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nsucurrent.com June 24, 2017


Supreme Court Deals Blow To Patent Trolls Shopping For Friendly Venues

24 May 2017, 05:29 | Ruby West

Supreme Court puts new restriction on patent trolls

US Supreme Court

On May 22, 2017, the US Supreme Court unanimously rejected prior case law allowing patent holders to rely on the general venue statute, 28 U.S.C. § 1391 (c), to file suit where a domestic defendant makes sales. These are called "non-practicing entities", or "patent trolls", because their main source of revenue comes from suing companies and hoping they settle rather than duking it out in court.

The rocket docket fueling patent litigation in Texas' Eastern District may soon be crashing back to earth, as the U.S. Supreme Court has grounded forum shopping for infringement lawsuits. In 2015, of 5,819 new patent cases filed in the country, 1,686 landed before U.S. District Judge Rodney Gilstrap in Marshall, Texas.

These are companies that make their money nearly entirely from patent licensing, representing two-thirds of all cases in U.S. district courts at the time, they became known as patent trolls. Heartland argued that the case should be transferred to its home state of IN since it has no presence IN DE, where the suit was originally filed.

Intellectual property partner John O'Quinn of Kirkland & Ellis called the decision "seismic" in a statement emailed to the ABA Journal, and said it could lead to more infringement being filed in DE, where many corporations choose to incorporate.

Tech companies worry a lot about being sued by firms that simply hold a lot of patents but don't use them to manufacture any goods. That district has acquired a reputation for patent friendly juries and judges, who helped small towns like Marshall and Tyler keep their restaurants and hotels bustling with out-of-town lawyers and executives attending patent trials.




"For decades, USA businesses have been unfairly required to defend patent suits in far off locales adding cost, complexity, and risk to the litigation process". In 1990, the same question came up through the courts again: should the patent venue rules be interpreted in light of the more general venue law, or should the venue retain its own, more strict, guidelines? In fact, because any lawsuit will likely need to be filed in a venue in which the accused infringed has the advantage, patent trolls may find it more hard to extort settlements from their victims. In the case of patent infringement suits targeting Idaho-based businesses, this will mean the Idaho federal courts in many instances.

"Given the definition of "resides" is limited to the "state of incorporation, ' it may lead to a swell in patent cases in DE, and otherwise funnel cases towards defendants" home jurisdictions", said Kirkland & Ellis intellectual property partner John O'Quinn.

The ruling aims to keep patent suits confined in districts where the defendant is incorporated or has an established place of business.

The ruling may well signal the demise of the Eastern District of Texas as a favorite venue for patent lawsuits, especially those brought by "patent trolls", which have no business outside of licensing and litigating patents. This becomes more likely, analysts say, if patent cases can be heard in venues other than the ones that trolls now prefer. Previously, the so-called trolls would buy patents and then sue larger companies for royalties or damages. While the suit had nothing to do with technology, it highlighted the practice of "forum shopping" by forcing TC Heartland to face a suit in DE instead of in, where it's based. This case would still likely leave approximately 60% of patent cases in these same five districts. Justice Neil Gorsuch did not consider the case.



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