Battle over tech patents spills into Supreme Court

A single court in rural East Texas has become the site of one of the biggest battles in Silicon Valley.

Tech giants like Intel and Apple say the Eastern District of Texas, within the federal 5th Circuit, has become a haven for frivolous patent lawsuits, with favorable rulings often handed down to litigants that would lose elsewhere in the country. 

{mosads}In 2015, 43.6 percent of all U.S. patent cases were filed in the East Texas court, located far from the nation’s tech hubs.

Those tech companies are now taking the issue to the Supreme Court, filing legal briefs in a separate patent lawsuit before the justices.

But other major players in the industry, including Ericsson, are lining up on the opposite side, defending the Texas court and its right to hear patent cases.

The divide has made the case TC Heartland v. Kraft Heinz crucial for the tech industry.

The Supreme Court heard oral arguments on Monday and a ruling is expected this summer.

In the case, Kraft filed a patent infringement suit against Heartland, which makes zero-calorie sweeteners, claiming its Refreshe brand copied Kraft’s MiO product. Kraft filed the suit in federal court in Delaware, but Heartland sought to move it to Indiana, its home state. Heartland noted that it sells few of its products in Delaware and has no offices there.

But federal courts generally give companies broad discretion in picking the court venue or forum where they take their case, usually allowing any district in which a product is sold.

A lower court denied Heartland’s request, which the company is appealing at the Supreme Court.

A case pitting two food companies against each other seems an unlikely lawsuit to spark the interest of Silicon Valley. The question of where patent suits can be filed, though, is one with high stakes for the industry.

Critics say that so-called patent trolls, companies that hold patents but don’t manufacture any products themselves, have flocked to the Eastern District of Texas, filing cases and winning big-dollar judgments.

A ruling for Heartland could boost Silicon Valley and make it easier for them to move patent lawsuits to federal courts in California and other states.

The fight has left tech companies divided.

Companies such as Dell, Oracle, Intel and Adobe have all filed briefs in support of Heartland.

“Forum shopping is a particularly egregious strategy patent trolls use to tip the scales of justice in their favor,” said Abigail Slater, general counsel at the Internet Association, a trade group including Amazon, Microsoft and Twitter, which filed a brief.

“By selecting sympathetic courts, trolls are able to extract increased settlements from innocent businesses, large and small.”

But other tech companies, including Ericsson, want judges to keep the current rules in place.

They say it’s good to have one court handle a number of patent cases, arguing that court would have expertise in dealing with those issues.

“Patent cases are complex, and the courts that hear most of them — including the Eastern District of Texas — have become particularly skilled at patent law,” Ericsson wrote in its brief.

That argument also has strong support from drugmakers that have sought to consolidate medical patent cases in a few courts.

They note that retired Judge T. John Ward of the Eastern District created rules to streamline the patent litigation process, limiting the length of proceedings and the size of filings.

But tech companies on the other side aren’t sold. They say current rules give those filing lawsuits an unfair advantage to pick favorable courts.

“Litigants have few tools to check forum-shopping. Defendants … are rarely able to move to dismiss for lack of personal jurisdiction, even if they have few contacts with a forum,” the Business Software Alliance, a trade association, wrote in its brief.

Highlighting the divide, some tech trade groups declined to comment on the issue, noting that their members are on opposite sides.

During Monday’s hearing, the justices directly raised the issue of the Texas court.

Kraft’s lawyers tried to argue that tech patent cases weren’t relevant, but Justice Elena -Kagan dismissed that idea.

“The complaint is that it allows a kind of forum shopping, right? That it — you — lets you go down to Texas where we can get the benefit of a certain set of rules,” she said.

Kagan noted an earlier decision that said lawsuits could be filed where defendants were incorporated.

“For 30 years, the Federal Circuit has been ignoring our decision and the law has effectively been otherwise,” she said.

Justice Anthony Kennedy questioned the role of “generous jury verdicts” in the debate.

The fight also has the attention of Washington, where both parties have pushed for patent reform in recent years.

Former President Obama called patent trolls one of the “biggest” problems facing tech.

Sen. Orrin Hatch (R-Utah), the chairman of the Senate Finance Committee and a former Judiciary panel chairman, said the issue had to be resolved.

“That district in Texas has been a major preferential district for one side. It’s clearly biased and clearly not run correctly,” he told The Hill on Tuesday.

But Hatch said he had no plans for legislation, and efforts at patent reform have stalled in recent years.

In the House, Rep. Darrell Issa (R-Calif.), told Politico on Tuesday that if the justices keep the current rules in place, there would be a “huge” appetite for legislation. 

For now, though, tech is looking to the justices for answers.