Carmel-based company wins patent case at U.S. Supreme Court

May 22, 2017

The U.S. Supreme Court is making it easier for companies to defend themselves against patent infringement lawsuits.

The justices ruled unanimously on Monday that such lawsuits can be filed only in states where defendants are incorporated. The issue is important to many companies that complained about patent owners choosing more favorable courts in other parts of the country to file lawsuits.

The case involved an appeal from TC Heartland LLC, a Carmel-based food sweetener company sued by Kraft Foods in Delaware. Lower courts refused to transfer the case to Indiana.

But the court's ruling will have the biggest impact on federal courts in eastern Texas, where more than 40 percent of patent lawsuits are now filed. Local rules there favor quick trials and juries tend to be more sympathetic to plaintiffs.

TC Heartland, which does business under the name Heartland Food Products Group, was sued by Kraft after Kraft alleged Heartland's liquid water-enhancers infringe on Kraft's MiO line of water flavorings.

Heartland’s appeal had support from a group of internet retailers and software companies, as well as the financial-services industry.

Federal patent law says lawsuits may be filed in the judicial district “where the defendant resides.” A 1957 Supreme Court decision said that means lawsuits can be filed only in the defendant’s place of incorporation, and Heartland says that ruling should remain the law.

The U.S. Court of Appeals for the Federal Circuit, however, said in 1990 that suits can be filed wherever the defendant regularly does business. That court, which specializes in patent cases, said Congress had redefined “resides” through a change enacted in 1988.

Heartland said it had no presence in Delaware and that 98 percent of its sales were outside of that state, but the appeals court denied the transfer last year.

Heartland may be best known for owning the rights to the Splenda brand, a product that has been at the heart of other intellectual property cases.

The ruling will have a major effect on lawsuits from so-called patent trolls—companies that buy up patents and force businesses to pay license fees or face expensive litigation. Many of those cases now may have a tougher time getting to trial or result in jury verdicts that are less generous.

Companies including eBay, Kickstarter and online crafts site Etsy had urged the high court to restrict where such cases can be filed, saying they have been sued repeatedly in courts hundreds or thousands of miles away from corporate headquarters. Even Texas Attorney General Scott Keller led a coalition of 17 states calling for an end to so-called "forum shopping" in patent cases.

Groups representing inventors and patent owners said new restrictions would place burdens on patent holders and encourage infringing behavior and piracy.

Writing for the court, Justice Clarence Thomas relied on a 1957 Supreme Court case that said patent cases can be brought only where the defendant company is incorporated. He said the federal appeals court in Washington that handles patent appeals was wrong to say that Congress had changed those rules.

The ruling is a "seismic decision" that will affect patent litigation around the country, said John O'Quinn, a Washington, D.C., lawyer specializing in patent law. He said it may lead to a surge in patent cases in Delaware, where many companies are incorporated due to favorable state law.


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