Ban­ish the trolls

Harry Reid is gone, and Repub­li­cans can res­ur­rect re­lief from tort lawyers

The Washington Times Daily - - EDITORIAL -

There’s an en­tire class of lit­i­gants in patent law that lawyers call “venue-shop­pers.” U.S. district courts in East Texas and Delaware have be­come the go-to venues, courts likely to pro­duce huge judg­ments in plain­tiffs’ fa­vor. Courts in th­ese ju­ris­dic­tions have shown them­selves to be sym­pa­thetic to the trolls, or as they call them­selves, “patent-as­ser­tion en­ti­ties.”

Patent trolls, typ­i­cally shell com­pa­nies, buy the rights to dor­mant patents and use them to ex­tort hold­ers of sim­i­lar patents by filing false patent-in­fringe­ment claims. De­fen­dants will often set­tle out of court just to make the case go away. It’s cheaper than hir­ing ex­pen­sive lawyers to fight claims with­out merit.

The preda­tory patent-in­fringe­ment threats and law­suits drained an es­ti­mated $29 bil­lion from the U.S. econ­omy in 2011 alone, ac­cord­ing to a Bos­ton Univer­sity study re­leased in June 2012. That fig­ure rep­re­sents only di­rect le­gal costs, so the true eco­nomic toll is much higher since the true toll in­cludes “var­i­ous in­di­rect costs … such as di­ver­sion of re­sources, de­lays in new prod­ucts, and loss of mar­ket share.”

Th­ese abuses have been go­ing on largely un­der the radar for years, but the prob­lem is fi­nally get­ting the scru­tiny it de­serves thanks to a high-pro­file patent-in­fringe­ment law­suit brought by Kraft Heinz against TC Heart­land of Carmel, Ind. Kraft Heinz claims that TC Heart­land’s liq­uid wa­ter-en­hancers in­fringe on Kraft’s MiO line, which are used to add fruit fla­vor­ings, along with caf­feine, B vi­ta­mins and/or elec­trolytes, to wa­ter.

Last week the Supreme Court heard the case and the phe­nom­e­non was front and cen­ter. Kraft had sued in Delaware, even though Heart­land sells a rel­a­tively small share of its prod­uct there. Heart­land’s lawyers say the case should be trans­ferred to In­di­ana, so that the law­suit “may be brought in the ju­di­cial district where the de­fen­dant re­sides.”

While Kraft is clearly not a patent troll, it is tak­ing ad­van­tage of a 1990 fed­eral court rul­ing, VE Hold­ing Corp. v. John­son Gas Ap­pli­ance, which held that patent law­suits could be filed in any district where the district sells its prod­ucts. That rul­ing has served the trolls well.

Whether the high court’s rul­ing de­rails the trolls’ gravy train re­mains with the fu­ture, but it might in­vite fed­eral leg­is­la­tion to curb abuse of patent-in­fringe­ment law­suits and venue-shop­ping.

The In­no­va­tion Act was of­fered in the 113th Congress, spon­sored by Rep. Bob Good­latte, Vir­ginia Repub­li­can. It would halt de­struc­tive law­suits. In De­cem­ber 2013, the House passed Mr. Good­latte’s leg­is­la­tion bi­par­ti­san ma­jor­ity vote of 325-91, but it was killed in the up­per cham­ber by Harry Reid at the be­hest of trial lawyers.

Real re­form of the patent sys­tem re­quires a shift­ing of the bur­den of proof, to the trolls, and away from in­ven­tors and in­no­va­tors. “Loser pays” pro­vi­sions of the In­no­va­tion Act would en­sure that the trolls would have to pay the de­fen­dant’s le­gal fees if they bring a false law­suit and lose. Bond­ing re­quire­ments would fur­ther stip­u­late that patent trolls put up some money at the out­set of any lit­i­ga­tion, re­duc­ing the like­li­hood that they could sim­ply de­clare bankruptcy, dis­solve their shell com­pa­nies and dis­ap­pear if they lose.

With Mr. Reid now re­tired to Ne­vada and Repub­li­cans in con­trol of the Se­nate, the In­no­va­tion Act should be res­ur­rected and promptly en­acted into law. Leg­is­la­tion is also needed to over­turn the VE Hold­ing rul­ing, which en­cour­ages the queues in East Texas and Delaware. A court­room is no place for trolls.

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