back to article Supreme Court closes court-shopping loophole for patent trolls

The US Supreme Court has issued a ruling that could block patent-holding firms from seeking out friendly courts to hear their infringement claims. An 8-0 ruling by the nation's top court in the TC Heartland v Kraft Foods [PDF] case held that a company can be sued only in the state where it is incorporated, rather than in any …

  1. redpawn Silver badge

    But choice is good

    What's next? Requiring me to go to the restaurant nearest the corporate headquarters? This is a strike against sanity and the freedom to put your thumb on the scales of justice.

    Think of the poor lawyers. Think of the poor hotels. Think of the damage to the the economy of Texas. Think of the Trolls. So sad.

  2. sequester

    So basically the two father/son pairs of judge and attorney running most of the patent troll racket will now move to Delaware?

    1. a_yank_lurker Silver badge

      That only work if they are incorporated in Delaware.

      1. Charles 9 Silver badge

        Only if the DEFENDANT is incorporated in Delaware. That's the big thing. Patent trolls basically have to take on violators on their turf.

        1. Whitter
          Meh

          The game is afoot!

          And so previously where one court took the financial incentive to bias its proceedings to the prosecution (increasing the number of paying trials it got through its door), now the bias moves to the other foot: districts competing to bias towards the defendant in order to encourage incorporated corporation location in their district.

          Swings and round-a-bouts as they say.

          1. DougS Silver badge

            Re: The game is afoot!

            That's a pretty bold claim to say that the East District of Texas biased its rulings deliberately to 'drum up more business' as it were. Where's your proof? Some court has to be the most troll-friendly, so they looked at the court records and found it. It might not even be a large difference, but it would be worth it even for a 5% difference between the most and least favorable district.

            Choosing the location of or relocating your corporate headquarters involves MANY factors, and the patent owner friendliness of the local US district court is hardly going to be at the top of the list when you consider stuff like taxes, liability laws and so forth. I really can't see Apple or Google pulling up stakes from California and relocating to Ohio if they found that was the most patent owner friendly state...

            1. Anonymous Coward
              Anonymous Coward

              Re: The game is afoot!

              It's not about a small percentage game. The Eastern District of Texas can have their own rules regarding how trials are conducted and what is allowed and they have many rules which make it more difficult to defend a patent case.

              Due to these rules it could be seen as bias towards the plaintiffs, or patent-friendly even if unintentional. However the Judges and lawyers in that town are unlikely to not have noticed how this is seen in the wider context, how it is good for the towns and business and the status it gives them when ruling on 1/4 of all federal court patent cases. In fact it can attract big sponsorship to the area, the ice rink in Marshall was sponsored by Samsung of all people.

              Some quotes about the judicial system in that area:

              "By introducing a list of standing court orders and local regulations, the Eastern District of Texas (and, in particular, Gilstrap's division of Marshall) has become the court of choice for many plaintiffs, especially non-practicing entities, or NPEs."

              "Some of the proverbial scaffolding propping up this troll-luring system was inherited by Judge Gilstrap, while some of it was his design, and he's been happily maintaining this unintentional specialized court for half a decade.

              It's a boon to the town, where visiting litigators bring in money and perks, from lawyers ordering catered lunches at the local restaurant, to Samsung sponsoring an outdoor skating rink downtown."

              "...the Eastern District didn't become a patent troll haven by accident."

              ""There's a whole cottage industry around this litigation and it's not just the courts and the lawyers," Samuels said. "It's the hotels and the restaurants. This is big business in Marshall and Tyler, which creates totally perverse incentives.""

              And go to the tyler4tech website where they try to encourage tech companies to set up in Tyler and one of their main boasts ist the following:

              "IP Friendly

              Tyler serves as headquarters to the Eastern District of Texas federal court, a popular venue for patent cases due to its judicial expertise, plaintiff-friendly local rules, speedy dispositions, and principled jurors who understand the value of Intellectual Property (or “IP”). The East Texas area also has an abundance of legal experts specializing in patent and IP litigation. " (my emphasis)

              So it isn't just a quirk of statistics that people choose to go there and it may not be that the end rulings are biased (but there is some evidence it is skewed by their principled jurors), it is the favourable treatment of plaintiffs in patent and IP cases compared to the other districts, where the rules help to get a settlement rather than a trial - which is exactly what a patent troll wants.

