United States: Supreme Court Limits The Reach Of Patent Venue, Forecasting Big Changes To Patent Litigation Landscape

On May 22, 2017, the Supreme Court issued a unanimous decision in TC Heartland LLC v. Kraft Foods Group Brands LLC,1 a closely watched patent venue case that promises to alter the geographic landscape of patent litigation across the United States.

In an 8-0 opinion by Justice Thomas,2 the Court determined that for purposes of the patent venue statute a corporation "resides" only in its state of incorporation. Its holding relies heavily on Fourco Glass Co. v. Transmirra Products Corp., a Supreme Court case from 1957 addressing patent venue specifically that lower courts had left by the wayside after Congress amended the venue statute that applies to civil cases generally.

The Court's decision to resurrect Fourco as authority for determining a corporation's residency in patent cases overrules the interpretation of the Federal Circuit, which had incorporated the general venue statute's broader definition of residency as commensurate with personal jurisdiction.

Critics of the Federal Circuit's interpretation have long argued that it led to excessive forum shopping, as jurisdictions perceived as more favorable to patent owners became hotbeds of patent litigation. One particularly active jurisdiction has been the Eastern District of Texas, which reportedly saw one third of all new patent cases filed last quarter. The Supreme Court's ruling in TC Heartland appears certain to force a redistribution of patent cases away from the Eastern District for the many defendants who do not have places of business in that forum.

Background

The TC Heartland case arose out of a dispute between food and beverage industry competitors TC Heartland and Kraft Foods over "flavored drink mixes." Kraft Foods sued TC Heartland for patent infringement in the US District Court for the District of Delaware. Although TC Heartland ships allegedly infringing products to Delaware, it is not registered to do business in Delaware and has no "meaningful local presence" there. Rather, TC Heartland is headquartered and incorporated in Indiana.3 Arguing that venue in Delaware was improper, TC Heartland moved to dismiss the case or transfer venue to the Southern District of Indiana. After losing its motion in District Court, TC Heartland petitioned the Federal Circuit for a writ of mandamus. The Federal Circuit denied the petition.4

Central to this case is the interplay between the patent venue statute, 28 U.S.C. § 1400(b), and the general venue statute, 28 U.S.C. § 1391(c). Section 1400(b) provides that "[a]ny 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."5 As TC Heartland had no "regular and established place of business" in Delaware, the venue dispute focused on the first clause of § 1400(b), pertaining to residency. Relying on its own precedent, the Federal Circuit looked to § 1391(c) to determine where a corporation "resides." That provision says that—"[e]xcept as otherwise provided by law"—"For all venue purposes" a corporate defendant "shall be deemed to reside ... in any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question."6 Applying that definition to § 1400(b), the Federal Circuit found that TC Heartland did "reside" in Delaware because it was subject to the court's personal jurisdiction there, and thus, venue was proper.7

The Court's Decision

The Supreme Court reversed, holding that the definition of "reside" in § 1391(c) does not determine where a corporate "defendant resides" under the patent venue statute, § 1400(b).8

The Court relied principally on Fourco Glass Co. v. Transmirra Products Corp., a decades-old case in which it held that under § 1400(b)—"the sole and exclusive provision controlling venue in patent infringement actions"—a domestic corporation "resides" only in its state of incorporation.9 Bolstering its analysis with a comprehensive review of the legislative history of the venue provisions, the Court concluded that Fourco's interpretation of § 1400(b) still applies.

Writing for the Court, Justice Thomas explained that the predecessor to § 1400(b)—which was enacted in 1897 to clarify the standard for venue in patent cases as distinct from the general venue statute—permitted suit in the district where a corporate defendant was an "inhabitant," or where the defendant maintained a "regular and established place of business" and had committed an act of infringement.10 At that time, a corporation was understood to "inhabit" only its state of incorporation.11 In 1948, Congress recodified the patent venue statute as today's § 1400(b), replacing the word "inhabitant" with "resides," and simultaneously enacted § 1391, which for the first time defined "residence" for corporate defendants in civil actions generally.12

Fourco, decided shortly thereafter, eliminated confusion among lower courts as to whether the definition of "residence" in § 1391(c) applied to the word "resides" in § 1400(b). The Fourco Court held that the patent venue statute operates independently from all other venue provisions, and—notwithstanding the general definition in § 1391(c) —the word "resides" in § 1400(b) had the same meaning as the pre-1948 term "inhabit[s]," i.e., a defendant's state of incorporation.13

Whereas § 1400(b) has remained unchanged since its initial enactment, § 1391(c) has been amended twice—first in 1988 and again in 2011.14 The Federal Circuit has repeatedly interpreted those amendments as signaling an intent to overrule Fourco.15

Reversing long-standing Federal Circuit precedent, the TC Heartland Court revived Fourco. The Supreme Court reasoned that, because Congress never amended § 1400(b), the particular meaning that was "definitively and unambiguously" ascribed to the term "reside" in § 1400(b) in Fourco cannot be changed without a "relatively clear indication" of Congressional intent. The Court found no such indication in revisions to § 1391(c).16

The Supreme Court's decision in TC Heartland to limit the "residence" clause of § 1400(b) to a corporate defendant's state of incorporation is a groundbreaking development that resets decades of patent venue jurisprudence.

