Supreme Court Decision Deals Blow to ‘Patent Trolls’ and the ‘Best Little’ East Texas Towns That Thrive on Patent Litigation

By Ron Abrams
June 11, 2017

Last week, the U.S. Supreme Court handed down a pro-business, pro-innovation decision that severely limits the federal district(s) in which a domestic company can be sued for patent infringement. The decision was applauded this week by tech firms, large and small, and is sure to drastically reduce the total number of patent infringement cases filed each year in the U.S. In particular, it should substantially reduce the often-baseless cases filed by entities that buy-up bogus patents and use costly patent litigation, or the threat of costly patent litigation, to bully companies into settlements – often referred to as “patent trolls.”

The Supreme Court’s unanimous decision in TC Heartland v. Kraft Foods (Case No. No. 16-341) (Judge Gorsuch took no part in the decision) dealt with the patent venue statute (28 U.S.C. § 1400(b)) that determines where a patent holder may file suit. Section § 1400(b) provides that “[a]ny civil action 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.” The Supreme Court’s decision dealt with the “where the defendant resides” prong of the statute in reversing the Federal Circuit.

For decades, District Courts have interpreted the phrase “where the defendant resides” very broadly, effectively allowing patent holders to file suit in practically any district court in the United States. Such broad interpretation resulted in extreme forum shopping by patent holders, who often chose to file infringement cases in certain plaintiff-friendly districts, such as the Eastern District of Texas. And, over the years, many small Texas towns within the district (such as Marshall and Tyler) have benefited from the steady flow of patent litigation traffic (e.g. local restaurants, shops, hotels and IP litigation attorneys).

The Eastern District of Texas has been a particularly popular filing venue for patent trolls because of the districts’ fast-track litigation procedures, favorable jury awards to patent holders and its relatively remote location. Forcing a company to defend a case far from its headquarters and resources often resulted in lucrative settlements for the patent trolls, no matter how weak the patent asserted or how specious the infringement claims. In fact, over 40% of all patent cases are filed in the Eastern District of Texas and one District Judge in Marshall, TX (Judge Gilstrap) is estimated to handle ¼ of all patent cases filed nationwide.

In this week’s decision, the Supreme Court held that the phrase “where the defendant resides” in §1400(b), as applied to domestic corporations, refers only to the State of incorporation. Thus, a patent infringement action may not be brought against a corporation in a judicial district in which it is not shown to have committed any of the alleged acts of infringement and which is outside the State where it was incorporated, even though the company may have a regularly established place of business in that district.

The Supreme Court determined that its 1957 decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222, 226, remained controlling. In Fourco Glass, the Supreme Court concluded that for purposes of §1400(b) a domestic corporation “resides” only in its State of incorporation, rejecting the argument that §1400(b) incorporates the broader definition of corporate “residence” contained in the general venue statute, 28 U. S. C. §1391(c). In this week’s decision, the Supreme Court pointed out that Congress has not amended §1400(b) since Fourco, but it has twice amended §1391, which now provides that, “[e]xcept as otherwise provided by law” and “[f]or 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.” §§1391(a), (c).

The Supreme Court concluded that because Congress has not amended §1400(b) since Fourco and because Congress did not indicate an intent to change the meaning of “reside,” as used in §1400(b) when amending §1391, its decision in Fourco (and the implicit “State of incorporation” qualification of §1400(b)) is controlling. It should be noted that only cases against domestic corporations are affected by the Supreme Court’s decision in TC Heartland, apparently leaving patent holders free to choose where to file against accused infringers that are not domestic corporations.

Nonetheless, after TC Heartland, patent infringement filings by patent trolls should be greatly reduced because they can no longer simply file and maintain cases against domestic corporations in plaintiff-friendly districts such as the Eastern District of Texas. Unfortunately for Marshall, Tyler and other East Texas towns, the torrent of lucrative patent litigation-related business traffic may slow to a trickle.

The Author

Ron Abrams

Ron Abrams is Of Counsel with Brutzkus Gubner Rozansky Seror Weber LLP. Over the past two decades, he has counseled small and start-up companies on intellectual property matters, including trademark protection, and he has litigated numerous trademark and trade secret cases. Ron also represents trustees in major bankruptcy cases.

For 15 years, Ron was the CFO of his own corporation. He has served as a volunteer arbitrator for the California State Bar Mandatory Fee Arbitration Department, working on cases that were published in the United States Patents Quarterly and state and federal reports, and contributed to the research and writing of a well-cited patents article.

