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Supreme Court Curtails Forum Shopping in Patent Lawsuits

On Monday, May 22, 2017, the United States Supreme Court issued a ruling on the standard for patent venue (i.e., the proper federal district to file a patent infringement case), a topic that at first glance seems mundane and inconsequential. The case is TC Heartland, LLC v. Kraft Foods Group Brands LLC, and despite appearing pedestrian in nature, the impact of this decision on patent infringement litigation will be dramatic.

Many Utah businesses may wonder how a simple decision on venue could impact the world of patent enforcement. The answer is: considerably.

Each year, approximately 5,000 patent infringement lawsuits are filed in federal courts across the United States. These lawsuits are complex and expensive, sometimes costing each side millions of dollars in attorneys fees alone. Patent suits also involve cutting-edge technologies in every business sector. Not surprisingly, such lawsuits can dramatically alter the competitive landscape in any given industry and change business fortunes.

As Utah’s explosive growth continues, its businesses—which are becoming increasingly linked to high technology fields such as computers, semiconductors, software and internet technologies—are growing with it and have earned our great state the well-deserved moniker “Silicon Slopes.” Consequently, Utah businesses are increasingly exposed to patent infringement disputes in a variety of jurisdictions around the country.

The question of where a patent lawsuit can be filed is of vital importance. The legal culture, local rules, judicial performance and jury pools can vary substantially from district to district and region to region. These variations can impact the substantive outcome of a patent lawsuit, because patent cases are closely supervised by judges (who, like anyone else, have their own biases) and also involve trials by jury.

For context, consider that in 2016, a whopping 36 percent of all patent infringement lawsuits were filed in the Eastern District of Texas, which encompasses rural courthouses in cities such as Tyler, Marshall, and Sherman, Texas. Indeed, in 2016, 20 percent of all patent infringement cases pending nationwide were reported to have been assigned to a single judge located in Marshall, Texas—Judge Rodney Gilstrap. The history of Eastern Texas becoming the mecca of patent litigation stems from the nature of the venue standard before the Supreme Court’s TC Heartland decision.

For decades, patent holders had broad discretion to file infringement suits anywhere that the accused infringing product was sold; in most scenarios that opened the door to filing in any federal district court in the country. Over time, the Eastern Texas courthouses became recognized as plaintiff-friendly in culture and outlook, and juries there became known for handing out “Texas-sized” monetary damages awards.

The popularity of Eastern Texas as a venue for enforcing patent rights created a cottage industry in cities like Tyler—an entire economic infrastructure developed solely to support the federal courts’ adjudication of patent infringement lawsuits, perhaps further reinforcing the plaintiff-friendly culture and bias in those communities. Tyler, Texas has become a magnet that attracts savvy plaintiffs’ lawyers from around the country seeking to extract patent royalties from alleged infringers. Many of these lawsuits are filed by non-practicing entities (“NPEs”, commonly called “patent trolls”), which are entities that do not make and sell products, but simply purchase and license patent rights. NPEs file the majority of their patent lawsuits in places like the Eastern District of Texas as well as in the District of Delaware, which has also evolved into a plaintiff-friendly jurisdiction for patent enforcement.

The Supreme Court’s TC Heartland decision closes the door to the Eastern Texas courthouses for most patent lawsuits by drastically limiting a patent-holder’s venue options for enforcing its patent rights. Under TC Heartland, patent infringement suits may now be brought only in the following locations: (1) the defendant’s place of residence (which, for corporations, is defined to be the state of incorporation); or (2) where the defendant has both a regular and established place of business and has committed acts of infringement.

As a result, hundreds (even thousands) of patent suits that would have been filed in plaintiff-friendly courts like the Eastern District—providing plaintiffs with unwarranted advantages unrelated to the merits of their claims—will now be redistributed to federal courts dispersed around the United States that are linked to the defendants.

This means many patent infringement suits targeting Utah-based businesses will need to be filed in Utah federal courts, decreasing the need for Utah companies to file defensive “declaratory judgment” lawsuits to preserve their jurisdiction of choice. But it also means that many Utah companies seeking to enforce their own patent rights may need to file the lawsuit in the home-jurisdiction of the accused infringer. In short, the TC Heartland decision will require many patent enforcement lawsuits to take place in the home jurisdiction of the defendant.

Overall, this development represents good news for Utah’s rapidly growing technology economy. Utah is full of dynamic businesses in rapidly growing areas, which are often the target of patent-infringement suits brought by larger, more entrenched rivals in distant jurisdictions. Utah’s federal district court has adopted balanced “local patent rules” to govern patent infringement litigation, and the federal judges in Utah have gained extensive experience in objectively resolving patent disputes for many years.

TC Heartland brings an end to the forum shopping of patent plaintiffs and will help ensure that patent infringement cases brought against Utah businesses will be decided on their merits without the unbalanced advantages offered in plaintiff-friendly districts like Tyler, Texas.

Yes—the question of patent venue may be boring; but Utah businesses will soon learn how impactful such a boring legal doctrine can be in the marketplace.

Mark Miller Holland HartMark Miller is a partner in Holland & Hart’s Salt Lake City office, focusing his practice on patent, trademark, and trade secret litigation and appeals in federal and appellate courts nationwide.