The Supreme Court recently issued two opinions changing patent law in ways that will affect a number of companies in Minnesota.
Is it Good-Bye, Eastern Texas?
First and foremost, in TC Heartland v. Kraft Foods, the Supreme Court overruled 30 years of precedent regarding where patent suits may be filed. It decided that U.S. companies can only be sued for patent infringement in states where they are incorporated, or have a “regular and established place of business” and commit acts of infringement. With this one swipe of the pen, the Court did what Congress has been talking about for years: restrict the ability of so-called patent “trolls” to bring patent suits in forums that have limited connections to the defendant or the case, most notably Eastern Texas.
TC Heartland should be welcomed by large Minnesota companies that are frequently sued by patent enforcement companies in Eastern Texas. The companies that enforce patents for a living love Eastern Texas, known for being fast to trial and plaintiff friendly. In the first quarter of 2017 alone, plaintiffs showed their love by filing 311 new patent cases in Eastern Texas--an incredible one-third of all new filings in the U.S. In the last ten years, Minnesota’s Fortune 500 companies have been sued in Eastern Texas more than 200 times. Most defendants dread the inconvenience and added cost of defending cases there, as well as the feeling that the Plaintiff has a home-field advantage.
Most experts predict that many more future patent suits will be brought in Delaware, where many large companies are incorporated. Delaware already typically sees the second-largest patent case docket, and has already enlisted the help of judges from neighboring Pennsylvania to prepare for the expected surge.
While TC Heartland will have an immediate impact on where cases are filed, some questions remain. Creative trolls may still test ways to bring suit in Texas or other far-away places if they can argue the defendant commits acts of infringement and has a “regular and established place of business” there, for example.
TC Heartland affects all cases, not just the ones brought in Texas. Smaller and/or innovative companies that regularly enforce their patent rights against infringers will have fewer choices as to where to bring suit. They may have to bring suit in distant forums that are the home bases of the defendants, to avoid costly fights over where the case should have been brought.
Grey Markets Get a Boost, for Better or Worse
In Impression Products v. Lexmark, the Supreme Court addressed the issue of whether Lexmark, a seller of ink cartridges, could stop a competitor from refilling used cartridges based on a patent infringement claim. The Court again reversed the lower court decision, holding that a patent cannot be used to restrict use of a product after its purchase, whether the product was first sold in the U.S. or abroad.
Lexmark, wary of competition from sellers of refurbished ink cartridges, required customers to enter contracts that prevented reselling cartridges to others. The Court acknowledged that Lexmark may have a breach-of-contact claim against its customers. But that did not give Lexmark the right to sue the resellers for patent infringement, even if they got the cartridges from customers. This probably was not much consolation for Lexmark, as they likely would rather sue the refurbishing companies than their customers.
Because of this decision, a company will need to think more carefully about where it sells its products, and to its pricing among markets, to account for the greater risk that it may face competition from refurbished versions of its own products. For example, products sold at lower prices abroad may now be more likely to hit the market back in the U.S. in refurbished form, driving prices down.
Contracts limiting the resale of patented products may have legitimate purposes, such as to control quality and ensure consumer safety. Lexmark does not spell the end of such contracts. It does, however, limit one important way for companies to use such contracts to stop the sale of refurbished versions of their own products. Companies seeking to preserve the ability to pursue claims against the refurbishing companies (rather than customers) may be able to pursue other options, such as claims for tortious interference with contracts.
Both of these decisions raise new questions even as they have an immediate impact. Minnesota businesses should be aware of these cases and their potential impact, for better and for worse.
By Daniel W. McDonald and Eric R. Chad