While the big-ticket Supreme Court decisions get the most publicity, the smaller rulings matter too. One from last week has me particularly excited about its long-term effect.
The case was TC Heartland LLC vs. Kraft Foods Group Brands LLC. The initial issue between the two companies was a dispute over a drink recipe, but this specific case is about something different: Where a patent holder can file a suit. Kraft initially filed suit in Delaware, and TC Heartland challenged that location for the suit.
Here’s some context for why that matters. Over the last 15-20 years, there have been a number of companies — obviously, I’m not talking about Kraft here — that have adopted a business model of acquiring patents, then suing people who use the patented technology. These companies are commonly referred to as patent trolls.
Here’s the trick: By suing in specific locations, such as the Eastern District of Texas, in which 36 percent of all patent suits were filed last year, the patent trolls could take advantage of that particular court’s stance on patents, which can be summed up as the court not being inclined to dispose of baseless cases early on in the process, even if they’re clearly baseless. So, by filing suit in that district, the patent troll makes it likely that the defendant will simply settle the case because it would be cheaper to do so as opposed to going through the entire court process.
Now, some context on the Eastern District of Texas: There are basically no corporate headquarters there. Despite that, a company from Seattle could be sued by a patent troll from Miami in the Eastern District of Texas, even though neither company would have any presence there.
Back to Delaware. Delaware does have some corporate headquarters, as well as a federal district court that has a similar view on patent cases as the Eastern District of Texas. However, here’s one thing Delaware doesn’t have: The corporate headquarters of TC Heartland, LLC.
So this particular aspect of the Kraft-TC Heartland case was about whether Kraft could sue in Delaware even though TC Heartland had no operations there, and the Supreme Court ruled no. The ruling made clear that if a company is going to be sued for something like this, the suit has to be filed either where the defendant is incorporated or where the defendant has regular operations and has committed infringement.
The reason I say that has nothing to do with Kraft, TC Heartland or any unresolved legal issues the two companies have. It’s simply because for years, companies have been getting away with getting paid for doing nothing more than filing a lawsuit in the right court. How does it make any sense that filing nuisance lawsuits for settlement money can be a viable business model?
Thanks to the Supreme Court, it likely isn’t anymore, and that’s cause for celebration. Patents should be enforced properly and shouldn’t be viewed as something to violate without consequences, but there’s a huge difference between a legitimate patent dispute and an attempt to scam a few dollars out of a company just because you can. Thankfully, we should see the latter come to an end.