By John D. McKinnon
WASHINGTON -- Businesses, particularly those in the tech sector,
are watching closely a case to be argued in the Supreme Court next
week challenging a system that has led to a concentration of patent
cases in plaintiff-friendly jurisdictions such as eastern
Texas.
The companies, often defendants in a patent-litigation boom of
the last decade, are looking to the high court to curb what they
say is "pervasive and pernicious forum shopping" by plaintiffs who
claim to own the patents and often seek damages in the millions of
dollars.
Dozens of tech firms and groups, including Intel Inc., Dell
Inc., Adobe Systems Inc., eBay Inc., Oracle Corp., and Red Hat
Inc., have filed friend-of-the-court briefs in the case, TC
Heartland LLC v. Kraft Foods Group Brands LLC, urging the Supreme
Court to tighten the rules on where patent suits can be
brought.
In recent years, the largely rural and sparsely populated
Eastern District of Texas has attracted as much as 44% of all new
patent-infringement lawsuits in the U.S., aided by its reputation
for plaintiff-friendly rules and juries, as well as knowledgeable
judges and lawyers.
Despite the criticism, Texas jurisdiction has some defenders,
including big firms such as Ericsson Inc., as well as Allergan Inc.
and other pharmaceutical companies, who argue in
friend-of-the-court briefs that the Eastern District of Texas isn't
the renegade that many make it out to be.
Still, current rules have resulted in "an extraordinary
concentration of patent cases in a handful of districts, most
notably the Eastern District of Texas," said Peter Brann, a Maine
lawyer who helped write a friend-of-the-court brief filed by
numerous internet companies and other businesses and associations
in this case. If TC Heartland wins, he added, "I think it will have
a dramatic effect...on patent troll litigation."
Patent trolls, known more politely as "nonpracticing entities,"
often do little except acquire software patents and fire off demand
letters and file lawsuits. Suits by these firms, some of which have
grown large enough to be publicly traded, represent a
disproportionately large share of cases in the Eastern District of
Texas. A coalition of inventors and patent owners said in its own
Supreme Court brief that concerns about the Texas district are
"greatly overblown," and that tightening the rules could be harmful
to innovators.
The concentration of patent-infringement cases in the rural
Texas district "is certainly an indication that something is
amiss," said Sen. Jeff Flake (R., Ariz.), who has sponsored
legislation in the past to tighten patent venue rules governing
where a case can be brought.
In the Supreme Court case, TC Heartland -- an Indiana-based
maker of low-calorie sweeteners -- was sued for patent infringement
by Kraft in Delaware, another popular venue for plaintiffs. TC
Heartland sought unsuccessfully to have the case transferred to
Indiana, where the company is based.
Now TC Heartland is asking the Supreme Court to overrule the
venue rules used by federal courts since 1990. TC Heartland wants
the high court to reinstate an older, more restrictive standard. It
argues that Congress didn't intend for more recent changes in
general venue rules to apply to patent cases, while Kraft argues
that the later changes do apply.
But the real concern for most businesses is in the Eastern
District of Texas, where the number of new patent-infringement
cases has soared from a few hundred annually a decade ago to a peak
of more than 2,500 in 2015, by far the highest total for any
district, according to data from Lex Machina.
The Texas district became an improbable hotbed for patent
litigation after judges adopted procedural rules that were
perceived by defendants as friendly to patent-infringement
plaintiffs -- for example, making pretrial discovery more
burdensome and costly for defendants.
The district -- comprising smaller cities such as Tyler,
Marshall and Beaumont -- also was attractive to plaintiffs because
of its relatively low caseloads and fast-moving dockets.
Critics contend that the current federal standard for venue in
patent litigation also contributed by allowing plaintiffs to seek
out friendly districts such as eastern Texas, almost anywhere in
the country.
Many lawyers in the area are worried about the potential impacts
of the case.
"If the Supreme Court were to reverse, it would understandably
result in a dramatic drop in the number of cases that get filed in
the Eastern District of Texas," said Eric Findlay, a lawyer in
Tyler who mainly represents defendants in patent-infringement
cases.
The boom in litigation in the district has encouraged practices
that have left the district open to criticism. For example, to
support their argument for keeping cases in eastern Texas, many
plaintiff firms that are based elsewhere have formed subsidiaries
and locate them in the area. Many lease small offices scattered
around Tyler, Marshall and other cities.
Two consumer groups, the Electronic Frontier Foundation and
Public Knowledge, said in a friend-of-the-court brief that many of
the offices amount to "sham headquarters."
A recent analysis for The Wall Street Journal by RPX Corp., a
patent data and risk management firm, showed that the most popular
address for patent plaintiffs in recent years has been a 1930s
office building known as the Energy Center in downtown Tyler. Over
the past decade, around 50 firms located at the Energy Center have
filed at least 884 patent suits involving roughly 1,200 defendants,
according to the analysis. The Energy Center accounts for more such
lawsuits than any other U.S. address, according to the
analysis.
Write to John D. McKinnon at john.mckinnon@wsj.com
(END) Dow Jones Newswires
March 23, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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