Supreme Court considers why patent trolls love Texas

Adam Liptak
The Sam B. Hall Jr. federal courthouse in Marshall, Texas.
Mario Villafuerte | Bloomberg | Getty Images

More than 40 percent of patent lawsuits are filed in a federal court in East Texas with a eputation for friendliness to plaintiffs. That curious fact was the backdrop for a Supreme Court argument on Monday over whether the court should halt what many big technology companies say is pernicious forum shopping in patent cases.

In recent years, a single judge based in Marshall, Tex., oversaw about a quarter of all patent cases nationwide, more than the number handled by all federal judges in California, Florida and New York combined.

The Texas court is a favorite venue of patent trolls, or companies that buy patents not to use them but to demand royalties and sue for damages. Many tech companies filed supporting briefs in Monday's case, TC Heartland v. Kraft Foods Group Brands, No. 16-341, urging the Supreme Court to limit the places where defendants in patent cases may be sued.

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But a few companies urged the justices to retain the current rules, saying there was a value in letting cases be considered by courts that have developed expertise in patent matters. And some pharmaceutical companies said they should be able to sue the makers of generic drugs all at once in a single court.

The case heard Monday concerns low-calorie sweeteners made by TC Heartland, which is based in Indiana. Kraft sued it for patent infringement in Delaware, which also has a high concentration of patent suits.

TC Heartland sought to move the case to Indiana, but lower courts refused, relying on a 1990 decision of the United States Court of Appeals for the Federal Circuit, a specialized court that handles patent appeals. That decision said defendants in patent cases, as in other cases, may be sued essentially anywhere they do business.

On Monday, Justice Elena Kagan noted a curiosity about the 1990 decision: It was at odds with a 1957 Supreme Court precedent. She sounded surprisingly sanguine about this state of affairs.

"For 30 years the Federal Circuit has been ignoring our decision, and the law has effectively been otherwise," she said.

Justice Kagan also reflected on what the case had in common with one argued earlier on Monday about pension plans. "Sometimes we have accidental theme days at the Supreme Court," she said. "So today's accidental theme is: When 30 years of practice goes against you, what happens?"

The 1957 decision interpreted a federal law about where patent suits may be filed. The law said that "any civil action for patent infringement may be brought in the judicial district where the defendant resides." The court said that meant where the defendant was incorporated.

The patent law has not changed, but a more general one on where suits may be brought has gone through amendments. Kraft argued that those changes effectively revised the law on patent cases.

Justice Ruth Bader Ginsburg said the court's 1957 decision was exceptionally narrow. Corporations are often incorporated in one place and have headquarters in another, she said, with both states counting for many purposes. But the 1957 decision focused only on the state of incorporation.

The argument was almost over before the justices discussed the question of forum shopping at length.

William M. Jay, a lawyer for Kraft, said any complaints about the court in East Texas should be addressed directly and not through a decision on where suits may be filed.

"They tend to be complaints about how the cases are managed, how discovery takes place, how motions practice is handled, and so on," he said. "And those complaints, if they are valid, would be valid even when venue is indisputably proper over a Texas defendant. They are problems that should be dealt with on their own terms."

That did not seem to satisfy Justice Anthony M. Kennedy. Do "generous jury verdicts enter into this, or is that something we shouldn't think about?" he asked.

Mr. Jay said the data on verdicts and other matters was inconclusive. In any event, he added, Congress — not the Supreme Court — should address the issues. A court ruling, he said, would be precipitous.

"If you adopt the rule that my friends on the other side are proposing," he said, "you will shift more than half of all cases from the district where they now are into other districts." That could lead to overcrowding in the federal court in Delaware, he said, given the large numbers of corporations incorporated in the state.

Justice Stephen G. Breyer said he was inclined to ignore the controversy over forum shopping, focusing instead on what Congress had meant to achieve in the statutes before the court.

The supporting briefs, he said, were "filled with this thing about a Texas district which they think has too many cases."

"As far as I can see," he told James W. Dabney, a lawyer for TC Heartland, "if we're supposed to decide what's good or bad, maybe you'd lose. But I don't know whether that's good, bad or indifferent."