US Supreme Court Puts New Limits On Patent Suits

Yesterday’s United States Supreme Court decision in TC Heartland LLC v. Kraft Food Brands Group followed some familiar trends in Supreme Court jurisprudence. It overturned long-established Federal Circuit law, restricted the power of patent owners, and handed a stinging defeat to so-called “patent trolls” (companies that make money primarily by licensing their patents and suing those who refuse to purchase licenses). The Court did all this by limiting where patent infringement suits can be filed – and thus significantly changing patent litigation in the US.

For many years, the Federal Circuit has provided patent owners with have great latitude over where to file their infringement suits. That appellate tribunal (often known as America’s “patent court”) held that the general venue statute, 28 USC §1391(c) allows a patentee to sue an alleged corporate infringer in any jurisdiction where the infringer does business.

As a result, one small, rural federal court district became the locus of the country’s patent suits. The Eastern District of Texas accounted for 37 percent of patent infringement cases filed in the US in 2016.

Patentees chose to sue in that district because it offered significant litigation advantages. “It is a forum of choice for patent plaintiffs because of the district’s rules [which favor patentees] and because juries in Texas tend to render large verdicts,” said Christopher T. McWhinney, a partner in the law firm of Sullivan & Worcester.

The Wrong Statute

Those litigation advantages will be much harder to get in the wake of yesterday’s Supreme Court Heartland decision [pdf]. The high court reversed the Federal Circuit and held that the general venue statute does not apply to patent suits. Those suits are covered by a separate patent venue statute, 28 USC §1400(b), according to eight Justices. (The ninth and newest Justice, Neil Gorsuch, joined the Court too late to participate in the case.)

Section 1400(b) states “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.” For purposes of this statute, a US corporation “resides” only in its State of incorporation, the high court declared, reaffirming its 1957 decision in Fourco Glass Co. v. Transmirra Products Corp.

“The decision will strike a major blow to patent suits in the Eastern District of Texas, but it will have broader ramifications than that,” said Christopher K. Larus, a partner in the Robins Kaplan law firm. “It will have significant ramifications, especially for those seeking to enforce patents.”

Before Heartland, a plaintiff could sue multiple defendants in the same jurisdiction and then convince the district court to consolidate pre-trial activity. This consolidation decreased the plaintiff’s litigation costs and increased the overall pace of the suits.

After Heartland, however, it will often be impossible for a patentee to sue multiple defendants in the same judicial district. The patentee will have to sue in multiple districts, which will prevent consolidation and significantly boost the patentee’s litigation costs. This will also “increase the risk of inconsistent rulings,” said Larus.

Good News, Mostly

The ruling will be a boon for many alleged patent infringers, particularly large tech companies that regularly confront high volumes of patent litigation. “They will have more of these [infringement] cases brought in their home jurisdictions, giving them a home court advantage. The judges and juries deciding these cases will be from the defendant’s area, and that is widely recognized to be an advantage,” said Larus.

The ruling can also be a lifesaver for fledgling businesses. “The decision protects small tech startups across the country … from a patent assertion that can shut down their business,” said Christopher P. Broderick, a partner in the law firm of Manatt, Phelps & Phillip.

Conversely, the ruling will hurt patent trolls, making their patent suits more expensive and harder to win. These trolls, however, won’t be the only patentees to suffer.

“Small and medium-sized businesses already found it challenging to enforce their patent rights. Now, they will be forced to go into the defendants’ home courts in order to enforce their patents. And they will find it more difficult to bring parallel litigations against multiple defendants, forcing their costs up,” said Larus.

Thus, although most experts hail the Heartland ruling, there are some qualms. “If the former [Federal Circuit] rule was plaintiff-friendly, the new rule is defendant-friendly,” said Prof. Colleen V. Chien of Santa Clara University Law School. “Equity perhaps lies somewhere in between.”

 

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