United States: Intellectual Property Newsletter, November 2016

Patent Venue at the Supreme Court

If TC Heartland has its way, patent venue law is about to fundamentally change.

Factual Background

Kraft sued TC Heartland, a limited liability company organized under Indiana law, in the United States District Court for the District of Delaware. Heartland is not registered to do business in Delaware and does not have any regular or established place of business there. However, a relatively small number of the allegedly infringing products (roughly 2% of Heartland's total sales) were shipped into Delaware at the instruction of one of Heartland's customers, a customer based in Arkansas.

Heartland moved to dismiss or transfer the action, arguing (among other things) that under 28 U.S.C. § 1400(b) ("the patent venue statute") the District of Delaware was not "the judicial district where [Heartland] resides."1 Reading the patent venue statue alone, that argument plainly prevails—Heartland does not reside in Delaware, and (while it allegedly has committed acts of infringement in Delaware) it does not have a regular and established place of business there. But, in 1990, the United States Court of Appeals for the Federal Circuit held that the definition of residence found in "the general venue statute," 28 U.S.C. § 1391—a more expansive venue provision—should be read to supplement the patent venue statute.2 VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990). Relying on the VE Holding decision, the district court denied Heartland's motion.

Heartland then petitioned the Federal Circuit for a writ of mandamus, but was told in no uncertain terms that Congress, by its statutory amendments in 1988, inserted the general venue statute's definition of where a defendant "resides" into the specific patent venue statute.3

Heartland's petition to the Supreme Court for certiorari followed.

Commentary on Heartland's Petition for Certiorari

Heartland's briefing below seemed a rather scattershot approach. And, while Heartland now modestly streamlines its argument, the argument still retains a non-linearity that serves to dilute its impact. But, condensed to a more direct approach, it might be convincing enough for Supreme Court review.

A Condensed Heartland Argument

Heartland's best, most straightforward explication of its facts and argument would be as follows: First, prior to 1897, there was only a general venue statute.

Second, specifically to limit where patent suits may be brought, Congress enacted a statute limiting venue in a patent case to either (i) the district of which the defendant is an inhabitant or (ii) any district in which the defendant shall have committed acts of infringement and have a regular and established place of business.4 The statute also authorized service of process in patent infringement cases in districts where the defendant is not an inhabitant, but only if the defendant has therein a regular and established place of business.

Third, in 1948, Congress codified this venue limitation as 28 U.S.C. § 1400(b) and this service of process authorization as 28 U.S.C. § 1694. In so doing, Congress inserted the words "resides" and "resident" for the word "inhabitant" in those sections. Congress also codified a new 28 U.S.C. § 1391, headed "Venue generally," that states in subsection (c) that "A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes."

Fourth, in 1955, in Transmirra Prods. Corp. v. Fourco Glass Co.,5 the Court of Appeals for the Second Circuit reversed the Southern District of New York's grant of Fourco's motion to dismiss for improper venue, reasoning that the "plain meaning of § 1400(b) and § 1391(c)" requires that the definition of corporate residence be incorporated into § 1400(b) "just as that definition is properly to be incorporated into other sections of the venue chapter."6 The United States Supreme Court granted review to consider "whether 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions, or whether that section is supplemented by 28 U.S.C. § 1391(c)."7 The Court held the former because, inter alia, § 1400(b) stands alone as a specific venue statute that needs no supplementation from a more general statute.8

Fifth, in 1988, in one of a series amendments deemed by Congress to be "miscellaneous" and "minor,"9 Congress amended

§ 1391(c) to read: "For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced."10 In effect, Congress moved the "for venue purposes" language to the front of the subsection and added the prepositional phrase "under this chapter." District courts reacted by treating it as Fourco said to treat its predecessor version—as not supplementing the specific patent venue statute—and noted that no congressional intent was showing in the statute or the legislative history to make a major change in law.11

Sixth, the Federal Circuit then erred in 1990, in VE Holding, by holding that the 1988 amendments made the drastic change in law to allow patent infringement defendants to be sued anywhere they sell allegedly infringing goods. The Federal Circuit ignored that the statutory language and the legislative history indicated no Congressional intent to drastically change the law and actually argued the reverse, that—given that the words changed—Congress did not indicate intent not to change the statute.

Venue Timeline

For clarity, the events above (and an additional 2011 Congressional amendment discussed below) are set forth in the following timeline:

Improving Heartland's Argument

Heartland's briefing might have been more convincing had it not separated, and argued late in its petition for certiorari, an additional statutory interpretation oversight by the Federal Circuit in VE Holding. Specifically, § 1400(b), both in 1990 and now, uses the definite article "the" when describing the jurisdiction in which the defendant resides: "Any civil action 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."12 Section 1391 does not provide a supplementation of "resides" that is appropriate here, as it was (and still is) not limited to a single jurisdiction ("any jurisdiction"). In fact, this difference begs the question as to why § 1400(b) limits venue to a single jurisdiction—and, the reason is telling. When the special patent venue statute was enacted in 1897, it was well-settled that "the domicile, the habitat, the residence, the citizenship of the corporation can only be in the State by which it was created, although it may do business in other States whose laws permit it."13 In other words, the "inhabitant" or "resident" of the patent venue statute already had (and has) a definition—it did not (and does not) need one to be imported from § 1391.

