A ruling this week from the U.S. Supreme Court is expected to benefit Bay Area tech companies, reducing the number of lawsuits filed by “patent trolls.”
On Monday, the high court ruled 8-0 that patent cases must be tried where the defendants are incorporated, overturning a 27-year-old Federal Circuit decision to allow plaintiffs to file patent lawsuits practically anywhere in the United States. Before Monday’s ruling, patent cases could be filed in plaintiff-friendly courts, like the Eastern District of Texas where over 1600 patent cases — or 37 percent of all cases — were heard in 2016.
For Silicon Valley companies, the ruling means they will save millions of dollars in litigation and hundreds of hours on a trip down to rural Texas to defend their intellectual property. The ruling is considered a blow to patent trolls, companies that buy patents in bulk and weaponize them to use in patent infringement lawsuits.
“If you go to CES (Consumer Electronics Show), walk booth to booth and ask companies about their patent troll story, they will all have something unique to share,” said Michael Petricone, senior vice president of government affairs at the Consumer Electronics Association. “The money tech companies spent on lawyers is money not being spent on creating new products.”
With the ruling on the case, TC Heartland v. Kraft Food Group Brands, more cases will likely be tried in more tech savvy settings like Northern California or Delaware.The ruling may also lead to an overall decline in patent infringement cases because patent trolls will face a greater risk of losing in court, experts say.
The ruling, written by Justice Clarence Thomas, does not mention tech companies or patent trolls. It solely focuses on whether the rule for patent cases is different from other kinds of civil suits. The case itself was a dispute between two food processing companies over whether their patent case over flavored drink mixes should be tried in Indiana, where TC Heartland is based, or Delaware, where Kraft Foods is incorporated.
However, lawyers say Silicon Valley was on the Supreme Court’s mind throughout the trial. More than a dozen technology companies, including HP, Oracle, Kickstarter and eBay signed an amicus brief arguing for the overturning of the decision from the United States Court of Appeals for the Federal Circuit, a specialized court solely focused on patent case appeals.
James Pooley, patent litigator for Palo Alto-based law firm Orrick, Herrington & Sutcliffe, said the ruling was one of the most consequential in several years.
“One district out of 93 handled 40 percent of all cases, and that situation had profound effects on how tech companies were exposed to patent infringement risks and how they managed it,” he said.
One judge for the Eastern District of Texas, Rodney Gilstrap, saw nearly a quarter of all U.S. patent cases and built a national reputation as an patent protection-friendly judge, experts say .
Backed by a favorable judge and jury in Texas, patent trolls grew into multi-billion-dollar companies. One company called Intellectual Ventures is valued at $5 billion and owns over 70,000 patents.
Founded by two former Microsoft executives in 2000, Intellectual Ventures has over 1,300 shell companies to buy patents from around the world using different aliases, according to a 2012 report by UC Hastings law professor Robin Feldman.
“These companies can be very sophisticated, very large and sometimes publicly traded,” said Feldman.
Apple and Fitbit — both of which were targeted as recently as February by the same wearable-focused patent troll — declined to comment. Google did not respond to a request for comment.
Companies sometimes sign non-disclosure agreements as part of a settlement with patent trolls to avoid going to court.
“The NDAs create a hard time for tech companies to talk about it and bring awareness to this issue,” said Austin-based entrepreneur Colin Atawaky, who settled with a patent troll in 2015 and signed a non-disclosure agreement. “It’s a Catch-22.”
The ruling is not the “knockout blow” for patent trolls that tech companies have been looking for, says Feldman. Technology companies still are looking to Congress to pass bills to further discourage patent trolls from suing en masse and winning money for frivolous litigations.
“Monday’s Supreme Court ruling won’t solve all problems related to patent trolls,” said Rep. Zoe Lofgren, D-San Jose, in a statement. “America still needs meaningful reform to ensure fairer patent litigation and the continued success of our patent system.”