            2. Camberley@evaluatorgroup.com
              Meh

              Re: The game is afoot!

              From Law360 article on patents: One of its goals was to address the large number of patent infringement lawsuits by providing new ways for parties to avoid “unnecessary litigation.”[1] Surprisingly, the AIA did little to stem the ever-increasing tide of patent litigation. In fact, from 2010 to 2013, the number of lawsuits increased 120 percent to a high of 6,114,[2] with nearly a quarter filed in the Eastern District of Texas.[3] And the filings in the first half of 2014 promise to match or surpass this new record.

  3. katrinab Silver badge

    If you are incorporated in say England, or Cayman Islands, or Guangdong, does that mean they can't sue in the US?

    1. Malcolm Weir Silver badge

      No. The "place of incorporation" thing in today's judgement applies where there is such a thing. Specifically, per the judgment:

      <Begin Court>

      As applied to domestic corporations, “reside[nce]” in §1400(b) refers only to the State of incorporation.

      <End Court>

      In a nutshell, the Court decided that the "ambiguity" in section 1400(b) (which might be read as permitting one to file either in the state of incorporation OR in any state where they have a substantial presence) should actually be read as a hierarchy: file in the state of incorporation unless there isn't one, in which case any state where they have a presence.

    2. John Savard Silver badge

      This raises a good point. Since those companies can still be sued in the U.S., any foreign country wishing to export its products to the U.S. will still have to run the East Texas gauntlet. Soon, Americans will have to buy smartphones, laptops, and other high-tech gear that is made in America only! So Donald Trump will be able to say that he has created a huge number of jobs in America.

      1. Voland's right hand Silver badge

        any foreign country wishing to export its products to the U.S. will still have to run the East Texas gauntlet.

        No, just incorpoprate a local entity in a location of your choosing. You usually have to do it anyway.

  4. Number6

    The downside of this is that if you're a small company in California or Oregon and you need to sue a large Delaware corporation, you have to decamp there. It would be good if the plaintiff could sue in their own local court too, but I guess that would be abused by a bunch of patent trolls all incorporating in East Texas.

    1. Malcolm Weir Silver badge

      It's not really that big of a deal, because the infringed-upon have a much lower burden in any patent action, because their claims are in the patent. So discovery motions in an patent infringement are almost always targeted at the alleged infringer/defendant, not the plaintiff.

      And if you are suing for patent infringement, you are going to be using a specialist legal team, who probably aren't local to you anyway, regardless of where you are located.

      (E.g. the largest IP fight I was involved in was fought in a court in Salt Lake City, Utah, used San Francisco, CA attorneys, and the company's operational HQ was 400 miles south of their in Southern California.)

  5. Christoph Silver badge

    Simpler answer

    So don't do business in Eastern Texas. Boycott the whole area. Don't have stores there, don't sell over the web to anyone living there. The tiny loss of trade would be trivial compared to a patent troll case. If the people there don't like not being able to buy nice things, then that is their problem and the solution is in their hands.

    1. a_yank_lurker Silver badge

      Re: Simpler answer

      Incorrect, do not have a headquarters or be incorporated in eastern Texas.

    2. Anonymous Coward
      Anonymous Coward

      Re: Simpler answer

      But isn't the third largest city in the US in Eastern Texas? Along with about one half of the country's energy sector? I don't think companies who are selling tech products to businesses could possibly afford to disregard the Houston market.

      1. kmac499

        Re: Simpler answer (Energy Co in E-Texas)

        Damn; I'm sure I used to have a patent on the extraction of fossilised, liquified/gasified naturally decomposed plant material to combined with atmospheric gases to produce mechanical energy.

        Do you think I'd have a case ???