Heartland also would have been better served by stating in a more straightforward manner that the Federal Circuit was simply wrong in VE Holding. Congress's addition of "under this chapter," without more, does not render void the Supreme Court's holding in Fourco. Part-and-parcel of this mis-step, Heartland argues that amendments to § 1391 by Congress in 2011 reversed Congress' 1988 amendments. Specifically, Congress added a new § 1391(a), headed "Applicability of Section" that begins "Except as otherwise provided by law... (1) this section shall govern the venue of all civil actions brought in district courts in the United States." Heartland's argument apparently is that "except as otherwise provided by law" should embrace the reading "except as otherwise provided by Fourco."

There are four problems with this argument. First, it undercuts the previous (and best) one—Congress worked no significant change in 1988. And, different from the bland Congressional statements accompanying the 1988 amendments, Congress indicated in 2011 that proposed subsection 1391(c) is intended to apply to other codified venue provisions: "Under section 202 of the bill, proposed subsection 1391(c) would apply to all venue statutes, including venue provisions that appear elsewhere in the United States Code."14 Second, in the 2011 amendments, subsection (c) was also re-written with the heading "Residency—For all venue purposes—," to state "an entity with the capacity to sue and be sued in its common name under applicable law, whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question"—a change which only serves to emphasize that this residency requirement was meant to apply throughout the chapter. And, Congress simultaneously folded former § 1391(d) (allowing suits against non-residents aliens in any judicial district) into this "residency" subsection. It has long been Supreme Court precedent that this subsection trumps (or is read into) § 1400(b).15 Third, "law" in this context is generally considered to refer to statutory law, and not to judicial precedent. Last, even if legal precedent were "law," it is not so clear logically (and chronologically) that the "law" should be the pre-1988 amendment Fourco decision, as opposed to the post-1988 amendment VE Holdings decision.

Heartland could have used this statutory language in a different, and more effective way. For example, Heartland could have focused more specifically on the beginning of new § 1391—"Except as otherwise provided by law... (1) this section shall govern the venue of all civil actions brought in district courts in the United States"—and argued that 1400(b) "governs the venue" of patent infringement actions "brought in district courts in the United States," and therefore "otherwise provide[s]." Therefore, § 1391 itself (without need to resort to the Congressional record) tells the reader that it does not apply—as a whole—to patent actions.

Heartland concludes its argument with the interesting, but possibly obfuscating, observation that the original 1897 patent service of process limitation, now 28 U.S.C. § 1694, is not a venue statute, and is therefore not supplemented by § 1391(c). Therefore, argues Heartland, if VE Holding and the Federal Circuit on mandamus are correct, a defendant may properly be haled under federal law into court in a jurisdiction in which it is not a resident, but service of process on that non-resident can only be made in that defendant's home jurisdiction, and only by relying on the long arm statute in the desired forum. Not entirely willing to give up one of its original complaints to the Federal Circuit, Heartland makes a bit of a hash of this observation, essentially arguing that this just seems too convoluted a procedure for it to have been Congress' intention.

Heartland also makes one additional argument—in throw-away fashion—that might have been given more emphasis. In the Leahy-Smith America Invents Act of 2011, a note to 35 U.S.C. § 321 provides: "In an action for infringement... of a covered business method patent, an automated teller machine shall not be deemed to be a regular and established place of business for purposes of section 1400(b) of title 28, United States Code."16 This note would make no sense if VE Holding were correctly decided: a corporate owner of an ATM would be deemed to reside wherever the use or operation of the machine infringes a patent, and it would make no difference whether the machine were deemed to be "a regular and established place of business."

Conclusion

While Heartland faces an uphill battle—overturning VE Holdings twenty-five years on—it very well may raise enough interesting issues, including both contradictory legal holdings and a confusing congressional record, to warrant Supreme

Court review.

To view the full article click here

Footnotes

1 28 U.S.C. § 1400 - Patents and copyrights, mask works, and designs
...

(b) Any civil action 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.

2 28 U.S.C. § 1391(c) Residency.—For all venue purposes—
...

(2) an entity with the capacity to sue and be sued in its common name under applicable law, whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question and, if a plaintiff, only in the judicial district in which it maintains its principal place of business....

(emphasis added).

3 In re TC Heartland, 821 F.3d 1338, 1341 (Fed. Cir. 2016) ("The arguments raised regarding venue have been firmly resolved by VE Holding, a settled precedent for over 25 years.").

4 Act of March 3, 1897, ch. 395, 29 Stat. 695 (1897).

5 233 F.2d 885 (2d Cir. 1956), rev'd 353 U.S. 222 (1957).

6 Id. at 886.

7 Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 222 (1957).

8 Id. at 229.

9 H.R. REP. NO. 100-89, at 66 (1988).

10 See Judicial Improvements and Access to Justice Act of 1988, Pub. L. No. 100-702, § 1013, 102 Stat. 4642, 4669 (1988).

11 See, e.g., Doelcher Prods. Inc. v. Hydrofoil Int'l, Inc., 735 F. Supp. 666, 668 (D. Md. 1989); accord Joslyun Mfg. Co. v. Amerace Corp., 729 F. Supp. 1219, 1223 (N.D. Ill. 1990).

12 28 U.S.C. § 1400(b) (emphasis added).

13 Shaw v. Quincy Mining Co., 145 U.S. 444, 450 (1892) (emphasis added).

14 H.R. REP. NO. 112-10 at 20 (2011).

15 See generally Brunette Machine Works, Ltd., v. Kockum Indus., Inc., 406 U.S. 604 (1972).

16 Leahy-Smith America Invents Act, Pub. L. No. 112-29 § 18(c), 129 Stat. 284, 331 (2011).

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