June 26, 2017
Patent trolls have gained a lot of attention in the patent world. These so-called patent trolls are entities that monetize their patent rights by way of filing a lawsuit or demanding a license from potential infringers. The patent trolls often acquire their patent rights from a bankrupt firm and many of them purchase these patents without having the intention to manufacture or use the patents.
The latest episode of HBO’s Silicon Valley titled “The Patent Troll” does an excellent job portraying the patent trolls problem in the startup world. In this episode, a patent troll, who is also an attorney, issues a demand letter against Pied Piper, the startup in the show, right after its app breaks into the Top 500 downloaded apps on the Hooli App Store. The troll admits that it buys patents at auction and has been successfully making money as he is suing startups for settlements. Pied Piper eventually escapes the lawsuit as it finds a copyright violation by the troll; however, the startup ends up having to pay its attorney more than it would have cost to settle.
A 2014 Stanford Law Review titled “Startups and Patent Trolls” indicates that companies making $10M or less a year comprise at least 55% of the unique defendants in patent troll lawsuits. Small companies often become a target of patent trolls. Many startups are at the stage of growing and developing their products and cannot afford fighting a troll suit that would cost them so much more than if they would agree to settle – creating many financial incentives for patent trolls to go after startups.
Prior to a recent U.S. Supreme Court decision in TC Heartland v. Kraft Food Group, patent trolls were able to file suits in a more pro-plaintiff forum, such as in the Eastern District of Texas, where 44% of patent cases were filed and heard in 2016. This was pointed out in the amicus brief filed by a number of technology companies, stating that these patent trolls “have no real presence and thus no ‘home court’ … [allowing them to] file suit in the districts perceived to be the most plaintiff-friendly.”
The patent venue statute, 28 U.S.C. § 1400(b), allows a patent infringement suit to be filed in the district “where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” In TC Heartland, the Court ruled that for the purposes of the patent venue statute, the corporate “residence” here refers to the company’s state of incorporation. Therefore, a plaintiff who files a patent infringement suit based on the defendant company’s residence must file in the state where the defendant company is incorporated. With such a ruling, it can be expected that more cases will be tried in Northern California or Delaware, where many technology companies are being incorporated.
This TC Heartland ruling helps limit forum shopping. However, it is not a complete solution to the patent trolls problem, nor it is intended to be. In fact, Justice Thomas who delivered the opinion of the Court in TC Heartland mentioned nothing about patent trolls and did not discuss the consequences of its ruling as it relates to patent trolls.
Congress still needs to pass patent reform bills that address problems related to patent trolls. Until then, the danger of patent trolls depicted in the HBO’s Silicon Valley remains real until our patent and legal systems figure out a way to effectively eliminate the prevalent practice of patent trolling.
Author: Irene Sulaiman, IP & Business Attorney
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