United States: TC Heartland: The Impact Of Updating Patent Venue Rules

The United States Supreme Court has been chipping away at patent rights for the past decade. The latest blow occurred on May 22, 2017, when the Court crippled the ability of patent holders to engage in forum shopping in TC Heartland LLC v. Kraft Foods Group Brands LLC.

The decision halts a 27-year old expansion of venue in patent cases which began in 1990 when an appellate court expanded venue from a corporation's state of incorporation to any district where personal jurisdiction could be established over the alleged infringer. In practice, this meant that corporations could be sued anywhere an infringing product was sold, often giving patentees the choice to file suit anywhere in the United States. In the almost three decades since, patent cases became increasingly concentrated in certain district courts viewed as "friendly" to patent owners. In particular, the Eastern District of Texas became the dominant venue of choice for patentees, accounting for over a third of all patent cases filed in 2016. Now, the Supreme Court's TC Heartland decision has limited where patent cases may be filed against corporate defendants, giving rise to major implications for both existing and future patent cases.

The Supreme Court's TC Heartland decision rejects the lower court's unilateral expansion of patent venue and establishes a more rigid test. Under TC Heartland, patent cases may now be filed against U.S. corporate defendants only (1) in the district where the corporation resides – defined to only mean its state of incorporation, or (2) where the corporate defendant has committed acts of infringement and has a regular and established place of business.

While the state of the defendant's incorporation has always been a viable option in which to sue a corporation, going forward, U.S. companies should be aware that it is a far more likely venue for patent litigation. The alternative TC Heartland test for patent venue, a "regular and established place of business," has not been extensively used to establish venue in patent cases due to the broad interpretation of corporate residency, which established proper venue across nearly all districts. As a result, there is little recent jurisprudence on the proper interpretation of the second criteria. In 1985, the Federal Circuit held that a permanent and continuous presence in a particular district may be sufficient, rather than requiring a fixed physical location such as an office or store.1 The Supreme Court's decision will likely lead to litigation that more clearly defines the scope of what exactly constitutes a "regular and established place of business," since patentees wanting to sue in a district other than an alleged infringer's state of incorporation will now be required to rely on this relatively untested venue analysis. Practitioners should and will monitor this issue closely to see how broadly patent venue is defined under this standard.

What Happens Now?

These new venue rules are expected to have an immediate impact on existing patent cases. For instance, many corporate defendants in pending Eastern District of Texas patent cases do not meet either TC Heartland criteria, making it an improper venue for such defendants. However, it is unclear at what stage of litigation the court will hold permissible for a valid transfer due to improper venue following the TC Heartland ruling. For those defendants that have yet to respond to a complaint of patent infringement, or those that have previously challenged venue in the Eastern District of Texas in their response, relief may now be possible. Practitioners should consider motions to dismiss for improper venue, or motions to transfer to a new district in light of the TC Heartland decision. Many accused infringers should be able to persuasively argue that their case should be transferred from the Eastern District of Texas to another district that satisfies the TC Heartland venue test.

Most critically for patent practitioners, the jurisdictional options open to a potential plaintiff are now much more limited. This could result in less patent cases being filed – patent holders with somewhat weaker positions may be reluctant to sue in a defendant's home court. For the cases that are filed, the distribution of filings amongst the federal courts should change significantly. The Eastern District of Texas, for one, will see far fewer patent case filings in the coming years. However, this certainly doesn't mean that patent case filings will approach parity across all 94 judicial districts. While TC Heartland may result in some fraction of cases being distributed across available judicial districts, the most likely outcome of the Supreme Court's decision will be shifting the concentration of patent cases from one cluster of districts to another. For example, the District of Delaware, the Northern and Central Districts of California, and the District of New Jersey – all already popular districts for patent litigation and common locations for corporate headquarters or states of incorporation – will likely see increased patent activity. In 2016, the District of Delaware received about 10% of patent case filings, making it the second-busiest patent district behind the Eastern District of Texas. The District of Delaware should see a substantial influx in patent cases, as more U.S. companies are incorporated in Delaware than any other state.