        1. Charles 9 Silver badge

          Re: Simpler answer (Energy Co in E-Texas)

          Nope, because it's likely long since expired, given internal combustion engines have been around for over a century by now.

  6. John Smith 19 Gold badge
    Thumb Up

    Note the vote 0-8

    Looks like the Supremes have have felt this situation was well overdue for revision.

    Damm right too. Is anyone else hearing the voice of Ron Pearlman saying "You dirty ol' Troll."

    The downside is that in principle trolls could choose to still sue overseas companies in East Texas if they had no incorporated US office. But that would raise the question "Why are you suing them when they have a US subsidary to go after, that is incorporated in the US (but nowhere near E.Texas)?"

    1. Charles 9 Silver badge

      Re: Note the vote 0-8

      An international company with no US presence couldn't be sued in the US due to lack of jurisdiction. Those kinds of cases usually go before the international trade courts which are a special case. Besides, isn't it normal for a company doing business in the US to have some sort of US presence for legal reasons?

      1. Malcolm Weir Silver badge

        Re: Note the vote 0-8

        If you're doing business in the US, you have *some* US presence, by definition. If you are not doing business in the US, then the US courts won't get involved (absent some very specific circumstances).

        1. Charles 9 Silver badge

          Re: Note the vote 0-8

          I think the difference is whether or not product is exported directly to the buyer or run through some affiliate or subsidiary first. The latter can be sued directly while the former usually have to be taken to trade courts.

      2. katrinab Silver badge

        Re: Note the vote 0-8

        What if I am a manufacturer in China or in Wales that ships all my products to a third party distributor in the US to access the US market? One example of that might be the Raspberry Pi foundation. They manufacture in Wales and China get RS and Premier Farnell to handle their distribution.

  7. ecofeco Silver badge

    Look out Delaware!

    Fun fact: Delaware is the state with the most incorporations due to its very "friendly" laws if incorporation.

    1. Anonymous Coward
      Anonymous Coward

      Re: Look out Delaware!

      I can't think of a single large tech company incorporated in Delaware.

      A lot of those friendly Delaware rules are useful for small to mid size businesses in my limited experience. For large corporations, I believe it's usually advantageous to be incorporated closer to home.

      1. Charles 9 Silver badge

        Re: Look out Delaware!

        Delaware's friendliness tends to favor factories, warehouses, and distribution centers. No sales tax among other things makes it advantageous to settle there. I believe Oregon has a similar business-friendly structure.

        1. Orv Silver badge

          Re: Look out Delaware!

          It also favors shell companies for illegal operations, because very little identifying information is required to be public for Delaware corporations.

          Credit card companies and payday lenders favor Delaware, South Dakota, or Nevada, because they have no usury laws.

      2. dbayly

        Re: Look out Delaware!

        Unisys is incorporated there. As is Dell. I stopped lookign after those 2.

        1. Voyna i Mor Silver badge

          Re: Look out Delaware!

          "Unisys is incorporated there. As is Dell. I stopped lookign after those 2."

          Of course. I'm Dell aware of that.

      3. Thesheep

        Re: Look out Delaware!

        Facebook. Teradata. Many others. In fact something like 60% of the Fortune 500 https://technical.ly/delaware/2014/09/23/why-delaware-incorporation/

  8. Dimmer

    Let the down votes begin

    I live and work in the Texas district.

    Just out of school, (80) I patented an idea (US 4489303 A). Having no money to produce the device myself, I shopped this to manufactures. I was shown the door. It was truly believed that my device would replace the need for contacts in game controls and the profit from contacts was enough incentive for the carpet and bag of lime treatment from these companies. Within a year of showing this device there was a similar device they produced, much more complicated and parts to break and replace, screw the customer, they were in it for the money.

    This was an obvious theft of my idea. At that time, it was well know that fighting a patent infringement would take years to resolve. The lawyers for both sides would milk it for everything they could. Just look at what they did to the guy that invented the Kodak instant film.

    I dropped it. That was my choice. To me it was not worth it.

