Patent trolls can’t go judge shopping anymore.
The tech world is delighted.
On Monday, The U.S. Supreme Court on Monday put strict limits on where patent infringement lawsuits can be filed.
“Patent trolls take it on the chin,” read a headline at TechCrunch. “Supreme Court Messes With Texas ‘Patent Troll’ Hotbed in Win for Tech Industry,” wrote Fortune. “Life much harder for patent trolls,” concluded The Verge.
Patent trolls are shell companies that buy up patents and force businesses to pay license fees or face expensive litigation even if the outfits filing the suits make no useful product of their own. Those are called non-practicing entities by the courts, patent trolls by critics.
For years, lawsuits landed in an east Texas court seen as friendly to companies who wanted to contest patents, particularly over software. Large numbers of the cases claimed patents on business models with computer applications — triggering complaints that simply moving a business model to a computer platform doesn’t warrant a patent.
Many in the tech industry saw the litigation, which grew from fewer than 500 cases 2003 to about 4,000 by 2013, as a form of legalized extortion.
The high court’s ruling on Monday said that such cases must be filed only in the states where the targeted defendant is incorporated — essentially moving much of the litigation from Texas and its patent plaintiff-friendly jurisdiction to Delaware and its incorporation-friendly laws.
That ruling came in an appeal from Indiana-based food sweetener TC Heartland that was being sued by Kraft Foods (an atypical plaintiff in a so-called patent trolling case).
Currently, about 40 percent of patent lawsuits are filed in eastern Texas courts, where local rules there favor quick trials and juries tend to be more sympathetic to plaintiffs. In 2015, of 5,819 new patent cases filed in the country, 1,686 landed before U.S. District Judge Rodney Gilstrap in Marshall, Texas.
He’s “been happily maintaining this unintentional specialized court for half a decade,” wrote Vice’s Motherboard site a year ago. “It’s a boon to the town, where visiting litigators bring in money and perks, from lawyers ordering catered lunches at the local restaurant, to Samsung sponsoring an outdoor skating rink downtown.”
The practice of defending patents, even those purchased from other companies, is legitimate. Without the ability to defend a patent, after all, the value of a new invention or innovation drops.
Defenders of patent trolling have said efforts to limit the lawsuits “are being driven just by a few large companies who don’t want to pay inventors.”
Yet Boston University School of Law economist James Bessen wrote in the Harvard Business Review in 2014 that “the economic burden of today’s patent lawsuits is, in fact, historically unprecedented. … These costs fall disproportionately on innovative firms. … When lawsuits were not dismissed, firms reduced their R&D spending (and) their patenting significantly in subsequent years.”
After the court’s ruling, patent troll haters were giddy.