Pushes VENUE Act to stop court shopping for frivolous patent lawsuits
Posted on Jul 13 2016
Washington, D.C. – U.S. Sen. Jeff Flake (R-Ariz.), Chairman of the Senate Judiciary Subcommittee on Privacy, Technology, and the Law, today spoke on the Senate floor to urge support for the VENUE Act, his bill to stop “patent trolls” from filing frivolous patent lawsuits in hand-picked, friendly judicial venues that are otherwise unrelated to the alleged infringement.
“It’s clear that these types of forum abuses impose substantial costs on the economy and cannot be ignored,” said Flake. “I urge my colleagues to support the reforms contained in the VENUE Act to bring about a renewed attention to patent venue reform and to address the unfair forum shopping that plagues patent litigation.”
Patent trolls are firms that do not manufacture or sell products; they make their money by purchasing patents and suing companies for patent infringement. The bulk of these lawsuits are filed against small businesses and investor driven companies – which often lack the funds or resources to survive a protracted court fight – and end in settlements. Patent trolls cost defendant firms $29 billion per year in direct out-of-pocket costs and, in aggregate patent litigation destroys over $60 billion in firm wealth each year, according to the Harvard Business Review.
Part of what makes patent trolls such a threat is their ability to bring their suits in friendly courts. These courts are frequently unrelated to the alleged infringement and are selected only for their perceived friendliness to patent trolls in litigation.
To address the issue of judicial venue shopping, Flake has introduced S. 2733, the Venue Equity and Non-Uniformity Elimination (VENUE) Act. The VENUE Act would require patent cases to be litigated in the federal court (1) where the defendant has its principal place of business; (2) where the alleged infringing act; or (3) where the inventor conducted research and development that led to the patent. The bill would also establish a more streamlined avenue for those seeking review of erroneous venue determinations by district courts.
The VENUE Act is cosponsored by U.S. Sens. Cory Gardner (R-Colo.) and Mike Lee (R-Utah).
Video of Flake’s remarks can be viewed here.
A transcript of the remarks can be viewed below.
Mr./Madam President, I ask unanimous consent that the quorum call be dispensed with and that I be permitted speak as if in morning business.
I come to the floor today to speak in support of legislation I introduced, the Venue Equity and Non-Uniformity Elimination Act, or VENUE Act, that addresses patent venue reform.
Patents are an important part of our economy and are vital to promoting innovation and spurring growth.
However, the health of the patent system is at risk.
Specifically, there is an ever-increasing problem of frivolous patent lawsuits brought by non-practicing entities, also known as patent trolls.
This problem is exacerbated by plaintiffs being able to hand-pick friendly judicial venues that are otherwise unrelated to the alleged infringement.
An article in the Harvard Business Review states that “patent trolls cost defendant firms $29 billion per year in direct out-of-pocket costs” and “in aggregate, patent litigation destroys over $60 billion in firm wealth each year.”
It’s clear that these types of abuses impose substantial costs on the economy and cannot be ignored.
Additionally, according to a 2013 White House patent report the bulk of patent troll suits target small and investor-driven companies.
This is a real threat to innovation.
The VENUE legislation addresses this issue and ensures that patent cases are litigated where there is a connection to the patent dispute.
Under the VENUE Act in order for a case to be properly litigated, it must be where either:
(1) the defendant has its principal place of business;
(2) the alleged infringing act occurred; or
(3) where the inventor conducted research and development that led to the patent.
In addition to the provisions relating to proper venue, the VENUE act provides a more streamlined avenue for those seeking review of erroneous venue determinations.
I believe my legislation strikes the right balance for determining when venue is proper, but I also understand that addressing venue is just one piece of the puzzle when talking about overall patent reform.
There are a number of ways that patent reform can be achieved, and that is why I support the principles of the PATENT Act and believe it goes a long way in combating this growing problem.
The PATENT Act includes much needed reforms such as fee shifting, heightened pleadings and customer stays that would provide relief to retailers, smaller businesses and start-ups that are constantly under assault by non-practicing entities.
And I commend Chairman Grassley for ushering that legislation out the Judiciary Committee.
However, one piece missing from that comprehensive package was venue reform.
Such a reform was included in the House version of the patent bill and I believe it needs to be added to the Senate bill.
All one has to do is look at the numbers and the problem surrounding venue becomes clear.
In 2009, 9 percent of all U.S. patent cases were filed in one federal district.
By comparison in 2015, that number increased to just over 44 percent, an increase of over 400 percent.
In addition, of the cases brought in that federal district in 2015, 95 percent of those cases were brought by non-practicing entities.
Such a distortional case distribution is problematic, especially when the venue has no real connection to the alleged infringement at issue.
One hope for relief was the Federal Circuit case of TC Heartland.
But after the Court’s decision on April 29 declined to impose more stringent venue restrictions in patent cases, it appears that judicial relief will have to wait.
Therefore, this decision has only made the need for Congressional action on venue even more important.
I hope that it will bring renewed attention to patent venue reform and the VENUE Act in the Senate.
While there are number of solutions to the overall “patent troll” problem, venue reform is of the utmost importance and must be central to any larger reform effort.
I urge my colleagues to support the reforms contained in the VENUE Act.