Patent trollers dealt setback by SCOTUS
Editor's Note: "Patent troll" is a "derogatory term used to describe people or companies that misuse patents as a business strategy. A patent troll obtains the patents being sold at auctions by bankrupt companies attempting to liquidate their assets, or by doing just enough research to prove they had the idea first. They can then launch lawsuits against infringing companies, or simply hold the patent without planning to practice the idea in an attempt to keep other companies productivity at a standstill." [Investopedia] Patent trolls have historically practiced "venue shopping," in which they identify courts in jurisdictions where a defendant in a patent infringement suit is likely to be more vulnerable, often due to the distance of the court from the state in which the defendant is located or has an actual place of business.
Start-up businesses and many banks have felt the sting of patent-trolling law firms that have threatened to sue for infringement of questionable patents unless a firm's target paid a "license fee."
The Supreme Court has made the practice of "patent trolling" more difficult in a May 22, 2017, ruling on how to interpret the patent venue laws. In TC Heartland LLC v. Kraft Foods Group Branch LLC, the justices held that the US Court of Appeals for the Federal Circuit, which handles all patent appeals, has been using the wrong standard since 1990 to decide where a patent lawsuit can be brought.
TC Heartland, an Indiana-based food company, was sued for patent infringement by Kraft Foods in Delaware. TC Heartland sought to have the case dismissed or to move the case back to Indiana, arguing that it is not registered to conduct business in Delaware and has no meaningful presence there. Kraft Foods argued that TC Heartland ships the allegedly infringing products into Delaware. The lower courts, including the Federal Circuit, refused TC Heartland's argument.
At issue are two independent venue provisions of Title 28 (Judiciary and Judicial Procedure) of the United States Code. Questions of venue control where suits may be brought under federal law. The patent venue statute, 28 U.S.C. §1400(b), provides that civil actions "for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business." SCOTUS had earlier determined that the patent venue law is independent of the less strict general venue law and, for the purposes of the patent venue statute, a corporation "resides" only in the corporation's state of incorporation.
The general venue statute at 28 U.S.C. §1391, on the other hand, provides that "except as otherwise provided by law" and "for all venue purposes," a corporation "shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question." Congress made no attempt to amend the patent venue law in §1400(b) when it updated §1391 in 1988 and 2011.
In 1990, the Federal Circuit ruled that the general venue law extended its control to patent infringement suits, based on its reading of the general venue statute (§1391) at that time. In 2011, Congress again amended §1391 to add the phrase ""except as otherwise provided by law." SCOTUS has now reversed the Federal Circuit, and remanded the case for further proceedings.
The significance of this ruling is that it makes it more difficult for patent trolls to use jurisdictions remote from targeted defendants' true places of business to pursue their questionable patent infringement cases.