Client Resources US Supreme Court Continues to Chip Away at Patent Rights

SCOTUS weakening patent rights.

It used to be somewhat rare for the Supreme Court to hear a patent case, but in the past few years, it has agreed to hear a substantial number of them and in virtually every one, has reversed well-established precedent, weakened patent rights, and/or injected uncertainty into patent law. In the Court’s current term, is has heard five patent cases and reversed the lower patent appeals court (the Court of Appeals for the Federal Circuit) in every single one, which, according to the leading Supreme Court Blog, is “by far the worst record of any of the federal courts of appeals.”[1] Those decisions include two just in the month of May 2017. In these two most recent decisions, the Court put significant constraints on where a patent owner can sue a company (TC Heartland)[2] and added limits to a patent owner’s ability to control what happens after a patented product is sold (Lexmark)[3]. This article will address TC Heartland and a follow-on article will discuss Lexmark.

In TC Heartland, the Court severely limited where a patent owner can sue a company for patent infringement. Federal Courts have exclusive subject matter jurisdiction over patent cases, but a patent owner can’t sue a company for infringement in any Federal court. Instead, it can only sue in a Federal court (1) with personal jurisdiction over the company and (2) where “venue” is proper. Prior to TC Heartland, the venue requirement was co-extensive with personal jurisdiction, such that a patent owner could bring suit in essentially any state where a product accused of infringement was sold. Admittedly, this led to “forum shopping” and the odd result of a substantial portion of patent cases being heard by a remote court in Texas that had gained a reputation for being patent-owner friendly. But this also allowed a patent owner to sue in a court close to home. Here in New England, small and medium sized companies could bring suit in the district court(s) of their home state, substantially reducing costs and inconvenience for smaller, local companies hoping to enforce their hard won patent rights.

In TC Heartland, the Court narrowed the venue requirement for companies accused of infringement. Now, a patent owner can only sue a company for patent infringement where (1) the company is incorporated or (2) where it has committed acts of infringement and has a regular and established place of business. The good news for most companies, especially smaller companies that felt unduly targeted by “patent trolls”, is they can no longer be dragged to Texas to face patent infringement charges when they have only minimal contacts with Texas. The bad news, however, for patent owners located outside of metropolitan areas where greater numbers of potentially infringing companies are located, is they will often be forced to bring suit away from home, thereby raising costs and deterring the patent owner from asserting its rights. Such a burden can fall even more heavily on smaller companies for whom litigation is infrequent and not always incorporated into planning.

One open question that remains after TC Heartland is where, exactly, patent owners should sue foreign companies for patent infringement. The Court expressly stated it was not addressing that question, but due to the details associated with its ruling, where it held the general venue statue (28 USC § 1391), which also addresses venue for foreign companies (28 USC § 1391(c)(3)) does not apply to the patent venue statute (28 USC § 1400), it is not clear how venue for a foreign company should now be determined. Another open question is how a company’s Internet presence should factor in to the determination of where it has a “regular and established place of business.”

People will debate whether this change is good or bad, but on balance, it may be a negative result for regional economies that have a concentration of small to medium sized technology companies that are not in close proximity to the metropolitan areas where a majority of businesses (and potential infringers) are concentrated. Those small and medium sized companies will now face even larger costs for asserting their patent rights by forcing them to bring suit in a remote judicial district. The change in the venue requirement also adds an additional consideration when forming a new company — you can reduce the number of states you can be sued in for patent infringement by only incorporating where you have a regular and established place of business.

While the TC Heartland case certainly can be portrayed as having great upside for commerce and business by substantially weakening distortions caused by the patent troll business model, clear upsides for stake holders in the US patent system are not so easily identified in the Supreme Court’s Impression Products v. Lexmark International decision, which we will discuss in our next post.