East Texas Jumped Back to First Place in Q2 as Delaware Downturn Continued

The Eastern District of Texas was the top district for overall litigation and NPE litigation in Q2 2023, jumping from third and second place, respectively, with the Western District of Texas trailing in second place in both categories. Delaware, meanwhile, fell from first to third place for overall litigation, remaining in the number-three spot for NPE filings, though the district is still the most popular venue for operating company cases.

Delaware’s downturn is largely the result of an ongoing “Series of Extraordinary Events” in the courtroom of Chief Judge Colm F. Connolly. As noted above, Judge Connolly has been pressuring a group of plaintiffs, particularly those tied to IP Edge, over their apparent lack of compliance with heightened disclosure requirements that he imposed in April 2022. As he has forced more and more of those plaintiffs to reveal details on their corporate control, assets, and legal representation, Judge Connolly has expressed increasing concerns that IP Edge’s unusual entity formation strategy—under which the firm has named individuals with no prior experience in patent assertion as the managers of entities under its apparent control—is part of a “fraud upon the court” designed to shield IP Edge and its principals from liability.

As an apparent result of that pressure, IP Edge stopped filing in Delaware after the end of September, before ceasing its litigation altogether after November. As IP Edge had consistently accounted for the bulk of Delaware’s NPE litigation since Q3 2020, the district’s numbers took a tumble and have not rebounded since. For instance, IP Edge plaintiffs accounted for nearly 70 of the roughly 120 defendants added by NPEs in Delaware in the second quarter last year—and in Q2 2023, NPEs (this time not including IP Edge) added just 34 defendants there.

Late last year, Judge Connolly took matters a step further for several of those IP Edge plaintiffs by ordering them to produce a ream of materials relevant to those issues, in each instance triggering an extended fight over the propriety of the orders: One (Nimitz Technologies LLC) asked the Federal Circuit to intervene, while three more (Backertop Licensing LLC, Lamplight Licensing LLC, and Mellaconic IP LLC) moved the district court to set aside the orders against them, all unsuccessfully—each raising a similar host of objections, including claims of overbreadth and that the court had sought the production of materials covered by the attorney-client privilege and/or the attorney work product doctrine.

The past few months have seen Judge Connolly dig even further into this issue after reviewing materials produced by some of those entities. In particular, this review led him to grill the two attorneys of Backertop Licensing—who have been seeking (thus far without success) to withdraw from the case—over the inadequacy of the NPE’s production, in a June in-person hearing that revealed further details bearing on the court’s concerns over the underlying IP Edge monetization framework that brought these cases to his courtroom. Judge Connolly’s concerns over the materials already produced also prompted him to order Backertop’s sole owner, a Texas paralegal with no prior involvement in patent monetization, to appear before him in person. That owner’s attempts to avoid an in-person hearing, citing personal and professional obligations, have led to an escalating dispute in which Judge Connolly sent materials related to the case to her law firm employer—triggering accusations that Judge Connolly was engaging in gender discrimination. The plot has since thickened even further, as Backertop and that owner ended up refusing to attend a July 20 follow-up hearing at all, either in person or remotely—triggering yet another hearing, on August 1, to address whether the owner should be held in contempt.

See RPX’s second-quarter review for more on other trends impacting patent litigation in Q2 and the first half of the year.