High Court Ends Texas' Grip on Patent Infringement Cases

High Court Ends Texas' Grip on Patent Infringement Cases

WASHINGTON — In a ruling that deals a giant blow to patent trolls, the U.S. Supreme Court today ruled that a company’s site of incorporation determines its residency for the purposes of being sued.

The decision is expected to dramatically reduce the number of cases filed with federal courts in the Eastern District of Texas, which oftentimes have sided with patent holders in quick trials involving Texas-sized multimillion-dollar judgments.

The U.S. District Court in Marshall, Texas, has been venue for scores of lawsuits filed by trolls against the biggest names in adult entertainment businesses in infringement cases over various technologies, including those for video-indexing processes, electronic tokens functioning as micropayments, live streaming and popunder ads.

In past years, companies such as MindGeek and all of its web brands, as well as FriendFinder Networks, Adam & Eve, Vivid Entertainment LFP Video Group, Elegant Angel, New Sensations and Girlfriends Films, among scores of others, have been summoned in lawsuits filed in Marshall.

With today’s high court ruling, patent infringement suits now will be spread across the country, especially in California for adult companies where they are based, as well as Delaware, where many are incorporated.

The ruling's outcome could likely mean higher plaintiff’s litigation costs and an increasing risk of inconsistent outcomes of suits filed by trolls, typically shell companies that buy up patents and force businesses to pay license fees or face expensive litigation.

The decision also makes it much more challenging for patent plaintiffs to bring parallel patent suits against multiple defendants in a single district.

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

Justice Clarence Thomas, writing for an 8-0 court in the case, said “a domestic corporation ‘resides’ only in its state of incorporation for purposes of the patent venue statute.”

In a statement today, the Electronic Frontier Foundation said: “While today’s decision is a big blow for patent trolls, it is not a panacea. Patent trolls with weak cases can, of course, still file elsewhere. … [I]t does not address the root cause of patent trolling: the thousands of overbroad and vague software patents that the Patent Office issues every year."