This week the Supreme Court will hear argument in TC Heartland v. Kraft Foods. This critically important case involves the meaning of the patent venue statute and where plaintiffs who claim infringement may bring suit.
Fighting over where cases can be brought may sound like the sort of thing only lawyers would care about, but I assure you, this case has profound ramifications for all of us.
At issue in the case is whether a plaintiff claiming patent infringement can sue a defendant corporation only where the defendant is incorporated or has an established place of business, or whether a plaintiff can instead sue anywhere the defendant has ever sold the allegedly infringing item, or even just offered the item for sale. In today’s world of internet ecommerce and interlocking distribution chains, that can be literally anywhere.
To take TC Heartland as an example, the defendant corporation in the case, an Indiana-based manufacturer of zero-calorie sweeteners, was sued in Delaware even though it has no regular or established place of business in Delaware and is not even registered to do business in the state. Despite the defendant’s lack of connections, the court found that Delaware was a proper venue for the suit because a small percentage of the defendant’s sales—approximately 2 percent—were purchased by a customer in Arkansas and shipped to Delaware.
Savvy plaintiffs know that current rules allow them to bring suits virtually anywhere they want, so they seek out forums where they know judges are likely to give them an easier shake. One federal court in east Texas in particular has become infamous as a magnet for patent litigation because of its plaintiff-friendly rules and sympathetic juries.
In 2015, nearly 45 percent of all patent cases nationwide were filed in that one court. Nearly one-third of all patent cases nationwide were handled by a single judge on that court. This is forum-shopping in the extreme.
It’s easy to understand why plaintiffs favor the Eastern District of Texas so heavily. According to a 2017 study, the court’s procedures cause defendants to spend more money, earlier on, during a lawsuit. In addition, cases in the court are more likely than cases in other courts to go to a (costly) trial rather than being resolved in chambers. Finally, the court is less likely than other courts to pause litigation while parallel proceedings in the Patent and Trademark Office run their course, again raising costs for defendants. All of these traits make the Eastern District of Texas particularly attractive to plaintiffs seeking to extract settlements.
Small wonder, then, that some defendants have gone to extreme lengths to try to curry favor with the local populace, including by building an ice-skating rink in front of the courthouse and purchasing the champion steer at the local livestock auction.
Essentially, plaintiffs are gaming the system by having their cases heard in courts they know will be friendly to their cause, a practice commonly known as “forum shopping.” This would be unseemly enough on its own. But what makes the practice even worse is that many of the plaintiffs in these cases aren’t productive enterprises. They don’t actually invent anything, or make anything, or even sell anything. Rather, their entire business model is to purchase patent licenses and then turn around and sue anyone they can arguably claim may have infringed the patent in some small way. Their goal is not actually to stop the allegedly infringing activity, but to extort a settlement and then move on to the next lawsuit.
These entities, often called “patent trolls,” structure settlement offers to make settling much more advantageous to defendants than litigating, even when the infringement claim is clearly bogus. Litigating even a baseless claim can cost hundreds of thousands of dollars. Far easier (and cheaper) to settle for $50,000 or $100,000 to make the patent troll go away.
The result is a loss to society. Innovators spend millions of dollars defending themselves from wasteful lawsuits that they otherwise could have spent developing new products and services.
It should be clear to anyone reading this piece that this irrational system is clearly not what Congress intended for patent litigation. I’ve been involved in patent reform efforts long enough to know that Congress never meant to create a regime in which patent trolls can extort settlements from actual innovators by shopping around for plaintiff-friendly forums.
The purpose of venue is to ensure that cases are brought in a convenient location, one where the defendant has sufficient connections to make travel to and from that location reasonable.
The current patent venue regime defeats this purpose. It enables plaintiffs to target forums with plaintiff-friendly rules, where discovery begins early, judgment before trial is rare, and stays are frequently denied. These traits drive up litigation costs, incentivizing defendants to settle even frivolous claims rather than pursue them to trial.
It’s my hope that the Supreme Court will decide this week’s case in a way that conforms to Congress’s intent and puts an end to abusive forum-shopping. A decision is likely before the end of June. In the unfortunate event the Court upholds the current system, I stand ready to move legislation that will help bring sanity back to patent litigation.
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