doesn't sound like it changes much for the large tech companies who are all over the place anyway.
Thanks for clarifying, and for taking the time with the other answers.
Also, it's not clear that EDT is actually plaintiff friendly. Defendants win plenty of cases there, and last time I saw stats it didn't seem particularly outstanding. There were several that had significantly higher plaintiff win rates. The numbers can change dramatically from year to year, though, so what I saw may be outdated.
(Update: 2016 plaintiff won 36% of patent trials in EDT. 2015 was 50%, 2014 was 67%, and 2013 was 33%. These are lower than the overall national plaintiff patent win rate, I think [1] [2] [3]).
A big reason plaintiffs choose EDT is that it is fast and experienced (the former partly due to the latter). Patent suits are civil cases heard in Federal district courts. Federal district courts also deal with criminal cases, and criminal cases have higher priority.
In some districts where there is a heavy load of criminal cases the civil cases can end up move very slowly. EDT doesn't have much crime, so there aren't many criminal cases there. They have plenty of time for civil cases.
Patent cases are among the more technically complicated cases. They will go a lot smoother if handled by a judge who is experienced with them. Once a judge gets experience with a few patent cases, that can attract plaintiffs to that district. Some judges like patent cases, and so whenever one is filed in the district they serve in, they ask to have it assigned to them. That in turn makes the them even more attractive to future plaintiffs.
Patent cases are often "big". What I mean by that is that they often involve a lot of people attending the trial or accompanying those who attend the trial. Each party will have patent lawyers (often more than one) and trial lawyers (often more than one) on their team. Those will all have secretaries and paralegals. They will have witnesses, which on the plaintiff side will at least include the inventor(s) and probably others who were involved with the invention, and on the defendant side will include the people who developed the technology that defendant used that is accused of infringing. There will be expert witnesses both sides have hired to explain the patent and the technology, both as used by plaintiff and by the accused infringer. Both sides will also probably have a damages expert. Both sides will have rented at least one large conference room at their hotel, and will have brought along an IT team that will arrange high speed internet in that conference room and have set it up as a nearly complete office, complete with workstations, printers, phones, FAX, and so on. There will be a multimedia team that makes graphics and animations for presentation during the trial.
The trial itself might last a week or two, but most of the above team will be there for two to four weeks before the trial starts. What that means is that you might be looking at needing 30ish hotel rooms, plus a big dedicated meeting room, and probably several smaller dedicated meeting rooms, for four to six weeks, and you want this reasonably close to the court.
Keep in mind both sides are doing this, so you are looking at 60+ people staying at good hotels, renting expensive meeting facilities, using the services of many local businesses (restaurants, car rental, office equipment rental, cleaners, clothing stores, barbers and stylists) for a month or more. This can bring in a pretty good amount of money to the local economy.
District judges generally live in the districts in which they serve, and are aware that these big cases are good for their districts. They sometimes take steps to encourage such cases to come to their districts, such as adopting local rules to make handling particular types of cases more efficient. EDT has done that with patent cases. I recall reading of a few other districts that do similar, but for specialities other than patents, but cannot recall specifics.
[1] http://mcsmith.blogs.com/eastern_district_of_texas/2016/08/2...
[2] https://www.pwc.com/us/en/forensic-services/publications/ass...
[3] https://www.thenaplesroundtable.org/wp-content/uploads/2016/...
> Each party will have patent lawyers (often more than one) and trial lawyers (often more than one) on their team. Those will all have secretaries and paralegals.
Often way more than one. It's not unusual for a patent trial team to have five or six lawyers, divided into teams that handle different aspects of the case, plus a couple of paralegals, and possibly an admin / secretary.
(A patent infringement trial is often bet-the-product-line or even bet-the-company, so you often spend 16 to 20 hours a day either in court or in the "war room" in your side's headquarters hotel, getting ready for the next day in court. And as I can testify from personal experience, it's not hard to put on a few pounds snacking on the food with which the paralegals oh-so-helpfully stock the war room.)
It would take a lot of work to work out variables like that. What I would be curious about is what proportion of patent suits brought by non-practicing entities are filed in EDT, and what is their win rate there versus elsewhere, and an attempt at analysis of how broad the patents are.
Finally, I wonder if your win rate includes settlements? My understanding is that the combination of the win rate of plaintiffs, the speed of the court, and the higher cost of defending a patent suit in a remote district, most cases are settled. Is that true?