Looking Forward

Although patent infringement plaintiffs can no longer lay venue based on a corporate defendant's "residence" in any and all districts where a court would have personal jurisdiction, the patent venue statute provides an alternative: plaintiffs may bring suit "where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business."

With residence diminished, proper venue will likely turn on two important questions:

First, how will courts determine "where the defendant has committed acts of infringement?" Where, for example, may venue lie when a defendant spreads out system components or method steps across multiple districts17 or among multiple parties,18 or when liability is premised on acts of inducement?19

Second, how will courts assess what constitutes "a regular and established place of business?" The Supreme Court in 1915, on one hand, found no regular and established place of business where the defendant's employee in the district worked for two companies in a shared workspace, and solicited and forwarded orders to the defendant company's home office.20 The Federal Circuit in 1985, on the other hand, found a regular and established place of business where the defendant's two full-time, exclusive employees in the district worked from home, provided real-time and ongoing technical consultation, and kept a stock of products to provide to customers.21 Other circuits meanwhile addressed the issue, but no universal test emerged.22

As these questions trickle through the courts, we can expect that TC Heartland will disperse patent litigation from some uniquely concentrated hotbeds such as the Eastern District of Texas but will not eliminate forum shopping altogether.

Footnotes

1.TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341 (May 22, 2017) (slip op.).

2.Recently confirmed Justice Neil Gorsuch did not participate in the decision.

3.TC Heartland, slip op. at 2.

4.Id. at 2-3.

5.28 U.S.C. § 1400(b).

6.28 U.S.C. § 1391(a), (c).

7.In re TC Heartland LLC, 821 F. 3d 1338, 1341-45 (Fed. Cir. 2016).

8.TC Heartland, slip op. at 2.

Id. at 1, 5, 7-9 (citing Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957)).

9.Id. at 4.

Id. at 4 (citing Shaw v. Quincy Mining Co., 145 U.S. 444, 449-450 (1892)).

10.Id. at 5.

11.Fourco, 353 U.S., at 224, 226, 228-29.

12.TC Heartland, slip op. at 5-7.

13.TC Heartland, slip op. at 6-7 (citing VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1580 (Fed. Circ. 1990)).

14TC Heartland, slip op. at 7-8. The Court was not persuaded by the proviso of § 1391(c) that it applies "{f}or all venue purposes," as the prior version at issue in Fourco used the similar catch-all phrasing "for venue purposes." Id. at 8-9. The Court further reasoned that current § 1391(c) is arguably less amenable to incorporation into § 1400(b) than prior versions, because it expressly does not apply "when otherwise provided by law." The general venue provision at issue in Fourco contained no such exception. Id. at 9. The Court also observed that in the current version of § 1391(c), Congress removed the language "under this chapter," which had provided the underpinning for the Federal Circuit's decision in VE Holding construing § 1400(b). Id. at 9-10.

15See, e.g., NTP, Inc. v. Research In Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005).

16See, e.g., Akamai Techs., Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir. 2015).

17See, e.g., Knapp-Monarch Co. v. Casco Prod. Corp., 342 F.2d 622 (7th Cir. 1965); Mid-Continent Metal Prod. Co. v. Maxon Premix Burner Co., 367 F.2d 818, 820 (7th Cir. 1966); see also Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972).

18W.S. Tyler Co. v. Ludlow-Saylor Wire Co., 236 U.S. 723 (1915); see also Gen. Radio Co. v. Superior Elec. Co., 293 F.2d 949, 951 (1st Cir. 1961) ("In that case as in this, the local salesman consummated no sales himself; his only duty with respect to sales was 'to solicit orders (and) forward them when received to the home office for execution.' It is evident from the opinion in the Tyler Co. case that this is the fact the Court considered determinative.").

19In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985); see also Remington Rand Bus. Serv. v. Acme Card Sys. Co., 71 F.2d 628, 630 (4th Cir. 1934) ("Here we have, however, not merely the solicitation of orders, subject to the approval of the home office, but also the maintenance of a stock of goods and sales therefrom to responsible customers without prior reference to the home office; and, in addition, employees who serve customers by keeping in proper working order merchandise purchased from the defendant.").

20.See Univ. of Ill. Found. v. Channel Master Corp., 382 F.2d 514 (7th Cir. 1967); Knapp-Monarch, 342 F.2d 622 (7th Cir. 1965); Gen. Radio, 293 F.2d 949 (1st Cir. 1961); Phillips v. Baker, 121 F.2d 752 (9th Cir. 1941); Remington, 71 F.2d 628 (4th Cir. 1934); Dual Mfg. & Eng., Inc. v. Burris Inds., Inc., 531 F.2d 1382 (7th Cir. 1976).

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