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Patent Trolls

Monday’s Supreme Court ruling on patent lawsuits sounds good news for defendants. The court said patent lawsuits should be tried where the defending company is based, rather than in a court of the plaintiff's choosing.

Past practice has been for the entity bringing to lawsuit to be able to pick and choose where to file. Unfortunately for defendants there are jurisdictions in the U.S. that are far more friendly to plaintiffs than defendants.


The Suit Behind The Decision

The case that came before the court is called TC Heartland v. Kraft Foods. The Kraft Heinz Co. (NASDAQ:KHCC) sued TC Heartland LLC over what it considered to be a patent infringement. In this lawsuit the traditional system of allowing plaintiffs to control the location of the trial was challenged.

The challenge made it all the way to the Supreme Court and the decision was made that plaintiffs should file in the jurisdiction where the defendant is based. At the very least this makes the case more neutral and may even tip the scales in favor of the defendant.

Patent Trolls

Technology companies spend a lot of time and effort fending off lawsuits by what are known as patent trolls. These are “nonpracticing entities” that don’t manufacture anything but just hold a lot of patents. They make their money by suing actual companies and either forcing them to settle out of court or, in the past at least, go to court in a district favorable to the troll in hopes of winning a judgement.

Under the new ruling, since defendants may be more likely to win, some analysts believe the number of patent troll cases will diminish. According to Morgan Reed, president of ACT said, “The Supreme Court’s unanimous decision is a significant victory for the software developers who drive the $143 billion app ecosystem, as well as patent holders across the country.”


In The Wings

This lawsuit and resulting Supreme Court decision attracted the attention of several other companies including Dell Inc., HP Inc. (NYSE:HPQC), Adobe Systems Inc. (NASDAQ:ADBEC), Wal-Mart Stores Inc. (NYSE:WMTB) and others, all of whom filed briefs supporting the defendant.

Q. Todd Dickinson, former director of the U.S. Patent and Trademark Office said, "The overall effect of the ruling will be to limit cases in the district." Dickinson added, "but it's not a panacea. There are ways to get around it."

For example, using the Supreme Court’s standard of "regular and established place of business," this could be as simple as a retail store, according to patent lawyer, Michael Smith. Under this definition, Apple Inc. (NASDAQ:AAPLC), a frequent target for patent lawsuits, since it has stores in Plano, Texas could be dragged into one of the most plaintiff-friendly federal courts in the country.

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