Water Flavorings Lawsuit May Mean End of Gravy Train in Texas

Could a fight over flavoring water mean the end of a court district that’s become notorious for its patent litigation?

It might, if Heartland Consumer Products Holdings LLC is successful in getting a patent-infringement lawsuit filed against it last year by Kraft Heinz Co. in Delaware moved to a court in its home state of Indiana.

In their request, Heartland’s lawyers are looking beyond those two states. A victory for them could be felt the most in one patent-friendly court, the Eastern District of Texas, where more patent suits are filed than in any other and which Heartland holds up as an example of litigants seeking to have their cases heard where they have the best chance of winning.

“This is obviously an important policy question with the potential of shaking-up patent litigation strategy,” said Dennis Crouch, a law professor at the University of Missouri School of Law, who wrote about the case on his Patently-O blog.

The case involves flavoring pouches for water. Kraft, which sells the MiO water enhancer, filed the suit in Delaware, where the Kraft Foods Group is incorporated. Heartland makes its products under brands including Refreshe, Skinnygirl and Sunkist in Indiana.

The U.S. Court of Appeals for the Federal Circuit in Washington, which handles all patent appeals, is at least considering the issue of where the case should be heard. On Monday, it ordered Kraft to submit a response to Heartland’s transfer petition.

Resident Districts

Patent cases must be filed in the districts where the defendants “resides” or has a regular and established place of business. A 1990 court ruling eased the standard of what it means to “reside” in a court district and “has produced enormous venue shopping opportunities in patent-infringement actions,” Heartland said in its request.

Forum-shopping by lawyers has meant that a quarter of all patent suits filed last year were in the Eastern District of Texas, according to data compiled by Bloomberg.

Changing the standard for where a case is heard won’t be easy, said Brad Wright, a patent lawyer with Banner & Witcoff in Washington. Since Heartland is asking the court to overturn a precedent, it would require action by all active judges of the court, not just the usual three-judge panel.

“It could be an uphill battle,” he said. “The statute does have a broad definition of residency.”

Judicial Turnover

On the other hand, the court has seen a major turnover of judges who “might have an interest in taking a fresh look” at the old standard, he said. Seven of the 12 judges were appointed by President Barack Obama since 2010.

In addition, there is Supreme Court precedent on a similar issue that contradicts the Federal Circuit, said Crouch, who thinks the case has a “good shot” at being heard by the whole court.

The Eastern District of Texas encompasses a wide geographic area, but most suits are filed in the courthouse in Marshall, a historic town of about 24,000 people. Four of the biggest patent verdicts in U.S. history have been in that district, all since 2009, according to data compiled by Bloomberg.

Of the top 10 most litigious firms in the U.S., at least eight file the bulk of their suits in eastern Texas, according to an analysis of data from RPX Corp., a San Francisco patent-risk management services company.

Some suits are cases between big companies, like the royalty battle between Ericsson AB and Apple Inc.

Technology companies, which get sued more than other industries, have been looking for ways to get their cases out of Texas for years and are pushing Congress to change the rules.

In 2008, the Federal Circuit ruled that the convenience of the defendants and location of key witnesses must be considered, leading to a raft of cases being sent out of the Texas courts.

Since then, the judges in Texas, who have been loath grant transfer requests, are giving in more often. More importantly, the lawyers have been getting smarter at arguments to keep the cases in Texas, Wright said.

The case is In Re: TC Heartland LLC, 16-105, U.S. Court of Appeals for the Federal Circuit (Washington)

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