U.S. Supreme Court Puts New Curbs on Locations of Patent Suits

  • Ruling will bar many patent owners from suing in Texas court
  • Lawsuits must be filed where the defendant is incorporated

The U.S. Supreme Court put sharp new limits on where patent-infringement lawsuits can be filed, undercutting patent owners’ ability to channel cases to favorable courts.

The justices on Monday unanimously ruled in favor of TC Heartland LLC, an Indiana-based maker of water flavorings that said a Kraft Heinz Co. unit shouldn’t be allowed to sue it in Delaware. The high court said patent suits should be filed in the state where the defendant is incorporated.

The ruling will bar many patent owners from pressing cases in the Eastern District of Texas, a patent-friendly jurisdiction where more than one-third of all infringement suits are now filed.

"It’s going to send cases back to their natural home, and for most cases that is not the Eastern District of Texas,” said Sarah Guske, a patent lawyer with Baker Botts in San Francisco. “It does change the dynamics.”

The justices reversed a ruling by a federal appeals court that handles patent cases, which had ruled since 1990 that suits could be filed essentially anywhere a business sold products. Tech companies like Alphabet Inc.’s Google said the U.S. Court of Appeals for the Federal Circuit had created a situation where the Texas district, adjacent to the Louisiana border, is the biggest location for patent suit filings even though no major manufacturers are based there.

The opinion by Justice Clarence Thomas focused only on the legal question of whether the rule for patent cases is different than the standard for other types of civil suits. There was no mention of the Texas court.

Second-Busiest Court

The court in Delaware, already the second-busiest for patent cases, is likely to see more lawsuits because many companies are incorporated there, Guske said. That could raise legal fights over whether those courts are the most convenient to hear the disputes, she said.

More cases also are likely to be filed against tech companies in Northern California, while some patent owners may opt not to sue at all, said Ronen Arad, director of forensic services for consultancy firm PwC, in an interview before the decision.

More than 4,500 patent suits were filed in 2016, down from a peak of 2013, when more than 6,100 cases were filed, according to analytics firm Lex Machina.

The case before the high court involves flavoring pouches for water. Kraft, which sells the MiO water enhancer, filed the suit in Delaware, where Kraft Foods Group is incorporated. Heartland makes its products under brands including Refreshe, Skinnygirl and Sunkist in Indiana. Heartland wanted the case transferred to Indiana, but was rebuffed by a district court and the Federal Circuit. The Supreme Court ordered a lower court to reconsider the issue.

“While we are disappointed in the Supreme Court’s ruling on this procedural matter, we respect the court’s opinion and do not believe it has any impact on the ultimate outcome of our case,” said Michael Mullen, a spokesman for Kraft.

Generic-Drug Companies

Generic-drug companies had backed TC Heartland in the case because they consider the Delaware courts to be more favorable to brand-drug companies. Seventeen states, including the state of Texas, also backed Heartland.

The decision adds to a series of rulings from the Supreme Court and the Federal Circuit over the past decade that have limited the amount of money patent owners can get in damages, restrained their ability to block the use of their inventions, especially by non-competitors, and forced patent owners to provide more details when they file suit.

House Judiciary Committee Chairman Bob Goodlatte, a Virginia Republican, said the decision “will help rein in abusive forum shopping” but kept open the idea of seeking more sweeping legislation, following a 2011 overhaul of the patent system.

“I look forward to continuing discussions with stakeholders on other aspects of abusive patent litigation and how we keep our patent laws up to date to ensure a well-functioning patent system,” Goodlatte said in a statement.

Senate Judiciary Committee Chairman Orrin Hatch, a Utah Republican, also applauded the court’s decision and said he plans to introduce legislation “in the coming months to address other problems with our current patent litigation system.”

Silicon Valley

Silicon Valley companies have been pushing for congressional action to keep patent lawsuits from being filed in Texas. The companies say they are too often targeted by patent owners who use the threat of litigation to extract royalties. Such lawsuits don’t promote innovation, which is the purpose of patent protection, the Silicon Valley companies say.

While the ruling “can help curb decades of misuse of the patent system,” more needs to be done, said Ed Black, president of the Computer and Communications Industry Association.

Their proposals have been getting pushback from drugmakers and other companies like chipmaker Qualcomm Inc. that rely on patents to protect their products from competition or to provide a significant source of revenue. Those companies instead want other changes to patent law, particularly related to reviews of issued patents or the standard for patent eligibility.

The Supreme Court decision won’t eliminate arguments over where lawsuits should be filed but will “change the conversation,” said Mark Whitaker, a patent lawyer with Morrison & Foerster in Washington and president of the American Intellectual Property Law Association.

“A more nuanced approach needs to be taken,” Whitaker said. “If the patent venue statute is going to mean anything, then there has to be some nexus with the patented activity.”

The Supreme Court separately Monday agreed to hear a case involving a procedural step in reviews on issued patents conducted by the Patent and Trademark Office. John O’Quinn, a patent lawyer with Kirkland & Ellis, said that, while the question being considered is narrow as it applies to patent reviews, it could broaden to what types of deference is given to regulatory agency decisions.

The case decided Monday is TC Heartland v. Kraft Foods Group Brands, 16-341.

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