There are also some problems which come from so much being litigated in Delaware. I have been working with a bankruptcy attorney looking at venue laws which run into similar issues as patents. As many patent lawsuits have been filed in Eastern Texas, many bankruptcies are filed in Delaware even if there is no functional basis for the company there outside of the state of incorporation.
By running everything through Delaware, you're often taking the chance of reasonable representation away away from defendants (or creditors in the case of bankruptcy). If a company who only has facilities in Iowa goes belly up, there are likely dozens of companies who they owe money to, many of which are in the surrounding communities. Now the hundreds of farmers who are owed money have to fly to Wilmington Delaware if they want any chance of representation.
Delaware Bar will require that a local attorney introduce whatever attorney from Iowa was hired to represent the farmers (if the Iowa attorney is competent, the Delaware attorney is literally introducing them and reviewing some documents before submission). Local council adds another expense for small businesses on the short end of a bankruptcy.
The geographic difference adds significant expense in terms of travel. The VeraSun grain elevator case had a company headquartered in South Dakota with no operations east of Indiana and they filed in Delaware. There are other cases with even larger geographic differences out of California and Hawaii.
Marsh supermarkets is headquartered in Indianapolis, Indiana and recently filed for bankruptcy in Delaware. They have thousands of employees, but only about 250 are salaried, the rest are hourly, largely store employees. Many of them are owed money from working their normal shifts. It will be very hard for the employees to feel like they had a chance at getting fair representation if they have to go to Delaware to see court proceeding happening. It could just as well have been held in Indianapolis with local attorneys representing hourly employees at a more reasonable total expense.
Finally, a disproportionate amount of power in deciding bankruptcy or patent cases should not lay in the hands of a few judges. We've already seen what happens when a single judge has vastly different views on a given topic than pretty much anyone else with the mess of patent trolls in Eastern Texas. That one judge cost companies hundreds of millions to billions of dollars in cases which would have seen a different result if heard by a variety of judges from across the country. By running everything through Delaware, the concept of various opinions from across the nation being debated through many cases and going to appeals where needed goes out the window. A handful of judges in Delaware will decide what happens in the nations most significant bankruptcy and patent cases.
Given that I don't see how it's a positive thing at all.
One would argue that the creditors did have a say, in that they knowingly chose to extend credit to a company incorporated in Delaware.
But overall, it feels like the real problem is that a company can be incorporated in one state, and have no actual business presence or interests in that state. Having a single focal point for lawsuits makes sense, since otherwise businesses (that can be very small) could potentially be dealing with the huge expenses of lawsuits in many different states over the same thing. And then the state of incorporation is an obvious choice. But why should other states allow such an obviously contrived setup for companies coming and doing business in their borders.
(I'm sure there's some kind of convoluted constitutional explanation here as to why the states actually can't restrict this, because of the Commerce Clause etc. Still, though.)
Sounds like it would be a good idea to embargo East Texas.
Interestingly, Delaware should be especially attractive to 'IP heavy' companies, and other companies that have large amounts of 'intangible capital' (e.g. tech companies), as Delaware doesn't tax earnings generated from 'intangible assets'. So if you're a large multi-state / multi-national corporation, you set up a subsidiary (or incorporate your HQ) in Delaware, dump all your intangible assets there, and then charge your related entities fees when they use these intangible assets (e.g. IP & trademark licensing fees).
These fees can then be claimed as deductions in the State / Country the related entity happens to be in (unless the jurisdiction has strong transfer pricing laws that outlaw the more egregious instances of this practice). As with all tax-havens, it's the 'beggar-thy-neighbour' approach to attracting 'capital investment'.
[0] http://www.nytimes.com/2012/07/01/business/how-delaware-thri...
[1] https://www.theguardian.com/us-news/2016/apr/06/panama-paper...
[2] https://en.wikipedia.org/wiki/Corporate_haven#North_America
Patent cases are federal matters, so I don't think it applies there.
Q.What year and where was Microsoft incorporated? A.Microsoft was incorporated in the state of Washington on June 25, 1981; reincorporated in the state of Delaware on September 19, 1986; and reincorporated in the state of Washington on November 1, 1993.
https://technical.ly/delaware/2014/09/23/why-delaware-incorp...