- - Wednesday, April 5, 2017

ANALYSIS/OPINION:

There’s an entire class of litigants in patent law that lawyers call “venue-shoppers.” U.S. district courts in East Texas and Delaware have become the go-to venues, courts likely to produce huge judgments in plaintiffs’ favor. Courts in these jurisdictions have shown themselves to be sympathetic to the trolls, or as they call themselves, “patent-assertion entities.”

Patent trolls, typically shell companies, buy the rights to dormant patents and use them to extort holders of similar patents by filing false patent-infringement claims. Defendants will often settle out of court just to make the case go away. It’s cheaper than hiring expensive lawyers to fight claims without merit.

The predatory patent-infringement threats and lawsuits drained an estimated $29 billion from the U.S. economy in 2011 alone, according to a Boston University study released in June 2012. That figure represents only direct legal costs, so the true economic toll is much higher since the true toll includes “various indirect costs such as diversion of resources, delays in new products, and loss of market share.”

These abuses have been going on largely under the radar for years, but the problem is finally getting the scrutiny it deserves thanks to a high-profile patent-infringement lawsuit brought by Kraft Heinz against TC Heartland of Carmel, Ind. Kraft Heinz claims that TC Heartland’s liquid water-enhancers infringe on Kraft’s MiO line, which are used to add fruit flavorings, along with caffeine, B vitamins and/or electrolytes, to water.

Last week the Supreme Court heard the case and the phenomenon was front and center. Kraft had sued in Delaware, even though Heartland sells a relatively small share of its product there. Heartland’s lawyers say the case should be transferred to Indiana, so that the lawsuit “may be brought in the judicial district where the defendant resides.”

While Kraft is clearly not a patent troll, it is taking advantage of a 1990 federal court ruling, VE Holding Corp. v. Johnson Gas Appliance, which held that patent lawsuits could be filed in any district where the district sells its products. That ruling has served the trolls well.

Whether the high court’s ruling derails the trolls’ gravy train remains with the future, but it might invite federal legislation to curb abuse of patent-infringement lawsuits and venue-shopping.

The Innovation Act was offered in the 113th Congress, sponsored by Rep. Bob Goodlatte, Virginia Republican. It would halt destructive lawsuits. In December 2013, the House passed Mr. Goodlatte’s legislation bipartisan majority vote of 325-91, but it was killed in the upper chamber by Harry Reid at the behest of trial lawyers.

Real reform of the patent system requires a shifting of the burden of proof, to the trolls, and away from inventors and innovators. “Loser pays” provisions of the Innovation Act would ensure that the trolls would have to pay the defendant’s legal fees if they bring a false lawsuit and lose. Bonding requirements would further stipulate that patent trolls put up some money at the outset of any litigation, reducing the likelihood that they could simply declare bankruptcy, dissolve their shell companies and disappear if they lose.

With Mr. Reid now retired to Nevada and Republicans in control of the Senate, the Innovation Act should be resurrected and promptly enacted into law. Legislation is also needed to overturn the VE Holding ruling, which encourages the queues in East Texas and Delaware. A courtroom is no place for trolls.

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