Supreme Court Ends Judge Shopping for Patent Trolls

Heartland, the company which took the case to the highest court in the USA, said the ruling will limit the ability to "shop" for friendly courts. The business model for these entities often entails suing alleged infringers in patent-friendly venues like the Eastern District of Texas in an attempt to extort settlements from accused infringers. In recent years, a single judge based in Marshall, Texas, oversaw about a quarter of all patent cases nationwide, more than the number handled by all federal judges in California, Florida and NY combined. In that case, the Supreme Court held that the rules for corporate "residence" in a separate statute for patent venue (Section 1400 (b)) should continue to apply narrowly notwithstanding Congress' adoption of a broad conception of corporate venue in the general venue statute (Section 1391). The case went to the Supreme Court after lower courts refused appeals to move the trial to Indiana. "Now, Delaware - where many USA companies are incorporated due to friendly business statues - is likely to see a surge in cases".

In the technology space this is particularly true and, with the plethora of patents and the need for collaboration to build pretty much anything in this field, it's inevitable that "ownership" worries emerge.

In fact, more than one-third of patent lawsuits are filed in the Eastern District Texas, a venue known for favorable rulings and massive jury verdicts. Patent trolls are shell companies that buy patents from inventors then sue companies that unknowingly infringe on the patents in the products they make.

"This Supreme Court ruling can help curb decades of misuse of the patent system by restricting a common tactic used by patent trolls - forum shopping", CCIA President Ed Black said Monday. According to a Stanford Law School journal, 40% of all patent lawsuits are filed in East Texas and 90% of those are brought by patent trolls.

To understand the issue dividing the Federal Circuit from the Supreme Court, a little background about federal civil procedure is useful.

The case involved an appeal from TC Heartland, an Indiana-based food sweetener company sued by Kraft Foods in Delaware.

As a result, hundreds (even thousands) of patent suits that would have been filed in plaintiff-friendly courts like the Eastern District-providing plaintiffs with unwarranted advantages unrelated to the merits of their claims-will now be redistributed to federal courts dispersed around the United States that are linked to the defendants.

Individuals and companies that generate revenue by suing over patents instead of actually making products have been dubbed "patent trolls". Even Texas Solicitor General Scott Keller led a coalition of 17 states calling for an end to so-called "forum shopping" in patent cases.

The Supreme Court's ruling means that, for domestic corporations, venue in a patent case is proper only in a defendant's state of incorporation or, alternatively, where "the defendant has committed acts of infringement and has a regular and established place of business". This decision arises after years of judicial interpretation of two seemingly interrelated statutory provisions regarding "residency" in patent cases.

Justice Neil Gorsuch did not participate in the argument or decision of the case. Neither the district court judge nor the Federal Circuit would allow such a transfer.