US Supreme Court Deals Blow To Patent Trolls
Source: San Francisco Chronicle, Dominic Fracassa
Photo: J. Scott Applewhite, Associated Press
The U.S. Supreme Court handed down a ruling on Monday that will sharply limit the places where companies can file patent infringement lawsuits, a move that is expected to have significant implications for Silicon Valley and Northern California’s federal courts.
In a unanimous decision, the court overturned a long-standing precedent that gave patent plaintiffs wide latitude over where they could bring a lawsuit — a dynamic that critics say allowed so-called patent trolls to press their cases in friendlier venues.
The court’s ruling Monday will curb that practice by allowing patent suits to be filed only where a defendant company “resides,” meaning the district where it is headquartered or the state where it is incorporated.
For Silicon Valley companies, that means more cases will be filed in the Northern District of California or federal courts in Delaware, where thousands of companies choose to incorporate — instead of out-of-the-way venues like the federal courthouse in Marshall, Texas, the epicenter of patent legislation in recent years.
That shift is a welcome development for many in the tech industry, which has complained about being a target for patent trolls. These entities typically buy up patents not for use in manufacturing or distributing their own products but instead to demand royalty payments from other companies and sue them for damages, often in an effort to obtain quick settlements.
A number of the region’s tech companies, including Adobe, eBay, HP Inc. and Oracle, filed briefs urging the court to curb the venues where patent defendants can be sued. Other companies have argued that courts should be allowed to hear cases where they have developed a subject-matter expertise.
“This is a crucial step toward ending predatory patent litigation,” said Dana Rao, a vice president of intellectual property and litigation at Adobe. “Like many tech companies, Adobe deals with frivolous patent suits in places like the Eastern District of Texas because plaintiffs search for friendly courts. There’s no place in the judicial system for the type of blatant forum shopping that is occurring in patent litigation today.”
Kyle Mahoney, a spokesman for Intellectual Ventures, a company often derided as a patent troll for its business strategy of amassing patents in order to obtain licensing fees from other companies, said that the court “reached the correct outcome and provided a well-reasoned opinion.”
Prior to the court’s ruling, patent plaintiffs could file complaints in virtually any locale where the target company was conducting business. For tech companies such as Google or Apple with national sales and marketing operations, that could mean being sued in almost any district in the country.
“Everyone has been waiting with bated breath for this,” said Andrew Valentine, a patent litigation attorney at the law firm DLA Piper in East Palo Alto. “Silicon Valley companies are going to rejoice (at) this decision.”
Valentine said it was likely that the overall volume of patent infringement cases will drop off as a result of the Supreme Court’s ruling, now that patent plaintiffs will face a tougher time bringing dubious cases in front of friendlier judges and jury pools.
“If some of these distant venues aren’t available, they’ll be less likely to bring cases in the defendant’s home town,” he said. “That’s a less favorable venue, so they might think twice if they want to bring the lawsuit to begin with.”
An overwhelming majority of patent lawsuits in recent years have been heard in federal courtrooms in the Eastern District of Texas — a venue widely considered to be among the friendliest to patent plaintiffs. Last year, 36.4 percent of all patent cases were filed in the Eastern District, according to data from Lex Machina, a legal analytics firm in Menlo Park. The second most common locale for patent cases was the District of Delaware, which heard 10.1 percent of cases.
“For many years, my clients have asked me, ‘Can you explain why I’m being sued in Marshall, Texas?’ and with this (ruling), many of them won’t have to do that any more,” said Michael Sacksteder, the chair of the patent litigation practice at the law firm Fenwick & West in San Francisco.
In addition to its notoriety as a plaintiff-friendly forum for patent cases, the Eastern District of Texas also became known for moving cases along quickly, which works to the benefit of aggressive plaintiffs, Sacksteder said.
Eastern Texas’ status as a hotbed for intellectual property litigation is perhaps best embodied by an ice skating rink erected by Samsung outside the federal courthouse in Marshall — a conspicuous reminder of the company’s presence to the region’s jury pool.
The case the Supreme Court ruled on stems from a patent infringement lawsuit filed by Kraft Foods against beverage sweetener maker TC Heartland. The case was filed in Delaware, but TC Heartland sued to have the case moved to Indiana, where the company is headquartered and incorporated. Two lower courts ruled that the case should stay in Delaware, but the Supreme Court disagreed.
The case is TC Heartland LLC vs. Kraft Foods Group Brands LLC, No. 16-341.
Dominic Fracassa is a San Francisco Chronicle staff writer. Email: dfracassa@sfchronicle.com Twitter: @dominicfracassa
Photo Caption: The Supreme Court ruled Monday that patent cases must be heard where a company resided or is incorporated, dealing a blow to patent-exploitation firms that often seek to have their cases heard in a court they deem friendly.