Lawmakers Eye Patent Venue Changes After High Court Ruling

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By Malathi Nayak

Legislation to limit where patent owners may file infringement lawsuits is still a possibility despite a recent U.S. Supreme Court decision narrowing the options.

House Judiciary Courts, Intellectual Property and the Internet Subcommittee Chairman Darrell Issa (R-Calif.) lauded the court’s May 22 ruling on patent venue in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, but said Congress would consider pursuing further action.

“The court’s recent decision is a tremendous step, in my opinion, in the right direction,” Issa said at a June 13 subcommittee hearing on the subject. “However, additional efforts to rein in the abuse of our nation’s patent system will need to happen.”

The high court ruled that patentees can no longer file complaints solely based on where an alleged infringer sells a product in order to get their cases heard in purportedly friendly jurisdictions like the U.S. District Court for the Eastern District of Texas.

“We do have a challenge in that there is some ambiguity in the remaining language, it is likely either to be considered further by the court or defined by us,” Issa told reporters after the hearing.

GOP lawmakers had signaled they would pull back on legislation dealing with venue for patent litigation until after the high court ruling.

In the last Congress, House Judiciary Chairman Robert W. Goodlatte (R-Va.) sponsored a bill addressing a broad spectrum of patent litigation issues including venue. Sen. Jeff Flake (R-Ariz.) sponsored a standalone venue bill in the Senate.

“Senator Flake and myself have talked about what we would likely have to do,” Issa told Bloomberg BNA after the hearing. “I think today’s hearing takes us part of the way there.”

Before lawmakers proceed with any efforts to curb abusive patent litigation, they must grasp the impact of the TC Heartland decision, Rep. Jerrold Nadler (D-N.Y.), the subcommittee’s ranking member, said at the hearing.

“Will it be a panacea that puts patent trolls out of business? Will it simply force them to adjust their practices as they continue business as usual? Or does the answer lie somewhere in between?” Nadler said about the Supreme Court ruling.

No Impact on Some Businesses

For businesses that operate from bricks-and-mortar locations in multiple states, including in the Eastern District of Texas, the ruling is likely to have no impact, Steven Anderson, vice president and general counsel at restaurant chain Culver Franchising System Inc. told lawmakers.

The patent venue statute still provides that a patent infringement action may be filed in the state where the defendant resides, which the court found to mean the state of incorporation for a corporate entity like Culver’s, or where the defendant is alleged to have committed acts of infringement and has a regular and established place of business, he said.

That means companies like Culver could be sued for patent infringement anywhere they have a restaurant.

The ruling also raises questions about how to determine venue for foreign corporations, including those with U.S. subsidiaries, John Thorne, a partner at Kellogg, Hansen, Todd, Figel & Frederick PLLC, told lawmakers.

“The most important unresolved question,” Thorne said, is “what should count as a regular and established place of business.”

Concentration in Three Districts

The high court decision will likely result in few patent lawsuits being filed at the Texas court, academics and legal experts say. They predict that the ruling will lead to more cases being filed in the U.S. District Court for the District of Delaware, where many companies are incorporated, or in the Northern District of California, where many high-tech companies are based.

Nadler asked witnesses at the hearing if the ruling would result in the concentration of cases in three states—Texas, Delaware and California—instead of just one.

“Yes, there will be concentration within the three districts but what you will see is the cases are based more on merits and less on where you were able to get venue,” Colleen Chien, a professor at the Santa Clara University School of Law, responded. “That’s a healthy outcome even if there is still concentration in the top three.”

However, the TC Heartland ruling will lead to more costs and harms on innovators, especially individual inventors, startups and universities, Adam Mossoff, a professor at Geroge Mason Univeristy’s Antonin Scalia Law School, told lawmakers.

For instance, individual patent holders will have to travel from their home bases to far-flung jurisdictions to file suits and pay for attorneys in Delaware or California, he said.

To contact the reporter on this story: Malathi Nayak in Washington at mnayak@bna.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bna.com

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