Will the Supreme Court end the East Texas patent scam?

Tech companies and interest groups seek to alter the geography of litigation.

It didn't take long during oral arguments yesterday for the Supreme Court to hear about the "single judge in the United States that has one-quarter of all patent cases" from a lawyer representing patent defendant TC Heartland. Now, the question is what the court will do about it.

The wonky issue of patent venues is now in the hands of the US Supreme Court, which heard arguments yesterday in TC Heartland v. Kraft Foods Group Brands. Kraft sued TC Heartland for infringing its patents on "liquid water enhancers" in Delaware, and TC Heartland lawyers asked to move the case to its home state of Indiana. A Delaware judge rejected the case, noting that TC Heartland shipped about 2 percent of the accused products to Delaware. That was enough to keep the case in the state.

TC Heartland appealed, but the US Court of Appeals for the Federal Circuit ruled against the company last year. The company appealed again, asking the Supreme Court to take its case. TC Heartland's petition was bolstered by a brief (PDF) filed by 32 Internet companies, emphasizing that venue rules were being abused by so-called "patent trolls" with no business beyond licensing and litigating patents. Tech trade associations and public interest groups Electronic Frontier Foundation and Public Knowledge (PDF) also urged the high court to take the case. In December, the petition was granted.
In the argument, TC Heartland argues that patent venue rules are special and should only be filed "where the defendant resides."

The crux of the argument is whether or not patent venues should be viewed in the context of a 1957 Supreme Court case called Fourco Glass v. Transmirra Products, in which the court held that patent lawsuits must be brought "where the defendant resides," meaning, where a company is incorporated. On the other side, Kraft is arguing that the venue rules should basically be the same and that venue changes Congress approved in 2011 apply to all lawsuits, including patent cases.

What’s trolling got to do with it?

During oral arguments yesterday (transcript, PDF) the justices were mostly focused on the wording details of the venue rules, and they didn't seem particularly receptive to concerns about rampant patent troll litigation. Even Justice Stephen Breyer, arguably more concerned with abuse of the patent system than any other current justice, questioned the relevance of the many amicus briefs decrying the "troll" problem.

"They're filled with this thing about a Texas district which they think has too many cases," said Breyer. "What's that got to do with this? Is there some relevance to it?"

"You're complaining about a forum that's friendly to infringers," said Justice Ruth Ginsburg (perhaps getting the reputation of East Texas, typically seen as friendly to patent-holders, backward). "Many corporations are incorporated in Delaware. That's also said to be a friendly forum."

"There has never been, in any other field of law, such a disparity between patent infringement case filings and other case filings," said Dabney.
"Well, but for more than 30 years, the practice has been the other way," noted Justice Elena Kagan.

When Kraft lawyer William Jay got his turn at the podium, the issue of patent trolls, politely called "non-practicing entities," or NPEs, came up more directly. Jay argued that adopting TC Heartland's rule wouldn't just throw NPE cases out of Texas—it would move a lot of litigation between operating companies as well.

"You're going to have overcrowding in Delaware, and the cases that really [ought] to be in the same place, you won't be able to bring in the same place," said Jay.

On rebuttal, Dabney responded that the idea that pharmaceutical and other non-NPE patent litigation would be disrupted by tighter venue rules is "completely speculative."

You can sue a defendant in the judicial district where his domicile is, or if you want to sue somewhere else, you have to sue somewhere where there is both an act of infringement and a regular established place of business," said Dabney. "That is what Congress provided."

In all, it's looking like a close call. While the Supreme Court has created rules that favor patent defendants in the past, it's not at all clear that they're going take this case as another opportunity to hammer the patent trolling business.

"Overturning 25 years of precedent on a close question of statutory interpretation may create hardships for legitimate patent holders and could concentrate patent cases in an even smaller number of districts—such as Delaware, for example," Mark Whitaker, a patent litigator at Morrison & Foerster, told Ars via e-mail. "The present statute includes tools for courts to transfer venue, which could be applied even more rigorously, until Congress is able to act."