A Major BLOW to “Patent Trolls”

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Sex Tech Law Blog Patent Trolls

On May 22, 2017, the United States Supreme Court issued a decision in the case of TC Heartland LLC v. Kraft Food Group Brands LLC, requiring that patent infringement suits be brought against defendants only in the state of the defendants’ incorporation. This is a huge “blow,” and not the pleasurable kind, to non-practicing entities (NPEs), also dubbed “patent trolls.”*

A “non-practicing entity” is a company that holds patents, and enforces those patents against others, though producing no covered product of its own. The term “patent troll” was coined by people who find this business model to be of ill repute. Usually, the patent claims are broad or vague, enabling the entity to snag many defendants in its net for patent infringement. The entity will typically sue a multitude of defendants, banking on the high cost and uncertainty of full-on litigation to coerce the defendants into agreeing to hefty settlements.

In all types of litigation, including patent litigation, plaintiffs have been known to “forum shop,” meaning attempt to choose the court in which they believe they will get the most favorable decision in a lawsuit. When forum shopping, a plaintiff may compare the applicable laws, judges, court rules, and how previous cases have turned in a set of jurisdictions. “Jurisdiction” refers to a court’s authority to hear a particular case. “Venue,” a separate, but related issue, refers to the geographical location of the court where a case is to be heard in the applicable jurisdiction.

Because of forum shopping, statistics show that about one third of “patent troll” cases have been brought in the Eastern District Court of Texas in the city of Marshall, Texas. This is because it is considered a “plaintiff-friendly” venue, meaning that juries have been known to often side with the plaintiff and award very large sums of damages in patent infringement cases. Given Marshall’s reputation, defendants from all over the country have wound up being sued there, even though they may have had little connection to the area. Federal patent venue statute 28 U.S.C. § 1400(b) says a suit for “…patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business” (emphasis added). Federal general venue statute 28 U.S.C. § 1391(c) says a corporation is considered to be a resident of “…any judicial district in which such defendant is subject to the court’s personal jurisdiction…”.

In the recent TC Heartland case, the Supreme Court ruled that § 1400(b) is the ONLY venue statute applicable to patent cases, meaning that the broader general venue statute § 1391(c) does NOT apply at all. [I will not bore you with the details about how the court arrived at that conclusion, but you can read the decision here if you are interested to learn about it.] Accordingly, in TC Heartland, the highest court in the land held that patent cases may only be brought in the state in which the defendant is incorporated.  This will severely limit a plaintiff’s ability to forum shop in patent infringement cases, and accordingly, will cut down on the number of cases brought in Texas’ Eastern District.

Many major players in the adult entertainment industry have found themselves embroiled in litigation in the Eastern District of Texas over the years. Recently, in November of 2016, we saw this when NPE, Vilox sued Mindgeek, the operator of PornHub and other porn sites, for infringement of patents directed to online search systems. Vilox had previously sued over 10 other companies including Expedia, Lowes, Priceline, and others. I wrote a full article on the subject, which you can take a look at here.  The case was dismissed in January of 2017 by an order issued by the court based on Vilox’s proposal for voluntary dismissal.

Virtual Immersion Technologies, Inc. (“VIT” here) obtained the rights to U.S. Patent No. 6,409,599 titled: “Interactive Virtual Reality Performance Theater Entertainment System.”  This patent, issued in 2000, has very broad claims directed to an interactive virtual reality system.  On September 19, 2016, VIT filed suit against TXTME TV LTD in Texas’ Eastern District for alleged infringement.  The plaintiff pointed to the following, among others, as allegedly infringing material:

http://www.virtualporn360.com/vr-cam-girls/

The case was dismissed a month later.  Also caught in VIT’s snare at the Eastern District were mainstream companies, Hyatt Hotels, NBC Universal, and Jaguar Land Rover, among others.

It is worth noting that it appears that VIT scared out of business the operators of the crowdfund campaign for “Girls of Arcadia,” what would have been a VR porn game.  Though I cannot locate a federal lawsuit, it was reported by at least one news source here.  It looks like the crowdfund campaign had raised over $100,000, but then failed to fulfill the orders after abandoning the project, as evidenced by the now basically empty Indigogo campaign page.

