Supreme Court Changes How Patent Lawsuits Are Filed

Intellectual Property Strategy

A rising number of patent lawsuits hold no value, yet the cost of dealing with them can have a tremendous impact on a business’ bottom line. In the past, the plaintiff in these lawsuits could decide which court they wanted their lawsuit to take place in.

However, a recent ruling by the Supreme Court—TC Heartland v. Kraft Food Group Brands—marks a shift in how patent lawsuits are filed. They now have to be tried where the defending company is incorporated or has an established place of business.

IP.com intellectual property experts and IP/patent attorneys Nasreen Brady and Jim Durkin share their thoughts on the impact TC Heartland v. Kraft Food Group Brands will have on patent lawsuits moving forward.

What is your key takeaway from the ruling?

Jim: The big takeaway is that defendants have a better chance to fight patent lawsuits because they can do so on their own turf. Cases now have to take place where the defendant is incorporated or where they have committed infringement and have a regular and established place of business.

Nasreen: It’s a venue issue for sure. For bigger companies, moving forward, the impact could be nil. However, this is more of a change for regional companies that don’t operate in a plaintiff-friendly venue. It’s possible they might benefit by being less attractive to sue if they are in a perceived defendant-friendly venue.

As a result of this, you will see more cases tried in places where most companies are incorporated— Delaware, the Northern District of California, the Southern District of New York. And you will see fewer cases in the Eastern District of Texas, where many of these cases have taken place in the past.

Jim: Shortly after this ruling, a number of plaintiffs already conceded venue in cases they filed before the ruling. So we’re starting to see a shift.

Why—before this ruling—were so many patent suits filed in the Eastern District of Texas?

Nasreen: It’s historically known as a patent owner–friendly district. It places the burden on the defendant to put a lot of money up front to fight the lawsuit because of discovery rules. And if you’re asserting your patent, the Eastern District of Texas is experienced in patent law but timing plays a factor in expensive litigation, and the pressure to settle can be high.

Jim: That’s why this ruling is so important, because it really isn’t fair to pull small companies that have no connection to Texas to have to spend the time and resources to fight their case there.

What impact does this have overall on the patent system?

Nasreen: They needed—and still need—to fix what is a broken system. Hopefully, this ruling and others will eventually lead to better quality of patents that are filed. If there’s a better quality of patents filed, they would be more defendable and you wouldn’t have to worry as much about the venue. If your patent is strong, interpretation is not as vague.

Jim: I disagree a bit with that. I think this venue change is huge as it’s expensive for companies to have to try their case in the Eastern District of Texas. Now that defendants can contest the lawsuits on their home turf, the jury pool potential could be more in their favor. This gives small companies a chance, whereas in the past just the mere lawsuit alone might force them to settle because they would have to pay upfront expenses like travel and lawyer fees.

Nasreen: Yes, in the real world, venue is important, but ideally patent quality—not venue—should be the most important factor. I come from a pharmaceutical background, where companies live and die by their patents.

Jim: And my background is in computer science, the software industry, where it doesn’t live and die by its patents. Although there are a variety of opinions, many in this industry view software patents more as a roadblock to innovation.

What other key learnings did TC Heartland v. Kraft Food Group Brands reveal?

Jim: This ruling is a good reminder that you should not ignore the beginning stages of a patent lawsuit.

Nasreen: You must do your due diligence. Don’t be blind to what patents, when practiced, could be potentially viewed as infringing another patent. When you get that patent infringement letter, don’t ignore it. That’s the worst thing you could do. Once that letter arrives, spend resources on looking into it, as alternatives to litigation are likely less costly. It’s important for you to have a sense for what your patents are and how they map to your products and if you truly have a freedom to operate (FTO). You need solid FTO searching to be proactive and do the work first so the letters don’t arrive.

Jim: In the broad sense, patent quality has become more important. The little guy can now fight on a fair turf and save money. Moving forward, there will be a fight on where a defendant has regular and established places of business to decide on a venue when sued outside of the state of incorporation. This will be back in court to further clarify the ruling. See In re: Cray Inc. Case No. 17-129, Fed. Cir. Sept. 21, 2017.

Nasreen: It’s also important to note this case has no impact on foreign companies. Much is still left to be interpreted, even regarding venue. There are more patent Supreme Court cases to come, and the Supreme Court seems to believe patent laws shouldn’t be different from other laws, but I’m afraid some of these decisions are reducing the value of the patent.