Delaware Took the Lead in Q1—but Chief Judge’s Transparency Push Gave NPEs Pause

The District of Delaware was the top district for overall patent litigation and operating company litigation in Q1 2023, overtaking the Western District of Texas in the former category for the first time since Q2 2020. West Texas fell to second place for overall litigation in the first quarter, likely as a result of the downturn in NPE activity caused by a July 2022 judge assignment order that reduced the temptation of filing cases in Waco—the home division of District Judge Alan D. Albright. Nevertheless, the Western District remained the top destination for NPE litigation in Q1, albeit by a narrow margin—just ahead of the Eastern District of Texas (previously an NPE favorite before the US Supreme Court’s decision limiting patent venue in TC Heartland).

Despite the downturn in West Texas NPE litigation, such plaintiffs do not appear to have selected a new favorite venue, at least in the short term—as no one district has yet experienced a disproportionate rise in NPE activity. In particular, NPEs do not seem to be flocking to Delaware, where they previously headed after TC Heartland: NPEs added roughly the same number of defendants there in Q4 2022 and Q1 2023.

That relative hesitance could be the result of an ongoing battle over transparency and mandated disclosures in the courtroom of Delaware Chief Judge Colm F. Connolly. In April 2022, Judge Connolly posted new standing orders applicable to cases assigned to him, including two that require parties to reveal information related to funding arrangements and corporate control. While these new requirements pushed many plaintiffs to file new or updated disclosures, others have apparently failed to comply—including a group of entities linked to IP Edge that Judge Connolly ordered to produce a substantial range of information on their formation, control, and funding.

Thus far, those plaintiffs have been unsuccessful in their attempts to push back against those orders. In February, the Federal Circuit declined to rehear a prior decision in which it refused to vacate one such production order against Nimitz Technologies LLC, which has indicated that it may appeal to the Supreme Court. Back in Delaware, after two months passed with no production forthcoming from Nimitz, Judge Connolly ordered its counsel to appear before him and explain why it should not be sanctioned for its failure to comply. Three days later, Nimitz made the requested filings.

In early May, Judge Connolly also denied motions from two more IP Edge-linked plaintiffs, Backertop Licensing LLC and Mellaconic IP LLC, that sought to overturn a related set of production orders. Not only did those decisions reject objections related to jurisdiction and allegations of overbreadth, Judge Connolly also ominously suggested that their claims of attorney-client privilege are undercut by the crime/fraud exception—which allows the disclosure of communications between a party and counsel that relate to legal advice used in furtherance of illegal activity. Both entities have since notified Judge Connolly that they have complied with his orders.

Although the effect of Judge Connolly’s standing orders is inherently limited to parties before him for the most part, their impact was also briefly felt outside his district in Q1 as the result of a multijurisdictional discovery dispute involving the once-prolific litigant WSOU Investments, LLC (d/b/a Brazos Licensing and Development) (“WSOU”). In January, Salesforce—a defendant in ten WSOU cases brought in the Western District of Texas—filed a Delaware motion asking the court to force two Delaware entities with allegedly “substantial interests” in WSOU to provide information on their ownership and control. WSOU filed a motion to seal much of that material, sought by Salesforce in support of a license defense. On February 24, Judge Connolly not only denied that sealing motion but also rolled back all prior redactions in the case—revealing new details on the asserted license, which stems from WSOU’s alleged ties to an individual behind another well-known NPE. Judge Connolly’s involvement has since come to an end, as he transferred the discovery action back to the Western District of Texas in early March.

See RPX’s first-quarter report for more on recent venue developments, as well as other key patent litigation trends from Q1.