Photo by Molly Riley/Reuters

The Supreme Court ruling on patents could help curb 'patent trolls.' Here's how.

Economy

Photo by Molly Riley/Reuters

Amid headlines Monday about President Donald Trump's trip through the Middle East, and the deep budget cuts he had proposed back home, the U.S. Supreme Court issued something of a landmark ruling on patent infringement lawsuits.

In a unanimous decision, the justices said patent owners can only bring such cases in states where the companies they are suing are incorporated. (Justice Neil Gorsuch, weeks into his tenure on the bench, did not take part in the case.)

The case didn't grab much as much attention as some others. But the decision could have huge implications for so-called "patent trolls," companies that make money by using patents they've bought to file infringement lawsuits and collect licensing fees.

WHAT DO PATENT TROLLS DO?

Watch Making Sen$e's report on patent trolls above.

Patent trolls generally don't make any products or provide services. They tend to just acquire patents and use them against other companies. If those companies don't agree to pay a licensing fee, the trolls will take them to court. When that happens, they often engage in a practice known as "venue shopping" — looking for courts that are more likely to rule in their favor.

For example, according to Lex Machina, more than 33 percent of all patent cases in the first quarter of 2017 were filed in the Eastern District of Texas, where local rules lead to quicker trials and where patent trolls (also known as non-practicing entities) win cases more often.

WHY DOES IT MATTER?

Last May, Making Sen$e reported on the broad fight over patent enforcement, including a concern from some in the field about how patent trolls could hurt innovation and a company's bottom line.

"Venue shopping" can also be costly for smaller companies.

This Supreme Court case involved TC Heartland, an Indiana sweetener manufacturer that was sued by Kraft Heinz Company over its use of liquid water flavorings.

Kraft filed the patent lawsuit in a federal court in Delaware — a state that had the second-most patent cases in the first quarter of this year, according to Lex Machina.

READ MORE: Column: How intellectual property rules help the rich and hurt the poor

Heartland asked for the case to be heard instead in Indiana, Reuters reported, saying just 2 percent of its sales were in Delaware. But an appeals court blocked that request, and the case reached the high court this year.

Beyond the out-of-pocket cost, there was "also the distraction of your company being stuck in a lawsuit often times about a central component of the product you were making," said Morgan Reed, president of the ACT—The App Association, which represents more than 5,000 app companies.

HOW DOES THIS CASE CHANGE THAT?

Before the Supreme Court ruling, "small business could essentially be dictated to where [the suit] was going to happen," Reed said. "[They] could find themselves thousands of miles away from home, having to find legal counsel in a jurisdiction that frankly was found to be incredibly unfavorable to defendants."

The ruling is a also win for those smaller companies that generally don't have the capital to fight patent trolls in court. Often, when patent trolls claim smaller companies like app developer Todd Moore's have infringed on their patent, "We just have to write them a check, so they will go away," Moore told economics correspondent Paul Solman.

READ MORE: Inventor behind Priceline bemoans broken patent system

Moore said the ruling was "great news"; in his mind, patent trolls are about "nothing more than extortion."

Michael Mullen, Senior Vice President at Kraft, said his company was "disappointed in the Supreme Court's ruling on this procedural matter," but added, "we respect the Court's opinion and do not believe it has any impact on the ultimate outcome of our case."

Some lawmakers have tried to tackle the issue of patent trolls. Rep. Bob Goodlatte, (R-Virginia), chairman of the House Judiciary Committee, has pushed for patent reform legislation targeting trolls and said the decision "will help rein in abusive forum shopping, and restores our nation's patent venue laws to ensure that cases are brought in judicial districts that have a reasonable connection to the dispute."

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