Another Supreme Court term, another setback for patent owners, and another reason legislative patent reform may continue to be stymied.
Late last month, the Supreme Court issued its eagerly-awaited decision (0) in TC Heartland v. Kraft Foods, holding that corporations can be sued for patent infringement only in geographies in which they’re incorporated or have an established place of business. The IP Watchdog blog was quick to label (1) the ruling the latest in “a decade-plus line of cases that have continually eroded the rights of patent owners.”
So what exactly happened?
Heartland, which wasn’t incorporated in Delaware but does sell products there, moved the trial court to dismiss or transfer the case. But the Delaware court refused, as did the appellate court.
Under the patent venue statute (28 USC § 1400(b) (4) to legal geeks), “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.”
Writing for a unanimous 8-0 high court (newly sworn-in Justice Neil Gorsuch arrived on the bench too late to consider the case), Justice Clarence Thomas held (5) that later legislation providing in general civil cases that “a corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business” did not override the plain meaning of the patent venue statute, which was far narrower.
The justices also found that an even later general statutory provision, which stated that “a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced,” did not override a previous high court ruling, which definitively and unambiguously held that the word “reside[nce]” in §1400(b) has a particular meaning as applied to domestic corporations: It refers only to the State of incorporation.”
The ruling, ironically, will likely trigger an increase of litigation in Delaware.
Recall that the busiest locus of American patent litigation is the Eastern District of Texas, where judges and juries are widely thought to be sympathetic to patent owners. But while many large corporations that find themselves on the receiving ends of patent lawsuits conduct business in the district, precious few are incorporated in Texas or have a “regular and established place of business” in the district.
Delaware, by contrast, is the corporate home of many of the country’s largest companies, thanks to its favorable tax treatment. So while Texas courts can expect a sharp drop-off in patent cases, the District of Delaware is bracing for a commensurate spike in filings.
Industry reactions to the ruling were swift and varied. Adobe’s vice president of intellectual property and litigation “commend[ed] (6) the Supreme Court for its unanimous decision to limit forum shopping,” calling the ruling “a critical step towards ending predatory patent litigation. 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.”
By contrast, the executive director of the Innovation Alliance (7) — a coalition of patent owners — lamented (8) that “this decision also comes on top of several major legislative and administrative measures adopted in recent years that have similarly weakened patent rights” and in turn “have made it harder for American inventors to succeed and undercut a key driver of US innovation and job creation.”
But there seems to be consensus on one other key point: The TC Heartland decision will likely further stymie efforts to reform the patent litigation system through legislation, as curtailing suits in areas such as the Eastern District of Texas will likely tip the balance away from patent owners. For instance, Sen. Jeff Flake’s (R-AZ) VENUE Act (9), which seeks to restrict the courts in which patent suits can be filed, has been obviated by the high court.
Thus, once again, the Supreme Court has taken action to restore what it sees as proper balance to the patent system before Congress could successfully do so itself.