Kraft case a reminder that Congress should enact patent system reform

The U.S. Supreme Court announced earlier this month it will hear the appeal of a patent infringement case brought by Kraft Foods Group Brands LLC against zero-calorie sweetener manufacturer TC Heartland LCC.

{mosads}Kraft alleges the Indiana-based TC Heartland’s “water enhancers” infringe three Kraft patents. But what the high court actually will consider are the rules that allowed the case to be filed in U.S. District Court in Delaware even though neither company is based there.

Current federal law essentially allows a plaintiff to sue anywhere a defendant’s product is sold or used. Since different judicial districts have different rules and procedures, this allows plaintiffs to shop around for one where they think they will get the best outcome. This issue of forum shopping has become a major point of contention in patent reform discussions.

Currently, the U.S. District Court for the Eastern District of Texas is the top destination for patent litigation, taking up 44 percent of all patent infringement cases, while Delaware earns the No. 2 spot, with 9 percent of patent cases. Nearly half the Eastern District’s patent cases are handled by a single judge, or about one-fifth of the nation’s total.

Litigants don’t venture down to rural Texas just for the barbecue, but because plaintiffs see the court likely to give them a favorable outcome. The district’s local rules and procedures are favorable to patentees, and the court sends a high percentage of cases to be heard by juries, who tend to side with patentees. In oral argument a decade ago for the case eBay Inc. v. MercExchange LLC, the late Associate Justice Antonin Scalia called the Eastern District a “renegade jurisdiction.”

But Delaware might be an even better forum for patentees. Stanford law professor Mark Lemley notes, given the data, “across a variety of likely preferences … patent lawyers seem to overvalue the Eastern District of Texas and undervalue the District of Delaware.” That, of course, is bad news for TC Heartland.

The question of which federal courts get to hear patent cases goes back to 1988, when Congress adopted a new statutory definition of corporate “residency” for these sorts of disputes. However, there is ample room for debate about what Congress actually intended to do when it passed that law. In a cornerstone case, VE Holding v Johnson Gas Appliance Company, a three-judge panel devoted much of the opinion grappling with whether or not Congress acted with intent at all. They ultimately decided in favor of a broad interpretation of the statute.

While there is congressional interest to rein in the federal circuit’s broad reading of the patent statute, there hasn’t been enough momentum to pass venue reform language, either in a comprehensive litigation reform package or as a standalone bill. With patent reform efforts in Congress at a standstill, reform proponents urged the Supreme Court to take up the TC Heartland case, which likely will allow them to rehash their arguments in VE Holding and tackle the forum shopping problem head on.

Ultimately, it’s up to Congress to enact balanced, comprehensive reform to bring our patent system into the 21st century. As we head into 2017, conservatives should and will have a renewed opportunity to lead in building this agenda. 

Sasha Moss is Technology Policy Fellow at the R Street Institute.

The views expressed by Contributors are their own and are not the views of The Hill.