Patent trolls delivered setbacks in court rulings

Two recent U.S. Supreme Court decisions will greatly shape patent holder rights by limiting where patent lawsuits can be filed and restricting patent rights after a product is sold. These rulings are considered by many analysts to be beneficial for startups, small businesses, and consumers. The biggest losers will be patent trolls – patent owners who collect IP rights only to seek infringement damages – who likely will face more pushback against their patent lawsuits and may see fewer settlements.

In TC Heartland v. Kraft Foods, the Supreme Court voted unanimously that patent lawsuits should be tried where the defending company is based, rather than in a court of the plaintiff's choosing. This ruling may have struck a significant blow to the practice of patent trolling. For many years, patent trolls have filed the majority of their lawsuits in "plaintiff-friendly" districts. In 2015, over 66 percent of patent lawsuits were filed by patent trolls according to a Unified Patents report.  

Patent trolls file in those districts because they have high likelihood of winning if the case goes to trial, creating a strong incentive for defendants to settle regardless of the validity of the claim.  The most famous of the plaintiff-friendly districts is a remote federal court in East Texas that has attracted over 40 percent of all patent litigation and has ruled in favor of the patent holder in nearly 80 percent of all cases.  

The new rule requires that the defendant either:

• Is incorporated in the state in which the case is filed; or,
• Has a regular place of business in that district.

The new rule will specifically benefit startups because they will not be dragged to distant, remote districts to defend their IP. Defendants, given a greater chance of winning their case if it goes to trial in a different court, may find the ruling to their advantage and not be as quick to settle out of court – nearly 70 percent of cases are currently settled. While this could increase the number of patent trolling cases that go to trial, analysts are speculating that the total number of suits filed will decrease.

 In Impression Products v. Lexmark, the Supreme Court ruled 7-1 that as soon as a product was in the hands of consumers, patent protection was finished.  In the case, Lexmark International sued West Virginia-based Impression Products for patent right infringement because Impression Products was refilling used ink and toner cartridges for Lexmark printers and selling them to consumers.

The Court ruled in favor of Impression Products with Chief Justice Roberts’ opinion using a shop that restores and sells used cars as an example: “The business works because the shop can rest assured that, so long as those bringing in the cars own them, the shop is free to repair and resell those vehicles. That smooth flow of commerce would sputter if companies that make the thousands of parts that go into a vehicle could keep their patent rights after the first sale. Those companies might, for instance, re­strict resale rights and sue the shop owner for patent infringement.” The Court’s ruling allows a person or company to purchase a product that's already been sold once without fear of a lawsuit from the person or company with a patent on that item.

Proponents of the ruling contend that it will be good for consumers who want to buy used and refurbished products as well as businesses that trade in patented goods. This ruling also will place strict limits on how much control patent holders have over how their products are used after they are sold.

The Electronic Frontier Foundation in response to the ruling contends it may also have significant implications for consumers who have purchased digital. In a blog post, they wrote, “The next logical step will be for courts to recognize that people who buy digital goods are owners of those goods, not mere licensees, and can resell and tinker with their digital goods to the same extent as purchasers of tangible property.”