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Supreme Court decision has considerable import for Idaho business

teague-donaheyOn May 22, the United States Supreme Court issued a ruling on the seemingly mundane topic of patent venue: In which federal district courts may a patent holder file a patent infringement case? The case was TC Heartland, LLC v. Kraft Foods Group Brands LLC.

Most Idaho business owners were probably unaware that this decision had been issued, or if they were they likely paid it little mind. After all, how could a Supreme Court ruling interpreting obscure federal statutory provisions related to patent venue affect their businesses?

The answer is: considerably. Each year, approximately 5,000 patent infringement lawsuits are filed in the United States. These lawsuits are complex and expensive, and they have the potential to dramatically alter the competitive landscape and change business fortunes. Patent suits also involve cutting-edge technologies in every business sector. As Idaho’s explosive growth continues, its businesses—which are becoming increasingly linked to high technology fields such as computers, semiconductors, software, and Internet technologies—are growing with it, and will be increasingly exposed to the patent infringement disputes that are routinely faced by more established entities in California, Texas, New York, and elsewhere.

The question of where patent lawsuits can be filed is critical. The legal culture, judicial outlook, procedural preferences, and jury pools can vary substantially from court to court and region to region. These variances can have a major impact on the substantive outcome of a patent lawsuit—which are both closely supervised by judges (who, like anyone else, have their own personal preferences and biases) and involve trials by jury.

Even more surprising is the fact that, in 2016, a whopping 36 percent of all patent infringement lawsuits filed in the United States were filed in the rural courthouses of Eastern Texas, in cities such as Tyler, Marshall, and Sherman, Texas. Indeed, in 2016, an astounding 20 percent of all patent infringement cases pending nationwide were reported to have been assigned to a single judge located in Marshall, Texas: Judge Rodney Gilstrap.

Why eastern Texas? Prior to the Supreme Court’s TC Heartland decision, patent holders had broad flexibility to file infringement suits almost anywhere in the country, in most scenarios. The eastern Texas courthouses are widely recognized as being plaintiff-friendly in culture and outlook, and juries there have been known to give out “Texas-sized” monetary damages awards. The popularity of eastern Texas as a venue for patent lawsuits has created a cottage industry in cities like Tyler—an entire economic infrastructure has been developed to support the courts’ adjudication of these lawsuits, perhaps further reinforcing the plaintiff-friendly culture in those communities. All of this has been a magnet attracting savvy plaintiffs’ lawyers from around the country.

The Supreme Court’s TC Heartland decision effectively puts an end to this eastern Texas anomaly. Under the ruling, patent infringement suits may now be brought in only a limited number of locations: (1) the defendant’s place of residence (which, for corporations, is defined to be the state of incorporation); or (2) where the defendant has both a regular and established place of business and has committed acts of infringement.

As a result, all of the patent suits that in the past would have been filed in plaintiff-friendly courts—providing plaintiffs with extraordinary advantages unrelated to the merits of their claims—will essentially be redistributed to courts dispersed around the United States that are linked to the defendants. In the case of patent infringement suits targeting Idaho-based businesses, this will mean the Idaho federal courts in many instances.

This development represents good news for Idaho’s rapidly growing economy. Dynamic businesses in growth areas are often the target of patent infringement suits brought by larger, more entrenched rivals. TC Heartland will help ensure that patent infringement cases brought against Idaho businesses will be decided on their merits in an even-handed way, enabling those businesses to avoid being held hostage through the forum-shopping preferences of plaintiffs. This helps to restore a sense of balance to our patent system and is a breath of fresh air. Who would have thought that the issue of venue in patent litigation could be so significant?

Teague Donahey is an intellectual property litigator with Holland & Hart. He has more than 15 years of experience litigating and trying high-stakes intellectual property matters and other complex business disputes for some of the world’s most significant technology companies. He can be reached at tidonahey@hollandhart.com

About Teague I. Donahey