Litigating Patents in New Districts

While the post-TC Heartland redistribution of patent cases to districts that are already familiar with patent law should be largely uneventful, it is far less clear what will happen in jurisdictions where patent cases are currently underrepresented. An influx of patent cases to any given jurisdiction offers a new opportunity for local attorneys, yet patent litigation often involves complex scientific issues that are new to many courts. Courts in high-volume patent jurisdictions obtain familiarity with the complex issues behind patents and patent litigation. Now, with the likely TC Heartland redistribution, parties face significant uncertainty when litigating in a district that is unfamiliar with patent disputes. Counsel should be conscious of this and work to educate the court on the unfamiliar procedure of patent law, as well as the complicated scientific issues underlying the substantive patent dispute. Failure to do so has great potential to lead to lengthier and more costly litigation.

Many courts today have adopted local patent rules which allow a district to particularize rules specifically for patent cases, allowing the cases to proceed more expeditiously. As of October 2016, of the 94 district courts, 32 have adopted local patent rules, streamlining patent cases for the parties and the court. However, 62 districts have yet to enact their own local patent rules. Local patent rules often keep cases moving swiftly to trial; in their absence a case may take significantly longer to litigate. If and when patent cases become more evenly distributed across districts, litigating a patent dispute in one of the 62 districts without local patent rules contains substantial risk of protracted litigation.

Uncertain Outcomes of TC Heartland

While TC Heartland has relatively clear outcomes for U.S. corporations, its impact on foreign corporations is unclear. The Supreme Court limited its decision to venue for U.S. corporations, and at one point dedicated a footnote explaining that it explicitly did not consider the implications of the decision for foreign corporations. This poses a question about the proper venue in which to sue a foreign company that does not have a regular place of business in the United States. Following TC Heartland, a literal reading of the patent venue statute, 28 U.S.C. § 1400(b), could suggest that no venue is appropriate against such a defendant, thereby eliminating the ability of patent owners to take action against international infringers. Such a result is extremely unlikely to be endorsed by the courts, and patentees will presumably assert that 28 U.S.C. § 1391(c)(3), which establishes that a non-resident defendant may be sued in any district, applies. Establishing venue for foreign corporations will likely be the focus of litigation in the short term.

Another consequence of this decision is that it may be more difficult for a patentee to file a single patent case against multiple defendants in a single forum. Given the broad interpretation of patent venue prior to TC Heartland, it was relatively easy to name multiple defendants in a single case. Now, a patent owner who wants to assert an infringement claim against multiple defendants may have to file multiple suits across multiple jurisdictions because defendants may not all be subject to venue in the same fora. This will indirectly increase costs for patent owners, essentially weakening patent rights. It is possible that one result of this fragmentation of patent cases is an increase in multidistrict litigation for larger patent cases. Multidistrict litigation is a procedure that allows for cases involving the same patent(s) across different districts to be transferred to a single district judge for pretrial purposes under 28 U.S.C. § 1407. The pretrial stage encompasses some of the most critical aspects of patent litigation, making multidistrict litigation an extremely efficient alternative to litigating individual cases.

The impact of the Supreme Court's TC Heartland decision will be felt immediately in the district courts. U.S. corporations will likely seek to transfer existing patent cases out of districts where they lack incorporation or a regular and established place of business. New patent case filings will likely be concentrated in Delaware and California, while a diffusion of patent filings across the 94 judicial districts is also possible.

Jimi Hendrix, Janis Joplin, Jim Morrison, and Kurt Cobain all died at the too-young age of 27. While their music will live on forever, the 27 year old run of forum shopping in patent cases is likely over. Unless Congress weighs in on the patent venue front, the Eastern District of Texas' reign as a patent litigation hotbed will be seen as a relic along the likes of 8-track tapes and VCR's.

Footnote

1. See In re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985).

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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