More Patent Reform from the Supreme Court?
The Supreme Court has agreed to hear a case that could severely limit patent owners’ ability to choose the venue in which to file patent litigation. The decision to review the case presumably is the result of two factors. First, a misconception that certain venues are more friendly to patent owners than others. Second, the desire of the Supreme Court to demonstrate its distaste for property rights—patent rights in particular—and its ability to address patent reform without the “annoying” need for action by the legislative branch.
TC Heartland is an Indiana-based LLC that makes “water enhancers,” concentrated liquids that add flavors and other components such as electrolytes to water.
Heartland is being sued by industry giant Kraft Foods for infringing three patents. Kraft, an Illinois based Delaware corporation, filed suit in Delaware.
Heartland was not happy with that decision. Heartland argues it has only a minimal connection to Delaware, and it filed a petition seeking a writ of mandamus for a venue change to the Southern District of Indiana, where it’s based.
Heartland is seeking to overturn a precedent that was established in 1990 by the Federal Circuit that gave plaintiffs the ability to sue alleged infringers in any jurisdiction where there is infringement.
The technicalities in the legal case revolve around which section in the Federal Code is applicable to patent litigation and how that section should be understood. The Federal Circuit denied the petition. Heartland appealed to the Supreme Court, and the Supreme Court agreed to hear the case.
But the Supreme Court almost certainly did not agree to take the case because they were interested in resolving the strictly legalistic issues in the case. No doubt the court took the case because there are many people claiming that “patent trolls” overwhelmingly choose to file litigation in the Eastern District of Texas because it’s a court that they claim is friendly to patent owners.
Once again the Supreme Court seems to be trying to jump into the “patent reform” game from the bench, pursuing the same issues that the legislature is considering.
During oral arguments considering Heartland’s petition, Judge Moore of the Federal Circuit demurred from legislating from the bench. She said, “Boy, doesn’t this feel like something a legislature should do?” Judge Moore is right, but don’t expect the Supreme Court to take a similar view that the judiciary should defer to the legislative branch to address what is obviously an issue for the legislative branch.
The so-called “VENUE Bill,” S. 2733, “Venue Equity and Non-Uniformity Elimination Act of 2016,” would do exactly what Heartland is asking – limit the ability of patent owners to choose the most appropriate venue. Why wait for S. 2733? There’s no real reason, other than that’s how it’s supposed to work under our system of government.
A group of over 50 law professors have filed an amicus brief in the case, supporting TC Heartland’s position, and claiming the concentration of patent cases in EDTX is a bad thing.
It’s sort of ironic that one of the professors who led the group in putting together the amicus brief is Mark Lemley. Lemley’s own research shows that EDTX is not actually better for patent owners from the standpoint of favorable verdicts. In a 2014 paper, “Does Familiarity Breed Contempt Among Judges Deciding Patent Cases?” Lemley found that:
…patentees are more likely to win cases in the District of Delaware and the District of New Jersey, and that they are less likely to win cases in the Northern District of California. Interestingly, despite the patent-friendly reputation of the Eastern District of Texas, it was not significantly more likely to produce patentee wins (emphasis added).
What we have not seen from Mr. Lemley or the Google-backed amici is even a guess as to what percentage of patent cases will now be required to be filed in the Northern District of California. And it would, of course, be far too nuanced to further ask an obvious question: as the number of cases filed in NDCA increases, how long will it take to get to trial? Google and friends seem to have an “anywhere but Texas” mentality, and how long it takes to get to trial and how much litigation expense will increase as a result is of no concern. And of course, as the case load increases, it’s entirely possible that other venues, such as NDCA, would adopt rules similar to those used in EDTX, and then all this legislating from the bench would have been for naught.
So why do patent owners show such a strong preference for filing patents in the Eastern District of Texas?
The court has adopted procedures for handling patent cases that greatly streamline the process. EDTX started becoming popular with patent owners after T. John Ward was appointed to the bench there in 1999. A Wikipedia entry on Ward describes why:
His litigation rules included early disclosure of positions, establishment of firm case deadlines, and sanctions for parties abusing the discovery process. Attorney Alan Fisch says that the “jurisdiction has a tailored set of rules for patent cases that streamline certain of the pretrial proceedings — generally this benefits both plaintiff and defendant.” Lawyers who do not move quickly enough are sanctioned. Ward credits his rules and resulting speed with causing the increase in patent suits filed in the district. Fast cases reduce expenses for financially strapped plaintiff patent holders. Attorney Henry Bunsow claims that the fast cases can “cut legal fees in half.”
The amicus brief claims that the procedures followed in EDTX are a problem:
At the same time, judges in the Eastern District of Texas have adopted discovery rules that begin earlier, end sooner, and require broader disclosure than just about anywhere else in the country.
Having discovery early is an efficient way to handle litigation, one reason being that it can speed the process of negotiating a settlement and taking the matter out of court entirely. Discovery will reveal the real strengths of a case. If discovery clearly reveals infringement it can encourage defendants to settle rather than dragging the case out through trial.
We hope that when the Supreme Court hears the case it will avoid the temptation to fix a problem that’s not a problem, and will instead affirm the established law of the last 25 years, and the decision of the Federal Circuit. Having certain jurisdictions that specialize in patent cases results in a faster, more equitable legal system. Many countries, such as Germany, have special courts that only handle patent cases, and Europe has been heading in the direction of a Europe-wide patent court system (whose future is in question because of Brexit).
We don’t hold out much hope. The current court has generally been hostile to patents. We might see some improvement when President-elect Trump begins to fill Supreme Court vacancies. We expect he’ll appoint people who have far greater respect for property rights than the current bench.
Changing the venue rules isn’t going to make patent litigation go away. It would just make patent litigation less efficient, in the long run costing both plaintiffs and defendants money in increased legal fees as cases are heard by judges who don’t have a deep understanding of patent litigation in courts that don’t have procedures that streamline the process.