United States: Supreme Court Unanimously Changes Where Patents May Be Litigated

Yesterday, in TC Heartland LLC v. Kraft Foods Group Brands, No. 16-341, the United States Supreme Court significantly changed the geography where future patent infringement suits can be filed. The patent venue statute, 28 U.S.C § 1400(b), provides that a patent-infringement lawsuit may be brought either (1) in a State where the defendant resides or (2) where the defendant has committed acts of infringement and has a regular and established place of business. In TC Heartland, the Supreme Court concluded that the "residence requirement" of the patent venue statute refers only to the State of incorporation of domestic corporations. By interpreting "resides" as "is incorporated," the Supreme Court has significantly restricted where patent owners can file infringement lawsuits.

In the TC Heartland decision, the Supreme Court reversed 27-year old Federal Circuit precedent. In VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990), the Federal Circuit held that venue under 28 U.S.C. § 1400(b) is proper "in a State where the defendant is subject to the court's personal jurisdiction." In VE Holding, the Federal Circuit held that the definition of "corporate residence" provided in the general venue statute, 28 U.S.C. § 1391(c), applied to the patent venue statute. Section 1391(c) provides, in relevant part:

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 ...

By ruling that personal jurisdiction can satisfy the requirements of § 1400(b), the Federal Circuit opened the door to patent-infringement lawsuits in many different states and jurisdictions. Many have argued that such a broad interpretation of venue led to the unjustifiable filing of thousands of patent-infringement suits in "patent friendly" jurisdictions such as the Eastern District of Texas.

At the Federal Circuit, TC Heartland did not argue that VE Holding was wrongly decided. Rather, TC Heartland argued only that the 2011 Amendments to § 1391(c) rendered the statute inapplicable to § 1400(b), and, as a result, VE Holding no longer applied. The Federal Circuit disagreed, stating that the 2011 Amendments to the general venue statute that were relevant to TC Heartland's appeal were minor and did not change the application of § 1391(c) to § 1400(b) or the court's ruling in VE Holding.

In yesterday's decision, the Supreme Court disagreed with both TC Heartland and the Federal Circuit. In a decision that walks through the legal history of venue in patent cases (and is sure to excite a few legal historians), the Supreme Court traced the understanding of venue from the Judiciary Act of 1789 to today. Characterizing its 1957 holding in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), as "definitively and unambiguously" holding that "residence" in § 1400(b) refers only to a domestic corporation's state of incorporation, the Court determined that the only question before it was "whether Congress changed the meaning of § 1400(b) when it amended § 1391."

In VE Holdings, the Federal Circuit determined that by ratifying the 1988 Amendments to § 1391(c), Congress applied the general venue statue to § 1400(b), rendering Fourco Glass inapplicable. In the current decision, the Supreme Court disagreed. The Court found no "indication that Congress intended to alter the meaning of § 1400(b) as interpreted in Fourco" and "no indication that Congress in 2011 ratified the Federal Circuit's decision in VE Holding." Accordingly, the Supreme Court overruled VE Holdings and concluded that, for the purpose of § 1400(b), a corporation "resides" only in its state of incorporation

For the past twenty-seven years, patent holders and alleged infringers have understood that personal jurisdiction can satisfy the venue requirements for patent-infringement litigation. This change in the application of 28 U.S.C. § 1400(b) will encourage corporations to review their selected state of incorporation as well as their "regular and established place of business," which influence where they may be drawn into patent-infringement actions. Those involved in current patent-infringement litigation will want to assess whether there is a strategic opportunity to transfer the case for improper venue and/or whether venue has been waived.

We encourage our clients and readers to call us at Sheppard Mullin for assistance and advice regarding the changing landscape of patent venue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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