The Supreme Court hears a patent case today that could significantly change the way legal patent battles take place. Depending on the outcome, the result could be barricades for so-called patent trolls. But it might also put a crimp in small companies' ability to fight back when big ones step on their toes.
Patents are a critical tool companies use to protect and advance their interests. Being on the wrong side of a patent dispute can upend a business strategy. They play a part in virtually every aspect of business, from the most sophisticated computer chips to a cup of espresso or a diaper. (You probably didn't know that disposable diapers are one of the most heavily patented product areas in existence.)
A twist in the law has allowed plaintiffs in patent lawsuits to bring an action in virtually any jurisdiction. The result has been that some jurisdictions have become particularly popular with plaintiffs, such as the Eastern District of Texas, where the speed of proceedings and juries that tend to favor plaintiffs have made it one of the most active for patent disputes. The court's nickname is the "rocket docket."
One reason venue shopping has been popular is because of so-called patent trolls. These are small companies that buy and collect patents with the intent of licensing them--and in order to sue companies that don't immediately comply. According to a study in the Stanford Technology Law Review, "the Eastern District of Texas have exercised their discretion in ways that dampen the effect of prior legislative and judicial reforms that were aimed (at least in part) at deterring abusive patent suits," otherwise known as actions brought by patent trolls. Only 15 percent of the cases heard there "involved a patent invented in the district or an accused infringer operating an office in the district."
The case being heard today, TC Heartland LLC v. Kraft Foods Group Brands, centers on where plaintiffs can file lawsuits. One part of U.S. law states, "Any 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." Another section says that a defendant in general can be sued "in any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question."
The two areas of law leave a contradiction that trolls--and many other companies--have used freely. If the court rules against venue shopping, the trolls' business model would be greatly undercut. They could not work out of one favorable district and rack up the wins.
There would be benefits to many startups and smaller companies, particularly, although not exclusively, in the tech arena. Although trolls have historically targeted large companies, some eventually realized that smaller companies can be good targets. The small companies don't have in-house legal expertise and can't afford expensive court battles, so they tend to settle more quickly. Maybe the individual cases don't pay off as handsomely, but that can be made up in volume.
However, there is some irony here. People frequently don't know that the term patent troll was invented by Intel to have a legal, disparaging way of referring to patent-holding companies suing the chip giant. Previously, Intel had made the mistake of referring to one of these companies as an extortionist, which resulted in a defamation lawsuit.
It's also easy to forget that trolls aren't so different from large companies that use intellectual property of all types--patents, copyright, and trademark--to protect and advance their interests. For example, large companies frequently use IP to squeeze upstart startups that might otherwise become effective competitors, even when the intellectual property isn't necessarily currently being used in a product. Because when you want to smack someone down and you have a hammer, you don't ignore it.
Large companies also license technology they don't use to other companies. The theory is that if you developed it--or bought it with a block of acquired patents or purchased a company that owned the patents--you might as well make a buck or two. The trolls saw that it seemed a good idea, so why not do the same thing? What the trolls generally had was money for a legal strategy and the ability to execute it. In other words, the problem with trolls was largely that they used tools common to big companies against them.
But all that's water under the IP PR bridge, and if everyone has to go back to more predictable legal patent duels, so be it.