Earlier this week, SIIA filed a brief in the U.S. Supreme Court on patent venue, urging it to reverse the Federal Circuit’s interpretation of the existing patent venue statute, 28 U.S.C. 1400(b).  Although the argument is a technical one, the resolution of this case has important implications for the technology industry.  The misinterpretation of that statute has concentrated patent litigation in a single district that has encouraged the growth of the patent assertion business model.

Way back at the end of the 19^th century, the U.S. had a patent troll problem (only back then they called them patent “sharks”).  Patentees were using the general venue statute to extract rents from defendants.   So Congress passed a narrow venue statute saying that if you wanted to bring a patent suit, you had a choice of two kinds of fora: (1) a place where the business “resides,” which back then meant only one thing: the place of incorporation; and (2) a place where infringement occurred and the defendant had a regular place of business.  Although some minor word changes occurred in 1948, the thrust of the statute remained the same.  And in 1957, the Supreme Court, a case called Fourco Glass Co. v. Transmirra Products Corp. authoritatively construed the patent venue statute along the above lines.  Under Fourco, for all practical purposes, patent defendants had to be sued in the state where they incorporated, or where they had a physical presence.  Patent venue had its own specific rule, designed to prevent a specific evil.  (It’s worth noting that from 1948 ‘till today, the text of the patent venue statute has not changed). 

Fourco ruled the roost until the Federal Circuit decided that a 1988 change to the general venue statute from “for venue purposes” to “[f]or purposes of venue under this chapter” overruled the Supreme Court.  The appellate court held that Congress meant to allow patent suits to theoretically lie anywhere in the country. 

 The problem for SIIA’s members was that theory and practice diverged.   In 2015, a single federal district court in rural Texas received forty-four percent of all patent infringement filings.  And over 90 percent of those same cases involved software or telecommunications, and are filed by non-practicing entities (e.g., trolls). 

And in 2011, the statute changed yet again—effectively back to the way it was in 1948.  Here is a table from the brief describing those changes:

It seemed to us that the Federal Circuit made two mistakes.  The first was to assume that by making a minor, technical change to one part of the general venue statute in 1988, Congress intended to obviate a well-settled interpretation of a specific part of the law that had existed for 40 years.  Second, even if—and in fact, especially if—one assumes that those minor word changes in 1988 cast aside the established meaning of the patent venue provision, it’s unreasonable to read the 2011 revision above to reflect anything other than an intent to restore the law to its state when Fourco was decided.

The argument is technical, but the consequences of that interpretation are enormous. Litigation isn’t cheap, but discovery in patent cases is notoriously expensive.  Troll-friendly courts have an aversion to early motions that would get rid of cases, and refuse to stay discovery while these motions are pending.  The result is that massive burdens are put on defendants even if the case is ultimately dismissed or transferred.  Even when sued under obviously bad patents, the choice for defendants to settle is not a hard one, and that kind of litigation has the technology industry billions.  

Christopher Mohr is General Counsel and VP, Intellectual Property Policy & Enforcement at SIIA.