Even patent trolls feel like they’re stepping on thin ice now in Texas

Kenji Kuroda

Partner, Kuroda Law Offices

The 1990s were a time when the “war on drugs” intensified in the United States. All federal courts were busy handling drug-related cases. Since criminal cases had priority, it was difficult for judges to handle civil cases like patent litigation. Therefore, companies with patent litigation had to find places where there was a relatively low number of criminal cases. Thus, the quiet city of Marshall, Texas was chosen.

This story goes back to 1957, when a West Virginia company filed proceedings at a New York state court. The Fourco Glass Co. v. Transmirra Products Corp case was brought to the Supreme Court, which held that the company could be sued in any of the jurisdiction of the place of incorporation of the company, the place where it holds a business permit, or its place of business, as well as that “the jurisdiction is deemed to be where the company resides, in terms of the court venue”. The court ruled that the interpretation of the term “resides” used in Title 28, Section 1400 (b) of the United States Code means only the state in which the corporate defendant was founded.

Thirty years later, in 1988, the federal parliament amended Section 1391 (c) to change the definition of a company’s “residence” from its “place of incorporation, where it has a business license, or place of business” to “in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question”. In 1990, the United States Court of Appeals for the Federal Circuit ruled in the VE Holding case that the new definition of 1988 by Congress also applies to Section 1400 (b), the law on venues for patent litigation. As a result, companies became able to “reside” in any state in which it is subject to personal jurisdiction. This can be in multiple states too. Such a judgment was basically inconsistent with the Fourco case. In fact, this means that companies can be sued anywhere in the United States where infringing goods are sold, and patentees were given the option to sue anywhere in the United States in many cases.

The small town of Marshall, located in the United States District Court for the Eastern District of Texas (E.D. Tex), has been dubbed the “Patent Litigation Center of the United States”. In 2015, nearly 44% of all U.S. patent litigation was filed in E.D. Tex, with the courts in Marshall handling more cases than those held at the federal district courts of Los Angeles, Chicago, San Francisco, New York, Boston and Delaware combined. You could say that patent owners who file infringement litigation preferred E.D. Tex because of its reputation for expediting trials and verdicts in favor of the plaintiffs. This also has the unique effect of encouraging defendants to avoid risk and increasing the likelihood of a relatively high settlement in the district.

Needing to protect itself from dozens of patent litigation suits in E.D. Tex, Samsung has made what appears to be an effort to receive a warmer acceptance by the residents of the city of Marshall. For example, the large open-air ice rink, funded by Samsung, sits across the street from the court, which is an historic building in the city of Marshall.

On May 22, 2017, in the case of TC Heartland LLC v. Kraft Foods Group Brands LLC, which was one of the most notable IP proceedings in decades, the Supreme Court essentially reaffirmed the decision in the 1957 Fourco case, and by limiting the residence of domestic companies to the state in which they were incorporated, patent owners were prevented from engaging in forum shopping. Under the TC Heartland case, patent litigation against a U.S. corporate defendant can presently only be filed in (1) the district where the company resides (defined to mean only the state in which it was incorporated), or (2) the place where the corporate defendant committed the infringement and where it has a formally established sales office.

The decision in the TC Heartland case has relatively clear consequences for U.S. companies, but the impact this has on foreign companies is unclear. The Supreme Court’s decision was limited to venues for U.S. companies, with footnotes in some places explaining that the decision did not explicitly consider implications for foreign companies. Therefore, unlike domestic companies, foreign companies may continue to file patent litigation in any state they have personal jurisdiction. Samsung’s ice rink probably won’t be useless anytime soon.