By John D. McKinnon 

WASHINGTON -- Businesses, particularly those in the tech sector, are watching closely a case to be argued in the Supreme Court next week challenging a system that has led to a concentration of patent cases in plaintiff-friendly jurisdictions such as eastern Texas.

The companies, often defendants in a patent-litigation boom of the last decade, are looking to the high court to curb what they say is "pervasive and pernicious forum shopping" by plaintiffs who claim to own the patents and often seek damages in the millions of dollars.

Dozens of tech firms and groups, including Intel Inc., Dell Inc., Adobe Systems Inc., eBay Inc., Oracle Corp., and Red Hat Inc., have filed friend-of-the-court briefs in the case, TC Heartland LLC v. Kraft Foods Group Brands LLC, urging the Supreme Court to tighten the rules on where patent suits can be brought.

In recent years, the largely rural and sparsely populated Eastern District of Texas has attracted as much as 44% of all new patent-infringement lawsuits in the U.S., aided by its reputation for plaintiff-friendly rules and juries, as well as knowledgeable judges and lawyers.

The Texas jurisdiction has some defenders, including big firms such as Ericsson Inc., as well as Allergan Inc. and other pharmaceutical companies, who argue in friend-of-the-court briefs that the Eastern District of Texas isn't the renegade that many make it out to be. Some of the district's defenders say changing the system could increase costs for plaintiffs and hurt innovation.

Still, current rules have resulted in "an extraordinary concentration of patent cases in a handful of districts, most notably the Eastern District of Texas," said Peter Brann, a Maine lawyer who helped write a friend-of-the-court brief filed by numerous internet companies and other businesses and associations in this case. If TC Heartland wins, he added, "I think it will have a dramatic effect...on patent troll litigation."

Patent trolls, known more politely as "nonpracticing entities," often do little except acquire software patents and fire off demand letters and file lawsuits. Suits by these firms, some of which have grown large enough to be publicly traded, represent a disproportionately large share of cases in the Eastern District of Texas. A coalition of inventors and patent owners said in its own Supreme Court brief that concerns about the Texas district are "greatly overblown."

The concentration of patent-infringement cases in the rural Texas district "is certainly an indication that something is amiss," said Sen. Jeff Flake (R., Ariz.), who has sponsored legislation in the past to tighten patent venue rules governing where a case can be brought.

In the Supreme Court case, TC Heartland -- a maker of low-calorie sweeteners -- was sued for patent infringement by Kraft in Delaware, another popular venue for plaintiffs. TC Heartland sought unsuccessfully to have the case transferred to Indiana, where the company is based.

Now TC Heartland is asking the Supreme Court to overrule the venue rules used by federal courts since 1990. TC Heartland wants the high court to reinstate an older, more restrictive standard. It argues that Congress didn't intend for more recent changes in general venue rules to apply to patent cases, while Kraft argues that the later changes do apply.

But the real concern for most businesses is in the Eastern District of Texas, where the number of new patent-infringement cases has soared from a few hundred annually a decade ago to a peak of more than 2,500 in 2015, by far the highest total for any district, according to data from Lex Machina.

The Texas district became an improbable hotbed for patent litigation after judges adopted procedural rules that were perceived by defendants as friendly to patent-infringement plaintiffs -- for example, making pretrial discovery more burdensome and costly for defendants.

The district -- comprising smaller cities such as Tyler, Marshall and Beaumont -- also was attractive to plaintiffs because of its relatively low caseloads and fast-moving dockets.

Critics contend that the current federal standard for venue in patent litigation also contributed by allowing plaintiffs to seek out friendly districts, such as eastern Texas, almost anywhere in the country.

Many lawyers in the area are worried about the potential impacts of the case.

"If the Supreme Court were to reverse, it would understandably result in a dramatic drop in the number of cases that get filed in the Eastern District of Texas," said Eric Findlay, a lawyer in Tyler who mainly represents defendants in patent-infringement cases.

The boom in litigation in the district has encouraged practices that have left the district open to criticism. For example, to support their argument for keeping cases in eastern Texas, many plaintiff firms that are based elsewhere have formed subsidiaries and located them in the area. Many lease small offices scattered around Tyler, Marshall and other cities.

Two consumer groups, the Electronic Frontier Foundation and Public Knowledge, said in a friend-of-the-court brief that many of the offices amount to "sham headquarters."

A recent analysis for The Wall Street Journal by RPX Corp., a patent data and risk management firm, showed that the most popular address for patent plaintiffs in recent years has been a 1930s office building known as the Energy Center in downtown Tyler. Over the past decade, around 50 firms located at the Energy Center have filed at least 884 patent suits involving roughly 1,200 defendants, according to the analysis. The Energy Center accounts for more such lawsuits than any other U.S. address, according to the analysis.

Write to John D. McKinnon at john.mckinnon@wsj.com

 

(END) Dow Jones Newswires

March 24, 2017 02:47 ET (06:47 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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