In 2010, NPE, Inmotion Imagery Technologies, LLC sued Evil Angel and Digital Playground, along with big-name movie studios like Twentieth Century Fox, Lion’s Gate Entertainment, and Sony Pictures, in the Eastern District for infringement of U.S. Patent No. 6,526,219, directed to “Picture-Based Video Indexing System.” In 2011, the plaintiff NPE filed yet another suit against more than ten companies, including adult industry defendants Elegant Angel, Jules Jordan, New Sensations, Girlfriends Films, and World Wide Red Light District, among others. All claims were dismissed over time. For example, on February 27, 2012, the claims against Jules Jordan (and Elegant Angel) were dismissed based on Joint Motion to Dismiss.

In 2011, NPE, Patent Harbor, LLC sued over 20 companies in the Eastern District of Texas for infringement of U.S. Patent No. 5,684,514 directed to: “Apparatus and Method for Assembling Content Addressable Video.” Defendants included big-name movies studios like Paramount Pictures, Pixar, and Dreamworks, as well as several adult film studios, for example Evil Angel, Elegant Angel, New Sensations, Digital Playground, and PHE (parent company of Adam & Eve). Claims were dismissed at various times for various defendants. For example, the case was ordered dismissed based on a stipulation by the parties for PHE, Elegant Angel, and Digital Playground on February 13, 2012.

When a case is dismissed, usually the defendant is at the very least stuck with paying its attorney fees (as seen for example, in the linked Stipulation for PHE above).  And many times, the defendant also pays a monetary sum to obtain the plaintiff’s agreement to a settlement (which leads to the dismissal).  I don’t have the terms of each of the settlements from the cases described above, but certainly the attorney fees lost alone were likely substantial, and any additional pay-out would hurt too.

Patent trolls have also been known to sometimes drop cases when a defendant actually fights back. They do this so as not to risk the possibility of losing patent rights through litigation. For example, a defendant will usually argue that the patent in question is invalid. If one defendant is successful in proving that, the patent troll is the S.O.L. with respect to any other defendant or potential defendant down the road.

Note that many, but not ALL, “patent troll” cases are brought in Marshall. For example, in the cases involving The Teledildonics Patent brought in 2015, the defendants were sued, via multiple complaints, in the U.S. District Court for the Southern District of California. In the complaints, with regard to establishing of venue, the plaintiff stated:

Defendants are subject to this Court’s personal jurisdiction in the acts and transactions include the import of property identified herein through the State of California. Furthermore, Defendants, inter alia, make, sell and distribute adult oriented toys, adult oriented real time services over the Internet throughout the United States, including sales targeted at the State of California, thereby purposefully availing themselves of the benefits of the state.

According to one complaint, Kickstarter is a Delaware corporation with an office at the time in New Castle, DE. According to another of the complaints, Comingle (now defunct due to the lawsuit) was a Georgia limited liability company with an address at the time in Georgia. Comingle had little to no connection to southern California that I am aware of other than that their website could be accessed from there – as well as from all around the world. I won’t go through all of the defendants because I think you get the point 😉 For more information on The Teledildonics Patent litigation, you can read my full article on the subject here.

The Supreme Court ruling in the TC Heartland case will be a significant, although not total, deterrent to NPEs. It will most certainly not eliminate the suits. However, it will make them more costly and difficult for plaintiffs to prosecute. Instead of multiple defendants from across the country being sued together, in a single court in front of a single judge, and according to a single set of court rules, now cases will have to be brought separately wherever each of the defendants are incorporated. This means more lawyers, more court costs, and more uncertainty for “trolling” NPEs since multiple venues may have to be used for the various defendants.  “I want to hire more lawyers?” – Said no one ever.

 

*Note that I do not endorse use of the word “Patent Troll”, “troll”, or “trolling”, etc. for non-practicing entities; I use the terms here for dramatic literary effect only.

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  • Brian

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    LMAO on the intro! Great to see a former Albany alum out there with a great sense of humor 🙂

    Give my regards to Eric Leue from FSC at Xbiz (met him at AVN in Las Vegas in January- nice dude).

    • sextech_admin

      Thanks so much, Brian! And, I will surely say hi to Eric for you 🙂

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