For more information or to speak with Mr. Amrams, please visit his firm webpage.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 10 Comments comments. Join the discussion.

  1. angry dude June 11, 2017 10:00 am

    To the morgue…

  2. Paul Morinville June 11, 2017 2:38 pm

    “patent trolls”. You use this phrase seven times. You define it as “entities that buy up bogus patents and use costly patent litigation, or the threat of costly patent litigation, to bully companies into settlements ”

    Please define “bogus patents”. Without understanding what you mean by this it is impossible to understand what you are saying.

    Also, you say “use costly patent litigation, or the threat of costly patent litigation, to bully companies into settlements”. Isn’t that what huge multinational corporations are doing to small inventors? See http://www.iam-media.com/blog/Detail.aspx?g=59104657-4914-4e99-b06e-a1cdf58d5bfb for more information.

    Anyone who uses the words “patent troll” is not a serious voice in this discussion. It comes from a person with an agenda. Thank you for telling us again about the old worn out lie that the little somehow bully the big.

  3. Jeffrey L Wendt June 11, 2017 4:12 pm

    “The Eastern District of Texas has been a particularly popular filing venue for patent trolls because of the districts’ fast-track litigation procedures, favorable jury awards to patent holders and its relatively remote location.”

    Disregarding for the moment the use of the overbroad term “troll”, So we, as a country, will now penalize districts who have chosen to become patent knowledgable, chosen to have fast tracks, and whose juries favor those who have disclosed inventions to the public rather than keep secrets? And nothing against Delaware or Cal, but how is Delaware or ND Cal less remote?

  4. Paul Morinville June 11, 2017 4:46 pm

    You use the words “patent troll” seven times. Yet, there is no definition of what a patent troll is. Even your definition uses weasel words like ” baseless cases” and “bogus patents”. Neither of these are defined but are constructed to create a villain we need to kill.

    What this mindless characterization, and the laws and court decisions it has brought about, has done is wipe out the patent system for inventors and startups. We are now ranked 10th in the world tied with Hungary. Venture capital and startups are fleeing to China. Small inventors are stuck in what you call “costly patent litigation, or the threat of costly patent litigation, to bully” inventors “into settlements”. it is the small being bullied by huge multinational corporations, probably the same bullies you represent.

    It is people like you who perpetuate this lie. It is shameful conduct.

  5. Evanstreth June 11, 2017 10:23 pm

    Quite frankly I’m surprised this was allowed to be posted on this site.

  6. Tesia Thomas June 12, 2017 12:30 am

    @Evanstreth

    IPWatchdog has a pro-small inventor slant but they don’t censor anyone’s opinions. People debate in comments and anything IP related gets posted.

    It’s not an echo chamber.

  7. Bemused June 12, 2017 7:57 am

    Tesia, I suspect that Evanstreth’s comment was more to the substance (or lack thereof) than to the anti-inventor slant. Clearly, Ron Abrams is nothing more than a shill for the infringer lobby. Even worse, his article adds nothing to the discussion because it repeats the same old tired (and disproven) myths about TXED, means nothing because it’s inaccurate and says nothing as a result of the author’s obvious bias. This article is so devoid of anything useful that I’m surprised that it was even worth publishing.

  8. Paul F. Morgan June 12, 2017 10:12 am

    Thanks Tesia and Gene. An “echo chamber” or information bubblewrap cocoon, in which the only information or views some people ever see or want to see is only from those with identical views, seems to be an increasing bizarre national situation. This particular article is tame compared to the vast majority of other reports on this Sup. Ct. decision. The fact that this decision was unanimous shows that living in an information bubble leads to unpleasant surprises. For an attorney counseling clients that could lead to a disaster.
    BTW I do not agree with some of this article either. The biggest problem with E.D.TX is the huge docket of one overloaded judge, greatly contributing to long and uncontrolled expensive discovery and other litigation costs before any consideration of proper claim interpretation or S.J. motions, forcing most companies to pay just to get out of their suits before any decision on infringement or validity.

  9. Anon June 12, 2017 5:09 pm

    Mr. Abrams article was a lost cause with the very first sentence bearing zero relation to reality.

    This has nothing to do with what is “wanted to be seen,” and everything to do with quickly identifying something that is obviously pure spin.

  10. Eric Berend June 13, 2017 11:32 pm

    “…pro-innovation…”

    More vapid twaddle, from a sycophant for hire, SV IP pirate mouthpiece. This is a paid for “fluff” opinion piece of shallow, dubious quality.

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