High Court Patent Ruling Spurs Litigation Strategy Shift

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By Peter Leung

One year after the Supreme Court changed the landscape for patent lawsuits, attorneys are adapting to a system with stricter rules for U.S. companies than ones based in other countries.

The high court made it more difficult for patent owners to sue U.S. companies in plaintiffs’ preferred courts. The decision changed the geography of patent litigation by moving cases away from venues with reputations for being friendly to patent holders, such as the U.S. District Court for the Eastern District of Texas.

By strengthening the limits on where domestic companies can be sued, the ruling in TC Heartland v. Kraft heightened longstanding differences between foreign and domestic defendants.

Foreign corporations are exempt from U.S. venue laws, meaning U.S. plaintiffs can sue them for infringement in any federal court. Patent owners are trying to take advantage of the disparate treatment, especially when suing foreign corporations with U.S. subsidiaries, by only suing the foreign entity.

The strategy is still relatively new, and there are still unanswered questions, such as how courts will handle lawsuits in different districts against related entities accused of infringing the same patents. Defendants can try to get cases transferred by arguing that another venue is more convenient—for example, if most of the witnesses and evidence are located in another district—but there’s no guarantee of success.

“As a result of TC Heartland, where a domestic defendant can be sued is pretty limited under the venue laws, but foreign defendants can still be sued anywhere,” Philip Ou, of counsel in Paul Hastings LLP’s intellectual property practice in Silicon Valley, told Bloomberg Law.

Some patent owners are taking advantage of the difference in order to bring their infringement cases in their preferred courts, which they believe could increase their chances of success.

In cases where the defendant is a foreign company with U.S. subsidiaries, some patent owners are suing just the foreign entity in order to avoid the TC Heartland venue limitations, Gary Sorden, a patent litigator with Klemchuk LLP in Dallas, told Bloomberg Law.

A strategy of only suing foreign entities has potential advantages and disadvantages. Serving a complaint, which officially notifies a defendant of the lawsuit, on a foreign company may be more time-consuming and expensive.

Serving a complaint is easier if both foreign and U.S. companies are sued, Ou said. The patent owner can convince the U.S. company to accept a complaint on the foreign company’s behalf, such as by agreeing to give the defendants more time to respond. But the U.S. company is less likely to cooperate if it isn’t a defendant.

If the case involves a foreign defendant that conducts business through a U.S. subsidiary, the subsidiary might have relevant evidence, such as records about domestic sales of allegedly infringing products, Ou said. But if the subsidiary isn’t being sued, it can be harder to get that evidence. Plaintiffs and defendants can request evidence from each other without the court’s involvement, unless there are disputes. But requests for evidence from a third party must go through the court.

In the past, plaintiffs were more likely to be over-inclusive when naming defendants in patent cases, Andrew Radsch, counsel with Ropes & Gray LLP’s IP practice in Silicon Valley, told Bloomberg Law.

Some plaintiffs have become more careful since the Supreme Court ruling to take advantage of the looser venue rules for foreign defendants, though the right strategy will depend on the facts of each case, such as the exact corporate relationship between the potential defendants, Radsch said.

Meaning of “Resides”

Before the Supreme Court handed down its opinion a year ago, patent owners could sue in any district where an allegedly infringing defendant did business. That meant large companies that did business nationally could be sued in any federal district court.

Kraft Foods Group Grands LLC sued in the District of Delaware, claiming TC Heartland LLC’s Refreshe Fruit Punch Drink Enhancer infringed its patents. The Delaware court rejected TC Heartland’s request to transfer to a different venue, and the case eventually reached the Supreme Court.

Under the patent venue statute, plaintiffs can sue where a domestic defendant resides, or where it both committed an infringing act and has a regular and established place of business. The Supreme Court in TC Heartland restricted the first path by limiting “resides” to where the defendant is incorporated—not just where they do business.

The Federal Circuit ruled May 9 that foreign companies are “wholly outside” U.S. venue laws in a decision interpreting TC Heartland as not overriding the long-standing concept that venue restrictions don’t apply to foreign companies.

Taiwanese mobile phone maker HTC Corp. had tried to convince the Federal Circuit that TC Heartland limited where foreign companies can be sued, because the patent venue law doesn’t distinguish U.S. and non-U.S. defendants. But the Federal Circuit said that was incorrect.

Orange SA had sued HTC Corp. and its U.S. subsidiary, HTC America Inc., in the U.S. District Court for the District of Delaware. HTC America, incorporated in the state of Washington, can’t be sued in Delaware under TC Heartland, but the case against the Taiwanese parent continues.

Texas Court Still Busy

Some of the other effects of the high court ruling have been more predictable. The Eastern District of Texas is no longer the most popular venue for patent infringement cases, ceding that title to the District of Delaware, Bloomberg Law data show.

Because many companies are Delaware corporations, they can be sued for patent infringement there. The Delaware court has had to call on several judges from outside the district to help handle the increased workload.

California, home to many technology companies, has seen an uptick in two of its districts.

However, East Texas is still the second busiest patent venue. In the first four months of 2017, just before the decision, there were 444 patent cases filed there, the most of any federal district in the country, Bloomberg Law data showed. During the same period in 2018, there were 171 cases filed there.

“Many people don’t realize that the Dallas-Fort Worth metropolitan area, about half of it is in East Texas,” Sorden said.

Many large defendants have offices and retail stores in the area, he added, and cases against foreign defendants are still being filed in the district.

“Initially, some people had oversimplified the impact,” Ou said. “East Texas is still very much alive.”

To contact the reporter on this story: Peter Leung in Washington at pleung@bloomberglaw.com

To contact the editor responsible for this story: Rebecca Baker at rbaker@bloomberglaw.com

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