General IP Strategy, In-House IP, Patent Strategy

Supreme Court Tightens Patent Venue… Whoop de doo.

[Before you read this post, read the IP Strategist disclaimer]

The headlines are calling the Supreme Court’s 8-0 decision in TC Heartland LLC v. Kraft Foods Group Brands LLC (May 22, 2017) “groundbreaking.” I’m not so sure. Yes, the case will affect where patent cases can be filed, and it may even be a short-term thorn in the sides of some patent trolls. But I predict little, if any, long-term impact.

mehfortune

After being flooded by headlines and blog posts in the first couple of days following the decision, I didn’t feel any need to add to the noise. And even after three attorneys and two clients asked when I would be posting about it, I refused to join the fray. But, now that the dust has begun to settle, I’m starting to feel like one of the only people who thinks this case isn’t all that fantastic.

Background

Litigation 101: You can only sue someone in a venue that has proper jurisdiction to hear the case. Proper venue for a defendant is generally where the defendant “resides,” and the definition of “resides” is controlled by statute. At issue here is that, for patent cases, venue is potentially controlled both by a general venue statute (28 U.S.C. § 1391(c)) and a patent-specific venue statute (28 U.S.C. § 1400(b)), and the two statutes are different.

“Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” 28 U.S.C. § 1391(c).

“(2) an entity with the capacity to sue and be sued in its common name under applicable law, whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question and, if a plaintiff, only in the judicial district in which it maintains its principal place of business.” 28 U.S.C. § 1400(b).

Back in 1957, the Supreme Court held that the patent-specific statute took precedence over the general statute. That effectively limited the “residence” of a corporate alleged infringer to its place of incorporation. But amendments to the general statue in the late 1980s led the Federal Circuit Court of Appeals to a different conclusion: that the general statute defines “resides” in the patent-specific statute (see VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990)). Under that reading, a corporation could sue, or be sued, in “any judicial district in which [the corporation] is subject to the court’s personal jurisdiction with respect to the civil action in question.” In this day and age, that means almost anywhere, which left defendants vulnerable to patent suit in almost any district court in the U.S.

In the wake of this extreme loosening of the venue requirement, plaintiffs began flocking to a small number of patent-friendly jurisdictions. NPR’s This American Life summed up the craziness well in their 2011 story, “When Patents Attack!”:

“Why would a company rent an office in a tiny town in East Texas, put a nameplate on the door, and leave it completely empty for a year? The answer involves a controversial billionaire physicist in Seattle, a 40 pound cookbook, and a war waging right now, all across the software and tech industries.”

marshallThe “tiny town in East Texas” refers to Marshall; home of one the divisions of the US District Court for the Eastern District of Texas, and a town that has gained a level of infamy as a bastion of the patent troll. The District Court in Marshall hears over 40% of all patent cases filed in the U.S., and Judge Gilstrap of that court presides over roughly 25% of all patent cases U.S.

In most cases, venue has almost been considered automatic (at least, most defendants have not thought it worth challenging). For example, usually, a company operating almost completely online can easily be shown to have sufficient connections to almost anywhere to be subject to personal jurisdiction there. But after the TC Heartland decision, it may be difficult to sue that company outside of its state of incorporation.


Outlook

Indeed, there are a few likely benefits to the decision. The biggest is that patent attorneys will likely spend less time in Marshall, Texas. Also, this is likely to result in more specialty patent courts in areas where many companies are incorporated, like the District of Delaware (which already has a backlog problem). In the end, some patent plaintiffs may ultimately spend less time worrying about forum shopping. But I suspect these benefits are of little consequence to most litigants and are short-lived, and others have already written quite enough about them.

Here are my more ambivalent thoughts about the decision, in no particular order.

(1) The patent-specific statute doesn’t only say “resides.” It also says suit can be brought where an alleged infringer has “committed acts of infringement and has a regular and established place of business.” The Supreme Court’s decision does not discus that aspect of the statute, and I predict that will remain hotly contested. In fact, even the “resides” part of the statute is not so well defined and will be hotly contested. “Hotly contested” here means more time and money for litigants.

(2) Tighter venue will not eliminate venues, like E.D. Texas; it will just make them harder to establish in certain cases. That likely means yet another issue litigants will have to pay attorneys to argue.

(3) PRO: Post-TC Heartland, patent trolls may have a harder time joining lots of defendants into a single court, as they will have to work harder to show proper venue for each defendant. CON: The same will be true for companies that have legitimate related infringement concerns against multiple companies with different places of incorporation. In such cases, victims of infringement may have to file similar cases multiple times in multiple courts (again, costing them additional time and money). This concern was raised in an amicus brief submitted in support of Kraft in this case by Whirlpool’s patent counsel, Nathan Davis.

(4) While this decision may make it harder for patent trolls to sue in their favorite jurisdictions, that tactic is just one of the many moves patent trolls make. This decision is just one more move in a long-running game of patent troll chess. The players are teams of lawyers that make lots of money by finding ways to game the game, and I have no doubt they will continue to find ways of winning, even if not in their favorite courthouses.

For example, the chart below (from the PwC 2017 Patent Litigation Study) shows that, while E.D. Texas has the highest overall success rate, other district courts see more patent cases, hear them more quickly, or are have larger median damage awards.

pwc_lit_survey

(5) I fear these types of decisions fill the public with a false sense of progress and distract from real reform. There are much, much larger problems with the patent system right now, not the least of which being poor patent quality. Real changes need to be made in the way patents are drafted, examined, and leveraged, if we are to fix our broken system.

(6) Finally, possibly the biggest reason to care about this case – the TC Heartland decision was 8 to 0 in the Supreme Court, unanimously smacking down the Federal Circuit Court of Appeals and continuing their trend of eroding the Fed Circuit’s credibility. The Fed Circuit was established as a specialty court to hear appeals of patent cases (and limited other cases) and has unique expertise in that area. If litigants disagree with the decision of a district court, or of an appeal board in the U.S. Patent Office, they can usually appeal to the Fed Circuit (then to the Supreme Court, if needed, as in the TC Heartland case). As many district court decisions are bad, and as most cases are not worth Supreme Court review, the option of appealing to a credible Fed Circuit can be very important to establishing good patent law. Obviously, I am not suggesting that the Supreme Court should factor such concerns into its decisions; and I am not even arguing with the merits of this particular decision. I am only noting that a beaten-down Fed Circuit may have more far-reaching impacts to patent litigants than a change in the venue requirement.

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