    A few years later in the eastern district, we had a judge that had the balls to stand up to the lawyers padding their bank accounts and required them to bring the action to trial. That was why it is called a "friendly" court, that is to everyone but the lawyers. Are there patent trolls? Dam right there is. Every system has abuse.

    For anyone that wanted to take an idea and make your way. Not going to happen - THEY NOW OWN IT. Look at your employment contract, they own any ideas you come up with in your spare time, even if it is not related to your employment. If you are independent and want to try it, you best have $200k for a patent. Then they will have it invalidated by the judges they own. Don't think the big guys are not spending a bunch on election campaigns, that's why they want it in their district.

    The big guys will continue to do patents and duke it out, but if you produce something novel, maybe even patent it and they want it, you are just a $ risk assessment, and that has just gotten so small they will roll right over you. For the new generation that wants to develop their ideas, i am truly sorry. My generation has let you down. You are truly on your own.

    1. Anonymous Coward
      Anonymous Coward

      Re: Let the down votes begin - US 4489303 A

      Another obvious idea that should never have been granted a patent. A Hall Effect device behaves like a potentiometer, replacing microswitches or pots with Hall switches is equivalent to adding "on a computer".

      I think you are making the argument as to why the system needs to be reformed.

      When I applied for a US patent it was on the basis of several man years of metallurgical and electrical research by a team of people, hundreds of thousands of dollars of investment, and evidence that other people in the past had said "can't be done". Not an idea that someone with an electronic parts catalog and a joystick couldn't come up with in ten minutes.

      1. Mike 16 Silver badge

        Re: Let the down votes begin - US 4489303 A

        Thanks for checking that out. I try to avoid reading patent-ese, as I hardly recognize my own patents when the professional drafters are done with them. Anyway, Atari at least was using optical "switches" when I got there (1976) and hall devices by the late 1970s, so, yeah, probably should not have been granted if the gist was "replace pot with Hall device". There are nuances of design in doing so, and some of _them_ might be patentable, so it's not a slam dunk. E.G. using Hall devices as switches in pinball games can lead to abuse by punters with magnets in a carefully placed cigarette pack. Optical is a bit easier to "secure", albeit more prone to dust bunnies.

        1. Dimmer

          Re: Let the down votes begin - US 4489303 A

          In a perfect world optical might be the way to go but the reason for me to build this was because contact and optical joysticks, trackballs and buttons had issues with the harsh environment that coin operated games were operated. Dust was sometimes an issue, but most of the time they would just burn out. Contact switches had contact bounce (Dragons Lair for example) or just got dirty. I know any decent radio shack guy could fix "bounce" on the board, but the manufactures listened to the bean counters and removed anything that cost. Some to the point monitors would catch fire. (Tempest, Star Wars). This was invented out of necessity, hours on the road to replace a contact but being inexperienced, a very narrow view of its use.

          I did spend a year testing and developing a version that would withstand spilled drinks and pissed off 250lb biker chicks that would drag Ms Packman out the door by the joystick. My greatest gain was from the experience. Lesson learned: Cheese makers, mouse trap builders and their who sales channel, don't want a better mouse trap. Coin op games were dying out by this point, so I move on to other things.

          The intent of patenting the joystick was so that I could be protected when I manufactured it or had someone manufacture it and sell it for me. Unfortunately for new patent holders, that simple protection no longer exist from what I am seeing in the courts. They want it, they will invalidate it and then sue you for infringement.

          In an earlier post, There was a discussion about the Tyler 4 Tech organization. I belong to that organization. Our intent is to create jobs and foster innovation - not create an environment for Trolls. Obviously need to work on our messaging. We believe that if you have an idea and the drive, we will provide resources to help you succeed. We are not waiting on government assistance and we do this out of our own pocket not expecting a return.

          For the respondents; Thanks for taking a look an giving honest, informed feedback. I learn more from the post than the articles.

  9. Anonymous Coward
    Anonymous Coward

    Oh dear....

    ..think of those poor judges...no more gravy train.

    Still they can go and service all the drones, autonomous vehicles and robots, like the rest of us plebs will be doing.

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