United States: The Supreme Court, Reversing The Federal Circuit, Holds That "Residence" In The Patent Venue Statute Refers To Only A Domestic Corporation's State Of Incorporation

In a brief, well-reasoned opinion, a unanimous eight-member Supreme Court held that 28 U.S.C. § 1400(b) is a stand-alone provision governing venue in patent infringement suits, unaffected by the broad definition of "residence" in the general venue statute, 28 U.S.C. § 1391.Rather, a domestic corporation "resides" in only its state of incorporation. TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341 (U.S. May 22, 2017).

The Court based its decision on the history of the general venue statute and the patent venue statute and its own consistent interpretation of the patent venue statute. Reviewing that history, the Court observed that Congress created the patent venue statute as the exclusive provision for patent infringement suits, at least against domestic corporations, with little change from its initial creation as an exception to the more frequently amended general venue statute.

Thus, in 1789, Congress in all cases permitted suit in a district if the defendant was "an inhabitant" of the district or could be "found" there. Slip op. at 3 (citing Act of Sept. 24, 1789, § 11, 1 Stat. 79). Congress amended that statute in 1887 to restrict venue to a district where the defendant was an inhabitant or, in diversity cases, where either party was an inhabitant. Slip op. at 3-4 (citing Act of Mar. 3, 1887, § 1, 24 Stat. 552). But a Supreme Court decision in 1893 created confusion about whether the 1887 Act, rather than the 1789 Act, applied to patent cases. Congress enacted the first patent venue statute in 1897 to eliminate the confusion. Slip op. at 4 (citing Act of Mar. 3, 1897, ch. 395, 29 Stat. 695). 

The 1897 patent venue statute, similarly to the present patent venue statute, permitted suit where the defendant was an "inhabitant," or where the defendant both maintained a "regular and established place of business" and committed an act of infringement. Slip op. at 4 (citing 29 Stat. 695). Under 1897 law, a corporation "inhabited" only the state of its incorporation. Id.

In 1942, and again in 1957, the Supreme Court considered virtually the same issue it considered in TC Heartland. In Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561 (1942), the Court rejected a plaintiff's reliance on the then governing general venue statute, holding that it did not modify the narrower, exclusive patent venue statute. Slip op. at 4. In 1948, Congress recodified the patent venue statute as 28 U.S.C. § 1400(b), changing only "inhabit[s]" to its synonym "resides." Slip op. at 5. Congress simultaneously enacted the general venue statute, 28 U.S.C. § 1391, permitting suit "in all actions" against a corporation "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." Id. In view of the amendment to the general venue statute, the Second Circuit held that the definition of "residence" broadened the patent venue statute as well as other sections of the venue chapter of the statute. Id. The Supreme Court reversed the Second Circuit in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), reasoning, as it did in Stonite, that §1400(b) exclusively controlled venue in patent infringement suits, despite the reference to "all actions" in § 1391(c).

In 1988, Congress again amended the general venue statute, § 1391(c), to provide that "[f]or 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." Slip op. at 6 (citing Judicial Improvements and Access to Justice Act, § 1013(a), 102 Stat. 4669). In VE Holding Corp. v. Johnson Gas Appliance, Co., 917 F.2d 1574 (Fed. Cir. 1990), the Federal Circuit, like the Second Circuit 34 years earlier, ruled that the amended definition of "reside" in § 1391(c) applied to the unamended patent venue statute, permitting patent infringement suits against corporations in any court having personal jurisdiction over the defendant. That has been the law for 27 years, making the Eastern District of Texas a hugely popular venue for patent owners against alleged infringers whose only contact with Texas is shipping their allegedly infringing products to that state.

In 2011, Congress once again amended the general venue statute, and not the patent venue statute. Slip op. at 7 (citing Federal Courts Jurisdiction and Venue Clarification Act of 2011, § 202, 125 Stat. 763). The statute now provides that it governs the venue of "all civil actions," "[e]xcept as otherwise provided by law," and that corporations "shall be deemed to reside, if a defendant, in any judicial district in which the defendant is subject to the court's personal jurisdiction with respect to the civil action in question." In TC Heartland, the Federal Circuit reaffirmed VE Holding, concluding that the 2011 amendments did not alter its holding about the broad scope of § 1400(b).

Now, for the third time, though after 27 years of the courts' operating under VE Holding, the Supreme Court reaffirmed that "residence" in § 1400(b) refers to only the state of incorporation of a domestic corporation. It reasoned that since Congress did not amend § 1400(b), and did not provide "a relatively clear indication of its intent" to alter the meaning of § 1400(b) when it amended § 1391, its holding in Fourco still controls. It saw no material difference between § 1391(c) as it now exists and its predecessor that Fourco addressed. Having rejected essentially the same challenges to the patent venue statute in both Stonite and Fourco, the Court reaffirmed Fourco almost three decades after the Federal Circuit ruled that it was legislatively overruled.

The Court's belated ruling will have a highly significant impact. The decision will greatly diminish shopping for plaintiff-friendly forums such as the Eastern District of Texas. Section 1400(b) will now require parties to sue domestic corporations either where they are incorporated or where they have a regular and established place of business and have committed acts of infringement. The forum-shopping battles will now address what is a regular and established place of business, relying on the cases that addressed that issue before the Federal Circuit's 1990 holding in VE Holding.

As to foreign corporations, the Supreme Court expressly left that question open. Slip op. at 7 n.2. And it expressly expressed no opinion on its holding in Brunette Machine Works, Ltd. v. Kockum Indus., 406 U.S. 706 (1972), that § 1400(b) cannot shield an alien corporation accused of infringement from suit anywhere in the United States under 28 U.S.C. § 1391(d), which appears to have been replaced by § 1391(c)(3): "For all venue purposes—(3) a defendant not resident in the United States may be sued in any judicial district." See also Fed. R. Civ. P. 4(k)(2) (providing that serving a summons of a claim that arises under federal law establishes personal jurisdiction if "(A) the defendant is not subject to jurisdiction in any state's courts of general jurisdiction; and (B) exercising jurisdiction is consistent with the United States Constitution and laws."). Thus, it seems likely that a patent owner can sue an allegedly infringing foreign corporation that has no regular and established place of business in the United States anywhere in the United States.

Finally, the holding in TC Heartland raises the question of what happens to pending patent infringement suits that plaintiffs filed in jurisdictions that do not satisfy § 1400(b). If a defendant has not waived the defense of improper venue under Fed. R. Civ. P. 12, we can expect that in many cases it will file or renew a motion to dismiss. But if it has waived the defense, it probably will not succeed in attempting to raise it now.

To sum up, the Eastern District of Texas will see a dramatic decline in its patent infringement cases, while courts in states where many corporations are incorporated, such as Delaware, will see a dramatic increase in patent infringement cases. And plaintiffs choosing a forum will now have a much more limited choice, of either the place where the defendant corporation is incorporated or any location where the defendant has a regular and established place of business and has committed acts of infringement. That may well lead to early discovery over alleged infringers' contacts throughout the United States. Let the fun begin.

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