Supreme Court will hear argument in TC Heartland v. Kraft Foods. This critically important case involves the meaning of the patent venue statute and where plaintiffs who claim infringement may bring suit. Fighting over where cases can be brought may sound like the sort of thing only lawyers would care about, but I assure you, this case has profound ramifications for all of us. In today’s world of internet ecommerce and interlocking distribution chains, that can be literally anywhere. At issue in the case is whether a plaintiff claiming patent infringement can sue a defendant corporation only where the defendant is incorporated or has an established place of business, or whether a plaintiff can instead sue anywhere the defendant has ever sold the allegedly infringing item, or even just offered the item for sale.
Savvy plaintiffs know that current rules allow them to bring suits virtually anywhere they want, so they seek out forums where they know judges are likely to give them an easier shake. One federal court in east Texas in particular has become infamous as a magnet for patent litigation because of its plaintiff-friendly rules and sympathetic juries.
In 2015, nearly 45 percent of all patent cases nationwide were filed in that one court. Nearly one-third of all patent cases nationwide were handled by a single judge on that court. This is forum-shopping in the extreme.
It’s easy to understand why plaintiffs favor the Eastern District of Texas so heavily. According to a 2017 study, the court’s procedures cause defendants to spend more money, earlier on, during a lawsuit. In addition, cases in the court are more likely than cases in other courts to go to a (costly) trial rather than being resolved in chambers. Finally, the court is less likely than other courts to pause litigation while parallel proceedings in the Patent and Trademark Office run their course, again raising costs for defendants. All of these traits make the Eastern District of Texas particularly attractive to plaintiffs seeking to extract settlements.
Forum shopping & Patent Trolls
This would be unseemly enough on its own. But what makes the practice even worse is that many of the plaintiffs in these cases aren’t productive enterprises. They don’t actually invent anything, or make anything, or even sell anything. Rather, their entire business model is to purchase patent licenses and then turn around and sue anyone they can arguably claim may have infringed the patent in some small way. Their goal is not actually to stop the allegedly infringing activity, but to extort a settlement and then move on to the next lawsuit.
These entities, often called “patent trolls,” structure settlement offers to make settling much more advantageous to defendants than litigating, even when the infringement claim is clearly bogus. Litigating even a baseless claim can cost hundreds of thousands of dollars. Far easier (and cheaper) to settle for $50,000 or $100,000 to make the patent troll goes away.