© 2016 The Texas Lawbook.
By Jeff Bounds
(May 1) – The Eastern District of Texas will remain the patent lawsuit capital of America – at least for now.
The U.S. Court of Appeals for the Federal Circuit issued a decision Friday that effectively ensures that plaintiffs in patent infringement cases can continue to sue in any district where defendants sell their products.
The three-judge panel dashed the hopes of many technology companies, which wanted the court to make it tougher for those filing patent litigation to forum shop in jurisdictions viewed as plaintiff-friendly, notably the hyper-efficient federal courts of East Texas.
“This was a good day to sue where you want to sue,” said Alan Albright, an Austin-based partner at Bracewell. “It tamps down the argument that, ‘We will do away with the Eastern District as a popular venue.’”
“For now, the Eastern District is likely to remain one of the busiest venues for patent cases in the country,” said Tyler VanHoutan, a patent and intellectual property lawyer in the Houston office of Winston & Strawn LLP. “However, the issue of which courts around the country can hear patent cases is likely not settled and may ultimately be decided by patent reform legislation before Congress.”
The venue spat in TC Heartland v. Kraft Foods that led to Friday’s ruling does not directly involve the Eastern District, but rather is a tug of war between Delaware and Indiana.
Many in the patent bar watched it closely, as one of the combatants, Indiana-based TC Heartland, asked the judges to overturn VE Holding vs. Johnson Gas Appliance, the Federal Circuit’s 1990 decision that undergirds the Eastern District’s popularity as a place to resolve infringement squabbles.
TC Heartland is facing an infringement lawsuit from Kraft Foods in Delaware, where a magistrate judge – and, later, a district judge – previously turned down TC Heartland’s request to move the litigation to its home state of Indiana.
That prompted TC Heartland to ask the Federal Circuit for a writ of mandamus to force the district court to move the litigation to the Hoosier State. The three-judge panel declined, using sometimes-tough language to dismiss some of the company’s arguments.
For instance, TC Heartland contended that 2011 Congressional amendments to the federal statute governing litigation venue required the Circuit to overturn its ruling in VE, which effectively allowed plaintiffs to sue defendant corporations in any states where the defendants have sales.
The three-judge Circuit panel found, however, that the ‘11 amendments resulted in a “broadening” of the legal definition of corporate residence, not the narrowing that TC Heartland had claimed.
“We find this argument to be utterly without merit or logic,” the panel wrote.
TC Holding did not fare much better on other fronts.
The company claimed that Delaware courts lacked personal jurisdiction over it for the purposes of the litigation.
Echoing a previous complaint from the magistrate judge, the Circuit panel called TC Holdings’ argument “difficult to follow.” On one particular point, the judges said the company made a “contradictory argument” before the district judge.
“This decision wasn’t a surprise,” said Russ Emerson, a Haynes and Boone partner in Dallas who observed oral arguments before the Circuit.
Emerson believes TC Heartland will now go to the U.S. Supreme Court, rather than seeking an “en banc” re-hearing before all the Federal Circuit’s active judges.
“I think TC Heartland knows the whole Federal Circuit won’t change its mind, and will take their chances with the Supreme Court,” he said.
On the merits of the case, Kraft should win if the case reaches the Justices, Emerson said.
“However,” he added, “in almost every patent-related oral argument, the whole concept of trolls comes up. Given the culture and trends in Congress and at the Supreme Court, it’s hard to say what will happen. If (the Justices) get caught up in the troll controversy, then who knows what they will do.”
Congress’s attention is elsewhere
While rumblings have surfaced in both the House and Senate in recent years about possible venue-related legislation, the attention of Congress seems to be on other topics in the election year, some observers believe.
Congress this week passed legislation that, for the first time, provides an avenue for federal civil litigation in the theft or other misuse of trade secrets. President Barack Obama has been widely reported as being ready to sign it into law.
“My guess is that with the political climate, the presidential election coming up, and the passing of the Defend Trade Secrets Act of 2016, there is not a big appetite to push hard on venue reform this year,” said Bart Showalter, the Dallas-based firm-wide chair of the intellectual property practice at Baker Botts.
Showalter noted TC Heartland faced an uphill climb simply in overcoming the big obstacles to landing a writ of mandamus. And at oral arguments, the Circuit judges appeared unimpressed with TC Heartland’s arguments, Showalter added.
“Boy, doesn’t this feel like something a legislature should do?” Circuit Judge Kimberly Ann Moore reportedly noted at one point.
Although some in the patent bar believed TC Heartland had a chance to kill the Eastern District patent-litigation boom, Showalter says he always thought it was a long shot.
“I didn’t think TC Heartland was going to be the avenue to shut down the Eastern District,” Showalter said. “They had too many things stacked against them.”
Other factors limit new suits
While TC Heartland may not end the patent suit party in East Texas, other factors have surfaced in recent years that, in total, could be reducing the volume of litigation being tried there, experts say.
For instance, the Supreme Court’s 2014 ruling in Alice Corp. vs. CLS Bank International made it significantly easier to invalidate patents on the grounds that they fail to cover “patentable subject matter.” That particular niche of patent law falls under section 101 of 35 USC.
While so-called section 101 motions to invalidate patents have always been available to defendants, the Alice ruling has resulted in district judges considering those motions earlier in cases – and granting them frequently on software-related patents, Albright said.
On another front, patent reform legislation in 2011 made it easier for many corporate defendants to get infringement suits transferred out of places like East Texas and back to courts in the geographic areas where those defendants do most of their product-development work, Albright said.
The America Invents Act included a provision aimed at plaintiffs that do not actively practice the inventions that their patents cover, he said. Many so-called “non-practicing entities” would often file a single lawsuit in East Texas against, say, 30 or 50 different defendants.
The patent reform bill essentially requires plaintiffs to file one lawsuit per corporate defendant, Albright said. In addition, it makes it easier for, say, a Nintendo or Microsoft to get infringement suits from non-practicing entities transferred back to the district court in Seattle (where both companies have their principal place of business.)
Nonetheless, Albright says, the Eastern District will likely remain one of the most important venues for new patent litigation.
“They have experienced judges who run their courts with extraordinary speed and efficiency,” he said.
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