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With tech firms watching, Supreme Court weighs patent case

The U.S. Supreme Court is grappling with whether to refine the law governing where patent infringement lawsuits can be tried, in a case that's been closely watched by Silicon Valley.

The lawsuit on its docket, TC Heartland v. Kraft Foods, is a dispute over water flavoring additives, but the questions it has raised about the proper venue for patent infringement could have wide-ranging implications.

During oral arguments at the high court on March 27, the justices indicated they were weighing whether to over-rule a 1990 federal appeals court decision that expanded where patent lawsuits can be held, which made companies potentially liable anywhere they sell products. The nearly 30-year-old decision by the U.S. Court of Appeals for the Federal Circuit went against a 1957 Supreme Court ruling that focused on where a company was incorporated, as some justices pointed out.

"For 30 years the Federal Circuit has been ignoring our decision and the law has effectively been otherwise," Justice Elena Kagan said, noting that usually Congress is the body most likely to advance counter-arguments to Supreme Court rulings.

Technology firms such as Apple Inc. and Alphabet Inc. argue that the 1990 precedent has led to a raft of often frivolous lawsuits filed in a select number of jurisdictions seen as friendly to patent holders, including by some entities that buy or hold patents without making any products. Critics of the appeals court decision frequently point to the Eastern District of Texas, where patent plaintiffs filed 44% of their cases in 2016.

Congressional legislators have introduced several bills focused on reforming the law to curb the practice of seeking out favorable courts, but politicians and industry trade groups have said they will look for the TC Heartland v. Kraft Foods decision, expected by the end of the Supreme Court's June term, before moving forward with further legislative reforms.

The case before the high court involves a challenge by Indiana-based liquid sweetener company TC Heartland to a patent infringement suit filed in federal court in Delaware by Kraft Foods Group. Because the "overwhelming majority" of Kraft's patent claims were based on activity located outside of Delaware, TC Heartland argued in a brief that Delaware was not the appropriate venue for the lawsuit. The Eastern District of Texas has also been frequently referenced in arguments about the proper venue for the TC Heartland v. Kraft Foods case, despite the fact that the pending case was filed in Delaware.

"The complaint is that it allows a kind of forum shopping, right? That ... let's go down to Texas where we can get the benefit of a certain set of rules," Justice Kagan said.

Kraft Foods attorney William Jay argued that revamping the law to restrict the Texas court's prominence in deciding patent suits could lead to a backlog of cases, with companies potentially forced to bring lawsuits to many different districts. In response, TC Heartland attorney James Dabney said lawsuits in multiple districts can already be consolidated before a trial begins.

Jay also argued that Congress should decide venue rules.

Dabney echoed tech firms' concerns that too many cases were being heard by a single judge. "This is a decision that cries out for nothing more than upholding the venue protection that Congress provided and that this court announced in [its 1957 ruling]," he said.