Top U.S. Court to Consider Curbing Texas Suits by Patent Holders

The United States Supreme Court is pictured on May 27, 2014, in Washington.

Photographer: Chip Somodevilla/Getty Images

The U.S. Supreme Court agreed to consider putting sharp new limits on where patent-infringement lawsuits can be filed, accepting a case that may undercut patent owners’ ability to channel cases to favorable courts.

The justices said Wednesday they will hear an appeal by TC Heartland LLC, an Indiana-based maker of water flavorings that says a Kraft Heinz Co. unit shouldn’t be allowed to sue it in Delaware.

A victory for Heartland would also bar most patent owners from pressing cases in the Eastern District of Texas, a patent-friendly jurisdiction where more than a third of all infringement suits are now filed. Heartland’s appeal has support from a group of internet retailers and software companies, as well as the financial-services industry.

Kraft Foods Group, which sells the MiO water enhancer, is incorporated in Delaware, whose federal court is another favorite forum for patent owners.

Federal patent law says lawsuits may be filed in the judicial district “where the defendant resides.” A 1957 Supreme Court decision said that means lawsuits can be filed only in the defendant’s place of incorporation, and Heartland says that ruling should remain the law.

The U.S. Court of Appeals for the Federal Circuit, however, said in 1990 that suits can be filed wherever the defendant regularly does business. That court, which specializes in patent cases, said Congress had redefined “resides” through a change enacted in 1988.

Heartland and its allies say that interpretation gives too much leverage to patent holders, including companies that exist solely for the purpose of collecting royalties and suing for infringement.

"If plaintiffs can sue alleged corporate infringers in any district in the country, it only stands to reason that they will choose to do so in the handful of districts where they are most likely to prevail or to extract a settlement," according to more than 30 companies and trade associations backing Heartland in the case. The group includes FedEx Corp., Oracle Corp. and Overstock.com Inc.

Kraft urged the Supreme Court not to hear the appeal, saying those concerns should be taken to Congress.

The explosion of suits in Texas "does not suggest that Congress meant something other than what it said in unmistakably clear terms in the 1988 act," Kraft argued. "Congress sometimes enacts statutes that have unintended consequences. When this happens, it is the task of Congress, not the judiciary, to revisit and revise the statute."

The high court’s decision to take the case is likely to lessen calls for congressional action on the issue. Critics have been pushing for legislation that would make it harder to file in Texas and easier to get cases transferred.

About 1,195 patent-infringement suits -- 35 percent of the number nationwide -- were filed in the Texas judicial district in the first nine months of the year. The population of Marshall, Texas, where most of the suits are filed, has a population of less than 25,000, according to 2015 U.S. Census figures.

Heartland makes its products under the Refreshe, Skinnygirl and Sunkist brands.

The case, which the court is scheduled to decide by June, is TC Heartland v. Kraft Food Groups Brand, 16-341.

— With assistance by Susan Decker

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