US Supreme Court Patent Venue Decision a Double-Edged Sword for Small Business, Inventors and Universities

Pete Fenner, July 5 2023 - Legal & Litigation Search | Patent Search

On Monday, May 22, 2017, the US Supreme Court issued an opinion on the subject of patent suit venue selection criteria. In brief, they defined a corporation’s “residence” to be the State where it is incorporated.

The implications of this decision for small business owners, inventors and university technology commercialization offices are significant. I am writing this blog because I believe that much of the reporting by the major media groups have not offered a useful or correct interpretation of this Supreme Court opinion relative to small business or non-profits.

I am NOT a lawyer and what I say in this blog is just my personal opinion and not legal advice. You should consult your own lawyer before making any decisions relative to what is described in this blog.

However, as an individual investor and the plaintiff in five US Patent suits, I was party to numerous discussions during the last 15 years on the subject of venue selection. Any inventor, small business, or non-profit entity, such as a university, need to consider several steps in deciding to pursue a patent enforcement program for any patent. The venue selection is very important even though it is typically the last step:

Infringement – Identify companies and their products that likely infringe a claim.
Recovery Value – Estimate the total sales of these infringing products.
Program Steps – Do we attempt to contact a defendant to negotiate a license or go directly to filing a patent suit?
Possible DJ action – What is the likelihood a potential defendant will file a Directed Judgement action in a venue favorable to that defendant?
Venue selection– What Federal Court is most advantageous for our case?

Let’s look more closely at the recent Supreme Court opinion and make sure we understand this decision. Then I’ll conclude this blog with my comments on how I believe the opinion is a double-edged sword.

This Supreme Court decision only clarifies where a defendant ”resides” in the two-part definition of the “venue” in the 26 US Code 4000 (b) which states:

(b) Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.

The day after the Supreme Court issued this decision, The National Law Review published an article on the decision titled “US Supreme Court Clarifies Where Corporations Can Be Sued for Patent Infringement.” In this article, they pointed out that:

“The venues where a US company can be sued in a patent case will be limited to its state of incorporation and/or the district(s) where it has allegedly committed acts of infringement and has a “regular and established a place of business.”

Before this decision, patent cases were filed almost anywhere and lawyers chose District Courts where they believed they had the best chance for success.

So, why is this Supreme Court opinion a double-edged sword?

In my opinion, this decision offers both advantages and disadvantages to small businesses, individual inventors and non-profit entities (such as universities and research hospitals).

The advantages are:

As a small entity, you will now benefit if your facilities are located in a limited geographic area. If you have only one or a few “regular and established places of business” in a Federal District, this fact will limit the venue choices to your District for anyone else filing a suit accusing you of infringing a patent.
If you are a company of any size, there is a similar Directed Judgement venue limit established in a previous Supreme Court decision. If a company wishes to file a Directed Judgement action against you, they are very limited in their choice of venue.

The disadvantages are:

If you are a small entity and want to pursue an infringement action against a company that may have a limited number of places of business, then you are limited in your venue choices. This limited choice will likely drive up litigation cost and thus may make it difficult for you to pursue infringement.
If you are a small entity and want to pursue an infringement action against a company that has multiple places of business, you are still limited to those “place of business” venue choices.

On May 30th, 2017 the U.S. Supreme Court also ruled in a separate case that state courts may not hear claims against companies when the company is not based in that state or the alleged injuries did not occur in that state. This decision leaves any company, large or small, open to be sued in any state where they or their products or services are alleged to have caused injuries.

I have one final thought for all of you who might be a small business or launching a small business (such as many University technology spin-outs).

Do not assume that being a small entity with limited places of business will eliminate patent suits against you.

I know two individuals who started and built successful small businesses only to be put out of business by a bigger competitor who sued them for patent infringement and WON! One was a networking company in the 1980s and the other was a roofing materials company 10 years ago. Neither had any idea their product infringed someone’s patent. This should not happen to any small business with the online patent search tools available today.

The only way an organization can anticipate possible infringement actions and stay ahead in their areas of business, research and development is to have a clear idea what their peers and competitors are innovating. This research must be ongoing, whether or not you plan to file patents on your innovations. You still need to know how your product or service involves something others have already patented or published.

In this recent 2023 Patent Venue Decision by the Court of Appeals for the Federal Circuit, this Eastern District of Texas, case was moved after Jurisdictional and Venue Discovery!

Best Ways to Use Patent Venue Discovery After TC Heartland – April 2020

Nearly three years after the U.S. Supreme Court’s decision in TC Heartland LLC v. Kraft Food Brands LLC,¹ both parties and courts continue to grapple with what it means for a defendant to have a regular and established place of business in a judicial district that is not where a named domestic defendant in a patent infringement case is either incorporated or resides.

In light of this, venue discovery is an invaluable tool that plaintiffs should seek when defending their choice of venue and that defendants may use to successfully bolster their venue challenge. Under either circumstance, a litigant may use venue discovery to establish the necessary factual case on whether (or not) venue is proper in a district.

So, invest in good research, good researchers and good research services.

Regards,

Pete Fenner, President of Search Real Fast

Sole Inventor of US Patents: 5,095,480; 5,490,258; 5,561,706; 5,842,224; 5,860,136; 6,819,670; and 7,145,906.